If you’re graduated in May (congrats!), I recommend reading David Griner’s post about five things he’d do if he were graduating in May. They contain five solid tips that can help you in your career.

If you haven’t yet joined the workforce but are planning to in the next few months, I wanted to give you five things you should do before you start working.

(Click to continue reading…)

Patelco Credit Union is a credit union out in California that was started, in 1936 with $500, to support the financial needs of the employees of Pacific Telephone & Telegraph Company. Since then, they’ve grown to $4 billion in assets, 250,000 members, and now serve over a thousand businesses and communities.

So, why mention Patelco? I mention them because they offer a 7.00% APY new member certificate of deposit that more than doubles the highest rate on my list of best certificate of deposit rates. OK, before you get excited, the New Member CD has a maximum balance of $1,000 and a minimum balance of $1,000 and is, effectively, a $70 bonus for new accounts.

So why bother even mentioning this when most of us won’t qualify to join the credit union?

It’s a little reminder that your local bank or credit union might be the best offer available even if you don’t see it listed on nationally available rate lists. If I was eligible and looking for a credit union, I’d give Patelco a good look. The new member CD promotional offer gets me in the door. The 2.73% APY CD 12-23 months is pretty competitive and their 5.00% APR 30 year fixed mortgage loans is not bad, each probably beats locally available banks in those categories.

I’m not recommending that you open a Patelco Credit Union account (but you should have a credit union account somewhere) but I do recommend that you check your local banks and credit unions to see how their rates compare to the bigger banks, you may see something you like.

This is the first edition of our Personal Finance Foundation Series where I discuss the very basics of foundation-type personal finance topics. The topic of this post is Banking.

I was fortunate that my first real experience with banking was with a local credit union. Credit unions are really great about welcoming new members and educating them about everything. Commercials banks, while still cordial, simply don’t offer the same types of services that credit unions do. My mom and I opened a joint banking account a local credit union when I was fourteen and I was excited to even have a laminated blue card with my account number and credit union phone numbers! I still have the card in my desk drawer, I still have the account open, and it was a nice warm and welcoming introduction to the banking world.

That, however, seems to be atypical. Many people are introduced to the banking world either through the nastiness of credit cards or by walking into the antiseptic branch of a major bank. You open an account, direct deposit your paycheck, and feel like a number in a database. There is no education, no explanation, just an assumption that “you’ll figure it out eventually.” Well, unfortunately that isn’t enough because “figuring it out” usually results in you being dinged on fees so let’s start from the basics and go through what banking is.

(Click to continue reading…)

Credit unions exist to help its members. Commercial banks exist to enrich their shareholders.

You read that right. Credit unions are unions that exist to help its members. That’s why they often have better interest rates on both loans and deposits. Commercial banks are businesses. Their sole purpose is to figure out how to make more money from its customers (you!). Interest rates are often very low (or nonexistent), loan rates are often competitive, and they always try to sell you new products because you are a customer.

Credit unions, by law, have to have membership requirements. Credit unions are often tied to a geographic area or particular group, so as long as you qualify you can join. The Pentagon Federal Credit Union is one of the better known credit unions, because of their once mighty CD rates (still competitive if you look 3+ year terms), and if you weren’t active/retired military or worked in defense, you could be eligible to join just by joining the National Military Families Association. So there are membership rules, but there are ways around them and here are ten reasons why you should try to find a way:

