[Warning: this post starts off with a long and self-indulgent complaint about my bank. Feel free to scroll down to the bit where I actually get to the point.]
On March 11 of this year, I borrowed $200 from Citibank. Four days later, on March 15, Thomson Reuters was kind enough to directly deposit a substantial paycheck into my account — one which was much, much larger than $200. And ever since then, I’ve been steadily paying back Citibank the money they so kindly lent me, at an interest rate of 13.25%. On April 25, I paid $11.52. On May 23, I paid $12.15. And on June 26, I paid $12.23. At this rate, I am informed on page 5 of my most recent statement, I will pay off the balance in about 18 months.
Citibank, I hasten to add, is doing me a favor here: the standard interest rate on this kind of loan is significantly higher than what I’m paying, at 18.25%. Still, my behavior doesn’t make a huge amount of sense. I have many thousands of dollars in the bank, earning an interest rate of basically zero. In fact, I had many thousands of dollars in the bank on March 11, when I borrowed that two hundred bucks. So, what was I thinking? Why did I borrow the money in the first place, and why have I been so miserly in terms of paying it back? Do I want to maximize the amount of money that Citibank extracts from me in interest payments? It certainly seems that way.
The truth, of course, is more mundane: I had no idea that I borrowed $200 on March 11, and Citibank certainly never saw fit to inform me of the fact directly. Instead, they buried the details of the loan on page 5 of my (unopened) bank statement. Meanwhile, they quietly and automatically deducted those small minimum payments out of my checking account — payments which were small enough that I failed to notice them until this morning.
As for the $200 loan, well, it turns out that March 11 was a very busy day for my checking account. I deposited a small check for $17.75, I made two different ATM withdrawals, I automatically transferred $1,000 to an investment account, I paid my Amex bill, I made another automatic payment which goes out every week — and, on top of all that, a $250 check which I wrote on February 12 was finally cashed that day as well. All of which was enough to push me $112.56 into the red. Citibank then immediately took the opportunity to round that number up to the nearest $100 — because hey, why lend me $112.56 when you can lend me $200 instead — and automatically deposited that sum into my account, leaving me with an account balance, at the end of the day, of $87.44.
This is a yuppie overdraft: rather than charge me $35 a pop for overdrawing my account, Citibank just rounds any negative balance up to the nearest $100, and transfers that sum over from something wonderfully called a “Checking Plus” account. Which is what they call an overdraft line of credit. Naturally, when my paycheck arrived four days later, it went into my checking account, which is separate from my Checking Plus account . As a result, ever since then, I’ve had a steadily positive balance in my checking account which has been larger than the amount I owe on its overdraft facility. And ever since then, Citi has been quietly paying off the loan at a rate of $12 or so a month, in the hope that I would never notice it. After all, any sentient being, upon seeing this situation, would of course pay the entire loan off immediately.
When I discovered what had been going on, my first reaction was of course to just pay the loan off in full. But my second reaction was that I wanted to ensure that I didn’t end up in this situation again. So I phoned up Citibank. “I see that you’re automatically deducting the minimum payment from my checking account every month,” I said; “do you think I could switch that to the maximum payment, instead?” If I ever have a balance on my Checking Plus account, I would very much like that balance to be paid off in full.
You know the answer, of course: no, Citi couldn’t possibly do that. Automatic payments can only be for the minimum amount due, not for the full balance.
Citibank, I hasten to add, is doing me a favor here: the standard interest rate on this kind of loan is significantly higher than what I’m paying, at 18.25%. Still, my behavior doesn’t make a huge amount of sense. I have many thousands of dollars in the bank, earning an interest rate of basically zero. In fact, I had many thousands of dollars in the bank on March 11, when I borrowed that two hundred bucks. So, what was I thinking? Why did I borrow the money in the first place, and why have I been so miserly in terms of paying it back? Do I want to maximize the amount of money that Citibank extracts from me in interest payments? It certainly seems that way.
The truth, of course, is more mundane: I had no idea that I borrowed $200 on March 11, and Citibank certainly never saw fit to inform me of the fact directly. Instead, they buried the details of the loan on page 5 of my (unopened) bank statement. Meanwhile, they quietly and automatically deducted those small minimum payments out of my checking account — payments which were small enough that I failed to notice them until this morning.
As for the $200 loan, well, it turns out that March 11 was a very busy day for my checking account. I deposited a small check for $17.75, I made two different ATM withdrawals, I automatically transferred $1,000 to an investment account, I paid my Amex bill, I made another automatic payment which goes out every week — and, on top of all that, a $250 check which I wrote on February 12 was finally cashed that day as well. All of which was enough to push me $112.56 into the red. Citibank then immediately took the opportunity to round that number up to the nearest $100 — because hey, why lend me $112.56 when you can lend me $200 instead — and automatically deposited that sum into my account, leaving me with an account balance, at the end of the day, of $87.44.
This is a yuppie overdraft: rather than charge me $35 a pop for overdrawing my account, Citibank just rounds any negative balance up to the nearest $100, and transfers that sum over from something wonderfully called a “Checking Plus” account. Which is what they call an overdraft line of credit. Naturally, when my paycheck arrived four days later, it went into my checking account, which is separate from my Checking Plus account . As a result, ever since then, I’ve had a steadily positive balance in my checking account which has been larger than the amount I owe on its overdraft facility. And ever since then, Citi has been quietly paying off the loan at a rate of $12 or so a month, in the hope that I would never notice it. After all, any sentient being, upon seeing this situation, would of course pay the entire loan off immediately.
When I discovered what had been going on, my first reaction was of course to just pay the loan off in full. But my second reaction was that I wanted to ensure that I didn’t end up in this situation again. So I phoned up Citibank. “I see that you’re automatically deducting the minimum payment from my checking account every month,” I said; “do you think I could switch that to the maximum payment, instead?” If I ever have a balance on my Checking Plus account, I would very much like that balance to be paid off in full.
You know the answer, of course: no, Citi couldn’t possibly do that. Automatic payments can only be for the minimum amount due, not for the full balance.
by Felix Salmon, Reuters | Read more:
Image: Wikimedia
