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Personal Finance Blog By MoneyRates - October 2011

Will Bank Transfer Day ruin credit unions?

October 31, 2011

| Money Rates Columnist

I have a business checking account with a "big bank" and one of its managers called the other day to ask if I would like to come in and figure out a way to get rid of the fees I was accruing on that checking account.

I was impressed. I knew banks were taking a public relations hit from all the recent fees, particularly after Bank of America's announcement that it was going to charge customers $5 a month for using a debit card and the announcement by many others that they were going to charge for checking accounts. But were banks managers really meeting with customers individually to get them to stay?

Well, I guess mine was.

The truth was, it was pretty easy to set up some checking account features, such as a direct deposit, to avoid the charges I was getting. With my bank's help, I was even able to set up a new money market account and take advantage of some great refinance rates to lower my house payment.

But although I do some banking with my big bank, my day-to-day personal checking account is through my local credit union. I've been with it for about 25 years and I've never seen a reason to leave. They don't charge me for a checking account and my debit card is free, too. I also have two savings accounts there, and the interest rate on my credit union credit card is relatively low too. They also have some of the best CD rates in town.

I got dinged with some unexpected overdraft fees a couple of years ago, but other than that, I have no complaints about the service or practices.

So I hope that this national Bank Transfer Day on November 5 doesn't screw things up for me. Thousands of people are threatening to leave their banks for credit unions, and what if a lot of those new credit union customers are so-called "bad" account-holders who maintain low balances, incur costly overdrafts and make only slipshod loan payments? Won't these low-value accounts have to be subsidized by the rest of the membership?

I like my little credit union. The tellers are nice and they don't charge me when I come by to make a deposit in person. There's never a line, and when I have to order checks or a new debit card, they take care of it right away. The general manager even called me personally that time I'd gotten a little steamed about those overdraft charges.

So I'd like to keep banking with this credit union. But will it be the same if thousands of new customers show up demanding a free checking account?

I hope so.

I'd hate to have to move all of my accounts to my big bank.


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Making Bank Transfer Day work for you

October 31, 2011

| MoneyRates.com Senior Financial Analyst, CFA

Remember, remember, the 5th of November.

So goes an English children's rhyme, which commemorates Guy Fawkes Day. Guy Fawkes was a would-be rebel who plotted unsuccessfully to blow up the English Parliament in the 17th century.

The 5th of November, 2011 may also be a day of revolution, albeit of a more commercial nature. That date has been dubbed "Bank Transfer Day," an occasion for bank customers to show their dissatisfaction with bank policies by transferring their accounts to credit unions. Over 60,000 people have reportedly pledged to make this change. Is it something you should consider?

Choice is power

The popular dissatisfaction with banks has many sources, but it has been galvanized into action by rising bank fees. Free checking accounts are becoming more rare, and a few banks have made high-profile announcements of monthly fees for debit cards.

What alternative do consumers have? The "Bank Transfer Day" movement is touting credit unions, whose non-profit nature makes a striking counterpoint against the perceived greed of banks.

If you are considering dumping your bank, whether out of protest or simple economic self-interest, here are two facts to keep in mind:

  1. There are over 7,000 FDIC-insured banks. These institutions range from small, local organizations to multi-national corporations. With such a broad field, any sweeping assumption about bank policies is bound to be inaccurate.
  2. While credit unions are also plentiful, your eligibility to join a credit union is determined by your location, employment, or organizational affiliations. In other words, opting for a credit union will limit your choices.

The point is, as a consumer you have the right to look for free checking accounts, not to mention the highest interest rates on CDs, savings accounts and money market accounts. But your chances of success increase with the number of choices available to you. Don't limit your choices to credit unions. Consider both banks and credit unions as you shop for the best deal, and your choice will help demonstrate the banking polices you support.

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3 reasons to feel better about savings accounts

October 26, 2011

| MoneyRates.com Senior Financial Analyst, CFA

There's no doubt about it--savers are getting a raw deal.

Public policy since the financial crisis has been aimed at bailing out borrowers, generally at the expense of savers. One outcome has been that rates on CDs, savings accounts and money market accounts have dwindled to near nothing.

However, this week's stock market stumble provided a fresh reminder of why people who have stuck with conservative deposit accounts can count their blessings. CD, savings, and money market rates may be low, but they are firmly in positive territory. The same cannot be said for some other investment choices.

