Archives for 2008

How to Choose a Bank

How do you know if your bank is right for you? If you have been a subscriber to Quick Tips, then you know the first questions that must be answered: Is the bank an FDIC member and FDIC insured? The answer should be “yes.”

What other questions should you ask?

Location. Does the bank have branches or ATM machines that are close to your home, work, favorite stores, or activities? Remember that most banks charge a fee for using another bank’s ATM machines. You’ll also want to deposit any checks or cash quickly. Choose someplace close where it’s easy to make your transactions.

Fees. Do they charge you to have an account? If so, is there something you can do to lessen the fee or avoid it all together? Some banks waive their fees if you agree to direct deposit your paychecks, keep a minimum balance in your account, or have more than one linked account. You should be able to avoid any bank fees.

How to avoid bank fees. Banks have to make money to stay in business. One way they do this is by lending out money and charging interest. The other way is by charging fees.

You should be able to avoid fees with good record keeping. Keep your minimum balance and never use more money than you actually have (overdraft).

Every bank charges for overdrafts. It’s not only inconvenient for them, it’s actually illegal if you do it on purpose.

Keep accurate records with either a paper checkbook register, computer software, or handheld device. Your goal is to never have these fees charged to you.

The Bank Gave My Money Away

Do you ever get the feeling that you have lost some money? We’ve all lost money out of our wallets, our purses, behind our dressers, or under car seats. But, did you know that you can lose money in the bank?

If you have a bank account that has not had any activity for three to five years, your bank has to turn the money over to the state. The same is true for payroll checks that haven’t been cashed, and for safety deposit boxes that haven’t been visited.

How do you avoid losing your money like this? Make a deposit or withdrawal on each and every bank account at least once per year (either online or at the physical branch). Interest going into a bank account is not considered activity. Deposit and/or cash your payroll and gift checks quickly before you have a chance to lose or forget about them. Use traveler’s checks as soon as possible. If you have a deposit box, visit it at least once a year.

Keep your contact information up to date. Make sure that you update your address on each and every bank account, so the bank can send you important notices and you have a reminder that your accounts exist.

Do you want to see if you have any unclaimed money? Go to www.unclaimed.org and look under all the states that you have lived in. You may find that it is worth the trip.

The FDIC: What You Need to Know

Did you see the gentleman on the news a few weeks ago who had $236,000 on deposit with Indy Mac Bank? He almost lost more than half of his money even though his bank was insured by the FDIC. That’s because the FDIC only insures deposit holder funds for up to $100,000.

Lucky for him, the FDIC in Indy Mac’s case was paying an additional fifty cents on the dollar, so he got another $68,000 back. The bad news is that he lost $68,000. That’s a lot of money to lose.

If you want to protect your savings and deposits, the best way is to understand how the FDIC works and make it work to your advantage.

First make sure the bank you chose is FDIC insured. To verify that your bank is safe, call 877-275-3342. If your bank isn’t FDIC insured, move your accounts to a bank that is FDIC insured.

The FDIC insures each account holder up to $100,000. Take a look at these examples to see how to protect your money:

Jane Smith
Checking Account $25,000.00
Savings Account $50,000.00
CD $50,000.00
Total Amount at Bank: $125,000.00

* Jane is only insured up to $100,000.00. She would lose $25,000.00 if her bank failed.

Greg and Sally Jones
Mutual Checking Account $15,000.00
Greg’s Savings Account $75,000.00
Sally’s Saving Account $30,000.00
Total Amount at Bank: $120.000.00

* Greg and Sally are insured up to $200,000.00. They are two different account holders. If they had a mutual savings account instead of two separate accounts, they would lose $20,000.00

Here are some other things that you need to be aware of:

The FDIC insures $100,000 per account holder per bank, not per bank branch. Yes, some people have made that mistake. The branches aren’t separately owned. If you deposit money in the Springfield Bank – Centerville Branch and then open a new deposit account at the Springfield Bank – Mall Branch, that’s still the same bank, and the FDIC considers it to be all one pile of money. The same applies if you open one account at Springfield Bank – Online and one at a physical branch. If you have more than $100,000 to lose, use two or more separate banks.

If you have a small business that uses your personal social security number as the tax identification number (i.e. Mary Brown, D/B/A Mary Brown Personal Chef) then that balance is part of your $100,000.

If your bank is taken over by the FDIC, chances are that another bank will buy the accounts of the failed bank. When that happens, you have six months grace period under FDIC to reorganize your accounts if needed.

You work hard for your money, so keep it as safe as possible. Don’t lose money that you could have easily protected.

What is the FDIC?

What Happens Now?

With all the news about banks failing. and concerns about the accuracy of the FDIC Watch List (and its secrecy), you may be wondering how to protect your money? Banks are supposed to be the safest place to store your money, right?

