Managing a checking account isn’t rocket science but it’s not basket weaving either.  (No offense meant to basket-weavers.  I tried to weave a basket in eighth grade art class and it ended up looking more like a Frisbee.)

But managing a checking account boils down to one key skill:

You have to know that the money is available before you make a payment or a withdrawal.

This can be illustrated in a number of ways:

• A deposit isn’t in your account until the bank says it is. Bank and credit union policies differ.  Some banks or credit unions will trust you until they can’t:  If you go to an ATM or a teller and deposit a $200 check, they may give you use of the money immediately.  Others may place a hold on the funds until the check clears.  The bottom line is that it’s up to you to know when you can use those funds, either by verifying your balance at the bank, or through a call-in service, or online.
• A withdrawal or a payment has left your account when the bank says it has. Checks clear a lot faster than they used to, and automated clearing house (ACH) withdrawals can happen very quickly.  It’s therefore wise to assume that there is no lag between when you make the payment and when it’s debited to your account.  For recurring debits like a mortgage payment, it’s best to earmark those as “debited” at least a few days in advance of the expected payment date.
• Relying on a linked savings account as a buffer will cost you. If you have a linked savings account, your bank will probably offer as a service the ability to dip in automatically to funds there if your checking account goes negative.  This saves bounced check fees and non-sufficient funds (NSF) fees, but banks charge for each transfer from savings.  This is the “slap on the wrist” charge.
• Relying on more extensive overdraft services will cost you more. This is essentially a loan from the bank that carries a per-transaction fee.  If your account goes negative, and you don’t have sufficient funds in a linked savings account to cover the charge and the fees, then if you’re opted in to this overdraft service, the bank will intervene, make the payment anyway, and charge you a larger fee for covering your six on that transaction.  This goes beyond slap on the wrist to spanking.
• There’s always the big guns:  non-sufficient funds fees and bounced-check fees. The savings-transfer fees and overdraft service fees mentioned above are less costly than NSF fees.  These are not only assessed by the bank, but by the merchant that you didn’t pay.  All because you didn’t know that the funds were unavailable when you wrote the check.
• Your “balance” may not be your actual balance. Some banks may include the amount of your overdraft service protection when you ask for your balance.  So, if you have $100 of protection through an overdraft service, and your actual funds are $500, then the balance might report as $600.  It’s still up to you to know that you really have only $500.
• Know what happens when you pay with a debit card at a gas pump. I don’t pay with debit at a gas pump, but I do know that stations put a hold on some amount above and beyond what you’ll actually pump, just to be sure that they’re paid.  Be sure you understand how this affects your balance, and for how long.
• Know the other rules of your account. Do you have a minimum balance?  A maximum number of transactions per month?  Teller fees?  Paper statement fees?  All of these and more can affect your balance.  Be sure you understand them.
• Do not expect the bank to hunt you down the second you go into the negative. It may take a few days for the notice to get to you.  This happened to me a few years ago.  My checking account got low, and the savings transfer kicked in on one transaction, along with a $5 fee.  By the time I got notice of the first fee (sent through the mail, not even at first class rates), I had already made three more transactions, at $5 apiece.  Of course, if I had kept more careful track of things, I wouldn’t have done it in the first place.  Nonetheless, it was $20 later before the bank brought it to my attention.

These are specifics, but if you always know your actual available funds before you make each and every payment, things will go fine.

Update: A special thank-you to Money Crasher for featuring this post as an Editor’s Pick in the Carnival of Personal Finance!

Hot hot hot money questions at Cash Commons

No Credit Needed is taking his oldest daughter (ten years old) to open her first savings account.  He and his family have been free of consumer debt for over three and a half years now and this is a milestone in how he’s educating his children in wise money management.  Trips to the bank will be regular occurrences, and (hopefully) his daughter will become accustomed early to how this system works.

