Laura Rowley

Banks are squeezing customers with historically high fees and penalties, from overdraft charges to account service fees to new surcharges on foreign debit transactions.

But the pressures that have prompted the fee war with consumers started well before the financial meltdown, according to Jo Preuninger, a former management consultant who spent more than a decade in the consumer banking arena.

I asked Preuninger for a little history, as well as some of the tricks of the trade that banks would prefer to keep secret.

Secret #1: For many banks, the most profitable customers aren’t the mass affluent — they’re “Joe Lunchbox.”

In 1999, the Gramm-Leach-Bliley Act allowed banks, insurers and securities firms to merge, breaking down barriers that had been in place since the 1930s. Following the new law, “if you took all the (deposit) checks written for $10,000 and above, most were written to institutions such as Charles Schwab, Fidelity or Merrill Lynch,” says Preuninger. “They took the best customers. The banks were becoming more like Laundromats, where you put money in for a short period because you still needed to pay with a check or (get cash).”

At the same time, loans provided little profit as interest rates remained relatively low, prompting banks to seek consistent, non-interest income. “The focus was on how banks could not only identify fees they could charge, it was how to do a better job of collecting their fees,” says Preuninger.

Middle-income customers presented the greatest potential to harvest fees. “There’s certainly a customer segment that could be called ‘Joe Lunchbox,’ who expect to be nickeled and dimed,” says Preuninger. “They are managing money from paycheck to paycheck. It’s someone who would prefer to pay an overdraft fee to get their mortgage covered rather than get hit by a mortgage provider with a late fee and a ding on their credit score.”

Last year, overdraft and insufficient-funds charges totaled nearly $35 billion and comprised about 90 percent of banks’ consumer-fee income, according to a study by the consulting firm Bretton Woods Inc. Three-quarters of banks automatically enroll consumers in their “overdraft protection” programs without formal permission, and more than half of banks manipulate the order in which checks are cleared to trigger multiple overdraft fees, according to a Federal Deposit Insurance Corporation study.

“They are going to try to turn the best profit they can, which is why they post in the most attractive way they can while avoiding and minimizing legal exposure,” says Preuninger.

Someone who overdraws a checking account a few times a year should choose a bank with a program that makes it easy (and free) to shift funds from savings to checking to protect against overdrafts.

Secret #2: Banks hope frequent overdraft customers don’t understand the alternatives.

The banks deemed overdraft protection to be a customer service convenience that provides an alternative to payday lenders, says Preuninger. And yet some of those customers might almost fare better with loan sharks. The Bretton Woods study found 80 percent of overdraft fees are incurred by 20 million households, who paid an average of $1,374 in overdraft fees.

These customers should consider ditching traditional checking account in favor of a prepaid debit card, which typically cost $70 to $80 a year ($10 upfront with a $5 monthly fee). Users direct-deposit their paychecks onto the cards (the money is FDIC-insured) and can do point-of-sale transactions and pay bills online. There are no overdraft fees; the purchase is declined if the card is empty.

Secret #3: Those helpful new customer set-up kits, designed to make it easy to switch banks, also try to make the account “sticky.”

“I did a lot of work in customer attraction and retention,” says Preuninger. “The biggest barrier to new accounts was switching. There’s a higher tolerance; a bank may have a lot of long-term customers — that doesn’t mean they love (the service).”

Most banks have a kit to assist customers in switching services. But do it yourself instead. Enter your regular bills in the bank’s online billpay site, rather than signing up with each biller’s website. If your new banking relationship goes sour, the account is more transportable. You won’t have to log into a dozen different biller sites and change the account and routing numbers.

Secret #4: Long-term relationships matter.

“Know what you want in the way of a bank and stay as long as you can because tenure does matter,” Preuninger says. “If you’ve been with a bank three to five years, they treat you differently than if you are there six months. If you direct-deposit your paycheck and have a (savings) relationship, they think of you differently than if you have free checking with $100 in it. Tenure and relationship does matter.”

So if you incur the rare fee now and then, always call customer service and ask (politely) for it to be removed. Emphasize your long-term relationship with the bank and ask for a supervisor if the initial effort fails.

Most customers aren’t profitable until they’ve been with a bank a few years because of the high cost of customer acquisition — sales compensation to branch managers, IT infrastructure, documentation and account setup. “It’s a long time before they break even, especially if they goose it with $100 to you to open the account,” Preuninger says.

