In George Orwell’s “1984,” the totalitarian regime often confused the populace by using contradictory phrases such as “war is peace” and “freedom is slavery.” The common credit card term “minimum payment” might contain a similar sort of contradiction, because by making minimum payments, you’ll find yourself shelling out the maximum amount of money.

The reason is that the longer it takes you to pay down a credit card balance, the more interest you will pay on that balance. Thus, making the minimum payment each month will mean racking up more in the way of interest charges. Just how much more may surprise you.

The true cost of minimum payments

Suppose you shell out $1,500 for a home theater system. It’s a big investment, so you put it on your credit card so you can pay it off over time.

For this example, let’s assume your credit card charges a minimum payment equal to the larger of 3 percent of your outstanding balance, or $10. These are fairly typical minimum payment terms.

Under those terms, if you make just the minimum payment every month (and assuming you add nothing else to your balance) it will take you over ten years to pay off that $1,500 purchase. Meanwhile, interest charges, at a fairly typical 15 percent rate, would have totaled $810.41. Thus, you would have increased the total cost of that home theater system by 54 percent, to $2,310.41.

Bringing those interest costs down

Making some simple tweaks to the minimum payment can really bring those interest costs down. For example, suppose you consistently pay 50 percent over the minimum payment. Using this approach would eliminate that $1,500 debt in just under six years, with a total interest cost of $441.90, as opposed to the $810.41 you would pay in interest by making the minimum payments.

Suppose there isn’t enough room in your monthly budget for you to pay 50 percent over the minimum payment. There is another approach which will stress your budget less in the short term, but allow you to pay off your balance faster in the long term.

Under the credit card terms described above, your initial minimum payment would be $45; i.e., 3 percent of $1,500. This minimum payment would then decline slowly as your balance declines. However, assuming you can afford to pay that initial $45 minimum, suppose you keep your monthly payment at that amount in subsequent months. This way, you would keep the payment at a level you can afford, but you would be steadily paying more and more over the minimum as it starts to shrink.

The results of this approach? You would pay off your $1,500 purchase in about three and a half years, incurring just $384.44 in interest charges – less than half the interest you’d pay by sticking to the minimum payment all along.

Other factors that can jack up your credit card costs

Besides making minimum payments, there are other things that can substantially raise your interest expenses:

• Missed payments. On many credit cards, missed payments invoke a double-whammy: a penalty fee, plus a shift to a higher interest rate going forward.
• Poor credit. In general, the worse your credit rating, the higher the interest rate you’ll pay. Remember, you can get a free FICO credit score report to check out any potential problems with your credit rating.
• Balance transfers. Zero percent balance transfer offers sound great, but there may be an upfront fee for each transfer, and the zero percent applies for a limited time only. After that, interest rates on balance transfers are often higher than rates on purchases, so be sure to read the fine print of your credit card agreement.
• Rewards/cash back programs. Make sure these incentives are worth it to you, because these credit cards often carry higher interest rates.

Remember, minimum payments do the opposite of minimizing your credit card costs. Larger payments, good payment and credit histories, and careful attention to credit card terms are the things that will bring those costs down.

Richard Barrington has earned the CFA designation and is a 20-year veteran of the financial industry, including having previously served for over a dozen years as a member of the Executive Committee of Manning & Napier Advisors, Inc. Richard has written extensively on investment and personal finance topics.

Source URL: Credit card debt: The less you pay, the more it costs

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When I was starting out, a wallet full of credit cards was a sign of success–if you had five or six cards, you were obviously doing well. Like so many others, I got myself into a bit of a payment crunch; each minimum payment by itself was small, but when I lumped them all together each month, well, it was more than I had! I consolidated as many together as I could, took a second job, and paid, and paid, and paid.

Eventually, I paid everything off and now carry one general credit card and one gas card, although I have another account at a men’s clothing store I use occasionally. In today’s society, you can’t buy anything on-line without one, can’t rent a car without one, and try and find an airline that will let you write a check for a ticket!

It’s easy to get caught up in the excitement of getting a credit card, and not read the terms. Luckily for you, the Credit Card Accountability, Responsibility, and Disclosure (CARD) Act of 2009 makes understanding your credit card easier than ever. Now, credit card companies have to post their disclosures on-line, and they have to be written in “plain English”.

