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Tuesday September 26th 2017

How to Make Your Checking Account Pay You

Banks have always offered special deals for customers who have savings accounts, but very little has been offered to checking customers until now. Free checking has become almost standard at most banks as long as customers meet the free checking requirements. Banks are starting to experiment with the idea of offering cash back for customers in certain situations. The banks are hoping that these additional perks will draw in more customers as people look for new ways to save money.

Better Customer Perks

Traditionally, a bank could maintain healthy customer satisfaction through the return that the customers received on their checking accounts. Recent economic struggles have caused those interest rates to plummet in the last few years, however. At the current interest rate level, there is hardly any incentive for a customer to keep money in the bank. Banks have responded by creating new savings packages that can be accessed through a customer’s checking account. When someone spends money from their checking account, a certain amount of reward money is deposited into their savings account. People can use these programs to grow their savings while making everyday purchases.

Cash Back Checking Accounts

Some banks offer a reward that is a percentage of the money you spend. For example, you may earn up to 2% on all of your purchases for the first 6 months, then 1% on all purchases after the first 6 months. There is usually no limit on the types of purchases that you make, as long as they are made using your checking account with the bank that offers the special program. The cash rewards may not seem like much, but they can add up over time – especially if you spend plenty of money from your checking account.

Online Banking Rewards

Other banks are offering cash rewards as part of their push toward digital operations. With these programs, customers are awarded cash back as long as they agree to shift all of their banking needs to digital formats. Customers who choose to use the ATM rather than the teller and receive all of their banking information through e-mail and the bank website can take advantage of cash bonuses through banks that offer this type of program. Usually the offers include one-time bonus cash rewards rather than rewards that are based on the purchases you make.

Cash Rewards for Checking is a Growing Trend

The number of banks that offer these types of cash rewards for checking accounts is small right now, but interest is growing nationwide. As banks continue to receive a favorable response from these programs, more banks will begin to incorporate them into their checking account packages. Cash back checking accounts are poised to become banking staples, just like free checking accounts swept through the banking world a few years ago. Banks benefit because they gain more customers who may choose to use digital banking options, and customers benefit by pocketing a little extra cash from the bank each year.


Seven Budgeting Basics

A budget is simply a plan… a plan that you make to tell your money where to go. A written budget will show where every dollar you goes and make your income work for you. Getting started is easier than you might think!

1. Track your spending for a month.

The first step in setting up a budget is to figure out how much money is coming in and how much is going out each month. You probably have a pretty good idea how much is coming in, but you may be surprised to see how much is going out.

2. Categorize your expenses.

You can come up with whatever makes sense to you, but some common categories are:

    • Savings & Retirement

    • Housing & Utilities

    • Food

    • Transportation

    • Medical/Health

    • Personal

    • Recreation

    • Debts

3. Pay yourself first.

Even if you can only save $5 or 10 each week, do it! The quickest way to wreck a budget is not having an emergency fund. When those unexpected expenses come up, you need to be prepared.

4. Figure out where adjustments are needed.

Are your expenses in line with your income? Maybe you found some money leaks… you know, those little expenses like fast food and movie rentals that really add up over a month’s time. You might not be able to do much about your fixed expenses, such as housing and utilities, in the short term; but you can take of control of those money leaks.

5. Reconcile your outflow with your inflow.

If you are fortunate enough to have more coming in than going out, you need to assign it a job; maybe paying down debt or adding to your emergency fund. If your outflow exceeds your inflow, you will have to cut some expenses or create additional income. This is the most important part of budgeting, because it’s the part that calls for action. Don’t forget, this is a process, and it may take two or three months to make your budget reconcile.

6. Use cash.

This is especially important for variable expenses like groceries, clothing, and entertainment. For example, withdraw only the amount of cash that you plan to spend in a shopping trip and discipline yourself to spend only that amount. Spending cash is much more painful than using your debit card!

7. Stick with it.

Your budget won’t be perfect the first month, or probably even the second month. It takes time and persistence to develop a written plan that will work for you. Keep in mind that your budget will change over time, hopefully for the better if you pay off debt or increase your income.

