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.
You're not wrong, but how many people consider their opportunity cost in most money-related matters?
That is, every year around tax time (in the USA), I see several people trumpeting about how folks who get tax refunds did it wrong. "You should have taken a larger paycheck and put the surplus in an interest-bearing account!", they always exclaim. And they're right. People should have done that. But most people wouldn't have. A tax refund ends up being like an unseen piggy bank for a lot of people. They're not earning interest on that money, but at least they're saving it and not spending frivolously. Without that unseen piggy bank though, a lot of people wouldn't have the discipline to save that money.
Maybe I've misunderstood you, but you wouldn't in any sense "pay" to JAK the opportunity cost of putting your money in their bank, so it can't really be called a fee. Opportunity cost is a thing unearned, not a thing paid.
If they were using the deposits to make interest earning investments for profit then that would be a slightly different matter, but they are not, they are using it to make interest free loans.
The key point is that they do not make profit. They could do this at any interest level, from zero up, as long as their deposits balanced their loans. If they chose to make a profit then they would need an imbalance between the interest on their loans and the interest on their deposits, and then there would be a net interest charged. The other sources of interest are inflation and defaults, and from what I can work out they do make investments with some of the deposits, precisely to cover these liabilities.
The true effective interest rate varies with time so the answer to your question would be a set of equations.
Professor Stefan Yard at Lund University in Sweden has made a calculation with a 10-year JAK loan, and compares it to borrowing money in a normal bank for 5 years and then saving money in the same bank for 5 years without interest (this is how a 10 year JAK loan work)
The effective interest rate of the JAK loan is then 6.5% which is higher than the normal bank.
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.
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.
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.
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.
My CU is fairly large and though their site isn't fancy with lots of bells and whistles, it's pretty good for most normal transactions. For anything else I just go to one of the branches and can usually sort pretty much anything out inside of 5 minutes and a remarkably small amount of normal bank B.S.
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:
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.
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
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.
> 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.
Compared to most of Europe, one of the things the US has to recommend it, is easier access to personal bankruptcy, jingle mailing underwater house keys etc. Of course, given the obsession of our time being to trick someone into putting his name on some dotted line, the politicos are doing their darnedest to destroy this, but it's still easier to just walk away in America than in most places.
Good to hear Sweden has as good, (perhaps better?) access to such facilities.
The catch though is that you live on an existential minimum throughout that time. Everything you earn above that very low level will go to the state, if I understand the system correctly.
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.
So "interest is forbidden" was part of the old christian, muslim and jewish religions?
I've seen it argued that Islam's real problem is that they have too good sources -- it is harder for those followers to skip those of God's eternal commands which don't work in the modern world...
(The most important feature of a working religion -- selective amnesia when rewrit... reinterpreting it? :-) )
I don't get how interest based banking is a "better" way or a required way. I am doing very fine without it :)
So those eternal commands seem to be working fine for me I guess.
If you're not trying to be funny or follow some left wing variant, but really argue for a fundamentalist sharia state or similar, then I'll say:
"Have fun with tolerated slavery, oppressed women, maiming of thieves and religiously mandated hatreds. Welcome to the light when you leave the dark ages."
I read it as serious with a touch of humor, how come you have a blind spot for that third personal option next to arguing for a sharia state or being funny?
I think it's because you can't imagine a muslim to be not oppressing women, tolerating slavery and being full of hate as you say.
I can and know muslims who are not like that.
To you I say: 'Those who cannot remember the past are condemned to repeat it'.
I assume you argue: Someone can accept some strange stuff in their religion -- e.g. that the supreme being and creator of the universe really, really cares about details of financing and diet for a species in a galaxy far away -- but not other stuff, like e.g. slavery and rules for different sexual subgroups (women, homosexuals) of the species?
I also know some muslims. Without witnesses many are about as religious as I am, but most can't do that in public. At an absolute minimum they'd get social problems (ostracism) if they came out of the closet. In worst case, physical danger. Often even their relatives would get problems.
Edit: To give an example [After consideration, I removed this. Sorry, but I can't break confidence and risk that someone identifies my friends -- see previous paragraph. But do Google "enemy property act" for an interesting read, re Bangladesh.]
My original point was that it is harder for Muslims to just throw away the crazy/inhumane parts of their eternal Truths, since they've got better sources than a set of mutually contradictory books/testaments. So the extreme stuff tends to get back into circulation -- see the social control etc from the 2nd paragraph why that is hard to stop, there is a pressure to be "good" (there is some form of race to the bottom of being holier than thou).
The end result is that it is hard to take your suggested third option.
Was this clear enough?
And your last message to me -- right back at ya...
'Was this clear enough', yes I understood your original point and your response. But you haven't understood mine.
My point is that your view on muslims and religion in general to me seems so prejudiced that you can't seem to accept an honest anecdote by a fellow programmer from a different culture and mindset at face value without branding it a joke, a left wing oddity or full-on taliban.
It's shocking to me that someone in the name of reason gives a nasty response to a well-meant comment. Prejudice and ignorance is one thing, but it's bigotry when you suggest asadlionpk is supportive of a culture of slavery, oppression of women and hate just for his remark that he's is doing fine with following the eternal law of God in this regard.
