Garth Rattray | We can’t bank on banks any longer

We grew up hearing that we must save for a rainy day, save for emergencies, save to buy a house, save for a car, save for retirement, save for the future, save for this, that, and the other.

Once upon a time, many habitual savers could [literally] live off their regular bank account savings when they retired. But when those rates began declining, there was a shift to high interest-bearing and investment accounts. Those came with some risks, depending on the desired returns.

Eventually, interest rates on regular savings accounts plummeted, and they were only good for convenience and safekeeping. Additionally, on August 31, 1998, to protect depositors, avoid panic, and promote stability, the Government of Jamaica created the Jamaica Deposit Insurance Corporation (JDIC) to insure [approved] local savings through the Deposit Insurance Fund (DIF). As of September 2021, it had a balance of $29.57 billion. The JDIC provides a maximum coverage of $1.2 million for each local or foreign currency account – with reimbursements in Jamaican dollars.

Politics aside, I have always respected Mr Audley Shaw for his relentless efforts at reducing the ridiculous, disgraceful, and rapacious banking spread (“the difference between the rate of interest at which the commercial banks lend money and the rate of interest at which they accept deposits”). Between the shockingly wide banking spread and innumerable fees, these institutions rake in quarterly net profits in the billions (sometimes over J$3 billion). The National Commercial Bank saga highlights the astronomical personal wealth accumulated by top-tier bank executives. They and their investors are elated, but the profits from loans and other ventures, which are made possible by savings deposits, are not equitably shared. Customers are left disappointed, distressed, frustrated, and wanting.

QUESTION THEIR BANKS

Recently, the Governor of the Bank of Jamaica (BOJ), Richard Byles, took up the mantle and encouraged government and citizen savers to question their banks and/or move their business to get higher interest rates on their savings. Although the BOJ pays 7.0 per cent on banking accounts, commercial banks have not passed it on to their clients. Savings average only 0.42 per cent across the sector and 1.59 per cent when taking into account all types of deposit banking accounts.

With the exposure, one popular commercial bank increased its savings rates from 0.26 per cent to 0.27 per cent, and another increased its rates from 0.98 per cent to 1.0 per cent. The savings rates of several banks remained at their previous levels, and the savings rates of a few fell despite the announcement by the BOJ governor. However, the lending rates still hover around 7.99 per cent for mortgages, 8.5 percent for cash-secured loans, and 19.49 per cent for unsecured loans. That spread is egregious and unconscionable.

Our savings accounts are assigned very low interest rates, subjected to a plethora of fees, and any interest is hit with 25 per cent income tax. Additionally, the annual inflation rate is higher than the annual interest rate on savings. I vividly recall opening a high interest-bearing account with a well-known institution. It was promised [in writing] that the interest rate on my savings would always exceed the inflation rate. But this promise was broken many years ago.

Between the ridiculously low interest on your savings, the income tax, fees, and annual inflation rate, whatever you deposited one year ago cannot purchase the same thing(s) this year. In other words, the spending power of your dollar diminishes rapidly over time. Consequently, the only advantages of regular savings accounts are the convenience of doing business (transferring funds) and a modicum of security (thank God for the JDIC and the DIF).

BANK ROBBERIES

The image of a bank used to be of a place where a huge and impenetrable vault kept your money secure. Terms like, “You can take that to the bank”, and “you can bank on it” denoted unflinching and superlative security. Bank robberies were customarily carried out by masked criminals armed to the teeth who rush in and grab money from the terrified customers and tellers. But I recall a humorous cartoon of a masked bank robber, pointing his gun at a teller, and the teller calmly informing him that “these things can be done online now”.

Modern-day ‘bank robbers’ sit at a computer workstation and hack the heck out of your account to steal your hard-earned savings. That’s bad enough, but thieves are also present within the same banks that harass you by citing ‘know your customer’ regulations aimed at thwarting money laundering. This was taken to an absurd level when I was told that I must fill out a form to withdraw a relatively large sum of money from my own, long-term account in a particular institution.

I also find it incredible that banks demand so many checks, double checks, cross checks and verification for us, their customers to get anything done with them. Yet their own staff seem able to effortlessly access our hard-earned life’s savings, and with the click of a mouse or the tap of a key, steal all our money if they so desire. Where is all that mandatory security when it truly matters?

When things as traditional, trusted, and stable as [commercial] banks become the object of disappointment, mistrust, and appear predatory, many in the afflicted society will seek out alternative means … any means, legal or otherwise, to survive now and in the future. Banks are inadvertently contributing to some of the ills within our society.

- Garth A. Rattray is a medical doctor with a family practice. Send feedback to columns@gleanerjm.com and garthrattray@gmail.com