My daughter is four — “and a half,” as she likes to add — and we opened up a savings account before she could even say “money.”  We’ve put in the birthday checks that we didn’t spend on gifts for her in there, and she really doesn’t even know about it yet.  So, in a sense, she won’t get the experience of opening her “first” savings account, because we’ve already done that, but what’s hers is hers: it’s in her name now.

If you’ve been there, which route did you take?  Did you set up an account early, or did you wait until your kids “got it?”

Hot hot hot money questions at Cash Commons

A fairly well-traveled post of mine, “Why PayPal makes it a chore to pay by credit card,” needs an update.

I bought some replacement batteries for our wireless phones off of eBay last night (how I can get two of them from Hong Kong, shipped, for under $6, I’ll never know) but when I logged into PayPal to pay, it was a little different.  It actually has been for a while, but I just noticed it.

I still had to change the payment type from “withdraw from my linked checking account” to “charge my credit card,” but the bother screen was gone. That’s the screen that asked me to “confirm” my choice of paying by credit card by clicking on a “yes” button when the “no” button was in boldface.  This time, after I selected  my credit card, it took me right back to the payment screen.

Even better would be to allow me to set my preference for paying by credit card, but regardless, what they’ve done is a change for the better.

Thanks PayPal!   AAAAA++++ Will Do Business Again!

Hot hot hot money questions at Cash Commons

Experian still does credit scoring, but you aren’t allowed to see them anymore, and that’s got some people ticked off.  Experian alleges that its hand was forced a little bit by “unreasonable” demands from Fair Isaac Corporation (FICO) in contract talks, leading to its change in service.

I don’t see this as the beginning of a credit apocalypse. Sorry.  This is nothing more than businesses (Fair Issac Corporation and Experian) doing what’s best for their business, and for the time being they can’t work together.  It’s nothing more than that.  It’s certainly nothing to write Congress about.

The credit reporting agencies certainly do good business.  They provide a service to consumers and to banks: evaluating creditworthiness against a (mostly) fair set of rules such that banks and credit unions can use them as a key metric in their lending processes.

When credit reporting agencies began letting consumers peek at “their number” it created a clientele that not only wanted to know their number, but monitor it.  Manage it.  Rehabiliate it.  Obsess over it. The number became more important for some people than the habits that resulted in their number being what it was:  paying your bills on time, building up a history, and generally being, well, creditworthy.

Aside from outright mistakes in reporting, should anyone’s credit rating really be a surprise? Should they really be wondering why they’re paying 11% for a 30-year-fixed if they’ve missed a bunch of credit card payments and defaulted on their car loan?  If they are, then they’re more than a little naive.  Or if someone has never missed a payment or been late, should they be surpised that they have excellent credit?  I don’t think so.

The bottom line is that there are still two companies that will tell you your FICO score (TransUnion and Equifax) so if you really need to know your number, then you can get two decent ones.  Plus, you can go to AnnualCreditReport.com for your free credit file disclosure once a year.  Your credit file is not a secret.  You can see it, and you can report discrepancies on it.  That hasn’t changed.  If you are disapproved for a loan, and you really don’t have a clue why, then you can find out why.

Your credit doesn’t go down the tubes overnight, and it won’t come back overnight, either.  Each company has its own special sauce that it mixes in to arrive at your number, but the broad trends are, and will be, based on how faithfully you repay your debts.  Be concerned about that first and foremost.

(Thanks to Free Money Finance for including this post in the Carnival of Personal Finance!)

(One final note:  Even though, you can’t get Experian scores through MyFICO.com anymore, you still can get your TransUnion and Equifax FICO Scores/Reports from MyFICO.com.  Also, I’ve tracked down a 20% off coupon that works now: CPPSAVINGS.)

Hot hot hot money questions at Cash Commons

Apparently Chase has taken some of the fun out of their balance transfer accounts.  Some of these low-APR accounts now have raised minimum payment requirements (from 2% of the balance to 5%) and raised monthly fees to $10 per month from nothing per month.

Would you be a little ticked if this happened to you?  I know I’d be ticked.