Now that understanding credit cards is made easier for you, here are five terms that you should be sure to understand when evaluating credit card offers:

• Grace period. You have to have at least 21 days from the date the statement is mailed to the date the payment is due, but some card issuers give you a few extra days. If you pay off your balance every month, you will pay no interest charges. But if you leave any unpaid balance from the previous month, interest charges will accrue from the transaction date for the remaining balance, along with all new purchases, effectively eliminating the grace period. Balance transfers and cash advances are not subject to any grace periods.
• Annual Percentage Rate (APR). Of course, the interest rate you are being charged is important, especially if you will carry a balance. Most credit cards use a variable interest rate. The APR you are charged is the prime rate plus an interest rate based on your credit history. There are several APRs listed in most credit card offers- a promo rate, transaction or “go to” rate, cash advance rate, and a default or penalty rate.
• Promotional rate. Companies are constantly offering low-or-no-interest programs to entice you to sign up for their cards. Some offer the special rates on 0 balance transfer offers. With these cards, you can save a ton of money if you can pay off a balance without any interest charges. Late payments can eliminate your promotional rate however, so stay on top of your bill to make the most of the offer. The CARD act of 2009 stipulates that all promotional rate offers have to last at least six months.
• “Go To” rate. Like all good things, introductory offers eventually come to an end. When the offer ends, your interest rate will increase to the “go to” rate. The “go to” rate is disclosed in your cardholder agreement as your regular transaction rate. Credit card companies are not required to notify you when this rate change takes place, so be sure to keep the date on your calendar.
• Penalty APR. Make a late payment, and your interest rate could skyrocket. On top of losing your promotional rate, you can be charged a penalty rate. Be careful to read what the penalty interest rate is on your card, especially if you are the kind of person that occasionally forgets to send a payment in. The law states that your account has to be reviewed every six months to see if you can be returned to your previous rate, but each company has different requirements for getting out of the penalty rate.

Before you choose a credit card, go on-line and read their disclosures. Also, check out MoneyBlueBook’s past credit card reviews–a few minutes of reading can help you find the credit card that best meets your needs.

Ryan Hurlbert lives and works in the Pacific Northwest. As an insurance agent, he produced and presented educational seminars on various topics from insurance basics to strategies for dealing with teen drivers. He has researched and produced marketing materials in the insurance, auto, and financial industries. Ryan majored in business and received his Bachelor of Science degree from Portland State University.

Source URL: 5 key credit card terms you should know

Copyright Protected © 2011 Money Blue Book: Personal Finance Blog. All Rights Reserved.

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Take care of your credit, and credit card companies will want to take care of you.

Banks have put together some hard-to-find credit card offers to attract consumers with high FICO scores. If you’ve built a strong credit history, you can earn unusually high cash back rebates, travel perks, and low interest rates on balance transfers. According to CardRatings.com, five credit cards rank highest at offering great perks to consumers with excellent credit:

1. Discover More Card–Over the past few years, Discover Card has made some of the boldest moves to attract more consumers with high credit scores. Earn this card, and you can enjoy a zero percent balance transfer for 18 months with just a 4 percent transfer fee. During your first six months with the card, you’ll pay no interest on purchases while earning between 1-5 percent in Cashback Bonus rewards.
2. Simmons Visa Platinum–You’ve probably never heard of Simmons Bank, and they’re probably okay with that. Simmons saves its credit card invitations for consumers with the very highest credit scores. Apply via one of their credit card applications online, and you can surf your other debt to a Visa card with an APR as low as 7.25 percent and no balance transfer fee.
3. Fidelity Investment Rewards American Express Card–One of the best cash back credit cards on the market requires you to maintain a brokerage account at Fidelity Investments. If your FICO score tops 700, you probably already do business with Fidelity, anyway. You’ll need to ask for an invitation to Fidelity’s version of the American Express Card, which will drop 2 percent of everything you spend into a tax-deferred investment account.
4. PenFed Visa Platinum Cashback Rewards Card–Another perennial candidate for best cash back credit card, PenFed designed this Visa card to help military families manage their finances while earning rebates on everyday purchases. If you’re not in the service, that’s fine. Join an associated non-profit organization to show your support for our soldiers, and you’ll qualify for membership in this innovative credit union.
5. Capital One VentureOne Rewards Credit Card–You’ve seen the television ads, but a high FICO score can get you invited to one of Capital One’s best-ever balance transfer offers. With no balance transfer fee, 0 percent APR, no annual fee, and no foreign transaction fees, this special edition of the Venture Visa card gives unprecedented flexibility to travelers who like earning bonuses without being tied to a single hotel chain or airline.