These questions are only new to today’s younger generation. Your grandparents and great-grandparents remember when bank failures were all too common.

Following the stock market crash of 1929, thousands of banks failed. In fact, bank failures in the past led thousands of people to store their savings at home. People would take their extra cash and bury it in the back yard, stuff it behind walls, and inside of mattresses. Unfortunately, this led to a lot of lost and stolen cash (not to mention the cash destroyed and lost forever by house fires and floods).

The Federal Deposit Insurance Company (FDIC) was started in 1933 to help people trust banks again. With the FDIC in place, people could deposit their savings in the bank knowing that at least a portion of their savings would be returned if their bank failed. That’s right, the FDIC is an insurance company for banks! Just like you might be reimbursed a portion of your car’s value in the event of a crash, the FDIC will reimburse a portion of your cash if your bank fails.

Next week, we’ll talk about how to find out if your bank is FDIC insured, how much money they will reimburse you, and how you can make the FDIC work to your advantage.

FICO Has Something to Say About You

You have all heard me talk about FICO scores and how important they are to your financial health. I’m going to walk you through a scenario so you can see how FICO affects you.

Let’s say that you are going to apply for credit. You may be thinking of buying or leasing a new car, opening up another credit card, purchasing or refinancing a new home. Whatever it is that you’re thinking about doing, it will involve the potential creditor accessing your credit report and score. This will help them decide if you are creditworthy and what terms you will be offered.

When the creditor prints your credit report, they will be looking at your credit from a specific date. They’ll see who you have credit with, your credit limit, how much you owe, how long you have had your accounts, your history of paying back your debts, and whether or not there is derogatory / negative information with an account. All this information is put into a formula to determine your credit score.

The credit score that creditors use was developed by Fair Isaac and Company (FICO) to determine whether you are a good credit risk and what the likelihood is that you will pay the credit back on time. The higher your credit score, the less risky you appear to a potential creditor. FICO scores go from 300 to 850 – with 850 being the best.

This is one of the major factors in determining your creditworthiness. Creditors have guidelines that determine if you can be considered for a specific program. For mortgages, your credit score has to be at least in the mid-range to even be considered for a mortgage program. If your score is one point below the minimum score, I cannot offer you that mortgage program. Auto loans have similar guidelines. When you see car financing commercials that offer people 0% financing for “well qualified borrowers,” they mean that you have to have a particular minimum credit score to be seen as “well qualified.”

So what happens if you don’t qualify for the best mortgage program or that 0% car financing? You may still be approved, but you will be offered lesser terms. Those less than favorable terms will mean that you will be paying more money out of your pocket. A $250,000 mortgage at 8% instead of 6% will cost you an additional $335.00 per month.

Bottom line: keep your credit score as high as possible, by doing everything possible from your own. This includes making sure your payments reach your creditors before the due date and checking your credit report regularly for suspicious activity.

Married Finances: Should Two Become One?

Weddings are an emotional celebration. We love the idea of a bride and groom starting a new life together. We use words like “two becoming one” or “sharing your lives as one,” meaning that everything will be shared as though the couple are no longer individuals. I believe this puts a lot of unnecessary sentimental pressure on a couple to share all their finances even though it’s not always necessary, or even wise, to do so for every single account or property.

So, how do you merge two separate financial lives? There are many successful ways to do this. Some couples keep their individual incomes and expenses separate by having separate bank accounts, credit cards etc. Then, they have a joint expense account for their household bills that they each put money into. Sharing the joint account can be as simple as having each person responsible for different bills, or figuring out the bill totals and having each put in their half. Some people base the joint account total on a salary percentage (this works great when one spouse earns more money that the other). And, of course, some people merge everything and all accounts are joint.

You need to think about what type of financial people you are. Here are 3 questions to think about that will help you decide (and could possibly save some financial squabbles):

Are you a saver and your spouse a spender? Having one person be the fall back for financial emergencies can be challenging financially and to the marriage.
Are you both spenders? What will happen when there are no reserves for emergencies?
How do you each handle bill payment? Are all your bills paid on time? Do you have bills that have slipped through the cracks?

Answers to these questions can be tricky, but worth the discomfort. Proactive thought can be a financial life saver for your future. Double check your answers by looking at your account statements and credit reports. You may not be as good at finances as you think you are, or you might be better than you thought. Discuss your habits with each other, as well as any outstanding issues that could affect you both.

I am a firm believer that you both should participle in your finances. You have joint goals in your future, so you should do the financial planning for this together as well. Don’t let the responsibility fall to one person. If something were to happen to the “responsible” one, then the other party would be left completely in the dark, not knowing anything about the accounts or how to deal with them. I have seen many situations like this. It may seem kind, or convenient, to handle the money if your partner doesn’t know how, but it’s not.

Whichever way you choose to handle your finances as a married couple, make sure it’s a mutual decision based on real knowledge of your habits and goals.