Debt 
2
comments

Banking, Credit Card Debt & The Paradox of Choice

The paradox of choice is that the more options we are given for a particular choice, the less likely we are able to make a choice. Penelope Trunk discussed it in her article about taking a job, any job and references Dan Ariely, an MIT behavioral economist, and his book Predictably Irrational. In the book, Ariely discusses a study about how people ended up buying more jam when given six potential samples versus twenty four. Twenty four potential samples was simply too much and people ended up not deciding, even though they had more information.

How does this apply to banks and credit cards? Too much information paralyzes us. It paralyzes me. In the case of jams, there’s no pain in not buying a particular flavor. In the case of credit card debt, there’s a significant pain in not paying down a card. With a bank, there’s a bit of pain in interest not earned and a bit more if you overdraft because you forgot which account held how much (or you forget how much you need to keep in an account to avoid fees because you have too many accounts). Too much information, like juggling many balls, hampers our ability to make good decisions and causes us unnecessary pain.

The solution is the simplify your finances.

If you have credit card debt, pay down the smallest amounts first. This may sound similar to Dave Ramsey’s Snowball technique and that’s because it is. However, rather than focusing on the psychological benefits (yay! another debt conquered! let’s get the next one!), I argue that removing one headache from your life, even if it’s not the most financially distracting one, is beneficial. Next, try to consolidate bigger debts into as few accounts as possible without sacrificing the interest rate. By not sacrificing the interest rate, I mean don’t consolidate lower interest cards to higher interest cards (which sounds obvious but sometimes we make mistakes). The number of credit cards offer zero fee 0% balance transfers are dwindling but they often have a fee transfer cap that could be to your benefit.

With banks, don’t keep accounts you no longer need. I kept an old employer’s credit union account open for a year and a half and it cost me $20. I had transferred money into that account from my Emigrant Direct account and written a check. The check didn’t get cashed for several weeks and before it could be cashed, I went into my account and saw some money sitting around. Not remembering why the funds were there earning a low interest rate, I transferred them back and got dinged with an NSF. While I was able to get the NSF removed, it was entirely my mistake but caused by keeping an account I didn’t need or use anymore. There are no negative credit impacts of closing bank accounts, so close the ones you don’t need anymore and drop juggling that ball.

Simplify your life and reduce the number of things your brain has to manage, you’ll be happier and richer for it.

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On a happier note, my post on the Top 5 Online Banks made it into this week’s Carnival of Personal Finance hosted by Canadian Dream.


 Personal Finance 
6
comments

Simplifying Your Finances Interview with Liz Weston

I had the fantastic opportunity to email interview Liz Pulliam Weston, a personal finance columnist for MSN Money as well as the author of several books including Easy Money: How to Simplify Your Finances and Get What You Want out of Life and Your Credit Score: How to Fix, Improve, and Protect the 3-Digit Number that Shapes Your Financial Future. I’m going to be getting a review copy from her publicist after we get back from our honeymoon but I wanted to ask Liz a few questions about simplifying our finances and she was happy to oblige!

1. I recently got married and discussed how we were going to try to simplify our finances, consolidating accounts and reducing the number of mailers we received each month, did you have any tips or advice for us on how to best do this?

First of all, congratulations!! Not only are you embarking on a wonderful journey, but it’s bound to provide lots of great fodder for your blog.

My best advice with trying to combine married finances is to ease into it and figure out what works for you. I’ve noticed people have VERY strong opinions about what you SHOULD do, but the only thing that matters is what works for you and your spouse.

Also, what works for you now might not work in a few years, and that’s okay, since people’s needs evolve.

What’s worked for my husband and I is to have one joint account where our paychecks/income streams are deposited and from which the bills are paid. But we also have “no questions asked” money—an “allowance” that we’re allowed to spend whatever way we please. Will keeps his in a separate bank account—the money is transferred there automatically each week. I take mine out of the joint account.

As I mentioned in the book, technology makes it pretty easy to move money around in accounts, so you don’t necessarily have to combine everything at one bank.

I’m NOT a fan, however, of hidden accounts—credit cards or bank accounts that are kept secret from the other person. I think the accounts themselves should be transparent and available for both parties to see.

If both of you have good credit, then getting a joint credit card or two for household expenses is a good idea (or you can add each other as authorized users to existing cards). Just don’t close old accounts since that can hurt your credit scores.

To reduce credit card offers, sign up for the credit bureaus’ opt out service, www.optoutprescreen.com or 888 5 OPT OUT.

2. There isn’t a single person out there who isn’t happy to simplify their lives, personal finance or otherwise, but there is always the fear that in “simplifying,” you accidentally cut something out that you never intended. Is there a proper way to approach this so that you make sure you don’t cut out something that was actually quite important?

