Money managing: sometimes there's no
guarantee it's tinsel and no warning it's tarnish
Last in a five-part series: Tinsel or tarnish?
By Holden Lewis • Bankrate.com

This holiday season, as you bask in good cheer and wipe a tear from your eye at the end of an especially heart-warming TV commercial, remember this bit of advice: Always look a gift horse in the mouth.

What seems like a tinsel-wrapped opportunity for your financial management may be tarnished under all that glitter.

While conventional wisdom says most of your financial choices are straightforward, conventional wisdom is no match for reality. Your financial life is filled with tinsel-or-tarnish possibilities.

In the final installment of our five-part special series, we look at some key ones.

Joint bank accounts
You're just married, or even just happily living in the same abode, and you wonder about sharing a bank account. Get it right and it's all tinsel, get it wrong and it tarnishes faster than a wedding ring from a previous engagement.

A joint account is a very efficient way to run a household budget. But it can tarnish a relationship.

Consider whether personal purchases, from lingerie to a six-pack, coming from the joint account could destabilize the relationship. If the answer is yes, you'd be better off going for two personal accounts and creating a joint account solely for shared costs, such as water and heat.

This is also a good model for couples where one partner's job requires a lot of travels and expenses. Personal accounts let the twosome manage their own money and avoid major money-management confrontations.

Another choice: Stick with two checkbooks and have a regularly scheduled way of paying for those essential costs jointly.

"Having a separate set of checks requires discipline and a financial magnifying glass," says Takira Hira, a professor of family and consumer science at Iowa State University in Ames. "Keeping tabs on the money shouldn't lead to heated arguments, but a couple may want to carefully consider having two separate checkbooks."

Bottom line: Your arrangement will be tinsel if you understand your relationship first and choose your banking accordingly; but could be big-time tarnish if you choose your two-person banking system without regard for your two-person karma.

Banks or credit unions
Both banks and credit unions can be tinsel. Once again, it is your choice that will earn you either bouquets or brickbats.

Credit unions offer better rates and lower fees than most banks and thrifts, and as a member you are part owner. Credit union honchos will tell you that the former springs from the latter -- they are not like banks that follow market trends; they choose their policies and prices solely to benefit their members.

But if you rely on a wide range of banking services, a credit union may be too small for you. For example, it may have no surcharge-free ATMS, most credit unions checks are not returned and you have to keep old-fashioned carbon copies, and a big bank may give you a far better range of mortgage options.

The bottom line in this choice is fees, says Michael Kidwell, vice president of Debt Counselors of America.

Compare the lower fees (but remember to add up all those ATM surcharges) and loan rates at the credit unions with the higher fees but higher account earnings and larger variety of savings vehicles at the bank. Factor in check fees and minimum balance requirements.

Tinsel or tarnish? It's a homework thing.

New or used cars
The conventional wisdom says that the last few days of the year are a good time to shop because dealers don't want to pay an inventory tax and are eager to move cars.

Maybe. But you could also do what a lot of car-buying millionaires do.

The book The Millionaire Next Door: The Surprising Secrets of America's Wealthy reveals that 37 percent of millionaires said the last car they bought was used. Perhaps those millionaires got there by shopping for bargains.

You too can create a car bargain by simply making someone else pay for depreciation. When you buy a used car, the first owner already took the biggest hit for depreciation, typically 30 to 40 percent over the first two years.

Iconoclastic economist Thorstein Veblen would say that buying a new car is a sign of conspicuous consumption.

"I don't think there's any reason to buy a new car except for the fact you can afford it," agrees Leon Burke, a car dealer in southern California and author of The Insider's Guide to Buying a New or Used Car.

Buy it or lease it
If you absolutely must have a brand-new car, there are benefits and drawbacks to both buying and leasing.

Whether you buy or lease, you'll pay for the depreciation. And you'll pay financing costs, which don't vary whether you lease or buy.

Leasing might make more sense for people who don't have a lot of money for a down payment and who want to keep monthly payments as low as possible. One possible benefit of those low monthly payments: They might help you qualify for a bigger mortgage loan, or allow you to save more for a vacation or for holiday gifts.

Buying a car might cost more at the beginning because of the down payment, but you can sell the car when you want a new one, putting money in your pocket.

And money in your pocket is all tinsel and no tarnish.

Stay insured between jobs?
When you leave a job in which you had group medical insurance, you can pay big bucks (sometimes $600 a month or more) to keep that coverage for up to 18 months under a federal law called COBRA (Consolidated Omnibus Budget Reconciliation Act).

But paying out those big bucks seems like a major tarnish on your bank account and can force you to cut back to emergency spending only.

Why not wing it until the new job, which is just about signed and sealed, arrives? Because even if you leave a job on a Friday and start another job the next Monday, your new employer might not offer health insurance for more than three months.

In the meantime you could catch pneumonia, break a leg or wake up in a hospital bed with no idea how you got there. Without COBRA that hospitalization could be the death of you, financially speaking. If you kept paying, you could handle that hospital bill. Big time tinsel.

There is a third way: buying short-term health insurance. Such a policy is cheaper, but it doesn't cover pre-existing conditions.

Savings with a passbook or the new fangled stuff
Savings accounts are slightly more popular than CDs and a lot more popular than money market accounts when it comes to savings. But if you are using a passbook or statement savings account, are they really your best choice?

Most people use these reliable old accounts because they offer stability, liquidity and predictability. You always know just what you have where in the bank. You want low risk, safe savings so you don't want to change. That's tinsel right?

Well, not always. These accounts earn low interest. But you can move some of your money out of your traditional savings accounts and into CDs or money market accounts, which earn far more. CDs and money markets can limit your access to your cash, but simple money management techniques can greatly increase your savings' earnings with a minimum amount of risk.

Go to the Bankrate.com calculator and crunch some numbers using different amounts from your old accounts.

Low rates vs. rebates on those wheels
You're ready to buy a brand-new car and the dealer has given you a choice: an ultra-low interest rate on a car loan, or a rebate. Your circumstances determine which is tinsel and what is tarnish for you.

If you have less-than-stellar credit, consider taking the rebate.

"If you have any type of glitch in your credit history, you're not going to qualify for the super-low rate," says W. James Bragg, author of The Car Buyer's and Leaser's Negotiating Bible.

And if you have never bought a car before, consider taking the rebate because you probably don't have much cash for a down payment and you don't have a car to trade in.

But if you have the coin for a substantial down payment and you want to keep your payments down, a very low interest rate might be right up your alley.

-- Posted: Dec. 10, 1999