GETTING THE BEST DEALS

I’ve always been interested in obtaining the best deals [financially] possible – getting the lowest rates [and fees] associated with mortgages, car loans, credit cards, and other financial products. An article in this month’s (March 2007) Consumer Reports Magazine suggests that the source of these deals are commonly credit unions. Credit Union membership is no longer the exclusive group that it used to be. Almost anyone (everyone?) is eligible to belong to a credit union (8,700 credit unions in the U.S.) based upon some criteria (being a student, geography, employer, religion, family member of someone that meets criteria, etc.)…

Credit Unions are often able to offer superior rates [not always, but often the case] because their shareholders are the customers (referred to as “members”) of the credit union, commonly referred to as a “cooperative.” That means that instead of profits going “out” to stockholders; savings are distributed “within” to its membership through higher interest/dividend payouts and lower loan rates on financial products. This “not for profit” ownership structure means that credit unions also pay fewer taxes, giving them more opportunities to return value to their members. Datatrac is a market research firm that surveys nearly 20,000 financial institutions weekly to gather rate information. I mention this to give you an idea of “average” national rate differences between banks and credit unions. You can view the site to see more rate comparisons as well as up to date information. In addition to differences in rates, fees also often vary between banks and credit unions, so that should also obviously be part of the ‘shopping list.’

National Rate Averages as of 2/20/2007.
Money Market Accounts (CU = 1.93%) (Banks = 1.18%)
1 Year CD (CU = 4.73%) (Banks = 4.16%)
Regular Credit Card (CU = 12.25%) (Banks = 14.98%)
48 Month Used Car (CU = 6.48%) (Banks = 8.12%)

Let me share a local [local for me] example. Tigers Credit Union (http://tigerscu.org) is a small entity that serves students, alumni, and family members of the University of Missouri-Columbia, Columbia College, and Stephens College. The credit union has recently begun offering a student credit card with interest rates as low as 9.9% and offers a 0% rate for 6 months to individuals that meet with a financial counselor at the Office for Financial Success or complete one of our personal finance courses (such as Financial Survival and Financial Success) to encourage individuals to understand the costs/benefits of credit, potential pitfalls, etc. It’s also refreshing to see credit card terms that are advertised in a readable font size! They also offer a money market account that yields 5.35%, above average CD yields, competitive auto loans, free access to thousands of ATMs (not unique to them), and are working on an account that would allow a member to start an IRA for as little as $25.

At the University of Michigan, their Campus Information Centers have created a listing of local financial institutions that shares information about free accounts, fee structures, ATM access, and other information to help their students make more informed choices. We're planning to create something similar in the coming months that we can share with the MU community.

Click to locate credit unions near you.

FAFSA PRIORITY DEADLINE ...

Just a reminder that the priority deadline for the 2007-08 FAFSA (Free Application for Federal Student Aid) for Mizzou students is March 1st. Students who file by this date will receive priority consideration for need-based financial aid. You can complete it online at: http://www.fafsa.ed.gov. Workshops and other assistance is available at the Student Financial Aid Office (11 Jesse Hall).

Additional information is available in the January FAFSA tip ...

FREE BUDGETING TOOLS

Prior to setting up the Financial Tip of the Week as a blog about 6 months ago, I’d never read a blog. I now find myself reading various personal finance blogs on a fairly regular basis. I have found some to be very useful sources of information. I came across this blog recently that provides links to several free budgeting tools. The vast array of options to me underlies the importance of evaluating different methods of budgeting before ‘giving up’ altogether simply because one didn’t work for you. Given that all are free, perhaps you can give them a whirl before dropping some money on the most talked about budgeting tools (i.e., Quicken and MS Money). You may find something that works for you; you may find something that will spark some creative juices within you to modify something you’re currently doing … [I’d begun typing explanations of the different programs, but it was getting too long. I’ll let you explore them on your own. All of the links have been verified]. If you find something of interest, I’d be interested in your feedback. Also, if you are aware of other online resources that are free that aren’t listed, let me know – I’ll add them. Take a few minutes to peruse these – lets face it, most people are YNAB (You Need A Budget).

FREE Budgeting [Download] Resources.

• AceMoney Lite
• Buddi
• Budget Ace
• BudgetOnWeb
• GnuCash
• Grisbi
• KMyMoney
• PearBudget
• Moneytrackin'
• MS Office Accounting Express
• MySpendingPlan
• SimpleD Budget
• StackBacks
• Yodlee MoneyCenter
• Zero-Based Budget
  

FREE Budgeting Spreadsheets.

1. Spreadsheet A
2. Spreadsheet B
3. Spreadsheet C
4. Spreadsheet D
5. Spreadsheet E

ORDERING YOUR FREE CREDIT REPORT

“I’m thinking of a number …” says a smiling host that then brags about how high his number is – his credit score that is – and how much money it saves him when he gets a new car loan or mortgage. Certainly true – a good credit score will allow you to borrow at lower rates than those with low credit scores. I’m sure most of you have seen it – the advertisement for FreeCreditReport.com. These types of advertisements for your “free” credit report are some of the most misleading you’ll encounter. The fine print - if you use this [Experian owned] site, you will begin your “free” trial membership in Triple Advantage Credit Monitoring Service; if you don’t cancel your membership within the 30-day trial period, you will automatically begin being billed monthly. Thousands of people mistakenly go to FreeCreditReport.com to order the free credit report that they are entitled to under FACTA legislation.

