Understanding Annual Percentage Rate (APR)
Mortgage rates are back at the low levels, making home purchases and refinancing more attractive.
What exactly do the low rates mean, and how can you compare rates? One way to compare loans is to look at the annual percentage rate (APR).
APR is not perfect, but it gives you a starting point to compare costs on different options. See how APR works learn more about it, and how you can calculate it.
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Reward Checking Squeezed by FDIC
Reward checking accounts have been under a lot of pressure lately.
Banks are finding it harder to make a profit with the accounts, and they've made it harder for some customers to work the system.
Bankdeals reports that the accounts are under even more pressure - this time from regulators. The FDIC is limiting how much interest banks can pay if they're "less than well capitalized".
The idea is that troubled banks may try to soak up assets by offering extremely high rates. If things don't work out, the FDIC has to cover all the funds that gushed into the bank (and stronger banks suffer when their customers jump ship for artificially high rates). Of course, the definition of a troubled bank can be fuzzy.
Reward checking accounts seem to be in the FDIC's crosshairs. If you're looking to open a new account, stick to stronger banks. You're less likely to get an email telling you the reward rate is no longer allowed.
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Text Your Way to Better Saving
Having a hard time building up that savings account?
Text messages might help you - assuming you won't have to pay more to receive them.
Economists studied how people behave when they receive text messages about their bank accounts. If the texts pester and scold you for failing to save, not much will change. However, more positive text messages that remind you of your savings goals are likely to help.
If you think this would be useful, find ways to make it happen. As Lifehacker points out, you can send yourself personalized, encouraging text messages. Set up periodic reminders with an online calendar system like Google or Yahoo, and let us know if it helps.
Banks Still Hesitant to Lend
The Federal Reserve just released the quarterly Senior Loan Officer Survey on Bank Lending Practices. The findings? Banks are still scared to lend money but there are glimmers of hope.
Consumers and businesses alike have a tough time getting money. We're not even asking for loans as much as we used to - either because we've given up or we don't want to take on the risks that come with more debt.
The results of this survey might be described as "slightly less bad" than previous ones. At least it's not as bad as it was one year ago.
Banks also expect to tighten lending standards on credit card debt with new legislation in the pipeline. Lawmakers want to make it more difficult for banks to change terms on credit card loans, so banks plan to do any tightening before the laws go into effect.
Further reading:
FDIC Insurance on 529 Plans
529 college savings plans allow you to save for higher education, and you may qualify for some tax benefits.
Most parents invest in mutual funds, hoping they'll be able to earn enough (combined with their contributions) to create a healthy college fund. However, those accounts can also lose money.
For a government guarantee, you'll need FDIC insurance on your 529 savings. This is hard to find, but Virginia's 529 program recently added an FDIC insured option for conservative savers. You don't have to live in Virginia to use the program, but you should investigate your home state's program before using a different state's 529.
Before you get too excited, consider whether or not you need FDIC insurance on your 529 savings. You won't lose anything on insured deposits, but you'll only earn bank-like returns. This may or may not make sense, depending on your situation. A financial planner and tax advisor can help you understand how a 529 will impact your finances.
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Convert Bank Data - CSV to QIF
If you download bank transactions into any program or online service, you know that you have to use specific file types. What if your bank doesn't give you what you need?
Geeky Chick describes her struggle to convert CSV to QIF ("when your bank is too lazy or stingy to do it for you"). By using an Excel add-in, you can get your data into the right format.
With all the bank failures, mergers, and changes going on, you may find this information handy. Banks sometimes transition your account to a new system, and you may have to adapt. You can also use conversion tools to slice and dice data in ways that your software doesn't allow.
I have not used the product she mentions. Take precautions before downloading, installing, and working with sensitive banking information. Make backups of your existing data, and do some homework to make sure the software does not contain anything that will harm your computer or steal your information.
Banks Crack Down on Reward Checking "Abusers"
Banks with reward checking accounts are taking a closer look at customers to see if they're profitable. Bankdeals shares a recent example, where a bank asks customers to get with the "spirit" of the program.
Reward checking accounts can pay more than a savings account or CD. To qualify for the rate, you have to meet some requirements. Generally you have to use your debit card 10 or more times per month. If not, you earn little or no interest that month.
Banks earn money when you use your debit card for purchases. That money helps them pay the above-average rates found in reward checking accounts. If you only use the card for low dollar items, the bank earns very little - and they can't afford to pay those high rates.
Interchange fees, the fees banks collect when you use your card, have been under attack recently. They raise the cost of doing business for merchants, and provide nice revenue for the banks. Given the double-whammy of interchange fee attacks and customers working the system, we may see reward checking accounts get a lot less rewarding.
Further reading:
Taxes Don't Pay for Bank Failures
In the wake of 2009's 100th bank failure, the FDIC is trying to get the word out: taxpayer money does not cover FDIC insured deposits.
Sheila Bair stressed yesterday that FDIC insurance funding comes from contributions of member banks. FDIC insured banks pay into the fund in case other FDIC insured banks fail.
While money doesn't come directly from the US Treasury, somebody pays for it. As insurance premiums erode banks' returns, they'll pass it on to us in the form of higher loan rates or lower deposit rates. Also, the FDIC technically has the backing of the US government - so if things got really really bad we'd be on the hook for losses.
I can see why Bair is making this distinction, but I don't think she'll get much mileage out of it. Most "bailout fatigue" seems to be a result of huge payments to firms that survived, not the $25 billion of losses to FDIC's insurance fund. Perhaps that's her point.
Over 100 Bank Failures in 2009
We reached the unfortunate milestone of 100 bank failures for the year on Friday. The count valuted to 106 after 7 banks went under.
Given predictions made last year, that's not as many as I'd have expected by now. Experts still predict we have several hundred more to come as a result of the financial crisis.
It seems there's a reason for the low number. The Associated Press suggests that the FDIC is moving slowly. They're hoping for economic recovery, finding buyers, and trying not to create a panic. Of course, if you understand the nature of FDIC insurance, there's no need to panic as long as your money is insured. Anybody with uninsured deposits should be aware of the threat and is hopefully already doing something about it.
Peer to Peer Lenders Target Washington
P2P lending is a good option if you need a loan.
It's not the only option, and you should still compare offers from traditional banks and credit unions. However, it's been more and more difficult for individuals and businesses to get money from traditional lenders.
While peer to peer networks have helped, they've faced headwinds over the past year. Regulators weren't sure what to do with them, so P2P services had to spend time with the regulators figuring out what rules to follow and how to move forward.
A new effort from P2P services hopes to streamline that process and make it easier to do business. The Coalition for New Credit Models recently launched to help lawmakers understand and accept innovative financial services.
When I first saw the press release, I figured they were hoping to market a new campaign for consumers. Instead, it looks like they're getting serious about working with legislators - a lofty goal right now. "Innovative" financial products are not exactly popular these days, so they'll have to let everybody know what they mean by innovative.
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