Earning the best credit cards requires strong FICO scores
Because you’ve got to have a high credit score to qualify for any of these credit card offers, follow these tips to improve your financial profile:

• Start small. A department store or gas station card can help you kick start your credit history. Build a solid track record by charging routine transactions, then paying your bill each month.
• Watch your percentages. Pretend your credit limit’s only about 30 percent of what it says on your statement, then keep your balance close to that pretend threshold on every account.
• Restrain yourself at checkout. Retail credit cards can pinch your credit score if you apply for too many, too quickly. To credit bureaus, you could look like someone whose identity has been stolen. Or, you could just look desperate for quick credit.
• Stay loyal to your first credit cards. Cancelling an account can reduce the history of your credit file. A high score often requires hanging on to the oldest card in your wallet.
• Track your scores. While you won’t see much change from day to day, many websites now offer free FICO score reports or similar free credit scores that update every few weeks. Just understand the distinction between a report that’s truly free and one that requires a paid membership to an affiliated service.

Over time, once you’ve earned one or two of the excellent credit cards on this list, you can rebalance your wallet to include just the accounts that give you the best rates and the best perks. Until then, use your credit cards responsibly and regularly to make yourself an attractive future cardholder.

Joe Taylor Jr. is an internal business consultant for a Fortune 500 company, who writes about finance, culture, and design. He holds a Bachelor of Science in Communications from Ithaca College.

Image: Michelle Meiklejohn / FreeDigitalPhotos.net

Source URL: Top 5 credit cards for consumers with excellent credit

Copyright Protected © 2011 Money Blue Book: Personal Finance Blog. All Rights Reserved.

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Overdraft protection.

The words sound almost comforting–like an extra layer of security around your checking account–or perhaps a safety net to catch any mistake you might make in your account records.

Under certain circumstances, overdraft protection can be those things, but to many bank customers, overdraft protection is an exorbitant expense that just makes overdrafts worse.

Since one of the things you’ll be asked to do any time you open a checking account is whether to have overdraft protection for your account, you need to know how overdraft protection works, and whether it is likely to work for you or against you.

Overdraft protection–how it works

An overdraft occurs when you use more money than you have available in your checking account. If you have overdraft protection, the bank will temporarily make funds available to you to cover the purchase–think of this as a short-term loan. This way, you are able to complete your transaction without having a check bounce or your debit card declined.

By helping you out in this way, overdraft protection can save you from inconvenience and embarrassment. However, there is a hefty cost for this service. According to economic research firm Moebs $ervices, the average overdraft fee is currently $27.50. These fees are charged per overdraft transaction, so if you use your debit card four times while your account is overdrafted, you would incur four overdraft fees.

Trends in overdraft protection

Over the years, overdraft fees have become a major profit center for banks, and average overdraft fees have risen steadily in the past 25 years. However, in 2010, new Federal Reserve guidelines went into effect requiring banks to obtain consent, commonly known as an “opt-in,” from customers participating in overdraft protection programs.

Moebs $ervices estimates that 75 percent of checking account customers have opted into overdraft protection. To help persuade customers to opt in to overdraft programs, banks have gotten a little more competitive about overdraft fees, with the average fee falling from $28 to $27.50 in late 2010. These fees vary greatly from bank to bank, and tend to be much higher at large Wall Street banks.

Overdraft protection strategies

So should you join the majority of checking account customers by opting for overdraft protection? Or do the 25 percent of customers that opted out represent the smart money? The answer really depends on your banking habits, so here are four steps you should take to decide whether you need overdraft protection:

1. First, do the math. Look at your banking history to see how cost-effective overdraft protection is likely to be for you. If you have a $500 checking account that you overdraft once every ten years, at the $27.50 average fee overdraft protection would cost you just over a half a percent a year. However, if you overdraft that account ten times a year, you’d be spending more than half your account on overdraft fees. Protection like that is something you can live without.
2. Link checking to a high interest savings account or other deposits. Some banks will let you link your checking account to a savings account, with balances transferring from saving to checking when needed to avoid overdrafts. This way, you can keep more money in the high interest savings account until it is absolutely needed. Just make sure the cost of balance transfer fees doesn’t negate this benefit.
3. Keep an extra cushion in your checking account. These days, even high yield savings accounts are paying modest interest rates. Therefore, you won’t miss out on much by keeping a little extra in checking to avoid overdrafts. If, after doing this, you find that you still come close to the line regularly, overdraft protection may be a good option.
4. Shop for low overdraft fees. If you decide you have to have overdraft protection, shop around to find the lowest overdraft fees you can, which can mean turning to local banks and credit unions.

There is no universal answer as to whether overdraft protection is a good or bad deal for checking account customers–it really depends on how you use the account. However, given that overdraft protection is most cost-effective for people who rarely need it, the rule of thumb should be: when in doubt, opt out.

Richard Barrington has earned the CFA designation and is a 20-year veteran of the financial industry, including having previously served for over a dozen years as a member of the Executive Committee of Manning & Napier Advisors, Inc. Richard has written extensively on investment and personal finance topics.

