Checking & Savings
Want to take the first step to smart money management? Start with your checking and savings accounts.
“If you develop good checking habits, if you develop good savings habits, all your money management challenges are going to fall into place,” says Susan Tiffany, director of personal finance information for adults for the Credit Union National Association.
The big focus for consumers this year: put something aside, get interest on that savings and steer clear of fees.
Here’s how to make the most, and pay the least, on your checking and savings accounts in 2008:
1. Re-evaluate your needs and shop around
So take an objective look at what you need, what your bank offers and what it’s costing you. Review several monthly statements. How much are you keeping in your accounts? What are you earning? What are you paying in fees and how often are you getting hit?
While shopping around is always good advice, it’s particularly important for 2008. “Competition for deposits has never been keener among institutions,” says Joe Belew, president of the Consumer Bankers Association.
The situation could continue. “It all depends on interest rates,” he says. “As lending margins get more narrow, deposits become more valuable because it’s a cheaper source of funding than borrowing.”
At the same time, Americans are saving less money than ever, so deposits are a scarce resource.
That doesn’t mean banks will be giving away the store. More consolidation means fewer players to choose from, as well. So evaluate a wide range of options: online institutions, credit unions, and large and small banks. See who’s offering the best rates, the least restrictions and the least fees.
Don’t forget to give your current institution a chance to meet or beat the competition. Even if you don’t want to move your money, this can be a good strategy to negotiate a better deal on your interest and services.
You probably want to re-evaluate your options if your institution merges. Often policies change, so in many cases, it’s almost like a new entity. While merger mania among banks will likely continue, many believe it could slow a little in 2008.
2. Investigate all your alternatives
3. Be suspicious of free checking offers
In many cases, penalty and service fees “will more than make up for what you’re not paying for checking,” he says.
4. Monitor your accounts regularly
Banks and credit unions are offering a lot of easy (and free) ways to keep up with your account transactions and balances, from online banking to phone-in services. Whether you have a lot or a little, it pays to keep tabs on your money.
There are three things to check: First, is the service free? Some phone-in services allow you only a certain number of free calls per month, or charge you if you speak to a person rather than using an automated system.
Second, does the bank accept this system as valid proof of what’s going on in your account if there’s ever a dispute? In some instances, institutions will offer convenience services like checking your balance from the ATM or by phone, or making ATM deposits, but if there is a discrepancy, only teller-based transactions are accepted as verifiable proof of what you really had in your account on a specific day.
Third, if you use online statements, how long will they be available for free? In many cases, you lose free access after six months, says Linda Sherry, spokeswoman for D.C.-based Consumer Action. That can make it more complicated if you need records for more infrequent activities, like doing taxes or financial planning.
If your institution has a cut-off date, then either print out statements or save them electronically, Sherry says.
|Make the most (and pay the least)|
5. Don’t get comfortable with fees
Fees are not the cost of enjoying your favorite convenient banking services. If you’re getting hit often, it’s time to modify your usage, investigate ways to get the same privileges without fees or change institutions.
6. Keep up with the rules
Institutions often change policies or merge. That means the rules you were playing by last week might no longer apply. But you can keep up without driving yourself nuts or reading yards of tiny gray print.
Here’s how: Keep up with your accounts regularly. When you see a fee, call and find out why you’re being charged. If it’s the first one, they might be willing to waive it. And now you’ve got a heads up for next time.
If you’re going to make a transaction for the first time, or just the first time in a while, call in and find out what the rules are, along with any possible fees you could incur.
7. Be smart with debit cards
The cards are supposed to be a convenient way for you to access your money, but they can cost you, too. The cards are the No. 1 contributor to overdraft fees, says Halperin. Consumers pay about $17.5 billion in overdraft fees annually.
One reason: In many cases, the cards allow you to keep spending whether there is money in the account or not. Every little transaction is followed by a big overdraft fee.
So either trade your debit for a simple ATM card, or just resolve to use it only at the ATM.
8. Opt out of your bank’s courtesy overdraft protection
What your bank might not tell you is that there are cheaper ways to cover overdrafts.
Consumers pay an average of $34 for each overdraft, according to studies by the Center for Responsible Lending. But you can cut that in half easily. If you’re willing to change institutions, you might be able to eliminate it entirely.
Set up an automatic transfer from savings or a line of credit for just such occasions, recommends Halperin. This way, each overdraft will be paid, unlike “courtesy” protection where you’ll pay a fee whether or not the bank honors the check or charge.
One thing to watch: Some banks will charge an account transfer fee, often $10 to $15, says Halperin, so you have to shop around.
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9. Start an emergency fund
No matter how well you plan, you’re always going to have those unforseen expenses. An unexpected auto repair, a new washing machine or a vet bill. Start socking away a little every month and you won’t have to put it on the credit card.
This will be especially important in 2008, according to some industry watchers.
“As people’s incomes tighten and costs go up, people need to be thinking about savings,” says Halperin.
10. Get something for your money
If you’re parking some money in your checking or savings account, look for an institution that will give you something in return, like interest.
“You’re seeing more places that pay interest, a respectable rate of return, on a checking account,” says Mark Oleson, professor of personal financial planning and director of the office for financial success at the University of Missouri-Columbia.
Online banks have traditionally offered the best rates (5 percent, or close to it), and some brick-and-mortar institutions will match that or come close.
11. Automate your savings
Want to make it really easy? Set up an automatic transfer into your savings account on the same day your paycheck is deposited. People who automate their savings put away an average of $55 more per month than those who don’t, according to a recent study by NACHA — the Electronic Payments Association. Automatic savers sock away an average of $450 a month compared to $395 for the rest of us.
12. Don’t get hung up on the numbers
Remember the old rule of thumb about banking: three to six months’ income for emergencies?
“I really think we freak people out with that number,” says Tiffany. “It’s just too big.”
“It would be great to have that amount, but don’t worry about the amount,” she says. “Be more concerned about making savings a habit.”
New rule of thumb: Whatever the amount, just start saving it.
13. Climb the ladder
If you’re using CDs for savings, consider laddering, says Tiffany. It’s a way of making sure that, no matter the term of your CDs, you’ll have some cash available every year in case you need it.
How it works: If you have $5,000, you put $1,000 each in a one-year, two-year, three-year, four-year and five-year CDs. After a year, you roll the one-year CD into a five-year CD. The second year you do the same when the two-year CD comes due.
|Make the most (and pay the least)|
“Over time, you get all of that money working for you at a five-year rate,” she says. But at the same time, one CD will come due every year, so you have a window of opportunity to access the money if you need it.
One caveat: Sometimes you can find a rate that’s as good (or nearly as good) as a multi-year CD through a savings account or money market account, especially online. In that case, you have the flexibility of having your money available on short notice, along with the benefits of interest.
14. Take advantage of cool tools
A lot of banks are offering access to software programs that help you chart your expenses, plan savings and — literally — paint a picture of your financial situation, complete with charts and graphs, says Sherry. That can be a great way to stay on top of your finances.
“It’s a cool way to see where your money goes, and it helps you plan,” she says.