But it’s perfectly within Chase’s power to do this. It’s a business decision that makes a lot of sense for them.  The user agreement states clearly that they can change the terms, including APR, fees, default rate, and more, at any time, for any reason.  Chase saw an opportunity to get extra revenue from people who are already over a barrel, and who may have fewer options available to them than they did ever six months ago.

There are no guarantees that the rate you start with will stay that way, or that you will have no additional fees tacked on.  People who are so close to the bone that they cannot afford more than double the payments that they were making will see their APR skyrocket after they miss a payment.  This is what Chase and other credit card companies want:  to turn marginally profitable customers into really profitable ones.

Larry Winget, in his new book People Are Idiots And I Can Prove It!, goes so far as to say that people who are surprised when their APR goes through the roof when they miss a payment or are late are idiots.  “While the print is small, the rules and regulations are clearly laid out in black and white — all you have to do is read them,” he writes.

In any case, changes in terms and conditions for credit cards can happen, and they are happening.  A good debt reduction tip is to plan for changes to your credit card terms by dedicating part of your emergency fund to it.  Do this while trying to find a better deal elsewhere.

Look out for yourselves, because the credit card issuers are certainly looking out for themselves.

(Note:  This post was included in the Carnival of Personal Finance over at Taking Charge.  Thanks!)

Hot hot hot money questions at Cash Commons

As promised a few weeks, here are some more questions about Visa debit cards, along with answers from Visa, and my comments.  I saved my personal favorites for this post, so I hope you find the answers educational and enlightening!

Question:  If someone gets hold of my debit card it’s possible for them to drain my bank account, or at least put a really big dent in the balance, instantly. This is not a problem with credit cards. Are there any steps I can take to safeguard my account (aside from not letting someone steal my card information)?

Visa’s Response: Tips to help you safeguard your account include:

• Review your statements carefully. If you suspect a mistake, call your financial institution immediately. And always follow up with a confirmation letter.
• If your card is lost or stolen, contact your financial institution immediately. This may reduce your liability if fraud losses occur.
• Choose a unique PIN. Avoid obvious choices such as your address, phone number, or birth date.
• Keep your PIN private. Memorize it. Don’t write it down or write it on your card, and never tell it to anyone.

Despite the popularity of debit cards, consumers are often confused about the security features and consumer protections debit cards offer. Many of the same features and protections provided by credit cards are also offered with debit cards.

It’s important to know that Visa debit cards carry the same protections as Visa credit cards. For example, all Visa cardholders are protected by Visa’s Zero Liability policy. This policy means you pay nothing if unauthorized purchases are made on either a credit card or a Visa Check card when you choose to sign for your transactions. Some financial institutions offer Zero Liability protections for certain PIN debit transactions as well, but the best way to ensure you are protected is to sign for your purchases. Visa’s Zero Liability policy also applies to purchases made on the Internet.

Continually monitor your account and review your monthly statement to identify any unauthorized transactions. If you notice fraudulent activity on your card, you should contact your financial institution as soon as possible and report it – this may help to reduce your liability.

If your account is compromised, Visa is committed to setting things right without further aggravation or inconvenience to you. Visa’s cardholder protection policy requires all financial institutions issuing Visa products to extend provisional credit for losses from unauthorized card use within 5 business days of notification of the loss. Many institutions will provide replacement funds even faster, sometimes within 24 to 48 hours.

My Comments: I’ve admittedly been a little confused myself about which protections debit cards offer when compared with credit cards.  It still is important to be vigilant but it’s also good to know that I’m not totally out of luck if something happens.

Question: I’d like to prevent a potential thief from getting my signature. Is it acceptable for me to print “PHOTO ID REQUIRED” in the signature block of my card rather than sign it?