Here are three ways to feel better about savings accounts, just by looking at the recent performance of the following alternatives:

  1. Stocks. The stock market took a 2 percent beating yesterday (October 25th), just another dip in a roller-coaster ride that has been enough to give investors whiplash. Of the first 17 trading days in October, 12 of them featured up or down moves of greater than 1 percent. The net result of all this frantic activity? The stock market is down by 0.67 percent so far this year, even after accounting for dividends.
  2. Bonds. Bonds are not a great investment in a low interest rate environment. Like CDs, savings accounts, and money market accounts, they suffer from those low rates, but unlike deposit accounts, bonds don't benefit immediately from rising interest rates. Bond prices fall as bond yields rise, and through most of October the trend has been towards rising yields, and therefore lower prices.
  3. Gold. Gold may be the last refuge of the worst-case-scenario crowd, but lately it's been writing a pretty scary scenario for itself. Gold has tumbled by nearly 10 percent since peaking in early September, and after a run-up of more than 500 percent since the year 2000, there is plenty of more room for gold to fall.

The performance of these alternatives lately is enough to make people feel better about their savings accounts--if only because misery loves company.






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4 signs of a shrinking bank

October 25, 2011

| MoneyRates.com Senior Financial Analyst, CFA

According to SNL Financial, JP Morgan has just beaten out Bank of America as the largest U.S. bank in terms of assets. That means Bank of America's strategy is working out just as they planned.

You see, Bank of America is trying to shrink rather than grow. There are a variety of reasons for this, including the need to reduce overhead, economic setbacks, and new regulatory constraints.

The details of the banking industry don't interest most bank customers. Still, as a customer, you should pay attention to the overall direction of a bank's fortunes. It is much better to be with a bank that is in growth mode than with one that is trying to shed customers and accounts as fast as it can.

Here are some things you might experience if you are with a bank that is trying to cut back:

  1. Low interest on savings accounts. A bank that is in a defensive posture isn't likely to be assertively attracting customers with competitive CD, savings and money market rates.
  2. New/higher fees. Banks that are gasping for profitability will make desperation moves like adding fees. Checking accounts are often a target. Raising existing fees, or adding new types of fees, always looks good on a spreadsheet, but it often doesn't work out well for a business in the long run because it drives away customers. To the customer, increased fees are a bad sign on every level.
  3. Service reductions. Another way struggling banks try to restore profitability is by cutting back on customer service. This may mean fewer branches, fewer representatives available, or a narrower range of products.
  4. Disgruntled employees. Employees who know their organization is cutting back rather than growing aren't thrilled about their career prospects--and often aren't a joy to deal with.

While growth is generally a healthier sign for a bank, as a customer you should focus on banks that are striving for organic growth rather than those that grow by mergers and acquisitions. Outside acquisitions don't always work out so well--just ask Bank of America about Countrywide Financial.

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Proposed tariff against China threatens deposit rates

October 21, 2011

| MoneyRates.com Senior Financial Analyst, CFA

In a rare show of bi-partisan support, the Senate last week passed a bill that would set the stage for tariffs on goods from China. Neither the House of Representatives nor the White House seem to share the Senate's enthusiasm for the measure, which is fortunate, because it could be bad for the economy in general, and hard on CD, savings, and money market accounts.

The Senate's bill is retaliation for China's manipulation of its currency. Critics of the trade relationship with China charge that by keeping its currency low relative to the U.S. dollar, China is making it easier for its manufacturers to compete with U.S. companies. The Senate wants to fight back with tariffs against China, making their goods more expensive in America. Here are two reasons that could backfire:

  1. China can be an engine of global growth. China, like Brazil, Russia, and India, represents a key force in the world economy as an area with both a huge population and a rapidly developing economy. With the U.S. in a slow-growth mode, erecting trade barriers against the high-growth economies of the world could be self-destructive in the long run. Slow growth has already caused CD, savings, and money market rates to drop down near zero; locking in slow growth through protectionism could well mean locking in low interest rates.
  2. Tariffs on Chinese imports would be inflationary. Making Chinese goods more expensive wouldn't suit American consumers very well, and the resulting inflation would be yet another burden on people who are already seeing their savings accounts losing purchasing power.

A trade relationship, especially with a country going through the dramatic political, cultural, and economic transitions that China is experiencing, is both dynamic and sensitive. There are subjects that need to be addressed--in particular, the intellectual property protections that would help U.S. companies capitalize on the emerging consumer market in China. So expect the U.S. trade relationship with China to keep evolving through periodic negotiations. But the U.S. should remember that, in trying to shape something as delicate as this trade relationship, a hammer is not the right tool to use.



Posted in: Savings Accounts

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