Image: renjith krishnan / FreeDigitalPhotos.net

Source URL: Protecting yourself from overdraft protection: 4 steps you should take

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Long before he became a cop, Kevin was my best friend. So when he joined the police, it seemed natural that I’d often join him and his colleagues for an after-work drink. They were a great bunch, and I really enjoyed the time I spent with them. But as they told their job-related stories, I’d frequently think to myself how much I enjoyed being their friend, and how little I’d like to meet them professionally.

I don’t know any IRS agents, but I suspect that the same would apply. They’re probably charming people socially, but you really, really don’t want to spend time with them when they’re working.

Luckily, there are simple things you can do when filing your federal income tax return that can help you avoid finding out whether I’m right.

Beware of these 5 common mistakes to avoid Tax Trouble

Here are five common mistakes routinely made on taxes, and how they can be avoided:

1. You didn’t double check
   

   Among the most common federal income tax filing mistakes are some that are so embarrassingly elementary that you wouldn’t want to admit to them outside a confessional. So, before mailing your return, ask yourself these three questions:

   • Have I signed and dated the form?
   • Have I entered and triple-checked my social security number?
   • Have I attached Copy B of the W-2 form(s) my employer(s) sent me?
2. You got the math wrong
   

   According to the IRS, the most common mistake of all is people making basic errors in their arithmetic. You can minimize the chances of this happening by finding the best tax preparation software (or the best online tax software) for your needs, and using that. And, of course, you can file online now. If none of those appeal, why not create a spreadsheet that will do the math automatically, and then transcribe the figures?

   If you are a complete technophobe, you should use a calculator (oh, come on–you can manage that), triple-check your sums, and preferably have someone else check for errors.

3. You failed to report all of your income

   Whenever you ask yourself whether you need to declare a particular sort of income, your default answer should be “Yes.” It’s true that in limited cases it can be “No,” but don’t make assumptions. Instead, consult the IRS 2010 Publication 525–Taxable and NonTaxable Income.

   Be sure not to forget unearned income. Your bank and other financial services suppliers should have informed the IRS of how much you’ve received, so you can expect consequences if you don’t report this.

4. You were over or under with your tax deductions
   

   As Gerald Barzan observed:”Taxation with representation ain’t so hot either.” And the last thing you want to do is pay more than your due. But, if you deduct items that you shouldn’t, you risk a big financial penalty or even jail.

   If your financial affairs are sufficiently complicated that there’s a chance you’re getting your tax deductions seriously wrong, you should probably consider paying a professional both to advise you, and to take over the donkey work. Depending on your circumstances, a good one may well save you way more than his or her fee.

5. You Forgot to file on time

   If you’re late filing, you’ll automatically be charged penalties, unless you can show good cause for your failure. For example, if you’re 60 days late, you’ll have to pay at least $100, and possibly much more.

   However, if you need more time to file and don’t want to pay a penalty, you can apply for an extension in advance by completing and returning Form 4868 – Application for Automatic Extension of Time to File U.S. Individual Income Tax Return.

Federal income tax errors can be costly

Making innocent mistakes with your federal income tax return can be expensive. You could be stung $50 just for putting in the wrong social security number. If you file a “frivolous” return (one that clearly lacks the information to make a proper assessment), you could face a $500 penalty.

But that’s just the beginning. In addition, you could be liable to pay 0.5 percent a month for each month or part thereof when you have tax liabilities that are overdue as a result of incorrectly filing. And there’s a further–potentially even stiffer–penalty for filing late.

Of course, those penalties are for innocent mistakes. Try to defraud the IRS, and you could have limitless opportunities to test my theory about how charming its agents are during audits.

And you’re unlikely to be invited out for drinks–even after you get out of the penitentiary.

Peter Andrew has been writing about–and for–business for more than two decades. For the last few years, he has found himself increasingly specializing in the U.S. financial sector.

Image: Arvind Balaraman / FreeDigitalPhotos.net

Source URL: Federal income tax filing: 5 common mistakes — and what they can cost you

Copyright Protected © 2011 Money Blue Book: Personal Finance Blog. All Rights Reserved.

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Dating is like walking on a minefield: You never know what your next step will bring. Now to make it even harder, dating experts are adding a new twist.

It used to be as easy as intuition, dinner and a movie, but now experts say that financial compatibility is an important factor in finding the right person. If turns out that if the man or woman you are dating is a financial mess, they can take you down with them.

If you survived the dating battlefield like me and are now married, you probably have some of your own war stories. But if you are still out there in dating never-never land, you may need a little help. I can give you a few tips on how to figure out if your date is a financial dud.

You just have to read the signs:

1. Overspends like crazy

If your date keeps trying to impress you with how much everything they own costs, you might think twice about your future with them. Wild spending can lead to all kinds of financial problems as witnessed by the record number of mortgage defaults and credit card delinquencies seen in the last couple of years. If your date seems overly impressed by their own spending, it may be that they are forgetting an important fact: Eventually they have to pay for it all.

