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The Outrageous New Way Big Banks Want to Profit Off Your Money

Big banks like Bank of America (NYSE: BAC  ) and Citigroup (NYSE: C  ) took extensive bailout packages during the financial crisis, but that hasn't stopped them from trying to boost their income at their customers' expense. Now, big banks have found a new way to profit from the bank accounts they offer, and they're threatening to hit customers with it.

In the following video, Dan Caplinger, The Motley Fool's director of investment planning, looks at the threat of big banks charging interest on their customers' deposit accounts. Dan explains that if the Federal Reserve stops paying as much interest on the deposits that JPMorgan Chase (NYSE: JPM  ) , Wells Fargo (NYSE: WFC  ) , and other big banks have at the Fed, they in turn will have to start charging customers just for the right to keep money in deposit accounts at those banks. Dan points out that this has resulted from the increased emphasis on loan securitization, which has encouraged JPMorgan, Wells, B of A, and Citi to make loans that they then repackage and sell to investors rather than keep on their books. As a result, the banks don't directly loan out all of their money, leaving them with reserves that they count on receiving Fed interest on in order to help finance their operations.

Dan discusses the implications of the move and concludes that while the banks might be justified from a business perspective, it's uncertain whether customers will accept any new fees. Until the Fed acts, the entire controversy might remain moot.

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  • Report this Comment On November 28, 2013, at 7:59 PM, chris293 wrote:

    Dan, Dan, Dan, Congress and Bill Clinton messed up the safeguards of the banking system set up by FDR during the 1930s, causing the housing bubble, and having forced mergers of failed banks and loan companies with your major banks having to sallow the bad loans. I never understood if one of big housing bonds had a few of the home loans go bad, why didn't the bonds just reduce the value of the bond by the percentage of those bad loans? But then I might ask who really were the holders of those bonds? Or who bailed out the failed financial institutions along with GM. Efficient economies do not support companies that are falling apart. Sometimes, 'the sum of the parts is greater (value wise) then the whole'. Remember when Mr. Lewis of B of A went to Washington D.C. and came back failed Country Wide and its bad housing loans. I just don't you can blame 'Big Banks'. Thank you for your article, Dan.

  • Report this Comment On November 28, 2013, at 8:07 PM, chris293 wrote:

    Need to proof read better. Last comment should read - 'I just don't think you can blame 'Big Banks'. Thanks

  • Report this Comment On November 28, 2013, at 11:31 PM, Grandpastu wrote:

    Any way the banks can keep their large investors happy is what they're going to do. Even at the risk of alienating their customers. This attitude and the results are not sustainable. The fat cats keep getting richer at the behest of the lower classes.

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Dan Caplinger
TMFGalagan

Dan Caplinger has been a contract writer for the Motley Fool since 2006. As the Fool's Director of Investment Planning, Dan oversees much of the personal-finance and investment-planning content published daily on Fool.com. With a background as an estate-planning attorney and independent financial consultant, Dan's articles are based on more than 20 years of experience from all angles of the financial world.

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