Banking 
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2007 J.D. Power Satisfaction Ratings in Finance

J.D. Power & Associates puts out annual customer satisfaction surveys in all types of industries from automobiles to finance to insurance to travel (and many more in between). When they published their annual scores for finance companies late last year, I wanted to write about it to see how some of the companies I work with performed against their peers.

Author’s Aside/Note: I know it’s a little late but this one had been sitting in the hopper and I felt that I should post it anyway.

The Finance category itself is broken up into retail banking, mortgage related, and credit card groups. At the time I first wrote this, I didn’t think the mortgage ratings were that interesting so I skipped over it. I chose to focus on the two services I used more – retail banking and credit cards. While I don’t discuss the mortgage ratings, go check out how well Countrywide Home Loans did (hint: not well). :)

Retail Banking

The Retail Banking scores were rated based on geographic region:

  • Mid Atlantic: Commerce Bank (Bancorp)
  • Midwest: Commerce Bank (Bancshares)
  • Southeast: Bancorpsouth Bank
  • Southwest: Wachovia Bank
  • West: Bank Of The West

If you happen to have a Commerce Bank nearby and are a current customer (and you have kids), they’re running a summer reading program where kids can earn $10 for reading ten books.

Online savings account darlings WaMu and HSBC made appearances on the list as well (I looked primarily at the Mid Atlantic listing because that’s where I live, I suspect the scores are similar for the same banks). WaMu scored four points in overall satisfaction (with the highest score of 5 points under the Fees category) and HSBC scored three points. This past weekend we went to a wedding in Williamsport, PA, home of the Little League World Series, and saw scores of Sovereign Bank branches. Sovereign Bank scored a mere two points overall (and across the board). It was also funny to see M&T Bank’s whole name written out, Manufacturers & Traders Bank; I use them for my business banking and they’ve kept me very “satisfied.”

Credit Cards

In the Credit Card Satisfaction category, American Express edged out Discover for the highest rating in overall satisfaction and received the JD Power & Associates award. I personally use the American Express Costco TrueEarnings card because because I shop often at Costco and because it gives me 3% cash back on gasoline purchases (we also use a Discover Open Road card but that card caps rewards). My wife used to like their AMEX Blue card but it was recently replaced with the Citi CashReturns card because of the unlimited 1% cashback (and it once offered a 5% cashback on everything for the first three months).

The three companies that led up the rear with two points (out of five) were Capital One, Bank of America, and HSBC. I’ve never had a credit card from any of those companies. It’s interesting that when you arrange them by Overall Satisfaction (by clicking the sort arrows), HSBC appears below Bank of America. Bank of America has 2 points in all five categories while HSBC has three points for Rewards Program yet still appears below BoA. There must be some granularity within those points not captured somewhere.

Brokers

Finally, the investment broker category was the last of the categories I was interested in and it was broken into Full Service Investment Firm Ratings and Online Investment Firm Ratings. Raymond James took home the award in the Full Service Category and Scottrade (barely edging out Vanguard) took top honors in the Online Investment Firm Ratings.

I thought it was interesting that the only other “discount” online broker that made the list (TradeKing, Zecco, and many others didn’t make the list) was E*Trade Financial and they scored only two points.

With it being August, the 2008 ratings should be coming out soon in a few months. It’ll be interesting to see how much shifting around occurs with some of these scores.


 Banking 
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WaMu Online Savings Account Rate Increase: 3.75% APY

WaMu was acquired by JPMorgan Chase in 2008 and this rate is no longer available. For the latest on bank rates, check out the best high yield savings account rates page.

I just received an email that Washington Mutual will be raising the interest rate on their online savings account from 3.30% APY to 3.75% APY. This beats the rates found at FNBO Direct and HSBC Direct. It’s also a sign that interest rates are headed up. (FYI, FNBO’s top rate isn’t a “promotional offer” and has no set expiration date, HSBC Direct’s rate is a promotional offer and is set to expire in September)

With inflation heading upwards, the rate was 1.0% in June 2008, it’s getting more and more likely that interest rates will also move upward to counter. The Fed doesn’t like high inflation rates and will counter with increasing the funds rate, which will in turn increase bank’s interest rates. Whether or not that’s good for your pocketbook in the long run remains to be seen, there are simply too many factors pulling at one another, but a higher bank interest rate is better than a lower bank interest rate.

Update: For some reason I thought FNBO and HSBC were at 4.50% and mis-typed 3.50%, they’re not, they’re at 3.50% and now they lag WaMu.


 Banking 
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Beware False Indicators of Bank Health

People Line up at IndyMac After FailureWith IndyMac being taken into conservatorship, a lot of folks have been researching FDIC insurance and how best to protect their assets. I know I was checking all the bank ratings and announcements, looking to see if I should be worried about my assets at banks like E*Trade, ING Direct, Emigrant Direct, and HSBC Direct.

