Monthly Archives: October 2011

What Durbin’s Amendment Means for Your Debit Card Use

Posted on by  at  11:52 am
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We’ve been discussing banks, credit unions and banking regulations quite a bit here lately. On theme, Debbie from MyBankTracker.com submitted an informative guest post on the subject of the Durbin Amendment and its impact on debit cards. You can learn more about Debbie immediately following the article.

You’ve probably heard about new debit card fees banks are charging or planning to charge their customers for debit card use.  Bank of America is leading the pack with plans for charging customers $5 a month for debit card use anyplace other than the ATM.  Other banks are predicted to follow suit – but why the sudden increase in fees?

The Durbin Amendment

Durbin Amendment is part of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, and went into effect on October 1st.  It changes the limit of swipe fees banks charge merchants when they accept debit cards as payment instead of cash.  Previously, banks could charge merchants up to 45 cents per debit card transaction; but The Durbin Amendment currently limits the swipe fee to about 22 cents per transaction.

Bank Response to Debit Card Fee Swipe Limits

Banks felt this change would cause them to lose 50% of their revenue from debit card transactions, and began looking for ways to recover from that loss of income.  Bank of America intends to add the $5 monthly debit card fee, but other banks are talking about changes to checking accounts and debit card rewards programs in an effort to recover their lost revenue. 

According to research conducted by MyBankTracker.com on the changes to debit card rewards programs, the following banks reported:

  • Chase Bank: ending the rewards program it maintains with Continental Airlines
  • Bank of America: no changes to the US Airways rewards program  
  • Wells Fargo: ended new enrollments to their rewards program on March 20th
  • Wachovia: ended program March 27th
  • Citigroup: ended rewards program enrollments on June 10th
  • JPMorgan Chase & Co: ended enrollments on July 20th

What Should You Do About Bank Changes?

Take a look at how your current bank is responding to The Durbin Amendment.  Will they keep their reward programs for checking accounts and debit card use or are they canceling them? 

Change banks: If you currently have a free checking account with a debit card you use frequently and your bank is looking to add a monthly debit card use fee and/or cancel the rewards program – you may want to consider looking at a smaller bank or a credit union.  Many online banks are not reacting to the changes and will continue offering debit cards for free.

Stop using debit card: Alternatively, you can continue with your existing bank even if they charge a debit card fee and simply stop using your debit card for making a purchase.  Write a check instead.  Consider using a credit card for each individual purchase throughout the month and then pay it off in full when the statement comes – or send your credit card account extra money to get a ‘credit balance’, and use your credit card like a debit card. (When the money is gone, stop spending until you send more!)

Debbie Dragon is a financial writer for MyBankTracker.com, a site that helps consumers compare savings accounts, CD rates, and home equity loans to make informed banking decisions and save money.

Join Today’s TweetChat: Frugal Halloween Party Ideas

Posted on by  at  7:58 am
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This afternoon (3:00pm EST) I’ll be participating in a Tweetchat hosted by the folks at WiseBread (tweetchat details). The theme for today’s chat is Frugal Halloween Party Ideas. I hear there may be even be a treat for a lucky participant, but you have to RSVP to be in the running for prizes.

Hope you can join us, and if you’re reading this late, check out the hashtag #WBChat, or just follow Frugal Dad on Twitter to get caught up on the discussion. See you there!

The Frugal Roundup

Avoid Financial Paralysis by Analysis. I can’t tell you how many times I’ve been in this situation – especially after getting out of debt and having a few more options with the disposable cash we freed up. And unfortunately, finances is not an area of life where you can make progress by simply making a move…somewhere…anywhere. More times than not it’s better to stay put, which only adds to the anxiety.

The Benefits of a Mortgage Sinking Fund. Saw this one in the latest edition of the Carnival of Personal Finance and found the idea interesting. Essentially, the plan is to save towards mortgage payoff in a dedicated account rather than making extra principal payments. When the balances meet, one check and your mortgage-debt free. I recognize the math probably doesn’t work in favor of saving, but I also like the idea of a giant emergency fund in this economy.