Visa’s Response: Some people write “See ID” or “Ask for ID” in the signature panel, thinking that this will help prevent fraud or forgery. That is, if their signature is not on the card, a fraudster will not be able to forge it. In reality, criminals don’t take the time to practice signatures. They use cards as quickly as possible after a theft before an account is blocked. They are actually counting on merchants to not to look at the back of the card and compare signatures—they may even have access to counterfeit identification with a signature in their own handwriting. Bottom line: “See ID” or “Ask for ID” is not a valid substitute for a signature. A merchant has the right to ask the cardholder to sign the card before using it and if the cardholder refuses, to not accept the unsigned card.

Although Visa rules do not prevent merchants from asking for cardholders’ IDs, merchants cannot make presenting an ID a condition of the sale. Therefore, merchants cannot refuse to complete a purchase transaction because you refuse to provide ID. If a merchant does refuse to complete your purchase, please call the number on the back of your Visa card or 1-800-Visa-911 and provide the customer service representative with the name and location of the merchant.

My Comments: The “photo ID required” trick had been suggested to me a while back, but I’ve never tried it because it seemed to bring the possibility of a confrontation at the point of sale.  What it boils down to is merchant requirements at the point of sale, not cardholder requirements.  The merchant requirements are not well-known to most people, so it was good to sort this out.

Question:  What security features have come down the pipe that go beyond the PIN and the code on the back of the card?

Visa’s Response: Paying with a Visa card these days comes with several protections not available with cash or checks. When you sign for your Visa debit purchases, money comes directly from your checking account, but you also get security benefits that help prevent, detect and resolve fraud, including:

• Visa’s Zero Liability Policy, which protects you from unauthorized charges. Any funds taken from your account due to fraudulent use will be returned to you.
• Continuous fraud monitoring to detect and prevent suspicious activity on your debit card.
• Access to Identity Theft Assistance to help you recover your identity and prevent further problem.

My Comments: These are good things to know.  Developing other security features that make it more difficult to use someone else’s card in the first place would be even better.  The three points above are tripped only after fraudulent use has occurred.  But, also, there’s a trade-off between ease of use and security, so you could have the most secure card in the world but not be able to use it anywhere.

Hot hot hot money questions at Cash Commons

Five Cent Nickel posted on how to calculate the payback period for a potential mortgage refinance.  It’s indeed important to figure this out before paying for a refinance that might never save any money.  (There are plenty of ways to blow money that are more fun than going through a mortgage refinance.  Trust me!)

Nickel got my attention on this one because he posted this formula:

Payback Period (in months) = Closing Costs / Monthly Savings

The costs of closing the mortgage refinance can be added up (and should be able to be added up, meaning that these shouldn’t be a secret).

But what is this “monthly savings” amount?  Getting this right is important.  It’s not just taking the difference of your payments before the refinance and after the refinance, because you could have exactly the same payment, or higher, after a refinance, and still come out ahead after a relatively short period of time.

Here is how I’d do the calculation instead.

1. Get the amortization schedule for your current loan, one that breaks down the principal and interest payments.
2. Create another one for your new loan terms.
3. Call your next payment on your current loan “Old Payment #1.”
4. Call your first payment on your (proposed) new loan “New Payment #1.”
5. Subtract the principal part of Old Payment #1 from the principal part of New Payment #1.  This is the amount extra that you’re paying your loan down on Payment #1.
6. Subtract the interest part of New Payment #1 from the interest part of Old Payment #1.  The is the amount of interest savings that you accomplished on Payment #1.
7. Add these two differences to a running total.
8. Repeat Steps 5 through 7 with subsequent payments until the running total exceeds your closing costs.  The payment at which this happens is (roughly) your payback period.

Let’s try an example.  Say I was five years into a 30-year loan with original principal of $100,000 and a rate of 6.5%.  Using the mortgage calculator, my monthly payment (principal and interest) is $632.07 and I’d have $93,610.81 left on the loan after payment 60.

Now let’s say I could refinance for a total cost of $4,000 to a 15-year loan at a rate of 4.75%.  If I refinance all of my principal at that time ($93,610.81) then my payment will increase to $728.13.