Yes, of course I can see the problems religion has with modernity and the problems it causes for society (the eternal law of interest-free banking is not one of them) and also the problems of social pressure. But a sizable chunk - lots of people I know - in this age of reason have learned to balance both internally and have chosen this belief consciously: your literally hard to take third option.
I have little reason to believe asadlionpk assumes women shouldn't study or gays should be imprisoned. It's also irrelevant as he was just responding to your side note that some so-called 'eternal laws' don't seem to work in this day and age.
The reason I respond like this is because this way of responding to others in the name of enlightened reason is causing problems in my society at the moment. People even talking about leaving the country because they don't feel accepted in their faith and ethnicity. People feeling obligated to make 'happy muslim' video's to counter this mindset. It's not even my faith, as I am christian, but even I have to explain the so called crime of teaching my children about God. A God which is far removed from the deist human like entity you think muslims and christians believe in.
Have I understood you correctly? I hope you understand and respect my strong worded response.
I made a motivated and reasoned argument that Islam obviously have problems with extremism -- and it is in an all or nothing approach, hard to skip parts of the craziness.
I didn't argue that even the majority of muslims in the West are extremists, in e.g. Bosnia they had modern Islam. (But do check statistics in different countries about antisemitism, homophobia, etc. Also, see support for AlQ, before they started to kill too many muslims. Or the high number of votes for religious parties in many/most muslim countries.)
You answered by calling me intolerant and discussed how attitudes hurt yours/others feelings. Those aren't arguments, it is emotions. My girlfriend gets away with that, I expect better on HN.
If you want to move, consider Sweden.
The media there stamp Denmark and Norway as racist/fascist influenced (those are certainly on the top ten lists of most tolerant countries on the planet). The media is at the same time much, much milder about the intolerance preached in many mosques, so they have insane double standards. The Social democrat party almost put an islamist in the party board, until the media for once reacted. But don't worry, it is only religious homophobes and antisemites which are courted for votes, not right wing ones.
(And yes, this comment is certainly enough to stamp me much worse than religious people refusing to shake hands with women.)
You'd fit right in. But the long winter dark is painful.
You indeed made a motivated and reasoned argument that Islam has problems with extremism, as I said I understand and agree with it.
Perhaps there is some misunderstanding. My response - in which i wrote bigotry not intolerance (not the same) - referred to your remark to asadlionpk, not to your explanation of your remark to me - in which you explained where you were coming from.
Your exposition on extremism with regard to the nature of revelation in religion is all well and good, but imo you misapply this to the statement of an individual which says s he's quite sucesful with no-interest banking based on God's law.
Perhaps he's a tolerant muslim living among quite tolerant/modern muslims in which case your remarks are not appropriate to his situation. No-interest banks can operate well in a non-sharia or non-fundamentalist state, or perhaps he's a liberal jew.
I am not calling you names, if so I apologize as that's not my intention. I don't see why you think my earlier comment is not a rational argument:
"but it's bigotry when you suggest asadlionpk is supportive of a culture of slavery, oppression of women and hate just for his remark that he's is doing fine with following the eternal law of God in this regard."
So to me it seemed you suggested that everybody who follows the laws of God (in this regard) is an extremist with your quote that asadlionpk "argue for a fundamentalist sharia state or similar" or you did not meant to suggest this but then you should have expressed it differently, imho. It's very difficult or impossible for me to read it otherwise.
I am not planning or thinking about moving anywhere. I meant other people do because of the misappropriation and misunderstandings about religion and culture.
The political double standards you speak of also exist here, fortunately the media at times pierces through these double standards.
Perhaps you don't expect it but I respect your comment and I've no reason to stamp you or call you names because of that. I even sympathize with it. I also have no problem with people refusing to shake hands with women on religious grounds unless it's a sign of disrespect. You can respect people and not giving them a hand, just as much as you can practice non-interest banking and participate in a moderate religious way of life.
>> I also have no problem with people refusing to shake hands with women on religious grounds unless it's a sign of disrespect.
Uhm, my explicit point here is that if the muslims have some of the weird stuff they'll usually have the whole package.
To be clear -- it seems needed -- if someone isn't shaking hands with women then they will almost certainly have lots of attitudes which would make a non-moslem in Sweden almost burned today...
I have no problems with that burning, except the disgusting double standards for different people. The politically correct hypocrisy is even racist -- "those brown can't do better, don't hold them to the same standards as real people".
(A note: What the Swedish politically correct idiots I talked about lack, is a sense of history -- 150-200 years ago the state church in Sweden was as tolerant as the islamists, including most of the weird stuff. Like e.g. not tolerating peiple leaving the religion and forbidding prophylactics. This is totally forgotten now.)
It might be some fascist myth (and if so, I am sorry for spreading it, please educate me!) but wasn't one of the reasons for Jewism being condemned by many places that they took interest?
Jews were exploited by Christian rulers as financiers, in two ways:
* Jews were allowed to loan money to non-Jews, whom the Jewish legal system originally counted as "foreigners". (Please remember that these laws were written in a much more tribalistic and xenophobic age.)
* Laws were passed keeping Jews out of professions other than peddling and moneylending, thus ensuring a steady supply of Jewish lenders.
* If the ruling class didn't want to pay back a Jewish lender, they could just call him a Christ-killer, turn a mob against him, and run him out of town.
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.
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).
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.
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.
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.