Reader Story: Saving for Retirement with More than Mutual Funds. I take a very similar approach, opting to use some of our money to invest in things outside of mutual funds in a formal retirement plan. I like the flexibility to tap the money before traditional retirement age.

Is Financial Faith a Good Plan? On the one hand, Neal is correct – you can’t plan for everything and unexpected events can certainly derail even the best plans. However, I agree that’s no excuse not to plan in the first place. Plan for the worst; hope (and pray) for the best.

New Walmart Price Match: What They Will and Won’t Match. This is a helpful post as I’ve heard a lot of buzz about the new price match policy at Walmart, but didn’t fully understand the rules. I don’t shop at Walmart much, but I suppose if they had something I really needed and it was out of stock at a better prices at a competitor, I might visit the store to purchase.

 

Troubling Facts About Unused Airline Miles Credit Card Rewards

Posted on by  at  7:38 am
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The following guest post is by Craig Ford. Craig blogs at Help Me Travel Cheap where he helps newbies turn credit card sign up bonuses into free travel.

Folks like to talk about earning credit card travel rewards, but sometimes they eat their words when it comes to redeeming travel rewards.

Dave Ramsey says, “75% of airline miles “rewarded” are never redeemed” (Total Money Makeover page 90).  Unfortunately, there is no proof or documentation for us to decide if this is true or not.

However, if it is true, it is troubling.

It’s troubling because people are effectively wasting 75% of their reward earning potential!

Why aren’t consumers using their credit card rewards?

Deals We Like states that  “Nearly 60 percent of consumers will not have enough rewards for a spring getaway.”  So perhaps people are not using their rewards because they are still in the accumulation earning phase. 

However, a second detail from Deals We Like states, “Almost one-third of consumers (29 percent) will have to settle for a “stay-cation” instead as they indicated blackout dates would prevent them from using credit card rewards for a spring trip.”

Consumers aren’t using mileage rewards because they simply cannot find a good way to use them.

What Important Lessons Can We Learn From Unused Airline Mileage Balances?

  1. People are earning points and miles with programs they don’t really understand.  If you are going to collect miles (and yes, they can be good), you’ll first need to educate yourself.  You need to know that 1-3 months is often not sufficient enough time to book an award ticket using miles.  Sure, it can be done, but to consistently expect to book flights with miles a month out is unrealistic.  If you don’t know this, you’ll likely be one of the 60 percent that feel disappointed.
  2. Your credit card rewards earnings must be focused.  There is no point in starting to collect miles for a flight if you’re not going to finish the process to get enough miles to fly.  When awards start at 25,000 miles, then 20,000 is effectively as good as 0 miles.  Sometimes we have multiple cards in our wallets and don’t know which to use.  The problem is that we earn several partial points and rewards.  Don’t start something you don’t intend to finish.
  3. Most people are not willing to put in the effort necessary to use their awards.  This benefits those of us who use our rewards because there is less competition, but I’d rather see you get on the free flight for which you’ve been saving miles.  Award bookings do require time to find the best booking that meets your needs.  If you get stuck, there are people on the web who can help you with your award booking.  Don’t just let your miles expire.
  4. Choose your credit card wisely.  Having unused miles means you probably made a mistake when selecting the card.  If you’re not willing to put in the time necessary to book your free flight, then you should stick with cash back credit cards.  I love air miles, but I know they’re not for everyone.  Another option would be to use a points related credit card program that allows you to buy flights using points.  One such program is the Ultimate Rewards program.  The Chase Sapphire Preferred (with a 50,000 point bonus) is a great way to kick start your way to (or get everything you need) for a free flight.   You can use those points for up to $625 worth of travel without blackout dates and the work of an award ticket.
  5. People neglect to see the real value in flyer miles.  If you use frequent flyer miles to book international business class seats, you can get over a 5% back value per point.  While cash back and points systems cannot really be stretched beyond their 1-2% value, you can stretch air miles if you book more expensive flights using miles. 

