Dear Liz: I’m wondering how long we really need to keep bank statements, since banks now offer paperless options. My son doesn’t even open the statements anymore; he just views his account information online.
Answer: There’s nothing magical about paper bank statements. If your son doesn’t open them, he probably shouldn’t even get them. He can ask his bank to switch him to its paperless option and save some trees.
The IRS accepts electronic documents, and banks keep account records at least six years. Your highest risk for an audit is the three years after a tax return is filed, so you should be able to download statements if you need them in an audit. There might be fees involved to get these statements, however, so you’ll have to weigh the potential cost against the hassle of storing all that paper. Some people get the paper statements, scan them and shred the originals; others download the statements as they go and store them electronically.
If you don’t need bank records for tax purposes, there’s even less reason for getting paper statements. Eschewing them can reduce bank fees and will certainly save a few trees.
Dear Liz: Twelve years ago I hired a moving company. I must have overpaid them, because in January 2001 I received a refund check for $235. I misplaced the check and didn’t find it until 2003. Ever since then I have made a number of phone calls asking for a replacement. All my calls were to no avail. Can you help?
Answer: No. You typically have six months to cash a check. If you miss that time frame, you can ask the issuer for a new check, but it is usually under no obligation to accommodate you. Trying to deposit an old check can often result in a “returned check” fee from your bank when the check is stopped or returned unpaid.
Dear Liz: I have all my money (less than $150,000) in one small bank. I love my bank, but Bankrate.com’s Safe and Sound report shows the bank having only a single star. I asked someone at the bank about it, and this person said the rating wasn’t important. Is it?
Answer: Of course it is. Your deposits are under the $250,000 limit protected by the FDIC, but a weak bank can fail, which can be disruptive to depositors. The bank that takes over typically doesn’t have to abide by the policies or interest rates promised by the failed bank. If regulators can’t find another bank willing to take over, you may have limited access to your money for a few days until your deposits are refunded to you.
A bank with “very questionable asset quality, well below standard capitalization and lower than normal liquidity” — phrases Bankrate.com uses to describe your institution — probably isn’t the best place to have your money.
Dear Liz: Please warn people to be careful when they use ATMs. Some jerk posted an out-of-order sign on the outside ATM at my bank to get people to use the inside ATM, which had a skimmer installed on it. The crooks managed to get $500 out of my account, but the bank was on the ball and called me. I denied the transaction and the bank returned the money to my account.
People need to be aware of anything funny-looking about the ATM or the door lock. If there’s a piece of plastic sticking above or below the door lock, don’t use it. Personally, I don’t use the ATM anymore. I go inside to a teller to get cash.
Answer: People can be remarkably trusting when it comes to using ATMs. Stand-alone ATMs may be phonies, designed just to take your bank card information and PINs. Even ATMs attached to banks can be compromised, as your experience shows.
Some security experts advise avoiding stand-alone ATMs, and all advise being cautious about using any cash-dispensing machine. Before sticking your card into one, you should grab the slot where your card goes in and see if you can move it. If you can, don’t use the machine. If you enter your card and PIN into an ATM and get any kind of error message, alert your bank immediately, as that can be a sign of a compromised machine.
You don’t have to avoid using ATMs, but they should be used with caution.
Dear Liz: My bank unexpectedly charged me a $25 annual fee for overdraft protection, which ironically caused two checks to bounce because I no longer had sufficient funds to cover them. I was then charged overdraft fees of $27.50 for each check, as I was already maxed out on my overdraft protection. I don’t remember the bank charging this fee before and it didn’t mail anything to me warning that this charge was coming. It was so disheartening as I knew I had enough money in the account to cover the checks I had out. Had I known I would have found a way to deposit more money to cover the transactions. I actually feel my banker watches my account looking for ways to rob me.
Answer: Your bank isn’t the real problem here. Yes, banks can charge sneaky fees, and sometimes their disclosure leaves a lot to be desired. But you’re severely mismanaging your money if a $25 fee can cause this big a problem.
You should keep at least a $100 pad in your checking and keep an eagle eye on your balance to try to prevent overdrafts in the first place. If overdrafts occur despite your best efforts, then your priority should be repaying those — not writing more checks.
If you can’t manage that, then you should turn off your ability to overdraft. If you have true overdraft protection — your checking account is linked to a line of credit or credit card — ask your bank to discontinue that. You also should decline the bank’s “bounce protection,” which allows overdrafts on ATM and debit card transactions in exchange for a fee. Recurring transactions and checks can continue to trigger overdraft charges, however, so your best bet is to switch to your debit card and cash until you have a better handle on your cash flow.
