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I’m Just a Number at Chase Bank

July 30, 2011 Leave a comment
I'm Just a Number at Chase Bank

'Upset Business Man" by nuttakit on freedigitalphotos.net

I am was just a number at Chase bank.

For about 9 years I banked with Washington Mutual and had no problems whatsoever. For the last 3 or so years I’ve been banking with Chase and had no problems, until this year.

The Beginning

I walked into my local Chase branch today with high hopes that they would understand my plight. The checking account that I held with them was an emergency checking account with about $900 in it. The truth is, I had attempted to close my account in 2010, but the banker that I spoke to at this location was pleasant and they talked me into keeping the account open with some emergency money in it “just in case.” They’re big pitch was that they had branches all over the United States and that there were no maintenance charges or minimums. I happily kept that account open.

Since that account was an emergency account, I didn’t keep up with it. After a few months Chase locked me out of my own online account due to inactivity. I didn’t think twice about this since I had no reason to log in to my emergency checking account. I was smart enough to set up text messaging so that I would be alerted to any transactions in case there were unauthorized charges. A few days ago I was alerted to a charge and immediately called Chase to regain access to my online account.

After logging in, I was surprised to see 3 months worth of maintenance charges. I knew about the debit card limitations that the politicians had enacted into law and I knew that banks were trying to find new ways to maintain their profitability. I figured the 12 years that this account had been open would amount for something and I would be able to get those maintenance charges back. Boy, was I wrong!

At the Bank

I sat down with one of the banking representatives. He was very professional and curteous and told me that he had a $35 limit to the amount that he could credit back. I told him I was fine with this since the charges amounted to a total of $36. I joked that the $1 difference would be the penalty I paid for not reading all the documentation that was sent about my account being changed. I admitted that it was my mistake, but I hoped they would understand my situation. He went to talk to his manager because the last maintenance charge was more than 60 months old and he needed authorization to refund it. I wrote out a check for $1,000 in front of him and signed it since I needed to get my account above the minimum to avoid the maintenance charge.

No Trust

Unfortunately he came back with bad news. The manager was unwilling to refund the last $11 worth of maintenance charges because it was more than 60 days old. I told the representative that I was willing to split up my direct deposit as I had done in late 2010, but I felt like I was buying a car at this point. All I wanted was my hard earned $35 back. The manager did not trust that I would do what I said and I was told that they wanted to see the direct deposit go through first. I entertained this thought. I asked them if they could offer a signed letter stating the conditions and the representative said they could not. At this point I am furious and starting to shake.

I was willing to do what the manager said, but I wanted to be assured that they would give me back my $35. They couldn’t even provide me with any assurance! This was getting a bit personal since they didn’t want to trust me and I couldn’t trust them. They had started off by saying they could give me back $35 and then they took that back. There was no way I could trust them after that.

In the end I closed my account and destroyed the check that I had written and endorsed for $1,000. They can keep my $36, but not my $900.

Summary

  • I laid out my situation, told him this was an emergency checking account, and that I had tried to close it once before but was talked into keeping it open by an employee at that branch
  • I wrote and endorsed a check after I was told that $35 out of $36 was refundable
  • The manager changed her mind in the middle of it all
  • I offered to split up my direct deposit as an incentive so I wouldn’t have to close the account
  • They did not trust that I would do so
  • I couldn’t trust them after they got my hopes up and changed their mind
  • My account was closed

Risk/Reward Analysis

There’s a risk/reward lesson here that I wanted to outline. I’m perplexed at the fact that the manager was willing to let me go as a customer over $36. This decision cost her branch about $900 instead of $36. I understand that she didn’t want to trust me, but lets do a bit of risk/reward analysis here.

Worst Case for Chase

Here’s the worst case for the bank. I get my $35 back and deposit $1000. I turn around and close the account after everything has cleared. They’re out $1000 + $35 + 900 = $1935.

