Tag Archive | "Banking"

Banking Basics

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In college, you evaluated your needs (sweatshirt or Tupperware?), made your decision and opened an account with the respective bank. After graduation, the process of choosing a bank remains the same; the impact of your decision, however, is greater because the prospect of actually earning money means you need to closely and effectively manage it.

I can almost guarantee that at some point in your first year or two out of school, you will overdraft your account. It happens to the best of us. But you can reduce the chances of mismanaging your money or racking up big service fees if you put the effort in up front.

But you don’t have to take it from me. According to the American Bankers Association (ABA), the first thing to do when evaluating banks is to identify your “banking personality.” The following questions will help assess your motives for choosing a new bank, weigh your financial needs and prepare for a rewarding relationship with your bank.

  • What is your goal in establishing a banking relationship?
    Perhaps all you need is a checking or savings account. Maybe you anticipate you’ll need a loan in the next year or two. Examine your financial goals to determine what you want and expect from your bank.
  • How much money can you keep on deposit each month and how many checks will you write? This will help you determine if you need a simple or more complex account structure. Most new grads can get by with a “no frills” account that offers a minimum of service at an extra-low price. If the only checks you write each month are to your landlord and to Visa, this is probably the way to go. Keep in mind that many banks limit the number of checks you can write during a calendar month and charge a set fee for each cashed check over the specified limit, so read the fine print.
    For those with more sophisticated needs, consider “packaged” or “multi-service” accounts that offer a variety of services for one fee. Other accounts are designed cafeteria-style with a “pay-as-you-go” service structure.
  • Is there a minimum balance requirement?
    This is a key question to ask your bank. The student account you had in college probably didn’t require a minimum balance. Now, it will be harder to find accounts that don’t force you to keep a few thousand dollars in the bank at all times – and you probably won’t be able to do this for awhile.

    • Does the bank provide overdraft protection?
      As we said, you may find yourself in need of this service. Typically, banks will link your accounts so funds will automatically transfer from savings to checking if you write a check that’s bigger than your balance. Many will also cover an overdraft up to a certain credit limit. Avoid this situation – but if it does happen, make sure you pay back the bank quickly to avoid hefty financing charges.
    • Will you be buying a home or car or making another large purchase in the near future?
      If so, you’ll want to find out about the variety of loan products offered and the qualifications necessary to secure them. Do you need to have a certain amount in the bank to qualify? How do their interest rates compare with other loan providers?
    • Do you want to start saving for the future?
      Many banks now offer uninsured investments, such as mutual funds, as well as the more traditional insured deposit accounts. Even if you’re not ready to start socking away for the future, you may be able to get a better interest rate on your savings by opening a money market account or a CD.
    • Do you like the convenience of automated teller machines and other types of electronic services – like banking through your PC – or do you prefer to deal directly with bank personnel?
      Answering this question will help you determine if you’d be happier at a bank with an extensive branch network emphasizing regular, evening or weekend hours, or one that focuses more on electronic services like ATMs and PC banking. To cut back on personnel costs, some banks now charge for transactions conducted through bank representatives. If you don’t desire the human touch or prefer to pay your bills online, you may want to consider one of several online banks, which typically have the lowest fees of all.
  • That being said, many banks do offer a basic checking or savings account with no minimum balance – for a monthly fee. However, this fee typically is waived or significantly reduced if you opt for direct deposit of your paycheck (check with your employer to make sure they offer this option). If you absolutely can’t find an account without a required balance, make sure you can handle any fees the bank charges for dipping below the minimum.

Once you’ve identified your “banking personality,” begin calling, visiting or researching banks via the Internet. Yahoo Inc. provides a comprehensive online banking center that lets users get information from nearly 200 banks around the nation. Remember to compare fees and service charges as well as interest rates on loans and deposit accounts. What does each bank charge for services like cashiers checks, safe deposit box rental and ATM use?

Be sure to clarify the exact terms of the account before committing yourself to it; Tupperware is not adequate compensation for low interest rates and high banking fees.

Credit Card Hell

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When I was in sixth grade, I received my first warning about the dangers of credit cards from my home economics teacher. “I budgeted so well until my senior year of college,” she claimed. “Then I got a credit card and I am still paying off that bill.”

Unfortunately, I failed to heed this warning six years later when I arrived on my university campus. Suddenly, credit cards were everywhere and everyone had them. Walking to class, I would be stopped on the sidewalk and given flyers. Heading to lunch in the student union, I would pass tables manned by cheerful, attractive young people calling out to me to “apply now- it’s easy.” At the annual “college fair,” booths from every company imaginable collected stacks of credit applications from eager students.

Every application entitled one to some sort of prize, often a T-shirt, water bottle, or mug that you really didn’t need– but hey, it was free. And so, it was the lure of a rainbow slinky that drew me in to applying for my first credit card. When I received my shiny new Visa with its $500 limit in the mail I was thrilled. Imagine all I could buy with that money!

