Finance Banking

Risk Of Retail Banking

Risk Of Retail Banking and finance go hand in hand in today's local and global economy. Retail banking is a comprehensive issue, but debit cards, credit cards, mortgages and online banking are the aspects most individuals normally deal with. Let us take a closer look at the risks associated with retail level banking.

For instance, pilfered debit cards are more hazardous than stolen credit cards. Credit cards usually impose a liability ceiling of $50 in the instance of a fraudulent use. And a thief can’t empty your bank account by using your credit card. So there is no risk of seeing checks bounced. But pilfered debit cards (same thing applies when your credit card’s PIN and number is stolen) are hazardous as you will lose up to $500 when you fail to notify your card issuer in 2 business days of learning about the theft / loss. And your failure to report any unauthorized transfer will appear on the bank statement in 60 days of that statement’s being mailed to you. To be specific, you’re exposed to the risk of limitless loss on the transfers that made after 60 days. This means you might end up losing everything you have in your bank account. To make things worse, this could be coupled with the upper limit of your overdraft line of credit. With the debit card, you’re actually risking unauthorized and direct accessibility into your checking account.

Credit cards on the other hand involve variable rates of interest rates, which fluctuate with the changes and trends of the market. This means, you can’t guess what rate you’ll be paying. Besides, the interest rates on whatever balance you’re carrying on the credit cards also is pretty high as they’re unsecured loan. Credit companies tend to use all sorts of excuses for raising your interest rates, even when it’s entirely unrelated to the relationship you have with the companies. Some cards, as for an instance, will actually raise the rate when you’re overdue on any payment on another loan that has nothing to do with the card issuing company. There are fees applicable on your card account. You could have to pay annual fees, late fees, and over-the-limit fees. Look into these issues before you actually sing a contract. Some cards involve 2-cycle billing that calculates the interest on the basis of the average balance of the last 2 cycles. That is, if you’re carrying a balance, there is no way you can exploit the grace period on the new purchases. Besides, as you make the payments, nearly all credit companies will direct the underlying payment to the least profitable part of your loan or debt. To illustrate, if you’ve got a balance transfer, which is charged @ 4% interest rate and another spending debt remains at 19% interest, the payments you make will be firstly used for paying off the balance transfer. Only after that, you pay off the amount charged @ 19%. Many, if not all, credit card companies, will get you to sign off your fundamental right of filing lawsuits… it is all arranged in the contract’s fine print. Signing this sort of fine print means that you will let an ‘arbitrator’ to settle disputes, if any.

Tips and comments:

Be aware of the risks in online banking, which includes the risks of getting hacked, runtime errors and fraudulent mails. And Interest only mortgages like HELOC (Home Equity Line of Credit) or ARM (Adjustable-rate Mortgages ) involve risk in the event of economic recession, boom or unemployment. Sometimes there is a provision of a balloon payment that eventually turns out to be unbearable. So you need to look into these risk factors before you enter any contract.

By Mohammad Polash Khan, published at 07/14/2011
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