Secret #5: Banks want you to enjoy the “advantages” of paying with credit, debit, check and cash — because it will make you more likely to lose track of your money.

“One of most dangerous things going on with consumers is they are not paying attention to the variety of ways they are paying. They are balancing money back and forth because it’s too hard to account for,” Preuninger says. “If you pay seven different ways, you’ve just added complexity to your life. Consumers shouldn’t say to the bank ‘you’re responsible to tell me what I’m doing with my money.’”

But more banks are moving in that direction. PNC Bank, for instance, launched an account called Virtual Wallet that presents account information in calendar form, focused between today and the account holder’s next payday. A “danger day” appears on the calendar in red if the account is at risk of an overdraft. The user can either move bills later in the month, or shift money immediately from the savings portion of the account at no charge (the account does it automatically if the consumer doesn’t). Statements are only available online and the bank charges 50 cents per check for writing more than three a month.

Best bet? Simplify. Get a free checking account with no fees and a low minimum balance requirement, pay major household bills online, and then stick to cash. You’ll think twice about purchases, and avoid getting caught in the widening web of bank fees.

Read more from the original source:
Five Secrets Your Bank Doesn’t Want You to Know

~ Andrew Beattie

Economic conditions can be as temperamental as the weather. In this article we’ll look at some simple steps that can help keep the financial boat afloat during an economic tempest.

Batten Down the Hatches
Warren Buffet derides management that embarks on cost cutting, as good management shouldn’t need to be prompted to control costs – that should be second nature. People are less strict with their personal finances than Buffet is on management, but a downturn quickly provides the motivation needed for cost consciousness. There is always room for cutting frivolous expenses, or at least substituting them with cheaper alternatives. This applies to everything from the morning coffee to landscaping the backyard.

Set in Stores
Even if you have creditors banging on your door and ringing you at work, your first priority should be building or augmenting your emergency fund. When money is consistently flowing out of your bank account leaving a near-zero balance, there is no cushion for unexpected and unavoidable expenses – like a root canal or a new radiator. This forces people to take on yet more debt to make ends meet, and the outflow of cash worsens until it seems like they are working just to satisfy their creditors. The better alternative is to make minimum payments on your debt while building a cushion of at least one month’s wages, but preferably 3-6 months.

The larger the emergency fund, the more secure you’ll be mentally and financially. With three or more months in reserve, it takes a pretty big emergency to shake things up. Building the fund should take precedence over investment as well as debt payments. Any automatic investment plan should be put temporarily on hold and that money funneled towards the emergency fund to help speed up the building. It may feel like you’re dodging creditors and robbing from your golden years, but with a proper emergency fund, you’ll be in a better situation to consistently make payments on your debts and regularly invest no matter what happens in the future.

Patch the Hull
When the general market is choppy, there is almost daily coverage of where the hot money is going. Investors rush out of cash and into bonds; out of bonds and into stocks; out of stocks and back into cash and bonds, and on and on. Rather than getting caught up in the stutter-step of fast money, most people would benefit far more from paying down existing debt than finding safe havens to park idle funds.

If you are holding debt during a downturn, paying it back is one of the few places where you can put your money that will guarantee a return no matter what the market is doing. The return on paying off a 5% loan is, of course, the 5% you are no longer being charged. With some credit companies charging in the high teens and twenties, you’ll likely outstrip the S&P 500 and your own portfolio simply by getting that future interest off your books.

Check the Charts
When the economy is disrupted, the value of stocks in your portfolio will also be whipsawing. Although you don’t want to make rash decisions during economic downturns, recessions and slumps are very informative on the whole. In good times, mediocre and even weak companies can prosper, so hard times act as a baptism of fire for all stocks. Therefore, there’s a lot to be learned from how a company reacts to a downturn. Companies that continue to profit – or at least lose money at a slower rate – in a downturn can often take advantage of depressed prices to expand their businesses and snap up assets on the cheap.

Cash on hand, much like your personal emergency fund, is one measure of how vulnerable a company is when profits slump. Companies that perpetually overextend themselves in good times are easy to spot, as they languish and burn up their cash reserves in hard times. If you already have a regular schedule for checking into your holdings, don’t change it because of an economic dip. Do, however, note how they are handling things and whether or not cash reserves are being used up. If you still like how a company is acting, it’s a good time to get more on the cheap. If the downturn has uncovered some dogs, then why hold on when you could do better things with the cash that’s tied up?