The biggest fear is probably that you’ll toss something that you’ll need later. But remember that in the rare instance that you’re likely to need financial paperwork, it’s probably “living” somewhere that’s relatively easy to access. Your bank is required to keep your statements for at least six years; ditto your credit card company.

Just take a moment to ask yourself: “What’s the worst that could happen if I consolidate or eliminate this?” If you don’t know the answer, call a pro (like your tax preparer) or post it online in a forum where there are some financially savvy folks.

I’ll reiterate that your simplification generally shouldn’t extend to shutting down credit cards, unless your FICO scores are over 750 and you’re only closing recently-opened, low-limit accounts. Always keep your oldest and highest-limit accounts, regardless of your scores, and don’t close anything if you’re in score-improvement mode.

3. I’m hardly a Luddite but what would you recommend for people who are less trusting of the internet or less able to navigate it when it comes to simplifying finances? Bill pay works great if you trust the system and yourself to set it up properly, but people make errors.

People who monitor their accounts online tend to catch fraud faster and limit the damage compared to folks who wait for their statements to arrive in the mail. And remember that the U.S. mail is not encrypted and there’s no electronic trail showing when a payment left your account and landed in your biller’s account—in contrast to when you’re using online bill pay or other electronic payments.

As with everything else, if you’re new to this, start slowly. Pay a few bills electronically to get the hang of it. Monitor your bank account so you see what’s getting paid. Don’t put everything on automatic all at once.

4. If I only had the time to do three things to simplify my finances, what would you recommend and why?

Use online bill pay. Safer, faster and more efficient than using checks.

Aggregate your accounts. It’s easier to track your money if you can see all your accounts in one place. If you use one bank for everything, you can use its Web site; some bank sites, including Bank of America, have an account aggregation feature that lets you add accounts from other institutions. Yodlee is another account aggregation option that’s been around for awhile and that has lots of features. If you’re wary of having a Web site store your financial info, then use Money or Quicken.

Consolidate to one or two credit cards. The fewer due dates, rates and terms you have to keep track of, the better. Pay off your credit card balances as soon as possible and get in the habit of paying your cards in full every month. Then consolidate to using one or at most two cards for your spending. Try not to use more than 30% of your credit limits at any point during the month to keep your credit scores healthy.


 Banking, Credit, Debt 
8
comments

Pay Day Loans Have Equally Bad Financial Friends

Pay day loan shops (and cash checking and other similar short term loan shops) are often singled out as places that prey on consumers in a tight spot. While I don’t dispute that, I want to point out other places that also prey on consumers in a tight spot that don’t often get the spotlight.

Pay Day Loans Are Bad

Don’t get me wrong, pay day loans are horrible products for consumers because of their high fees, high interest rates, and their propensity to become financial sinkholes. It’s the financial version of someone going in for a routine cavity filling and coming out with a lobotomy. You just need a little extra help to get you to the next pay day but end up paying for years. According to this warning by the FTC, they give an example in which “the cost of the initial loan is a $15 finance charge and 391 percent APR. If you roll-over the loan three times [42 calendar days], the finance charge would climb to $60 to borrow $100.” $15 to start and 391% APR is horrible but let’s compare to some of these other products.

(Click to continue reading…)


 Banking 
41
comments

Endorsing Checks With Two Names After Marriage

As many of you know, I recently got married to the love of my life (awwww!) and had a wonderful wedding and reception this past weekend. Everyone had a blast, we had a blast, and all in all I think the entire weekend went very very well considering the magnitude (both in size and importance!). Anyway, with a wedding comes gifts and some gave a gift in the form of a check.

Why is this worth mentioning? As you can probably tell from the title, the tricky part was in the fact that the checks were made out to my name and my wife’s name. That, in and of itself, is not big deal except they put it in my wife’s new (and, dare I say, better) name, which is not the name on our joint account. So, in the eyes of both the state and the bank, one of the person’s listed on the “Pay To The Order Of” line doesn’t actually exist. So, what were we to do? There are in fact two solutions.

Change Account Name

One solution is to change her name from her maiden name to her new (better) name and all we need for that is the marriage certificate. With the account name changed, she would simply sign the back of the checks in her new name and be done with it.

Double Endorse The Check

The other, far easier, solution would be for her to sign the check twice: first with her new name (name on the check), then with her old name (name on the account). While this struck me as a bit shady, it seemed to be the typical result. If the two names were in fact two different people, this is how we would’ve signed the checks to deposit them into the account. When she signed her new name, she was endorsing the check for deposit anywhere (you can write, “For Deposit Only” on the check to force it into an account your name only). It seemed tricky but the Bank of America tellers (two at two different branches) seemed to think that was business as usual and an accepted practice. Either way, no one will be disputing the deposits so it’s no big deal either way.

After those shenanigans, I needed to sign the check in order to deposit it. If a check has two names (with an “and” between them, rather than an “or”), both have to endorse the check before it can be cashed, deposited, etc.