In the end, I think consumers need to be educated and aware.  You need to properly research your card before earning airline miles. 

I’m a big fan of airline miles, but I can tell you that certain programs are junk.  Just like currencies, not all frequent flyer miles are the same.  A guy who has 1,000 Yen doesn’t have as much as someone with 1,000 US dollars.  If you’re going to collect miles and points, be sure you do it with a program that has a solid reputation for both ease of earning and ease of redeeming.

Airline miles credit cards can be a great way to earn credit card rewards, as long as you’re willing to endure a little work during the redemption process.  Otherwise, don’t let your rewards melt away.  Take advantage of a points based card or a cash back card.

Credit Cards Tougher to Get for Stay-at-Home Parents

Posted on by  at  5:00 am
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As a stay-at-home mom, I cringed when I read about a new Federal Reserve regulation that severely restricts non-working spouses’ access to credit. The new rule represents a blow to the financial independence of stay-at-home moms and dads in the U.S.

Enacted on Oct. 1, 2011, the crux of the new regulation is the distinction between household and individual income. Household income can no longer be considered when analyzing an applicant’s creditworthiness. This change may prevent many stay-at-home parents from being able to open a credit card account.

While I’m not a big fan of credit cards in general, knowing that I probably no longer qualify to open an account in an emergency is a little alarming.The new rule dictates that only the applicant’s individual income may be taken into account by the credit card company when deciding whether to grant credit. So that means that a stay-at-home spouse with no income or only a small income (like me) would probably not qualify, even if the household income is substantial.

For those seeking to establish a credit history, improve a credit score, or gain financial independence, this is a knee-buckling change.The new rule is part of the CARD Act, the Credit Card Accountability Responsibility and Disclosure Act of 2009, discussed in detail in this creditcards.com article. The CARD Act makes the ability to pay off debt the paramount consideration when issuing credit. It is designed, in other words, to protect consumers from themselves. The act’s goal is to prevent cardholders from racking up mountains of debt that they can not repay effectively. Sounds good, right?

Living in a Material World

As we all know, even if you are opposed to making purchases on credit, having a credit card is virtually unavoidable. From simple transactions like renting a DVD or making a car reservation, to major transactions like qualifying for a business loan or a home mortgage, having a credit card is essential.

This change, although intended to protect consumers in general, places stay-at-home spouses at a distinct disadvantage.Imagine the case of a newly divorced or widowed spouse trying to get through the day without a credit card. In many cases, these people may have adequate resources, job skills, and assets to qualify for credit, but without individual credit history, a sudden change in marital circumstances could leave them high and dry, credit-wise.

This amendment also represents a major setback for stores that offer on-the-spot credit with a simple form filled out at the register. No longer will big retailers like Target, Home Depot and Kohl’s be able to offer customers credit cards at the point of sale—and they are not happy about it. While this rule may help curb impulse purchases, for consumers like me, there is a major downside.

Living abroad, I visit the United States a few times a year and normally arrive with a long shopping list in hand. Many items are dramatically cheaper in the States than here in Costa Rica, and other items are simply not available here. Last summer I racked up a big bill at Target, applied for the instant credit card, pocketed the 10% sign-up discount, and then zeroed-out the balance on the next bill cycle. Under the current regulation, I won’t be able to do this unless my husband is with me. Not a nice feeling.

Charging Ahead

If you didn’t apply for your own credit card before the Oct. 1 deadline, all is not lost. There are still several ways for a stay-at-home spouse to obtain a credit card, albeit with restrictions and caveats:

Authorized User: A non-income-generating spouse or child can be added as an authorized user on an existing account without being legally responsible for repayment of debts incurred on the account. The authorized user status does help establish credit history and so this is a workable option for many consumers.

Co-Signer: Just the word “co-signer” conjures up all sorts of credit horror stories, but for some people, it may be the only option. As a co-signer, you are legally responsible for debts incurred, so proceed with caution if you choose this route.

