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BANKING AND CREDIT TIPS

 

Checking

Ask for an up-to-date list of all checking account and other fees charged by your bank.   

Some banks offer accounts with a low minimum balance requirement (or even none at all). If you take advantage of this option you can save a great deal of money in bank fees.   

Some banks will waive or decrease your checking account fees if paychecks or social security checks arrive via direct deposit. Another good reason for using direct deposit is that it ensures your money is secure (for example, thereís no need to carry checks in your wallet) and is deposited on the same day each month.  

Savings and investments

There is an ever-increasing range of savings and investment options available through banks and financial institutions. You should be aware that not all are insured by the federal government (FDIC or NCUA). Mutual stock funds and annuities, for example, are not. Before opening any account, ask whether your funds will be protected.  

Investment options with a high annual percentage yield and very low risk include certificates of deposit (CDs) and treasury bills or notes.

When you have narrowed down your list of possible savings or investment products, ask several financial institutions about their rates and fees for each type. These variables can make a big difference in the interest you will earn over time.

Credit cards

If you use a credit card, be sure to pay off the entire amount owed every month. If you maintain a balance owing you will end up paying substantial amounts in interest. Donít surpass your credit limit or youíll be charged for that, too. 

Try to have only one or two credit cards, and choose those with low interest rates and/or low annual fees.   

If you have to make a large purchase and will not be able to pay off the amount in a single month, pay as much as you can. Also consider switching to a credit card that offers a lower interest rate.

Car loans

If you have some money in the bank that is not earning a high rate of interest, it can be more advantageous to use this money to make a large down payment than it is to finance the car purchase with a loan.  

Car dealers/manufacturers sometimes offer low financing rates to entice you to buy. But shop around. You may be able to get a car loan at a low rate from your bank or credit union, as well and choose the car you really want.

Mortgage loans

Short-term mortgages can save you tens of thousands of dollars in interest over the long term. For example, if you borrow $100,000 at a fixed rate of 8% per year, a 15-year mortgage results in $90,000 less in interest payments than a 30-year mortgage. You will have to pay a higher monthly payment than with a longer-term loan.   

Even a small difference in interest rates can mean thousands of dollars, so itís a good idea to shop around for a mortgage loan with the lowest rate and fewest points available. Say you want a 15-year, $100,000 fixed-rate mortgage. An annual percentage rate of 8.0% instead of 8.5% decreases interest charges by more than $5,000. On this same mortgage, paying two points instead of three would save you a further $1,000.   

Your local newspaper probably prints a list of mortgage rates available at various banks or financial institutions (this is often a weekly feature). If it doesnít, call several lenders to ask about their rates, points, and fees. 

Some banks will help you determine exactly how much each mortgage option will cost and its tax implications. You can also ask an accountant for an independent assessment. If you would like to do the analysis yourself, some common financial management computer programs will calculate mortgage loan costs for you.  

If you are thinking of having a mortgage loan with an adjustable rate, remember that the rate can fluctuate greatly over the lifespan of the mortgage. If your rate was to jump by several percentage points, your monthly payments could rise by hundreds of dollars.

Mortgage refinancing

If your current mortgage is at an interest rate at least 1% higher than what the financial institutions are offering now, consider refinancing. This advice is especially valid if your mortgage has several years to run. An accountant can help you figure out whether this move will be advantageous once you factor in up-front fees or penalties etc.

Home equity loans

Many finance companies are targeting seniors with advertising for home equity loans. Be cautious. Home equity loans decrease the equity you have built up in your home Ė in other words, the degree to which you own it. If you find yourself unable to meet the payments, you could be forced to sell your home. 

If you are considering taking out a home equity loan, compare the rates and options from at least four banks or financial institutions. Take into account the annual percentage rate, points, closing costs, other fees, and the impact of changes to any variable. 

 

 

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