Conclusion
One of the biggest temptations is to reverse all your preparation when the economy recovers. Economists sometimes call this spending binge “pent up demand.” As things improve, there seems to be less need to have large amounts of cash in reserve, or to keep to a strict budget. There is also a tendency to mindlessly push money back into the market to make up for lost time and value, sometimes leading to an echo bubble. If, however, you can continue to run a tight financial ship, you’ll find that your superior reserves, cost consciousness and contrarian thinking will keep you sailing smoothly in all manner of economic seas.

Here is the original:
Four Ways to Weather an Economic Storm

Couples frequently avoid talking about money before marriage. That’s unfortunate, because sharing perspectives about money can help couples resolve the financial issues that doom many marriages.

The following financial compatibility quiz can help couples planning to tie the knot discuss financial issues. Answer “true” or “false” to each of the following statements.

1.      We are aware of and comfortable with each other’s money personalities.

2.      We have discussed our short- and long-term financial goals.

3.      My spouse and I are well versed in personal finance.

4.      My spouse and I have discussed a plan to structure our finances.

5.      We have planned for the impact that marriage will have on our taxes.

6.      We have decided how to divide up the money management tasks.

7.      We understand the importance of establishing a realistic budget.

8.      I know my future spouse’s investment personality and risk tolerance.

9.      I know how much debt my spouse is bringing into our marriage.

10.     We have made a commitment to discuss money regularly.

Answering “true” to eight or more statements indicates that you and your spouse are on your way to a stable financial future. However, it’s still a good idea to continue to communicate and work together.

If you answered “true” to between five and seven of the above statements, you and your spouse need to devote more time to planning your financial future together. With a little luck, you can achieve financial compatibility.

 If you answered true to fewer than five questions, don’t call off the wedding yet. Instead, make a sincere commitment to discuss these issues and consider meeting with an experienced financial planner who can help you start your marriage on firm financial footing.

 Read on to learn more about the importance of each question.

We are aware of and comfortable with each other’s money personalities.
Some of us grew up in families where parents watched every dime; in other families money flowed easily. Some people measure self worth in terms of money and possessions. Some people are natural spenders; others are savers. Understanding your future spouse’s background and values can help avert problems down the road.
 
We have discussed our short- and long-term financial goals.
Setting financial goals helps you develop priorities and define the type of lifestyle you will lead. Break down your goals into manageable pieces. If you want to buy a house in five years, determine how much you need to save monthly to meet the down payment.

My spouse and I are well versed in personal finance.
Parents and schools rarely provide training in personal finance. Work together to develop your financial knowledge and build confidence by taking a course, meeting with a financial planner, or purchasing a reputable book.

My spouse and I have discussed a plan to structure our finances.
Will you pool all your resources into joint accounts, maintain separate accounts, or devise some combination of the two? There is no right or wrong answer; the key is to come up with a plan that works for you both.

We have planned for the impact that marriage will have on our taxes.
The marriage “penalty” means that you and your spouse together are likely to pay more taxes than you each did as singles. Check with a CPA or tax professional to ensure that you are prepared to meet your tax responsibilities and aware of any tax law changes in this area.
 
We have decided how to divide the money management tasks.
Decide who will be responsible for balancing the checkbook, filing taxes, and tracking investments, or better yet, set up a plan for rotating these and other financial tasks.

We understand the importance of establishing a realistic budget.
Couples without a budget tend to live and spend from day-to-day. A valuable budget helps you save regularly, utilize income wisely, and avoid misunderstandings about how money is spent.

I know my future spouse’s investment personality and risk tolerance.
Investing styles are different, ranging from conservative to risky. Take the time to arrive at a level of risk where you both feel comfortable.

I know how much debt my spouse is bringing into our relationship.
Couples must enter marriage knowing how much debt they each carry and how it will be paid.

We have made a commitment to discuss money regularly.
Differences are inevitable. How you handle them is important to your marriage.
Whatever your answers, honest communication is the key to a lifetime of financial compatibility.

~ Kim Kiyosaki

As my mind ran through all the mistakes I’ve made over the years, two thoughts came into my head.