2. Leases to impress

Although it is not a set rule, in most cases buying a car is a much better financial option than leasing a car. As long as you don’t plan on changing cars often, it’s better to build a little equity as you make your monthly payments. But even worse than leasing, is leasing solely to impress.

If your date is driving a leased the car that seems to be way beyond what they can afford, you are not dating a financial wizard. Chances are pretty good that they are being taken to the cleaners on their lease deal and those costly lease provisions.

3. Loves get-rich schemes

It may not the most exciting thing in the world to hear your date discuss their dollar-cost-averaging approach to retirement savings, but at least your date has a financial vision. Wouldn’t you rather have your date bore you with details about their 401K than hear about how they have figured out how to make a million dollars from online poker?

If your date’s retirement plans seems to be wrapped up in a multi-level marketing or other pyramid scheme designed to double your money in two weeks, then run for the hills.

4. Pays only with prepaid cards

You might think that if your date uses a prepaid credit card that they are showing a certain amount of financial responsibility. After all, they are only spending what has been loaded on the card and they are not building up debt. Unfortunately, it’s not that simple. The problem is that using prepaid credit cards can be a huge warning sign that your date has bad credit and can’t qualify for a normal credit card.

5. Doesn’t believe in saving for a rainy day

Let’s be honest. There is nothing sexy about investing in a certificate of deposit or opening a savings account at a bank. But a little advance planning can go a long way when trying to pay for a wedding, a vacation or your first house. It takes a little discipline and an ability to go against the crowd. If your date thinks keeping a savings account at a bank is uncool, you know they may not be very adept at long term financial planning.

6. Tips too much or too little

You can tell a lot about a person by how they tip. In some ways it can be a microcosm for their overall financial intelligence. A person savvy with money will tip based on the level of service. They don’t stick by hard-and-fast rules, but will adjust on the fly. They don’t tip on the tax and will always check to see if the tip has already been included on the bill.

The financial dud is easy to spot when it comes to tipping. Either they will tip way too much because the waiter or waitress was slightly flirty or they refuse to pay a premium tip of over 15 percent even if the service was excellent. You will also get a bad feeling about your date if he or she asks to borrow pennies and nickels to get the tip just right. Go with your gut. If they can’t handle tipping, they may struggle mightily with the bigger financial decisions coming down the road.

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Source URL: 6 signs your date is a financial dud

Copyright Protected © 2011 Money Blue Book: Personal Finance Blog. All Rights Reserved.

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Call me old-fashioned (no, really–everyone else does), but I know next to nothing about the Kardashian sisters. However, even with the tiny amount of knowledge I have, I struggle to picture a family breakfast scene in which Kim, licking maple syrup from her perfectly manicured fingers, glances up from her copy of The Wall Street Journal, and remarks to Khloe and Kourtney: “It says here that analysts are forecasting explosive growth for the prepaid card market. I think we should establish an aggressive presence in that sector.”

No, I suspect that some Svengali-like figure on the sisters’ business management team persuaded the family that launching the Kardashian Kard was a good idea. And it might be fairer to blame him or her than the girls for the fact that the Kard is likely to end up entering the record books as one of the shortest-lived products in the history of financial services.

Kard killer

The Kard was withdrawn Nov. 30, just three weeks after its glitzy launch. And its cause of death was the sheer weight of negative publicity that followed a blistering attack on it by Connecticut Attorney General Richard Blumenthal. He’s quoted as referring to the product’s “pernicious and predatory fees,” saying, “Among the prepaid debit cards now on the market, the Kardashian Kard is particularly troubling because of its high fees combined with its appeal to financially unsophisticated young adult Kardashian fans. Keeping up with the Kardashians is impossible using these cards.”

Prepaid cards aren’t all the same

Factually, he was correct. The product was reportedly targeted at those 13 years old and up, although you had to be 18 to apply, so presumably young teenagers would need to wield pester power to get their parents to obtain one for them.

It’s true that the fees were fairly high. Even if you didn’t use the Kard at all, it would have cost you $59.95 during the first six months you held it, and then $7.95 a month after that. Then there was $2.50 for every ATM withdrawal, $1.50 to access help from the call center, and $2 for each bill payment, to name just a few other charges.

