
How interest-free banking works: The case of JAK - tomp
http://www.feasta.org/documents/review2/carrie2.htm
======
FBT
The title is misleading, but subtly so: Interest is most definitely charged,
just in a far more indirect method than most banks. To take a loan you are
required to have kept a proportionate amount of money in the bank,without
being paid interest on it either.

Therefore, they demand as their fee that you pay the opportunity cost of the
interest you would have earned by keeping your money in another bank.

I don't really see the point. All banks do need to charge interest, true, but
the least they can do is charge you it in a fair and straightforward manner.
Normal banks charge you, but at least they are explicit about what they are
charging you, whereas this one charges you in an abstruse way that you need
training as an economist in order to understand fully.

~~~
galuggus
It is true that you are losing money by having it tied up in an interest free
account(+Inflation).

However I think the real interest rate for your loan is much lower in this
type of bank. There is no profit.

Could anyone work out the exact rate.

P.s Most current accounts in U.K/Ireland pay abysmal rates of interest

~~~
VLM
"There is no profit"

I unbanked many years ago (a decade now?) and the only practical local
difference between a bank and my credit union is the CU is non profit and
unsurprisingly the related fees and interest rates are microscopically more
consumer friendly, and arguably less of a "screw the customer to earn your
paycheck" attitude exists so in a fluffy and subjective manner customer
service seems a lot better. Thats it. They still pay and charge interest, just
better rates than a for profit bank, etc. No fooling around with a fake
currency of "points".

I have no idea why any locals do business with a for profit bank, other than
maybe some conspicuous consumption thing to prove the can afford to make the
bank shareholders richer. "In the old days" CUs had strict membership
requirements like "military veteran" or "holder of teachers license" (no
kidding). My local CU membership requirement is "mailing address at time of
account opening within same county as CU branch". That's it.

There are two interesting aspects of "points". Not being legal currency I
imagine the tax implications are bizarre, probably more of a pain than
bitcoins. And the article didn't touch on "points" being inheritable or
taxable. So assuming old people live in apartments and forfeit their point
collection at death, that is an income stream situation that was not
discussed.

~~~
bane
Not surprisingly I've found customer service at CUs to be much better as well.
Before I switched to a CU, my bank had about a dozen _paper_ forms and things
to be filled out and notarized, with a branch manager or higher present as a
witness in order to do something as mundane as open a CD.

When I switched to my CU I asked about opening a CD with some funds from my
account and 30 seconds later it was done. I switched all of my business over
to the CU that week and closed my account with my bank and never looked back
or regretted it. All the dumb little nonsense I had to deal with with my bank
is all gone _poof_ and banking with my CU has been more or less a pleasure.

~~~
brianwawok
How is your CUs website? My biggest observation that smaller CUs have a low IT
budget, so even though the Chase's of the world have very annoying websites,
CU's tend to be even worse. I guess for most people just checking balance and
transactions online is enough, but I do enjoy some fancy stuff from the bank
like deposit check via smartphone.

~~~
VLM
Several local CUs obviously partner for IT. Locally there are special CUs for
teachers union members (aka K-12) and a state U CU and many other company
based CUs, along with location based CUs like the one I'm in (must have a
mailing list in county, or be employed by some industrial conveyor belt
company or something like that to qualify). I can use the ATM at the teachers
union CU for free, just as they can use "my" CU ATM for free. My former bank
wants a mere $3 per transaction at an ATM, I don't miss them very much at all.

IT as a service is not unusual in finance. More than two decades ago I worked
at a stock trading outsourcer, based in the USA believe it or not, who for a
fee, would do absolutely everything computer related for a small brokerage
office from trades to research to even printing payroll checks (so I'm told,
maybe it was just calculating commission checks?)

Another example is supposedly the majority of direct stock investment plans
are outsourced to one provider (compushare?) That's the deal where if you live
at an address that pays an electric company bill, you're auto-qualified to buy
shares in the electric company directly without paying commission or going
thru a brokerage. I've been in the that ownership plan since I was 12 or 14 or
so, which reminds me to sign my kids up soon.

------
joosters
It's really a myth that banks fund their loans through the savings accounts of
customers. The 'liquidity' section of the article is misleading. See the bank
of England's explanation:

[http://www.bankofengland.co.uk/publications/Documents/quarte...](http://www.bankofengland.co.uk/publications/Documents/quarterlybulletin/2014/qb14q1prereleasemoneycreation.pdf)

~~~
retube
Not necessarily. It depends on the institution. Some loans ARE made out of
deposits. Those that aren't need to be funded in the money markets - you
borrow from another financial institution to cover the amount lent out. Not
sure the BoE paper makes that clear.

------
fsiefken
This seem similar to the prohibition of interest or fees for loans of money
within Islam. Medieval chrisianity prohibited it as well.
[http://en.wikipedia.org/wiki/Usury](http://en.wikipedia.org/wiki/Usury)

~~~
aruggirello
The same applied to ancient Jews, I believe. Asking for interests for borrowed
money was forbidden by the Laws of God. And then there was a Jubilee once
every 7*7=49 years, when existing debts were condoned, and a man could return
in possession of his house if he (or his parents) somehow had lost it. It was
a system promoting mercy and hope even for those who lost everything, rather
than creating oppression and exploiting the poor.

~~~
draugadrotten
> And then there was a Jubilee once every 7*7=49 years

In modern Sweden, you are debt free in 5 years only, not seven, by invoking
"skuldsanering".

Paraphrasing you, modern Sweden has a system promoting mercy and hope even for
those who lost everything and the Jubilee law meant creating oppression and
exploiting the poor.

~~~
ygmelnikova
Besides the Jubilee, there was a 'release' every 7 years, where 'every
creditor that lends unto his neighbour shall release it'.

In ancient Israel, real estate was forbidden to be permanently 'sold'. You
could lease it out for 50 years, but at the Jubilee, it would return back to
the family.

------
lifeofanalysis
This is good because it solves a problem for small borrowers/lenders in a nice
way, just like micro lending does, but this would not work for larger amounts.
Over the last 10 years, inflation in the US has ranged from 1.5%-4%. So if you
are putting a large amount into a zero interest (or, low interest) Savings
account, you are basically losing money.

Unrelated side note: If you have any more than 3-months expenses in your
Savings account, take them out and put them in a NASDAQ or S&P index fund with
low fund expenses.

~~~
pktgen
You can also get 5% APY in FDIC-insured accounts if you're willing to do a bit
of work. Rewards checking accounts and prepaid card savings accounts (Mango is
offering like 6% on up to $5k).

------
lmm
So they change (and pay) interest in "points" rather than cash. But it's still
there, and it works the same way (e.g. you get higher interest on an account
where you need to give notice of withdrawals than you do on an account where
you can withdraw immediately). I guess this is a clever wheeze to extract
money from savers - rather than paying them money you pay them points that
they may not cash in immediately or at all - but I don't see the advantage for
the user.

~~~
brianwawok
No taxes on your interest like at a normal bank.. but this is pretty small for
most people especially with the current rates on savings and CDs.

------
svantana
JAK is actually misleading in their marketing, in reality you pay a "loan fee"
which corresponds to 3-4.5%/year, which goes to salaries etc. The only real
advantage to a "normal" bank is that this rate isn't (directly) market
controlled.