1. Better interest rates on loans: At Tower Federal Credit Union, a credit union in Maryland, the current rate on a 60-month loan for a new car starts at 4.75% APR. At Bank of America, the nation’s largest commercial bank, the current rate on a 60-month loan for a new car starts at 4.95% APR.
2. Personal loans are more likely: The prospect of getting a personal loan at a credit union is much higher than at a commercial bank. In a theme that you’ll see repeated in many other reasons, credit union relationships are much stronger and so the likelihood of getting a personal loan is higher as non-financial factors are taken into consideration.
3. Better interest rates on deposits: At TFCU, the regular checking account earns 0.25% APY while the regular checking account at Bank of America earns nothing. While I wouldn’t recommend putting your savings in a checking account, the fact that you can earn something, while your money is waiting to be spent on regular bills, certainly beats earning nothing. The current savings account rate is 1.40% at TFCU versus 0.20% APY at BoA on the Regular Savings Account.
4. Lower fees: There are no minimum balance requirements at TFCU for their checking or savings account. At BoA, you need to keep at least $300 in your savings or have an automatic monthly transfer of $25+ to avoid a $3 fee. If you use a non-TFCU ATM, there’s a $0.75 fee; if you use a non-BoA ATM, that’ll be $2.
5. Fewer customers, better relationships: At a huge bank, you’re an account number. They see so many customers throughout the day that there isn’t really any opportunity to build relationships. At a smaller bank, you have a better chance to forge those relationships with the employees at that bank. Credit unions are often much smaller and naturally more conducive to this.
6. Fewer customers, you’re more important: How many customers does Bank of America have? Let’s say you want to get an erroneous fee removed, do you think it’s easier at your local credit union, where you’re one of a few thousand, or at Bank of America, where you’re one of a few (hundred?) million?
7. No call centers: Credit unions, and other smaller banks, often answer their own phones. Have a problem at a larger bank? You might call in and find yourself talking to someone at a call center. Call centers aren’t all bad though, they often get a bad reputation, but I prefer a bank employee over someone at a phone bank reading off a script.
8. You can be involved at a credit union: Did you know that the Board of Directors at a credit union is comprised of members who volunteer their time, are unpaid, and elected by the union membership? If you don’t like the direction your credit union is going, you have a say in it.
9. NCUA insurance: Just like commercial banks and their FDIC insurance, credit unions are protected with NCUA insurance. NCUA stands for the National Credit Union Administration and the NCUA insurance limits mirror that of the FDIC.
10. Less profit-driven, takes fewer risks: When you are beholden to shareholders and have the pressure to constantly generate bigger profits, you might be tempted to take greater risks. We see the fallout of that mentality today, with banks failing left and right. Credit unions aren’t immune to loan defaults but when you don’t feel the constant pressure to generate profit, you don’t take on those riskier loans. That leaves a healthier financial institution. To date, 25 commercial banks have failed in 2008 (including some of the biggest national banks), only 9 credit unions (with some being very small, like Meriden F.A. Federal Credit Union with ~$337,968 in assets).

All quoted example rates are as of December 12th, 2008.

Credit unions rule! If you want to read more about credit unions and banks, here’s an article on the differences between Thrifts, Credit Unions and Commercial Banks.

Do you have a credit union account? Have any other reasons I missed on why credit unions kick ass?

(Photo: Consumerist)

For all intents and purposes to the consumer, there is little difference among thrifts, commercial banks, and credit unions. The financial services they all offer will be similar and you probably don’t even know if the financial institution you’re banking with is a thrift or commercial bank (Washington Mutual is technically a savings and loan and the largest one). In fact, the only real notable difference between thrifts/banks & credit unions has to deal with depository insurance. Thrifts and commercial banks are covered by FDIC, credit unions are covered by NCUA, though both are covered to the same limit of $100,000 per person per financial institution.

Now, for the academics and trivia buffs out there, here’s a little more on their differences.

(Click to continue reading…)

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.

###

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.

A majority of my cash is spread across two bank accounts, Emigrant Direct and my company’s federal credit union, which means the number of no-fee ATMs I have access to is very low. Emigrant Direct has none (it’s entirely online) and my company’s federal credit union only has ATMs here at work yet I have never paid a single ATM fee despite the dearth of branded ATMs because I try to plan ahead – and so can you. Here are a few of the strategies I employ… and please feel free to add any that you use that I may have missed.

(Click to continue reading…)

The theory behind a credit union is that it’s working for you (and every other member) whenever it operates. That means that as an account holder you get favorable returns on your savings, checking, and money market accounts as well as good interest rates on your loans. The company I work for has a credit union and I opened an account within the first week of working because I knew somewhere down the road I might turn to them for a mortgage. Well, I poked around with LendingTree and two other mortgage-finding services (still only one response!) and it’s about time I talked to my credit union.

This was brought on by the this article, written by Gerri Willis, where she says that becoming buddy buddy with a small bank now may pay off later, when the housing price growth cools down. Basically, when the market slows down and a bank begins to foreclose on homes, the relationship you develop now will put you ahead of the game when the slowdown occurs. The bank won’t want to keep the properties, they’ll want to sell them to you.

Her tip is to first target the right bank, one that holds at least 55% of the mortgage loans it sets up. A bank can sell the loan whenever, it’s in the fine print if you read carefully, and they can’t foreclose on a loan if they don’t own it. After you target the bank, move your finances there to build a level of trust. They can trust you if they see your money! Then, the short article moves into discussing how to target areas and stuff like that which isn’t important to me at the moment.

So my plan of attack now is to talk to some local small banks and seeing if they can give me a favorable mortgage. Right now, the best seems like a 30 Year Fixed with monthly payments of around $1500 on a $250k loan (via LendingTree). If they can give me a pretty good offer and fit some of the other criteria Gerri mentions, I’ll consider giving them my business. But first things first, the credit union deserves a visit.