Ask Liz Weston

Dear Liz: I want to stop supporting the greedy banking industry by changing my checking account from a big bank to my local credit union. But I’m worried I will have to give up services I like, such as online banking and free bill payment. What will I give up if I use a credit union?

Answer: You may not have to give up anything, and you may gain a few things, depending on how you bank.

Credit unions are member-owned, which means they don’t have to worry about making profits for shareholders. That translates into better interest rates and lower fees than banks. Many people discover credit unions when they’re looking for auto financing or personal loans, drawn by credit unions’ typically lower rates compared with those charged by banks.

You may find banking with credit unions cheaper in other ways. Most have very low minimum balance requirements for free checking and savings accounts. Many credit unions are also members of the Co-Op Network, which offers fee-free access to more than 28,000 ATMs nationwide, far more than any bank.

That doesn’t mean they’re right for everyone. While most credit unions offer online banking and free bill payment services, for example, their other services may vary. Some offer real estate loans, for example, while others don’t.

Before you switch, you’d be smart to review your transactions over the past few months and think about what loans or services you’re likely to need in the future. Make a list and ask your credit union what it provides and what fees it charges.

If you decide to move, open your new accounts first and set up online access so you can monitor your transactions. Then move any direct deposits you have, such as your paychecks. Change any automatic debits and recurring payments so they come out of your new account. Keep open your old accounts until all payments have cleared, then shut those down.

To find a credit union you can join, visit www.creditunionfinder.com

Dear Liz: My online savings account has been taken over by another bank, which started charging a fee to transfer funds to external accounts. I feel like my savings are trapped and I want to move them.

But if I try to transfer the money to another bank, will I have to pay the fee?

Answer: Perhaps yes, but a one-time fee is better than being nickel-and-dimed to death.

One of the big advantages to online savings accounts — besides better interest rates — has been the freedom to save and move your money around without paying onerous fees. It’s unfortunate your new bank has changed the rules, but you’ll find plenty of competitors that will be delighted to accept your money without charging account or transfer fees.

Consider chatting up one of the bank’s phone representatives or branch tellers to see whether there’s a way to get your money out for free. If not, pay the transfer fee and consider it a small price to get free.

Dear Liz: I have a pack-rat mother. During my most recent “purging” of her boxes of papers, I found a cashier’s check for almost $2,000. The catch is, it’s dated Jan. 15, 1986, and was issued by a bank that’s since been acquired. What are the chances of the acquiring bank honoring the check? My mother is wealthy enough for this to be an amusing, albeit embarrassing, story, but I hate the needless waste of money.

Answer: You and your mother can present the check to the bank, but most likely you’ll be directed to your state escheat office, where unclaimed bank funds typically end up. You can find a link at www.unclaimed.org, a site run by the National Assn. of Unclaimed Property Administrators.

Dear Liz: My husband and I are having a rough time making it from paycheck to paycheck. We make pretty good money. We have four children and end up helping them every month. We cannot seem to make it without going in the hole in our checking account. Could you please help me with what we should do?

Answer: As writer Erica Jong once said, advice is what we ask for when we already know the answer but wish we didn’t.

You know what you need to do: Cut off your children (assuming they aren’t minors, of course). If you can’t make it from one paycheck to the next, you’re in no position to help anyone else. Your children may not know the financial straits you’re in, or they may not care; either way, it’s up to you to close the Bank of Mom and Dad.

Once that financial spigot is shut off, you’ll need to look for the other leaks in your financial system. Track where your money is going using personal finance software such as Quicken, online tools such as Quicken Online, Yodlee or Mint, or a notebook and a pen.

If you’re still spending more than you make, you’ll need to find ways to cut back so that you not only don’t go in the hole but are putting aside money each month. You need to save for retirement and for an emergency fund, among other goals.

To do all this, you’ll need to use a word that apparently hasn’t been given enough of a workout around your home: “no.” “No, we can’t help you.” “No, we’re not going to buy that.” “No, I’m not going let my finances be in chaos because I can’t say ‘no.’ “

Dear Liz: I am 27 and make a great salary and commission for my age. I recently set a personal goal of having $30,000 saved by the time I turn 30 as a down payment to buy my first home. But I am at a loss about the best way to make the most of this money.

I am contributing to a savings account that started out with a 4% interest rate but has declined to 1.8%. I can’t seem to find an account with a better rate. Am I letting money go to waste? Is there a better option to help me reach my goal?

Answer: When it comes to cash you’ll need in a few years, you need to forget about “making the most” of your money in favor of making sure you still have it when you need it.

That means keeping the money relatively safe in a savings account, money market mutual fund or certificates of deposit.

You may be tempted by investments promising higher rates of return, but more return means taking more risk of losing your money and possibly delaying the time when you can buy your house.

You can get a slightly better rate — 2% or so — by investing your cash in one-year CDs offered by some banks (check Bankrate.com for a list). But beware of locking your money up for much longer. As the economy recovers, interest rates are likely to rise, and you’ll want to benefit as much as possible from that trend.

Dear Liz: I did not like your answer to the person who was hit by overdraft charges. You blamed the lower-income banking customer for the bank’s policy of using the larger overdraft to create her subsequent multiple overdrafts and thus take more money from her.