Common sense tells me that my research was unnecessary because I don’t have assets above the FDIC $100,000 insurance limit. As long as you don’t, your assets are safe. If the FDIC insurance program ever failed to protect assets up to that limit, we’d have much bigger issues to deal with. However, I wanted to get a sense as to whether recommending any of those online banks was still a smart idea. I don’t want to tell my friends that HSBC Direct is great only to find out that it’s going into conservatorship tomorrow! They already make fun of me for having a “blog.” :)

Anyway, in doing my research, I saw a lot of false indicators of bank health. These are ideas I had in my own head, like checking Bankrate’s ratings, seeing how old the bank was, the stock price, and whether it had any brick and mortar locations I could visit.

Sadly, I realized that none of these indicators were strong assurances that a bank was safe. Let’s look at each of them.

Bank Age

Banks aren’t like people, they have turnover, their personality changes, and the company you knew 80 years ago isn’t the same one that operates today. In 1995, Nick Leeson brought down Barings Bank, the oldest merchant bank in London with origins back to 1762 (and the Queen’s personal bank and the financier of the Napoleonic Wars), through futures trading and fraud. It was absolutely stunning when it happened since it was all the work of one trader (you can see a depiction in Rogue Trader with Ewan McGregor).

Barings Bank RIP (1762-1995).

Brick & Mortar Locations

If you were aware of online banks when NetBank failured last year, you probably got a little spooked. I know I was spooked a little. When junk hit the fan, there wasn’t even anywhere for anyone to go!

Whether or not the bank has a physical location isn’t a good indicator of a bank’s health. There are several banks that are entirely online, or extremely limited physical presences, such as ING Direct, that are, by all other measures, perfectly safe. IndyMac has physical locations, as the latest news reports have shown, and that didn’t help at all.

Ratings

Bankrate has a Safe & Sound rating for banks and credit unions that is a good indicator of a bank’s soundness in most cases. A rating of 1 (Superior) is better than a 5 (Lowest Rated) but neither score is really a good indicator of whether a bank is going to fail. The problem is that failures can occur extremely quickly (“The second lesson of IndyMac is that it underlines the speed with which banks can go under once confidence in them is lost.”) and Bankrate, along with many other rating services, might not update fast enough to catch the changes.

Here is the disclaimer from Bankrate’s Safe & Sound site: “Events occurring after safe & sound CAEL ratings and reports were prepared and before they are updated as scheduled may have altered an institution’s financial condition. For example, the FDIC reports that approximately 280 banking institutions were impacted by Hurricane Katrina.”

Sagging Stock Prices

IndyMac’s stock fell as it failed, much like the stock of any company going under. You might be tempted to think that a rapidly falling stock price is a good indicator of whether a bank will fail, just as how a rising stock price is a good indicator that I won’t. Sadly, the falling stock price is merely a trailing indicator because it lags what the market knows. The prime example is of all the banks and financial companies pulling money out of profits to protect against potential future subprime losses. Washington Mutual, National City, and M&T Bank all had big falls this week because of market fear though the banks themselves reiterate that they haven’t experienced any problems.

At the end of the day, your money is protected by the FDIC.

(Photo: zoliblog)


 Banking 
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Best Online Banks: It’s Not Just About Rates

Hand Painted Piggy BankA few years ago, the only high yield online savings account available was ING Direct. Their rates blew people’s minds. Until then, the only way to get that type of interest rate on an essentially 100% risk-free asset was to lock it up in a 60-month CD. Even today, check out the rates for CDs of your local bank and you’ll be hard pressed to find one under 60 months that comes close to beating the rates of high yield online savings accounts.

(Click to continue reading…)


 Credit 
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Foreign Currency Transaction Fees List

I just made a trip to China and one of the interesting things I learned before I left was that a credit card will often tack on a foreign currency transaction fee if you use your card abroad – this fee is tacked onto the cost of the purchase and is used to cover the foreign currency exchange, in theory. No matter what the reason, the fee still exists and it certainly would be helpful to know which card issuer charges the most and which charges the least right? So, check out the table below:

Card Issuer Fee
Capital One 0%
Discover 0%
Wachovia 1%
Washington Mutual 1%
American Express 2%
Bank of America 3%
Citibank 3%
JP Morgan Chase 3%
Wells Fargo 3%
US Bank 3%


Visa and Mastercard automatically charge the card issuer 1% for the foreign currency transaction itself so a lot of the Visa/Mastercard cards will pass that onto the end user (which is included in the number above). Capital One is the lone exception, eating the fee, and Discover and American Express obviously aren’t on that network so don’t have that extra overhead.

It looks like Capital One and Discover are the best for this though I’d argue that you likely want to get a Capital One card because Discover isn’t as widely accepted overseas. It’s the reason why I chose a Capital One card as the best international credit card on my trip to England.


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