Sounds a lot? Not really, at least if you compare those fees to the amounts charged by some of the Kard’s competitors. When the Consumers Union looked at 19 prepaid cards back in September it found that:

• “Activation” fees were levied on 12 cards, and ranged from $3.00 to $39.95
• Sixteen charged monthly fees ranging from $2.95 to $9.95 ($9.95 a month adds up to $119.40 a year, whether you use the card or not)
• ATM withdrawal fees, which were charged by all issuers, started at $0.99, and topped out at $2.50
• Eighteen cards charged between $0.45 and $1.00 for simple ATM balance inquiries

Picking a good prepaid card

That list of fees goes on and on, and the variations between the amounts different cards charged for each ranged from the significant to the enormous. Last year, The New York Times spoke to a Brooklyn man who was given a list of 24 different fees that could be applied to his prepaid card, and to a Florida resident who’d been charged $2.95 for a declined ATM transaction when he mistakenly keyed in the wrong PIN. When the latter contacted the call center to complain, he was stiffed a further $1.95 for the privilege.

The trick when choosing a prepaid debit card is the same as when picking any credit card: think about how you’re likely to use the product, and then select the one with the fee structure that best matches your particular needs. Sorry, but that does involve reading quite a bit of small print, though the amount you save could more than justify the time you spend.

One card that should probably be on your short list is the Walmart MoneyCard, which–while somewhat lacking in Kardashian-style glamour–is widely cited as an exceptionally low-cost product.

Prepaid card use set to explode?

The Federal Reserve published a study Dec. 8 that looked at the different ways in which consumers make payments. And it said: “Prepaid card transactions… represented the fastest growing payment type, increasing 21.5 percent annually from 2006 to 2009.” That growth was, admittedly, from a low starting point, but a couple of days before the Fed’s study became required reading at the Kardashian family breakfast table, The Wall Street Journal revealed that prepaid cards are about to receive a massive boost.

Apparently, recent legislation that could cap the fees banks receive from merchants every time one of their cards is swiped does not apply to prepaid cards. So now many of the big banks are developing their own prepaid products. Don’t hold your breath, but it’s just possible that the new competition these provide could drive down prepaid card fees, and force some of the worst gougers out of the market.

Who knows? Maybe even Kim, Khloe and Kourtney could be tempted to get one.

Peter Andrew has been writing about–and for–business for more than two decades. For the last couple of years, he has found himself increasingly specializing in the U.S. financial sector.

Source URL: Kardashian Kard killed – but prepaid cards set to take off

Copyright Protected © 2011 Money Blue Book: Personal Finance Blog. All Rights Reserved.

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I have always thought of banks as the bad guys. They charge too much on my credit card balances. They pay too little interest on my savings. And they charge me fees for every little thing. In the last couple of years we even had to endure our tax dollars going to bail out banks that went a little crazy with their lending.

Lately, though, I have started to look at banks differently. In the last year, banks have become more responsible with their lending and have implemented features and services that are useful to me. And it looks like that is just the tip of the iceberg. I think 2011 is the year that banks become the good guys again.

Here are six banking innovations to look for in the coming year that can help make life easier:

1. Social savings accountsI realize now that reaching a savings goal when interest rates are low can be tricky. You lose the power of compounding interest and inflation can actually decrease the worth of your money. To help you save in spite of these problems, a new form of savings, called a social savings account gaining steam. The account helps you increase your savings by publicizing your savings target with a widget or personal message on a social network, blog or website. This allows friends and family to hear your story and contribute to your goal.

   Savings is now a higher priority for Americans. The question is how to save enough for college, a family vacation or a wedding. Social savings accounts may be the answer. It’s the modern day version of your grandparents buying you a savings bond. Look for the best online banks to start offering this product in 2011.

2. Remote depositThe ability to cash a paper check without ever going to the bank is a feature I know will save me time and money. You can accomplish this with a relatively new banking service called remote deposit. With this service, a digital image of your check is scanned by a computer and is sent electronically to the bank for processing.

   Remote deposit makes a lot of sense for a business with a large volume of checks. The problem for consumers is that the service fees and the cost of the scanner is high. But a currently emerging form of remote deposit–one using a cell phone–is taking this economical concern away.

   If you use mobile remote deposit, your phone takes a picture of your check and sends the image electronically to the bank for deposit. Other advantages include less check float and the ability to easily track your deposits. Best of all, the service is free when included as part of your mobile banking app.

3. Mobile text bankingI can call my bank, go online, or use my mobile phone browser or banking app to retrieve my account balance. All seem reasonably fast, but now there is something new on the scene that is even faster.

   Text banking services allow bank customers to send SMS text messages to retrieve an immediate answer from their bank regarding balances, transaction history or bill payments. No fees are charged by most banks for enrolling in the program, but check your phone’s service plan to make sure these texts are free.

   The first bank to roll out a sophisticated text banking service was Wells Fargo Bank. Bank of America even plans to roll out a text banking service in 2011 that includes the ability to move money between accounts and instantaneously respond to fraud alerts. Expect to hear much more about text banking services in 2011 as more advanced features are developed by banks.