First, I don’t consider a mistake something bad or something I wish I hadn’t done. A mistake, to me, is simply an action I took that did not have the outcome I intended. Every mistake I make teaches me something I didn’t know. Human beings are designed to learn from mistakes. The more mistakes I make, the smarter I become.

So even when I lose money on an investment, that loss tells me there’s something I need to learn. People who avoid making mistakes stay stuck, even trapped, by what they know. They rarely venture into untested waters and don’t learn anything new.

Second, I found that my mistakes–where the actual results didn’t match my intended results–fell into two main categories: 1. when I lost money or 2. when I lost a good deal.

These cases all had something in common. The mistake was not losing the money or losing the deal. That was the result. What was more important was what caused the result. That’s where the real mistake–plus the lesson–lies.

It turns out that every memorable and costly faux pas I made was the result of the same simple but powerful failing: My biggest investment mistakes occurred at times when . . . I did not trust my gut.

It was those times when I doubted myself: when something sounded so good it had to be true (that’s also known as greed) or when I allowed the so-called experts to talk me out of it.

Not trusting your gut, also known as not following your intuition, can last just a moment. It’s when you see or feel something, as subtle as it might be, and you ignore it.

“No, I must have heard him wrong.”

“I’m sure this case is the exception.”

“But all my friends have invested in this. They must know something.”

My “mistakes” occurred when I didn’t listen to the warning signals going off, and that’s when I got into trouble.

It may be as simple as a gut feeling that says, “Sell those ABC stock shares now.” Then the broker talks you out of it . . . and the shares go downhill. I’ve done that one.

Or when I knew, from one snapshot moment, that I should walk away from a deal because my gut was screaming “No, no, no!” I went through with it because the returns being reported were better than anything I had seen–and I wanted those returns. Here’s the story that goes along with that scenario:

My husband Robert and I met a man who owned a hedge fund while we were attending a stock-trading seminar. Several knowledgeable investors we knew were investing with him and telling us about the incredible returns they were getting. We were interested. So interested, in fact, that we made a special trip to his firm’s offices in Florida to conduct our due diligence on the company.

This man claimed to have designed a unique and confidential trading system that was the core of his success. He had just refurbished and moved into plush offices. I made a mental note of the high overhead he was paying monthly. What we heard and saw did not set off any alarms. That night he and some members of his executive team took us out to dinner at an upscale steakhouse.

This man had made a strong point of telling us what a good Christian man he was. Now I don’t care whether a person is Christian, Jewish, Buddhist, Muslim or Hindu. However, I’m a strong believer in practicing what you preach; if this man goes out of his way to share his religious principles with me, then I expect him to act in a way that is congruent with those principles. Not the case here.

During dinner, and after a bit of wine, this man and his cohorts turned into the most obnoxious, rude, womanizing and embarrassing people I had ever been around. Diners near our table were getting up and walking out. At that point I knew in my gut that, at least on the “Christian” level, this man did not practice what he preached. And my instincts raised the red flag: “Where else is he not practicing what he preaches?” That was the moment I should have walked away.

The next morning I had convinced myself that maybe this was just a fluke. Maybe this man was just letting off some steam. “Can I really judge a person’s character from one incident?” I asked myself.

Why didn’t I trust my gut? Greed. The returns on his investments were far beyond the average. People I spoke with who were investing with him sang his praises. I could certainly overlook this one flaw if it meant I’d make a lot of money, I rationalized.

So Robert and I invested money with this man. The statements we received showed beautiful returns–on paper. We were about to invest more money into the hedge fund when Robert brought home a copy of a well-known investment newspaper. On the front cover was our friend, Mr. Hedge Fund, sitting on the beach with the headline, “Would You Trust This Man With Your Money?”

At first I was shocked, and then I began defending the guy. “It’s probably a disgruntled employee wanting to get even,” I thought.

In fact, this man conned his investors out of millions of dollars that he spent on everything from a new house to a new boat. He’s in prison, and investors may get about 10 percent of their money back.

The lesson for me was this: Had I trusted my gut at that defining moment at dinner when I knew something was not as it should have been, I would have saved myself money, distress and frustration.

Mistakes are truly mistakes only when you cover them up and pretend they didn’t happen; if you do that, you learn nothing. And in that case, you’ve just wasted a perfectly good mistake.

Go here to see the original:
Trust Your Gut