Payment #61 on my current loan becomes Old Payment #1.  Payment #1 on the refinanced loan becomes New Payment #1.  The amount extra I’m paying down principal is $357.59 – $125.01, or $232.58.  The amount of interest I’m saving is $507.06 – $370.54, or $136.52.  Adding these two differences gives me $232.58 + $136.52, or $369.10.

Now, if we just use this one amount ($369.10) to make a quick and dirty estimate, we can say that this amount will be the lowest monthly amount that we’ll save.  This is true; it just gets better.  So, now we can use Nickel’s formula to get a conservative estimate of the payback time:  $4,000 divided by $369.10 is almost 11 months.

In fact, this quick and dirty estimate is pretty good.  If I go through and add up all of the savings through Payment #10, I get $3,757.82, which is just a little shy of $4,000.  So the quick and dirty estimate got it right to within a week or two.  This is so, because the monthly saving doesn’t change much over the course of the payback period (the first payment’s savings was $369.10, and the average over the first ten payments was $375.78).

There are other factors that could affect evaluation of the payback period:

• Lost federal income tax deduction if you itemize. Since you’re paying about $1,500 less in mortgage interest after the refinance during the payback period in the example above, your tax bill will be a few hundred dollars more than if you hadn’t refinanced.  This will effectively add a month or so to the payback period.
• What about just paying more principal on the current loan? The payment after the refinance in the example above is higher after the refinance.  What would throwing an extra $95 per month at the principal do?  This speeds things along, too, and costs nothing.  Ultimately, though, refinancing wins out if you keep the loan more than a year, but making the same dollar payments on the current loan and the new loan extends the payback period of the refinance a few months.
• Lost interest, but only slight. You might say, “Well, my payment is higher, and I could have had that money working for me in a savings account.”  The difference in this case would be $20 total — not worth worrying about.

These last three are probably small corrections.

In short, you can get a very good idea of the payback period by calculating the first month’s savings (using Steps 1 through 7), plugging it into the formula, and adding a few months for good measure.

(Note:  Thanks to Pecuniarities for including this post in the Carnival of Personal Finance!)

Hot hot hot money questions at Cash Commons

You may have noticed the Visa logo on the right sidebar, and thought to yourself, “Hmmmm … I wonder if Visa is a sponsor on Mighty Bargain Hunter?”  Well, if you did indeed think that, you’d be correct!

Visa is enlisting the help of several personal finance bloggers to get the word out regarding their debit card program.  As a manager of a blog carnival on debt reduction, I’ve seen good stories from people who have foregone their credit cards for the somewhat more restrictive cash flow of a debit card.  And now that credit is harder to get than it once was, debit cards will become the norm for more people.

As part of this campaign we had the opportunity to ask our own questions of the folks at Visa about issues relating to debit cards.  I’ll post some of the questions (and Visa’s answers) now, and post some more in the future.

Question:  Some merchants treat a debit card purchase as they would a personal check or cash, so when you make a return you might get store credit instead of cash back. Is there anything a customer can do to fight this?

Visa’s Response:  For your protection, Visa does not permit cash back refunds for any credit or debit transaction.  By issuing credits, a merchant is protecting you from individuals who might fraudulently make a purchase on your card and then return the merchandise for cash.  In addition, merchants may establish their own return policies to include store credit only or exchanges among other options.  So be sure to understand the store’s return policy before making a purchase.

My Comments:  I had noticed this before, but I didn’t realize that the no-cash policy was a Visa policy rather than simply the store wanting to keep the money in-store (which of course would be good from the merchant’s perspective).  It does bear repeating that it’s wise to understand a store’s return policy before buying.

Question:  Many credit cards help their customers resolve disputes with merchants. Will I get the same assistance as using a debit card?

Visa’s Response:  Visa debit cards have the same protections and benefits as Visa credit cards, which means you can dispute payment for your purchases with your financial institution if you are unable to resolve the dispute directly with the merchant – a benefit that neither checks nor cash offer.  You may dispute a Visa debit or credit transaction, regardless of dollar amount, for a variety of reasons including: the merchant was unwilling to provide services, shipped merchandise was not received, merchandise was received damaged or defective, and merchant failed to provide goods or services that were described on the documentation you received at the time of purchase.