4. Inflation-indexed CDsI knew that certificates of deposit with variable rates had been around for a long time, I just couldn’t figure out how a variable rate CD could be better than a fixed rate CD when interest rates are so low. Then it hit me.

   A CD that is actually indexed to inflation, as measured by the Consumer Price Index (CPI), could be an exciting product. Why? First, inflation reflects your actual cost of living, so a CD that is indexed to inflation will protect you from rising prices. Second, the Fed has already announced that they plan to hold rates low for an “extended” period. This means your CD rate could stay low, even if inflation is increasing, unless you have a CD indexed to inflation. Finally, bank high yield savings accounts compete directly with Treasury products for your deposit dollars. The Treasury Department already offers the Series I bond and TIPS securities for investors worried about inflation.

   Banks aren’t likely to sit on the sidelines if inflation becomes a buzzword. Look for at least a few banks to realize the value of an inflation-indexed CD for consumers. We hope to see them sooner, rather than later.

5. iPhone, iPad and Android banking applicationsIn the beginning mobile banking left a lot to be desired. I remember when mobile browsers were primitive and features were very limited. Some mobile banking applications did nothing more than tell you where the closest ATM machine was located. Those days are gone.

   Today, applications written for the iPhone, iPad and Android-powered devices are taking mobile banking to the next level. Users can pay bills, see transaction history and send third-party payments. The next wave of banking applications will add even more money management features and tighten up security issues.

   You probably don’t need to switch banks to find a mobile banking app. The app will find you. 2011 will see a large number of new banks and credit unions develop their iPhone, iPad or Android app–just sit back and let the app wars begin.

6. Mobile paymentsI still have a wallet, but the days of the wallet are numbered if something called mobile payments takes off. This form of payment uses information stored on your phone that can be scanned to immediately purchase an item, make a person-to-person (P2P) payment or provide identification. Think of a checking account, credit card and driver’s license all rolled into one. Sound far-fetched? Don’t bet against mobile payments being the wave of the future.

   There is a furious battle raging between phone carriers, banks and credit card companies like VISA, Discover and Mastercard on the issue of mobile payments. No one wants to be left behind. Earlier this month, Google bought the mobile payment company Zetawire, a company that uses near-field technology to allow consumers to make payments with their Smartphones. There are also strong rumors that Apple will bring mobile payments to the next version of the iPhone.

   Whether or not you decide to be one of the first pioneers to start moving money by pointing your phone at a cash register, one thing is for sure: we will be hearing a lot more about mobile payments in 2011.

Image: jscreationzs / FreeDigitalPhotos.net

Source URL: 6 banking innovations to look for in 2011

Copyright Protected © 2011 Money Blue Book: Personal Finance Blog. All Rights Reserved.

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The Apple iPhone is the one of the world’s biggest technology phenomena. Behind the popularity is a wide selection of unique mobile applications that can be easily downloaded. This includes banking applications that are about to take mobile banking to the next level.

Setting up mobile banking

Mobile banking has been around for close to 10 years. Up until this year, the most popular way to access banking information with a phone has been through using SMS text messages or mobile Internet browsers. Both methods have limitations and can be frustrating for users.

All of that looks set to change with the explosion of applications being developed for the iPhone by some of the best online banks. Banking applications allow a faster and more secure connection to a bank’s server than if you use a mobile browser or SMS. Developers are continually adding more mobile banking features and security enhancements to banking apps.

If you have an iPhone, you can check the iTunes store or your bank’s website for the most current mobile banking applications. Wells Fargo Bank, U.S. Bank, PNC Bank and USAA Federal Savings Bank are just a few of the financial institutions that have applications that can be downloaded for free. After your application is up and running, you can check balances, pay bills, transfer money, set up banking reminders and find the closest ATMs.

Securing your financial data

Accessing financial information through a phone inevitable brings up the question of whether it is safe to bank with an iPhone. The answer to that is that it depends largely on how you protect your information.

Using an application is safer than using the iPhone’s Safari browser, but apps are not perfect. Earlier this year, tech experts uncovered that some mobile banking applications stored financial data locally on iPhones in an unsecure way that could be retrieved by hackers. Banks have now fixed this issue and will continue to issue software updates for their applications, but security is a two-way street. Here are a few things you can do to safely bank with your iPhone.