What Happened

This is what happened. I didn’t get my $35 back and I didn’t deposit $1000. I closed my account right there and then. I consider the $1000 a lost opportunity cost. They’re out $1000 + 900 = $1900.

What Would Have Happened

If they would have trusted me, I would have been able to get my $35 back and deposited $1000. For the sake of keeping the math simple, I am going to leave out the direct deposit numbers. They gain $1000 + direct deposit.

  • Risk:  $1935 – $1900 = $35 + unsatisfied customer
  • Reward:  $1000 + direct deposit + satisfied customer
  • What Happened:  They lost $900 and I am hesitant to ever do business with Chase or recommend Chase again

The numbers can be tweaked to be more accurate, I know. The fact of the matter is, no matter how you tweak the numbers, the decision that this particular branch manager made was a bad business decision. I would think that keeping customers is more important than giving back three month’s worth of maintenance fees.

Categories: Banking, Personal Finance

Liquid and Bump Certificate of Deposits

July 25, 2011 Leave a comment
Liquid and Bump Certificate of Deposits

"Splash Blue" by Idea go on freedigitalphotos.net

I have been wracking my brain for ideas on what to do now that I am nearing my Rewards Checking limit and won’t be earning much interest on any amount over that limit. I looked into savings accounts, but the interest is so low I just don’t want to go there! I’ve thought about moving money into riskier investments, but I would be increasing the risk profile of my finances as a whole and I don’t want to do that. I asked myself a few questions to narrow down what type of options I should be looking for.

Questions

Will I need this money in the near future?

Yes, actually. I will be needing this money for an engagement ring. I know banks have payment plans, but I don’t like being in debt. I’ve even learned that being in 0% APR debt has its impact on my credit score!

Can I take on more risk at this time?

Now that I have started investing in LendingClub notes in addition to my stock market investments, I have taken on all the risk I can digest. The recent economic worries pressuring the stock markets have not been fun to observe!

Liquid Certificate of Deposit

This instrument provides a low yield in exchange for a higher level of liquidity. The level of liquidity is depending on the bankin institution so one must read up carefully before purchasing. Some institutions allow multiple withdrawals and some only allow one. Some institutions have limits on their withdrawals and some have time constraints.

This would be a good option for me if the interest rates that I’ve seen weren’t so low! The rates are comparable to higher interest savings online savings accounts and I would rather put my money in one of those instead of having to deal with all the fine print.

Bump Certificate of Deposit

This instrument provides a chance to bump up the yield once or multiple times depending on the institution and the length of the CD to maturity. I have seen some decent rates and it makes a lot of sense to invest in a 4 year CD if you are able to bump the rate up a few times. If interest rates rise in those 4 years then you can bump as you go. If they fall, then you have locked in a higher rate. This is only an option if you can lock up that money for a long period of time.

This isn’t a good option for me, espeically since buying a house is on the horizon post-engagement. I just can’t tie up much of my savings right now, which is a bummer. I’m not one to take a penalty for early withdrawal. I don’t plan on looking into the math involved and the literature reads as if the penalty could leech into my principal. I’m just not going to deal with that.

Keep on Looking

It looks like I have to keep looking. I’ll definitely make use of these instuments in the future when I don’t have so many large purchases staring me in the face.

Categories: Banking

Indexed CDs

June 27, 2011 Leave a comment
Indexed CDs

"Risk Blocks" by jscreationzs on freedigitalphotos.net

I was surprised to arrive upon an interesting type of Certificate of Deposit while researching online. The normal CD is usually based upon a certain APR, compounded at a certain rate until maturity. These interesting CDs were called Indexed CDs and they provided exposure to an underlying index such as the stock market, currency market, or commodities market.

The particular one I ran into tracked a basket of precious metals. The prospectus was very transparent in the methodology that was used so I was very interested in it. The more I read, the more interested I got. In a nutshell, this was what they offered.