 Your Take 
9
comments

Your Take: Would Biometrics for Authentication Bother You?

Biometrics, loosely defined as the process of using a person’s physical characteristics for identification, is slowly gaining popularity and their use may soon extend to credit cards. Privacy is always a hot button concern in the US, just think back to when AOL released all that search data, and the collection and storage of your physical characters, one of the most personal of things, is something that probably would both a lot of people. So I’m curious, if biometric data were required, would it bother you? If it was optional, would you elect it?

I have mixed feelings on this. I’m not a gung-ho privacy advocate in some aspects and conservative in others. For example, I’m comfortable with people being able to see the websites I surf but I don’t want my information stored somewhere if it’s not absolutely necessary. I can see the value of using biometrics as a means of authentication and so would definitely elect to “activate” any biometric-related security features. It’s easy to fake a signature, it’s much harder to fake a fingerprint or retina scan.

As you probably suspected, one of the places where biometric authentication has become pretty popular is Japan (they get all the cool gadgets and gizmos before we do!). One of the reasons is because in Japan you can generally withdraw from the ATM the equivalent of thousands of dollars each day, so the higher security measures are required. Granted, this is the bank, which knows all your financial information anyway, but it’s an example of how biometrics have been rolled out and accepted.

So, what are your thoughts?


 Banking 
10
comments

50 Fun Facts About Banks

Nearly 1 year ago I wrote 50 Fun Facts about Credit Cards, a post that was very well received, so I figured why not follow that up one year later with another 50 fun facts post – this time talking about banks. I like reading about history so the first batch of facts revolve around the central bank, starting with the First Bank of the United States and ending with our current Federal Reserve system (you can see the progression!), then wash that meal down with some more entertaining facts like some other firsts, a few mind boggling statistics, and then some fun stuff like bank robberies and banking sponsorship information. It was fun (and educational) putting it together so I hope you enjoy reading the list. (much like last time, I added in a few bonus facts!)

(Click to continue reading…)


 Banking, Credit 
21
comments

Banks Cash Fat Checks First

According to an article in USA Today, Citigroup, Bank of America, Chase, Wachovia, Wells Fargo, HSBC, U.S. Bank and SunTrust, eight of the ten largest largest banks in the united states, will cash checks that they receive on the same day in an order that maximizes overdraft possibilities. They will cash the largest checks first and the smallest checks last – this rule also applies for electronic transactions as well.

The banks defend their move by saying they want to give priority to the largest checks because they say that the larger checks are typically more important and you’d rather get a credit card payment bounced than a mortgage payment. Consumer advocates that banks are trying to screw the consumer because banks are relying on fees to make their money now that the spread is smaller. To be entirely honest, the order those checks are cashed shouldn’t matter – you should always have enough money in the bank to cover every check you write, otherwise you shouldn’t write them (whoops, typo, thanks Nick).

The articles goes on to explain the plight of Sean Tucker, 29, whose ego wrote checks (one of which was for $3.33) his body couldn’t cash to the tune of six overdraft fees and $200 out of his pocket. I’m sorry Sean… you need to be cognizant of how much money you have in the bank and you certainly shouldn’t be writing checks if you’re even close to being over, it’s simply not difficult to keep track of that stuff and if you’re simply careless, you deserve the fees so you’ll learn not to do it next time.

Personally, I prefer the checks cashed from the largest to the smallest because I’d rather have a $50 water bill bounce than my mortgage payment.


 Credit, Free, Personal Finance 
2
comments

$50 ETrade Account Opening Bonus

This promotion as ended, but you can still open a E*Trade savings account with a great interest rate.

Be Unbeatable! That’s the slogan splashed across the page of this ETrade promotional offer of $50 free for opening a new ETrade Money Market Account (sent to me by loyal reader Charles, Thanks Charles!). As a side sweetener, you get a 5.15% interest rate on the account for the first three months. After that three month teaser rate, the rate falls to 1.51%.

If you have a balance under $1000 you’ll be dinged with a $10 monthly fee but otherwise I see nothing that should hold someone back from taking a free $50. Anyone else see something I missed?

Fine print:

$50 will be credited to your new E*TRADE® Money Market account within 30 days of the account being funded with a minimum deposit of $100. Payments will be reported as interest income. Accounts must be opened by September 30, 2006 to qualify for the $50 offer. Must be a new account opened with new funds. Offer applies to one new account per customer. Not good with any other offer. This offer is not valid for E*TRADE FINANCIAL employees.

Relevant Fees:

A $100 minimum deposit is required to open a new EMM and account holders must maintain a minimum average monthly balance of $1,000, or $5,000 in total E*TRADE Bank deposits, by the end of their second statement cycle to avoid a $10 monthly fee.


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