1. Protect your phone. If your phone is lost, your life can be an open book to anyone who finds the phone. This includes your banking data. The simplest way to protect your phone is with a password. If you find using a password is too cumbersome, you can also download an application that will wipe the data and applications stored on your phone when the app is activated by a text message. Remember, you should always contact your financial institution immediately if your phone is lost.
2. Check your connection. Public Wi-Fi takes encryption and security out of your control. It is convenient to use Wi-Fi at airports, Starbucks or the library, but to protect your finances, never use a banking application while you are connected by a public Wi-Fi signal.
3. Use discretion with applications. iPhone owners can be tempted by application download mania. This can be dangerous since malicious applications can override your iPhone’s security settings or install malware. Keep your applications to a reasonable number and only from highly trusted sources, such as those obtained
4. Don’t go phish. Don’t respond to text messages or emails requesting your personal banking information.

iPhone banking: the next steps

Banking on an iPhone has only just begun. The number of banks offering applications is expected grow, as will the sophistication of the applications. iPhone owners will benefit because, by staying on top of their finances, they can save money.

The next wave of iPhone banking applications should add more advanced money management features. This includes making it easier to schedule and pay bills online, as well as ways to integrate that information into your iPhone calendar. Also look for applications that will allow you to find the best CD rates and best online savings accounts.

The future is bright for iPhone banking. It might be time to give it a try.

Image: Andy Newson / FreeDigitalPhotos.net

Source URL: Is it safe to bank with an iPhone?

Copyright Protected © 2011 Money Blue Book: Personal Finance Blog. All Rights Reserved.

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Now that you’ve graduated from school, you may find yourself acquiring not only a diploma, but also heaps of debt and a whole new set of responsibilities. Credit card payments, car insurance, utility bills and maybe even student loans that were once covered by your parents are now resting squarely on your shoulders. You have a lot of choices to make and perhaps not a lot of money to make them hastily.

So, if you’ve decided to use a debit card to track most of your spending, you know there is nothing more infuriating than getting hit with an overdraft fee. And now you may be asking yourself, “Should I sign up for overdraft protection?”

Why overdraft protection?

Here’s help to decide if enrolling in overdraft protection is right for you. Overdraft protection may be a good option for you if:

• You have a lot of traffic in your account. If multiple checks or several automatic payments go through your account each month, overdraft protection can provide you with an extra layer of safety to ensure that everything clears your account. Now that you’re on your own or starting over, you may notice that everything seems to be due all at once: high-interest credit card debt, compounded by your student loan payments, utilities, cell phone bill, and rent payments. If you’re feeling unsure about making withdrawals from your account because of payments waiting to clear, protection may be right for you.
• You want to avoid embarrassment when your card is rejected. If the embarrassment of having your card rejected at a restaurant or retail store gives you such intense anxiety that you would avoid it all costs, overdraft protection can be your best friend. It may not be the most rational of deal-breakers, but if, for example, you’re entertaining potential job connections and networking during the week at social functions, having your card rejected when you go to pay for the bill is the last thing you want.

When to say “No”

If you find that these scenarios don’t apply to you may not need overdraft protection. Think about declining overdraft protection if:

• You don’t make a lot of purchases with the account and do not utilize recurring payments. One of your accounts may be for emergencies only, or perhaps you do not face the same financial responsibilities as most investors and taxpayers, even after graduation or beginning a new financial chapter in your life. Signing up for protection might be unnecessary in this case, and the high overdraft fees that banks typically charge could actually do more harm than good for your finances.
• You track your purchases and keep tabs on your account balance frequently. If you check your bank account daily and remember when your automatic withdrawals occur week-to-week or month-to-month, you’ve likely got your finances under tight control, and overdraft protection may do little to help you. Alternatively, if you’re starting fresh in the personal finance world and have decided to use only cash for all transactions, you will know exactly how much of your funds you are leaving at one time. In this case, overdraft protection may be an additional hassle to your already-minimalist lifestyle.

Remember that overdraft protection is not a permanent fix–it’s a temporary pass. If you find that you’re making several overdrafts per month, there’s probably a more serious and fundamental problem with your budgeting skills. In this predicament, think about giving your money management system a makeover with the help of a financially-savvy friend or financial professional.

Keep in mind that each overdraft protection program is different. You will likely have the option to link your checking account to your savings account, and some institutions may give you additional options such as linking to a credit card or home equity line of credit, so consider your options carefully.

Mistakes happen. After graduation you could be between jobs or freelancing to make ends meet. Sometimes a withdrawal may come too early or you’re faced with a sudden emergency, inadvertently slamming your account with fees. Consider what kind of overdraft protection your bank or credit union offers and weigh your financial options. Does the enrollment outweigh the potentially heavy fees?

Priscilla McEver is a freelance proofreader and blogger. She is based in Brooklyn, N.Y.

Source URL: Overdraft protection: when it hurts, when it helps

Copyright Protected © 2010 Money Blue Book: Personal Finance Blog. All Rights Reserved.

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