My Comments:  The protections that debit cards afford were more than I had previously thought.  It’s nice to know that there is a similar amount of recourse available for debit card transactions as well as credit card transactions.

Hot hot hot money questions at Cash Commons

These days I’m sure people are worried about return of their investment instead of return on their investment, but if you’re a new ING customer you can get earn $25 on an initial deposit of $250 or more.  That’s up to a 10% kickback on your deposit into this FDIC-insured account!

I’ve put up some fresh referral links from readers of Mighty Bargain Hunter on the ING $25 Bonus page if you qualify:

• You must be a brand-new ING customer (current customers are not eligible)
• You must make an initial deposit of $250 or more (not including any bonus you qualify for)
• You must follow a valid referral link (I’ll explain this on the bonus page)

If you don’t qualify, you can still sign up for an account of course, but please use a sign-up link on this page so that my readers have a better chance at their $10 thank-you referral bonuses.  (You’ll get this opportunity after you sign up as well!)

The Orange Savings Account has great rates, no fees, and no minimums, but above all it has a stable, solid web interface that instills confidence at a time where it’s sorely needed.

If you have $250 lying around, grab an ING $25 bonus.  I’m pretty sure you’ll like it!

Hot hot hot money questions at Cash Commons

Word has it that a bailout agreement has been reached.  The Emergency Economic Stabilization Act of 2008 will head over to the House on Monday.  Sounds dire, doesn’t it?  It certainly is in the Treasury Secretary’s best interest to paint a dire picture to Congress.  And why are these discussions even on the table if representatives’ constituents overwhelmingly oppose the bailout?

Here’s a draft version of the legislation.

Don’t be fooled by any talk of taxpayer protection.  Big banks are dumping their trash, we get to pay for it, and warrants are issued if there is any appreciation in this junk?  I don’t feel the slightest bit protected as a taxpayer.  I have no confidence whatsoever that any of these assets will be anything but worthless.

Oh, one other thing:  If the bear market reverses as a result of this liquidity, be sure to check the monetary base figures.  The adjusted monetary base rose $75 billion, or 8.5% to $950 billion, last week.  This is huge monetary inflation.  Even the Dow rises to 15,000, don’t forget what your dollars buy when it gets there.  If you’d like to learn more, check out Gary North’s site and at least subscribe to Reality Check.  (I’m a member of his site, and I get nothing for any referrals that sign up for membership.)

May you live in interesting times.  (Chinese proverb/curse)

Here are some links of interest from the folks at the MBN and other blogs in my reader:

• Get Rich Slowly decries the $22 movie.  (I hardly ever go to movies, or watch them for that matter.  When I go I usually don’t buy concessions.)
• Consumerism Commentary discusses a charitable giving oops.
• All Financial Matters asks his readers whether it’s reasonable for the government to reimburse residents for the cost of evacuation.  (My two cents: no.)
• No Credit Needed is taking a brief break from blogging but here’s what happens when he went through 40 months living no credit needed.
• Wise Bread says that separating wants from needs is critical in tough times.
• Free Money Finance wonders if he’s a “poor dad” in the Kiyosakian sense.
• Money Smart Life talks about how quitting your job can make you a better employee.
• Lazy Man and Money asks and answers some questions about banking failures and bailouts.
• Digerati Life reviews the Washington Mutual buyout.
• Generation X Finance shares a frugal, award-winning chili recipe.
• Being Frugal is more upbeat than I am about the economic crisis.
• Blunt Money says that credit cards are not for emergencies.

Thanks go to Sound Money Matters for including my investing post in last week’s Carnival of Personal Finance.

Have a great week!  You might want to stop by Frugal for Life and say goodbye to Dawn as she winds things down.

And may your interesting times be a blessing rather than a curse.

Hot hot hot money questions at Cash Commons