By Christmas of my freshman year, I had loaded some hefty charges onto the card, but I was happy to pay the minimum and keep charging. Over the next couple of years, I acquired other cards, mostly from stores I wouldn’t normally have frequented if I didn’t have the plastic. I didn’t have much money, so charging seemed the best way to get the things I wanted, even if it meant paying more. I could have gotten my hair cut for $10 on campus, but if I got it done at the department store I could charge it and my checking account balance wouldn’t drop, even though it cost three times as much. Some cards would raise my limits any time I neared it, which made it easy to keep adding new charges. I also got a credit line from my bank off of which I could write checks, allowing me to use credit in even more instances. It was so easy to slide my credit card because it felt like I wasn’t paying anything at all. At one point, I even got a gas station card, although I didn’t have a car.

Soon enough, all those minimum payments started adding up to quite a bit of money each month, and I realized I had gotten in over my head. I worked to pay off some of the lower balances on store cards and cut them up. Yet I was still paying a bundle in interest charges and couldn’t afford to pay much more than the minimum on the cards with larger balances.

I found some help in the form of a consolidation loan, which allowed me to combine my three largest credit card balances into a loan that I would pay off over a four-year period. Yet expenses after graduation such as moving into an apartment for the first time led me to use credit again, and while I have paid off a significant portion of the consolidation loan, my total debt hovers around the same mark because of new charges.

I am still trying to get my debt under control by working extra hours and avoiding impulse purchases. I have eliminated all but a couple of credit cards, and try to pay more than the minimum each month. Still, I imagine all the things I could do if I didn’t have to put hundreds of dollars toward my bills each month, and I wish I had been more careful.

Credit cards aren’t without advantages. It is important to build a good credit history, but beware of becoming too dependent on money you do not have. Next time you wait in line at a cash register, remember that paying with credit often means paying a lot more than the ticket price of your items. Then, consider whether you really need them. In many cases, you may find that the advantage of having more “stuff” is overshadowed by the weight of being in debt.

Virtual Banking

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When was the last time you went to a brick-and-mortar bank to get cash, deposit a check or transfer some funds? If you can’t remember, don’t be surprised. An estimated 90% of today’s bank transactions take place somewhere other than a branch.

Think about it. Bank branches are expensive to maintain, what with rent, equipment and employee salaries. Online banks can consolidate operations in one place, while still offering the services you need, like ATM and debit cards. Why pay for a branch if you’re not using it? Web-only banks can save you about $200/year in fees, due to their lower overheads.

So what’s the hitch with Web-only banks? If you have a masochistic desire to stand in long lines listening to Muzak, then a purely virtual bank is probably not for you. Also, since online banks don’t have all the brick-and-mortar accoutrements, your fees can add up in other ways. For example, if you’re a heavy ATM user, you’ll either have to alter your withdrawal habits or get used to paying a service fee every time you take out cash.

Here’s a quick checklist of the basics to think about when investigating a Web-only bank:

  • Essential Products and Services. Look for features like checking and savings accounts, debit & ATM cards, fund transfers and electronic bill payment.
  • Fees. Understand how they are structured and how they compare to your existing bank. Since you could be paying additional ATM fees, ask if the bank provides any kind of reimbursement.
  • Ease of Use. Try a site demo to ensure you’re comfortable navigating the site.
  • Security. Most banks have excellent security systems, so there’s no need to worry – you’re at more risk of having your wallet stolen. Most sites have a section where they’ll explain their security measures, including encryption and data-encoding methods, automated log-off, e-mail alerts and password protections. SafeWeb Remote Banking Insurance is also a plus.
  • Customer/Relationship Service. Since Web-only banks have not built up the massive customer base of many traditional institutions, they’re much more likely to provide personalized service. Most Web-only banks have knowledgeable, informed, and friendly people available via phone or email, around the clock.
  • Web Reliability. The last thing you want when trying to access your account is a server failure! Ask about their rate of reliability and average downtime. It never hurts to ask.

The following is a list of the most popular Web-only banks. All banks listed have repeatedly received good rankings from trusted sources such as Smart Money magazine, Forbes and Gomez.com regarding the best in online banking.

BankOne

Features a new service called eMoneyMail, a safe and easy way to send money over the Internet, at no charge. They also offer competitive interest rates for checking and 12-month CDs, as well as free online bill payment and $5 a month in ATM rebates. And, although they are Net-only, their parent company, BankOne, offers a range of services through their branches.

NetBank

NetBank is launching a new 24/7 wireless service, allowing you to bank from your digital cell phone, Web-enabled phone, or Palm VII without having to log onto the Web. Electronic Bill Presentment is another service they offer (not all Net-banks do) that allows you to set up regular monthly bill payment (great for cable and other bills that don’t change from month to month).

First Internet Bank of Indiana

Estimates that they can save you $235 a year because they have no monthly fee and no minimum balance requirement. First IB credit cards are integrated with their other banking products so you can make payments by transferring funds from your checking account to your credit card, online or by phone. The bank waits until the due date to make the payment, and therefore maximizes the interest earned on your checking account.