The Good

  • $10,000 minimum deposit
  • 5 year CD
  • FDIC insured up to FDIC limit
  • Principal is guaranteed if index doesn’t perform

Wow, I can get the same amount of money out that I put in even if the index performs badly? Are you serious? There is an instrument out there that gives me exposure to the volatile precious gold market with no downside risk? Sign me up, right? No.

You’ll notice I haven’t named the bank where I found this product. That is because I don’t want you to consider what they offer. If you search around Google, I am sure you’ll find it if you really want to take a chance. I dug really deep, because that is what I do before I commit money. Here are some issues that I had.

The Bad

  • Must pay taxes on “phantom income” every year
  • High opportunity cost risk
  • Banks time these offers strategically

The Ugly

Let me go into a bit more detail on the above list. At the end of every year, if the calculations show an increase in the index, you have to pay taxes on the difference just like in a regular CD. I’m not completely sure about how to get those tax dollars back if you break even at the end of 5 years and only get your principal back. Please ask a financial professional if you’re interested in this type of product.

Say you put your money in the account and at the end of 5 years nothing happens. You come out even and no money is lost. That’s where opportunity cost comes in. You could have put that same money in a 5 year CD for a fixed percentage and earned interest! Their minimum deposit is nothing to sneeze at and 5 years is a long time for your money to sit idle.

Here’s the last point that I want to make. Banking institutions are not stupid. They have departments that do risk analyses of their products before they offer them. This particular bank only offers select indexes at select times of the year. Besides risk analysis, banking institutions also have departments that monitor the markets and make informed judgments. Look at the state of the precious metals market right now and tell me if these bankers aren’t smart.

Categories: Banking

4 Online Calculators

June 27, 2011 Leave a comment
Online Calculators
“Yellow Calculator” by nuttakit on freedigitalphotos.net

There are a bunch of online financial calculators that I use to look up things such as interest payments, APY, mortgage ammortization, and much more financial voodoo. The site that I am most dependent on is Bankrate.com because they have never let me down. I have looked up CD rates on there and I have also use many of their calculators to help me make financial decisions. The following are a few that I have found extremely useful.

Simple Retirement Calculator

This calculator asks you a few simple questions like how much you would like to have saved by retirement, how many years you have until retirement, and how much have you saved up so far for retirement. It then makes a few assumptions, explains them to you, and calculates how much you would need to save every year or per month to reach your goal under those assumptions. This is a good baseline to go by, but you should consult with a professional financial advisor before making any decisions.

CD Rate Calculator

This calculator shows you the resulting APY and earnings after a period of time that you can set. I’ve used this calculator many times because the APR and resulting APY differ due to how CDs are compounded.

Compound Interest Calculator

This calculator is a must-have in everyone’s toolbox. You hear financial professionals talk about the power of compound interest all the time. This calculator will show you the results of compound interest over a period of time that you can set. You can also include additional contributions. I used to set up a spreadsheet to do this before I found the calculator.

Lunch Savings Calculator

I bet you are surprised to see this calculator listed! It helps you quickly figure out how much you could save if you bagged your own lunch instead of eating out everyday. I would suggest clearing out the “Expected Rate of Return” box for a straight up calculation.

Bottom Line

I hope these calculators help you out as much as they have helped me.

Categories: Banking

Automatic Savings

June 23, 2011 Leave a comment
Automatic Savings

"Bulb Lamp Coin" by Pixomar on freedigitalphotos.net

I hear so many stories from people who tell me they want to save money, but they keep going to the department store for some reason and their money just disappears! I like Macy’s as much as the next person, but not being able to save money is a huge issue for us young professionals. I have an idea that may help.

What you need is to somehow transfer money straight from your paycheck into a savings account that you leave alone. By not seeing the money in your checking account, you won’t be tempted to spend it! Now, this assumes that you aren’t spending more than you earn in the first place. If that’s going on, then this won’t help much.

Split Direct Deposit

See if your company offers splitting your direct deposit payment between bank accounts. At one time, I had my paycheck deposited in two different checking accounts as I was transitioning from one to the other. My original bank talked me into keeping some money there, but that’s a different story for a different time. I know for a fact that Paychex will allow you to break up your direct deposit because that is what is used where I work.