A budget is a powerful tool that you can use to change your future. A certain amount of self-discipline is needed, but the effort you put forth will be worthwhile as you take control of your money.


How Banks Make Money when They Can’t Lend


Many people don’t understand how banks make money. Essentially, they are money stores. They buy and sell money, rather than retail items. They sell loans, investment vehicles and various financial products, many of them invented by the banks themselves. Banks earn interest on loans and use that income to pay for interest on accounts and CDs. They also charge fees on financial products and services.

Because banks are in the business of lending, they can’t make money until they have money on hand. That’s why they use enticements like free checking and savings interest to gain new customers. It almost seems obscene that a bank can charge 11 percent interest on a $200,000 loan and then pay customers 1% on a $1,000 checking account, but that’s how banks make such incredibly high profits. Even in the down economy, when everyone else is struggling, banks are thriving and growing.

How Banks Earn When they Can’t Lend

Loaning money is a risky business. If the bank doesn’t get paid, it can’t pay its customers. That’s why banks have been looking for other ways to make money. One huge source of income for banks in a time when fewer Americans have the funds to borrow has been overdraft fees. According to the Center for Responsible Lending, the total cost of unauthorized overdrafts is about $23.7 billion per year.

Overdraft Fees

New regulations intended on protecting consumers from overdrafts, has actually made them more likely. While consumers can opt out of certain overdrafts, point of sale overdrafts often don’t go into effect until a month after an account is open. If the bank does not contact consumers to tell them it’s time to opt out, they may end up paying overdrafts inadvertently.

Recently, Bank of America and Citibank changed their policies on overdrafts for debit accounts. Now, the banks will refuse them unless instructed otherwise. Bank of America and Citibank will only cover debit card and ATM overdrafts if customers sign up to link their savings or line of credit to the checking account. The fees for these kinds of overdrafts are much lower.

Pay Day Loans

Another practice finding its way into banking is the Pay Day Loan. These loans must be paid back quickly, making them much more likely to result in default, then exorbitant fees. Borrowers become trapped in a cycle of debt that essentially amounts to legal loan sharking. Consumers flip the loan continually to extend the time they have to pay. In the end, the average pay day loan costs a 400% annual percentage rate.

Banks are an important convenience for consumers and an important part of our financial system. Unfortunately, they can also destroy the lives of those who fail to use banking responsibly.


Do You Really Need a Bank?

Candice Choi, AP Personal Finance Writer, did an interesting piece on personal finance recently. Her October 4, 2010 article details her experiment in which she tried to live without a bank for one month. What did she find? Fees, fees and more fees.

Living without a Bank

Why would anyone live this way? Well, if you’ve got bad credit or a shady history of writing bad checks, banks won’t want to deal with you. Some people just don’t trust the Internet age and want to live off the radar. Maybe you just don’t speak the language.

If you’re one of these people, you may find yourself paying $28 every week to cash your paycheck. If you need to pay a bill, you’ll be charged $1.50 for a money order. You could try a pre-paid card, but those cost a dollar every time you use them. Ms. Choi racked up $93 in fees in just one month of living without a bank. Living anonymously isn’t cheap.

As it turns out 25% of American households don’t have bank accounts. Most of them make very little money, less than $30,000 annually. And the numbers don’t appear to be getting any better. The number of U.S. citizens living this way is expected to keep climbing. Ms Choi details the government push to get more of these people into banks, which may automatically make some suspicious. And when we look more closely at these fees, things don’t quite look right.

Check Cashing Fees

Look at Ms. Choi’s experiment and the fees she paid. She details $56 to cash two paychecks at a check-cashing store. Why didn’t she just go to the bank where each check was issued? There’s no fee for that. Wal-Mart advertises a $3 fee for check cashing, so paying so much makes little sense.

Cash Cards

The remaining fees were for cash cards, another expense that should be easy to minimize. Ms. Choi paid $4.95 for each of the cards she used. These cards came with various additional fees for each time you used the card, used a pin, got cash back or used an ATM. Again, these cards make little sense. Why not pay cash?

