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Investment Insight
3rd Quarter 2010 |  |
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New Bank Fees: How to Fight Back
Bank on it: Higher fees, and more of them, are coming soon to a financial institution near you.
Regulators in the past year have pushed through a raft of changes designed to rein in banks' most abusive practices, from excessive overdraft fees to the way lenders raise interest rates when a credit-card payment is late. The new rules are expected to slice billions from firms' profits - and more if lawmakers move forward with a bill to limit how much financial institutions can charge merchants for debit-card transactions.
Banks, of course, aren't giving up those revenues without a fight. Instead, industry leaders like Bank of America Corp., Wells Fargo & Co., HSBC Holdings PLC's HSBC North America, Fifth Third Bancorp and others are experimenting with new ways to nick their customers; from imposing maintenance fees on checking accounts to rolling out new charges for services like fraud alerts, debit cards and credit reports.
Making matters trickier, while the banks must disclose the new fees fully, they likely will do so only in the ordinary-looking correspondence that most consumers toss in the trash without reading. The result: Many people will learn of the new charges only after opening their monthly statements.
The first and biggest casualty in the new fee assault: free checking. Banking executives and analysts say the new world of checking is likely to resemble the cable-television industry, where customers pay one amount for bare-bones service and then can load on additional options, such as cash-back programs. |
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Local community banks and credit unions are likely to hang onto free checking longer than their bigger rivals. That is because such institutions will see less of a financial impact from some of the new regulations, and therefore may be under less pressure to add fees.
Consumers with interest-bearing checking accounts, which typically accompany the higher-fee accounts and carry high minimum-balance requirements, need to be especially vigilant. Those balance requirements can change, and might be disclosed only in fine print.
One weapon at consumers' disposal: their vocal cords. If a customer complains enough, a bank might be willing to waive the fee or extend the current bank service for a certain period of time. The squeaky-wheel approach can be especially effective face-to-face in a small-town branch. That is because local bankers sometimes have flexibility in what they can offer their best customers.
See full story, located at MarketWatch, and be sure to check the fine print in correspondence from your bank. |
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A Car Payment is Not a Fact of Life
A simple formula can help you figure out how much you can afford to borrow -- and for how long. If you're lucky, it could be the last time you'll need to finance a vehicle.
Some suggest that if you can't pay cash for your next car, you should make a down payment of at least 20%, finance the balance for four years or less and make sure the resulting payment is no more than 10% of your gross income. That means the typical American family can't afford the typical new car!
Someone who purchased a new car last year, when the average price was $28,966 according to the National Automobile Dealers Association, would have needed a household income of nearly $65,000 to swing a purchase under this formula. That assumes a 5.75% interest rate, which Edmunds.com says was the average paid by buyers who financed new cars in 2009. And spending 10% of your gross income on a car is actually too much for many people. If you've got a big house payment or other significant debts, you should spend less -- maybe a lot less.
Car dealers have been pretty clever about disguising the fact that most households can't afford their new cars. They do this by stretching out your loan term and not insisting on a down payment. Both causing you to pay more in interest and stay in debt longer, which ensures you are underwater on the loan from the minute you drive off the lot, thanks to depreciation.
When you overspend on cars, you don't have enough money left over for more-important goals, such as saving for retirement, paying down debt or building up an emergency fund. It's time to end the madness. A new car is not a birthright; it's a luxury. And luxuries should be paid for in cash. As author Jeff Yeager notes in his new book, "The Cheapskate Next Door," too many Americans accept car payments as a permanent fact of life when they would be far better off buying used and paying cash.
See full story, located at MSN Money. |
Medicare Sign Up Rules
You are eligible for Medicare at 65, even if your normal retirement age for full Social Security benefits is later. (In 2010, the normal retirement age is 66.) You should sign up for Medicare Part A, which covers hospitalization costs, when you reach age 65. It's free. Enroll even if you continue to work and don't plan to sign up for Part B (the part of Medicare that covers doctors' visits and outpatient services), for which you must pay a monthly premium.
The initial enrollment period for Medicare Part B runs for seven months, starting three months before your birthday month and continuing for three months afterward. You can now sign up online -- go to www.socialsecurity.gov and click on "Retirement/Medicare" or contact the Social Security Administration (800-772-1213).
If you miss the seven-month sign-up window, you'll have to wait until the next general enrollment period, which runs from January 1 to March 31 each year, for benefits beginning the following July 1. You'll incur a 10% penalty for each year you delay beyond your initial enrollment period. The surcharge will be added to your monthly Part B premium, which is usually deducted from your Social Security benefits. If you are not yet collecting Social Security, you'll pay your Part B premium directly.
Special enrollment rules apply if you're eligible for Medicare and still on the job. If you have health insurance through your employer or your spouse's employer, you aren't subject to the 10% late-enrollment penalty as long as you sign up for Part B within eight months of losing that coverage. Similarly, if you have employer-provided prescription-drug coverage, you can avoid the late-enrollment penalty for Part D. If you miss the initial seven-month enrollment period, you can sign up for prescription-drug coverage during the last six weeks of 2010 for benefits beginning January 1.
See full story, located at Kiplinger. |
Five Common Investing Mistakes to Avoid
Russell Investments recently posted a list of companies joining and leaving the Russell 3000 index on June 25. In anticipation of this event, many investors have either bought the stocks of companies being added to the index or sold those being deleted from it. Big mistake.
- Don't sell stocks deleted from an index, or buy stocks added to an index. Buying companies based on an index's reconstitution is just one of four common mistakes investors make.
- Don't buy stocks before ex-dividend date. Another mistake investors make is buying stocks before their ex-dividend date, and then selling them shortly after the dividend is paid. This is a flawed strategy as stocks will often experience a decline in price that is proportional to the dividend distribution.
- Chasing returns.
- The case of too many or too few. Choosing many holdings, most of which are highly correlated can prevent the portfolio from true diversification.
- Forgetting why you bought in the first place. When selling, don't forget why you bought in the first place. Only sell when that reason is no longer valid.
See full story, located at MarketWatch. (free registration may be required) |
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Horan Securities, Inc., doing business since 1996.
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