Automatic Transfer to Savings

See if your bank offers a service where you can link a savings account to your checking account. Most banks allow this if you open the savings account with them and your checking account is also with them. You can set the amount you want to transfer and the time frame you want to transfer it in. For example, if your paycheck comes every other Friday of the month, then you can set up an automatic transfer of money that occurs on the same day or whenever you want.

Non-Automatic Transfer to Savings

If you can’t do any of the above because you get an actual paper paycheck or for whatever other reason, you still have no excuse. You need to split your paycheck up between a savings and a checking account!

Goal or No Goal?

The amount to split up is another topic for another time and it varies depending on your current financial situation. If you have a goal that you want to get to in a certain timeframe, then the calculation is straightforward. Let’s say you want to buy an $800 iPad 2 and you want to get it in 3 months. Let’s also say you earn 2 paychecks a month so you have a total of 6 paychecks to split $800 into. If you transfer $150 per paycheck to your savings account, then you will be able to afford that iPad 2 plus shipping and handling. If you don’t have a particular goal, then you’ll have to figure out a percentage to stash away that won’t affect your wanted standard of living.

Bottom Line

Sometimes the only way to save money is to take it out of our own hands and make it automatic. Sometimes we need to trick ourselves into thinking we have less money to spend in order to spend less money. Make sense? I briefly mention standard of living above and sometimes we have to review that and make sure we’re not living the high life when we can’t afford to. That is definitely a topic for another time. Now go set up some automatic savings!

Categories: Banking

Rewards Checking

June 21, 2011 Leave a comment
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"Money" by zirconicusso on freedigitalphotos.net

When I graduated from college, I already had a checking account that my parents had set up for me. I had one of those books of temporary checks that I never used. The account was one of those free accounts that didn’t require a minimum balance and didn’t have a maintenance fee. It came with a Visa debit card that doubled as the ATM card. I was happy with the account.

A few years into college, I started researching different types of checking accounts. I had heard my friends talking about how they earned a small interest on their checking accounts. It was worth it since the account was still free. I had no feel for interest rates so I thought that a 0.02% APR was dandy. Yeah, that rate doesn’t even keep up with inflation.

Recently, I stumbled upon a product that smaller banks offer to try to stay competitive with the large national chains and online banks. Different banks call it different things, but I’ve found it mostly referred to as “Rewards Checking”. These checking accounts have APRs that are higher than competitive CDs, but have a few requirements.

Rate

How much higher are the rates? At the time of writing this article, Bankrate.com showed the average 1 year CD rate as 0.92%. My local bank, Amegy.com offered 1.50% on what they call “Smart Yield Checking.” My local credit union, FCCU.og offered 3.01% on what they call “First Rewards Checking.”

Requirements

So what’s the catch you ask? Good question. The specifics are different from place to place but the gist is all the same.

  • They want you to direct deposit money.
  • They want you to use online statements so they don’t have to print and mail statements to you.
  • They want you to log in to your account every month.
  • They want you to make a certain number of debit transactions per month.

The business model is pretty simple. They want your money, they want to save on overhead by doing everything electronically, and they want you to use your debit card so they get the commissions from it.

Penalties

If you end a month without meeting all their requirements, your account becomes a regular checking account until you regain “rewards” status. Most banks have a set period of time as well as list of requirements for getting back the “rewards” status.

Bottom Line

If you are going to be using your debit card for transactions anyways, there is no reason not to get one of these accounts. The only people that would need to look into the pros and cons further are those who have a separate rewards credit card that they use for purchases. I have both, but I tend to charge larger amounts to the rewards credit card and smaller amounts to the debit card. Traditionally, these types of accounts will help you keep up with inflation at a minimum. Remember, you’re pretty much lending money to the bank when you deposit into an account. Why not get paid for doing that?

Categories: Banking