Money Orders

She has a point with money orders in that she had to get two of them because they are limited to $1,000 each. So, to pay her $1,300 rent, it cost $3.50 from Western Union. Not bad. At the post office, it would have been $2.60. So for every bill you pay, it’s another $1.50 or so out of your budget. How many utilities do you pay for in your home – five or six? Ten? Do the math.

The Cost of Your Time

Besides the fees, there is extra time involved when you have no bank. You have to wait in line to cash checks or get money orders to pay bills. Walking around with your cash can be unnerving. Plus, keeping a cash emergency fund is a big security risk. You’d have to pay for money orders to send funds to your retirement account, taking a chunk off your earnings before you even get to check how the account is doing. You can’t make hotel reservations or reserve a rental car without credit cards, so you’d have to pay cash in advance, hoping they have the room or car you need.

Conclusion

It looks like you don’t really NEED a bank, but life is a lot easier with one. Convenience, the ability to set up automatic savings and the security of having your money protected are all good reasons to have a bank account. Unless you can’t get one, you’re better off having one.


Credit versus Debit: What’s the Difference?

On the surface, debit cards and credit cards look very much alike. In either case, the user typically slides a wallet-sized piece of plastic through a card reader, and then signs a receipt or enters a Personal Identification Number (PIN), authorizing his or her transaction. Looking more closely at these forms of payment, you will notice a few fundamental differences. Let’s take a look at some of them.

Source of Funds

The most basic difference between credit and debit cards lies in the source of the funds used to conduct a purchase transaction. A debit card uses the money that you have previously deposited into a bank account, while a credit card essentially gives you a series of short-term loans that must be paid by the end of the month. With a debit card, it’s necessary to have the cash up front. With a credit card, you can make purchases even if you have not yet earned the money.

Protection from Debt

For this reason, debit cards can act as an excellent insulation against credit card debt. Credit card debt is the scourge that has enslaved so many people to an endless cycle of payments to credit card companies. The interest on their balances is so high, that a large portion of monthly earnings goes straight to paying for the interest.

With a debit card, it is still possible to overdraw your account, resulting in fees. Typically, a fee of around $30 is assessed on your bank account when this occurs. New laws in place require banks to alert you and only allow an overdraft with your prior permission. This makes it impossible to go deeply into debt with a debit card.

Purchase Protection

One advantage that credit cards have over some bank debit cards is purchase protection. If an unscrupulous person attempts to defraud you or fails to deliver on promised goods or services, then you can contact your credit card company to have the charge removed. This protection is mandated by law on all credit cards. You can still get this protection with a debit card, as long as your card carries the Visa or MasterCard logo. If your debit card is issued by a small local bank, then you shouldn’t assume that you are automatically protected; you should check with them on their specific policy and be sure there is a Visa or MasterCard logo on the card.

When Credit is Better

One of the greatest benefits of using a credit card instead of a debit card is taking advantage of rewards programs. You can get 1% or 2% cash back on all your purchases at the end of the year. Sometimes you can accumulate airline miles that you can exchange for airplane flights or for hotel or rental cars. There are also many credit cards with specific tie-ins with some of the major corporations. The GM credit card, for example, will allow you to accumulate credits that you can use to obtain a discounted price on your next GM vehicle. If you are responsible and can pay your bill on time, then these rewards are a great reason to choose a credit card instead of a debit card. If you don’t regularly make your payments on time, then these rewards end up costing you more than they give you.


Keeping Financial Information Safe Online

Keeping financial information safe has always been important. Before Internet technology became available, there were two or three important pieces of information to know: your social security number, your date of birth and your pin number at the bank.

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Changes in Overdraft Protection – Get Ready

Bank fees, particularly overdraft fees can deplete a customer’s bank account. In the past, a customer could be enrolled in automatic overdraft protection by their bank. There was no upfront fee, banks charged overdraft fees to accounts with insufficient funds resulting from a debit card or ATM transaction. A law was passed to protect consumers from banks automatically enrolling then in overdraft protection.

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