Work It: If a stay-at-home spouse has even a small income from a home-based business or part-time job, this may be sufficient to obtain a credit card with a very low limit. Properly managing a credit card account with a low limit can be a good way to establish credit history.

Hang On: If you have an existing credit card in your name, but anticipate a break in employment for any reason, consider zeroing out the card, but leaving the account open. Once your income ceases, it will be difficult to obtain a new account in your own name—so don’t close that account!

Note: In community property states such as California, Texas and Louisiana, different rules apply that may allow a non-earning spouse to receive credit in his or her own name. On the flip side, non-earning spouses may also be held liable for debts accrued by their partners.

This article was written by contributing author Laurel Gray.

Four Reasons to Switch to a Credit Union

Posted on by  at  11:35 am
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It’s just getting downright ridiculous isn’t it? Sure, banks have to make a profit, and they’re still cleaning up the carnage that came from lending money to anybody who walked in with a heartbeat and a pen to sign the papers, but why all these fees? Just when you get used to one fee, here comes another.

Obviously, recent legislation (Dodd-Frank) played its part in motivating banks to add new fees, but since we can vote with our feet (and our dollars), I think it is time to look at alternatives to large banks.

For some reason, and who knows why, there is a sector of banking institutions that just can’t get the love and respect they deserve – credit unions. In the past, you used to have to meet a specific criteria in order to be a member, but now the membership requirements are about as strict as, “you have to drive by our branch at least once a year.”

I’ve been a member of a credit union for nearly 15 years now – since I was old enough to join one based on my grandfather’s decades-long membership during and after his service in the Marines.

I’ve financed vehicles (back when I used to do that) through my credit union at incredibly low rates. I have enjoyed higher yields on CDs and money market accounts, and even turned to them for a mortgage – mostly because they were so easy to deal with and the rates were competitive. I still maintain a local bank account with a small, regional bank, mostly for convenience, but I do all “serious” banking with my credit union.

Some credit unions have more strict criteria based on geography, membership to a particular organization, employer-based, etc. However, chances are virtually anyone can now join a credit union – and here’s why they often make for the best personal bank account.

Four Reasons to Choose Credit Unions Over Big Banks

1. Free Checking. Fat chance of finding a bank that has totally free checking these days. Although there are crafty ways of avoiding checking account fees, no bank is going to tell you that. Most credit unions still have totally free checking account for members.

2. Free ATMs. Most credit unions belong to networks within the National Credit Union Administration or NCUA. If you go to any credit union that is part of this group, you will often receive no fee ATM transactions. It doesn’t always work out like that, but even if you do pay a fee, it’s going to be a lot cheaper than traditional bank fees.

3. Better Interest Rates. Credit unions are non-profit. When you join a credit union you have to pay in to it as a shareholder. It’s only about $5 that you pay as your “share,” but that $5 makes you an owner of the credit union and because of that, you’re entitled to benefits. Credit unions often have better rates on loans, and better interest rates on deposit accounts.

4. No Strange Fees. If you’ve taken a large amount of cash in to a bank lately, you’ll notice that they charge you for the deposit. Isn’t that kind like McDonalds charging you to purchase lunch, and then charging you for the food? If it seems silly, it is, but that’s the new normal with banks. Credit unions have also been affected by legislation and have beginning to hop on to the fee bandwagon, but not with outlandish fees like this.

Potential Drawbacks to Using a Credit Union

If you’re a “techno banker,” credit unions may not be your cup of tea. Their internet banking platforms aren’t nearly as robust as traditional banks, and you may feel like you’re looking at one of those old school blue screens when using them. They also don’t come with all of the transfer capabilities or other advanced online management tools.

Still, if you’re fed up with the big banks, there’s an option, and that option is the credit unions. I would encourage you to head over to the NCUA website today and find your nearest credit union to investigate their offerings and strongly consider making the switch.

How have your experiences with credit unions differed from those with a big bank?