Dear Liz: A friend of mine had a savings account for many years but didn’t put any money in it for some time. When he went to take money out, the bank had taken the money because he hadn’t used it enough. Are banks allowed to close an account and take the money if the account hasn’t been used in a while without contacting you? If so, how long do you have before the bank can take the money?
Answer: One of two things happened here. Either your friend’s funds were eaten up by account fees, or the account was declared abandoned and whatever money was left was turned over to his state’s unclaimed property office.
The amount of time that has to pass before an account is declared abandoned varies by state and can be as little as one year. Some states expect banks and other financial institutions to make some effort to track down accountholders. In other states, little or no effort is required. In any case, your friend can use the website of the National Assn. of Unclaimed Property Administrators at http://www.unclaimed.org to see if his lost account is being held by his state. While he’s there, he may turn up other unclaimed property that belongs to him, since these offices also collect utility deposits, insurance proceeds, refunds and the contents of safe deposit boxes, among other property.
Dear Liz: Why are banks not offering a higher interest rate for savings accounts? Why so darn low?
Answer: Blame the economy. Both individuals and businesses are wary about borrowing money. Less demand typically drives down the cost of a product. The product in this case is loans, and the price is the interest rate. With little demand for loans, banks don’t need to compete much for depositor funds and so aren’t paying much on their deposit accounts.
Another big factor is the Federal Reserve, which is keeping interest rates low to try to stimulate borrowing, spending and the economy. The Fed’s big fear is that higher interest rates would choke off the economy’s recovery and send us spiraling into another recession.
How long will this low-interest period last? Nobody knows. We could see higher interest rates if the economy really takes off. In that case, higher demand for loans probably would bid up interest rates and the Fed would switch its focus to containing inflation, which typically means it would try to raise rates further. Many economists are predicting a slow recovery, however, which means low savings account rates are likely to be with us for a while.
In the meantime, you can look for slightly higher rates at sites like MoneyRates (http://www.money-rates.com) and Bankrate.com. Recently the national average for one-year certificates of deposit was under 0.5%, but several financial institutions on those sites were offering rates above 1%.
If you’re being offered rates much above that level, you’re either dealing with a riskier investment or being asked to lock up your money for a considerable period. Neither is a good idea if this money is your emergency fund or you otherwise need it to be safe and accessible.
Dear Liz: Because of financial needs, I may need to withdraw early from several of my certificates of deposit. I know there are fees or penalties associated with the early withdrawals, but would this affect my credit scores or any other financial rating? I don’t want to tarnish my relationships with financial institutions in any negative way and want to keep my credit score of 800-plus untarnished.
Answer: Your credit scores are based entirely on the information contained within your credit reports. If you access them (you can get a free annual look at http://www.annualcreditreport.com), you’ll notice there are no bank accounts listed — only credit accounts.
The only time your behavior with a bank account could wind up on your credit report is if you bounce checks and fail to pay the bank. In that case, your account could be turned over to collections, and that could show up on your credit reports.
Otherwise, though, your banking relationships don’t affect your scores.
Dear Liz: I pay my bills and credit card balances monthly by check rather than by online banking. This is because I don’t want to provide a clear path for a possible unscrupulous company or person with access to my account to simply take extra money from my account. Are my worries about this possibility reasonable? Or is there simply no possibility of theft from my account in this way?
Answer: It’s not that your fears aren’t reasonable. It’s that you’re putting too much trust in paper checks.
Pull out one of your checks and take a close look at it. Along the bottom is a series of numbers that include the bank’s routing number and your account number. That information, along with your name and address printed on the check, is everything an “unscrupulous company or person” needs to raid your checking account.
Once the bad guys have your check, they can alter the amount, counterfeit a new batch of checks or take over the account by adding themselves as joint account holders and changing the address, among many other possibilities.
Or they can set up an electronic transfer out of your account. This is one of the reasons people in debt are told not to give their bank routing and account numbers to debt collectors, since unscrupulous collectors can clean out the account.
Furthermore, paper checks don’t have the federal protections that cover electronic transactions. Banks are required to investigate reports of fraudulent electronic payment within 10 days (or within 45 days if the bank provisionally credits the disputed amount, up to $2,500, to the consumer). But users of paper checks are covered by a patchwork of state laws and subject to the agreement they signed with their banks, which may not provide them with as much protection.
So paper checks aren’t safer than electronic transactions. It’s just your familiarity with this form of payment that makes you think you’re protected.