When you want to see your credit report, you want to use the official government site: http://annualcreditreport.com – there you actually get your credit report for free, without strings attached. You have the right to see your report every year for free, so there is no reason to visit any “pay” sites. The easiest way to identify if you’re in the ‘wrong place,’ will be if you’re asked for credit card information. September, 2005 marked the date that every consumer in America was eligible to obtain a free credit report [can obtain one report per agency (Experian, Equifax, TransUnion) per 12 month period]; ironically, it was only two weeks prior that the Federal Trade Commission announced a lawsuit against Experian [and freecreditreport.com] and other companies for “misleading” and “deceptive” claims for ‘free’ reports aimed at consumers. Obviously they largely benefited from the confusion over news stories telling consumers that they were entitled to a free copy of their credit report [and the importance of reviewing it]. While admitting no wrongdoing, Experian agreed to give consumers refunds and make the terms of its product clearer. 18 months removed, where are we? I don’t know that people have any clearer picture than they did then … I give students in my classes an assignment to pull one of their credit reports, providing the direct link for the free government site and without fail, some students will wind up at freecreditreport.com. Recent polls suggest that about 70% of American adults are aware of their right to obtain a free credit report – this is an amazingly high awareness rating. The challenge – to make sure people are going to the right site! FYI – the Federal Trade Commission has contacted more than 130 impostor sites (websites that misspell or sound similar to the real government site). There are 233 "scam sites" at last count.

Considerations.
- Go to http://annualcreditreport.com to order your free report
- Remember - no purchase is required when ordering free report(s)
- If you find mistakes on your report, fix them
- Stagger ordering your reports (order one every four months)
- Staggering enables you to monitor your own credit
- Don’t provide your credit card unless purchasing your credit score

Web Resources.
- FTC - Free Credit Reports
- Call, Don't Click
- Consumer Tips

DO YOU UNDERSTAND YOUR DEBIT CARD?

Debit cards are commonly seen as a good thing – a way to spend only money I have [unlike a credit card where you can obviously spend money you don’t have]; in theory, this is a good thing, but is this reality? It used to be - not any more. Did you know that if you don’t have enough money in your account to cover a debit card purchase (including ATM transactions) you probably won’t be denied? What? Isn’t that the reason most people use debit cards – to avoid that problem? A recent study has discovered that most banks will actually allow the transaction to go through …

Today, many financial institutions enroll customers [by default] in overdraft (“bounce protection”) programs when they open checking accounts. Under the program, the fee a customer pays when a withdrawal exceeds the available account balance is actually a finance charge for a loan. These overdraft loans are usually very short term and very costly. When these fees are converted to APR (the common measure to express the "true cost" of credit), the APR is often quadruple digits (or higher)! A 2005 report published by the Center for Responsible Lending (CRL) found that checking account holders will pay more than $10.3 billion in overdraft loan fees each year. The number one cause of overdrafts? Debit card purchases! These debit card overdraft loans have proportionately much higher APRs because they carry the same flat-rate fee on what is typically a much smaller transaction amount.

To me, the irony of this all is that banks have the technology capable of warning customers at the time of a debit transaction or ATM withdrawal that their account has insufficient funds, yet most do nothing about it. They can also decline the transaction and save the customer the overdraft fee, yet most do nothing about it. Yet, the CRL study learned that most people would prefer that the bank deny their withdrawal or purchase when they don’t have adequate funds in their account to pay for it.

Summary of CRL Findings.
- 46% of all overdrafts were triggered by debit card transactions.
- 72% of overdrafts were for electronic transactions (debit, ATM, etc.)
- Debit card overdrafts cost [median] $2.17 for every dollar borrowed
- Check overdrafts cost [median] $.86 per dollar borrowed.
- Expressed as an APR, the median debit overdraft rate is 20,000%+.
- 61% would prefer a denied purchase than an overdrafted account.
- 98% would cancel an ATM withdrawal if warned of insufficient funds.

Given what we know (in the past decade, debit card use for purchases has grown at an explosive 20% per year), it is likely the problem will continue. It is anticipated that a fee-based overdraft loan program will boost a bank’s overdraft revenue by 200% to 400%. I bring this to your attention primarily to enable you to be aware of the potential, costly trap of debit card overdrafts. In the study, over 60% of respondents who overdraft thought that they had enough money in their account to cover their purchase or ATM withdrawal.

Bottom Line.
Monitoring your account(s) regularly and maintaining a check register are a couple of simple things you can do to help avoid the problem created by overdrafts.

- CRL Report
- Montana State University Extension Check Register
- OFS Budgeting and Money Management Resources