It’s the bank’s anti-customer policy that is in error here, not the person living paycheck to paycheck. Your answer should have started out by telling the customer to find a new bank, rather than essentially defend the bank’s policy. Your final 4 words in that answer — “take your business elsewhere” — just doesn’t give the rest of your answer credibility. I am disappointed enough to write you.

Answer: There’s no question banks aren’t being consumer friendly when they deliberately process the largest transactions first to increase the chances that subsequent transactions will bounce and generate more fees.

There’s also no question that low-income folks and seniors on fixed incomes pay a disproportionate share of these fees.

But the person living paycheck to paycheck isn’t a powerless victim. She can sign up for true overdraft protection instead of “courtesy overdraft” or “bounce protection,” and set up a balance-monitoring system that alerts her when her funds are low. (Most banks offer email or text alerts, or she can simply call in to check her balance frequently.)

Most importantly, she can take steps to change the way she handles money so that she’s no longer living paycheck to paycheck and instead has a cushion in the bank. If she doesn’t understand how to do that, there are a wealth of Web sites and blogs written by people who once lived paycheck-to-paycheck and have since figured out a better way. Two good blogs to start with are The Simple Dollar and Get Rich Slowly.

Dear Liz: This is in response to the column about outrageous bank overdraft fees. The customer who got stiffed should have gone into the bank in person and “pitched a fit.” A similar thing happened to my daughter when she went away to college. I went into the branch to complain and was pretty riled up with my voice escalating in outrage. They took care of the fees very quickly and set up a better overdraft system for her as you said to do. They did not want a shrieking woman in front of the other customers.

Answer: That bank was smart to take care of a mama bear defending her cub. Unfortunately, most banks that inflict “bounce protection” on their unwitting customers are used to hearing, and dismissing, protests over the outrageous fees that result.

Dear Liz: Like many Americans, I often must scramble to make ends meet between paychecks. I vigilantly monitor my account online, and when my balance is getting low, I curb my expenses as best I can.

Recently, I have had an overdraft experience that leaves me wondering about ethics and legalities. It was three days from payday and I had about $45 in my account.

I made four purchases under $10. Then a $54 automatic payment came through that I could not reschedule. One would think I would then be charged one overdraft fee, as all of the previous purchases made were within my available funds at the time.

I logged in today to find that the bank cleared the largest transaction first, which threw all other small transactions into overdraft. I was charged five overdraft fees because of this rearrangement of clearance order. I talked to a customer service manager who said that nothing could be done.

Essentially, it appears that the bank is manipulating transactions to capitalize on overdraft fees. This strikes me as unethical, and I wonder if I have any rights in this situation? Aside from getting a better job and making more money, what can I do to protect myself?

Answer: Of course the bank is manipulating your transactions to increase its fees. Most banks do. Lawmakers and regulators have questioned the practice, but so far it’s not illegal.

What you can do to protect yourself is to stop living paycheck to paycheck. That may sound like a flip answer when you’re on the financial edge, but you’ll never get ahead as long as a $54 overdraft can throw your finances into chaos.

Having just a $500 cushion in the bank can reduce not just bounced-check fees but also worry, sleeplessness and lost productivity at work, according to a savings review by Stephen Brobeck, executive director of the Consumer Federation of America.

How do you get a cushion? Try a “no spending” month. Limit your purchases to true essentials. Eat out of your cupboards instead of at restaurants. Entertain yourself at home or at the library. Most people can raise at least a couple hundred dollars this way, which you could supplement by having a yard sale and selling unneeded items online.

If you want more ideas, there are a wealth of frugal-living websites; start with one of the oldest, the Dollar Stretcher, at www.stretcher.com.

You also need to limit the bank’s ability to swamp you with “gotcha” fees.

First, sign up for true overdraft protection. Banks often automatically enroll you in an inferior substitute, called “bounce protection” or “courtesy overdraft.” These programs allow the banks to approve over-limit transactions and charge you $30 or more for each one.

True overdraft, by contrast, links your checking account to another of your own accounts: typically a savings account, line of credit or credit card. If your transaction exceeds your balance, the money is drawn from one of these accounts. You’ll pay an annual fee of around $50 and possibly a $10 per transaction fee, but the costs for making a mistake will be substantially lower than under bounce protection.

If the bank won’t approve you for true overdraft, ask it to stop approving over-limit transactions. If it won’t, take your business elsewhere.

Dear Liz: My wife and I maintain a largely untapped home equity line of credit as a source of emergency funds in the event of a job loss, medical needs, etc. With so many financial institutions seemingly on the verge of bankruptcy, what happens to our ability to draw on our line of credit should the bank go under?

Answer: Your line of credit is one of the bank’s assets. If your bank fails, the bank that takes over would add your loan to its books.

That said, the new bank may have different standards for how much of your equity you can borrow and may cut back or freeze your line of credit. That could happen even if your bank doesn’t fail, since many lenders are reducing their risk exposure by cutting back on lines of credit, particularly in areas where home prices are falling rapidly.

You’re probably safe, for now, if the balance you owe on your mortgage plus your home equity credit limit total less than 60% of your home’s current value. If your “loan-to-value” exceeds that limit, however, you would be smart to look for alternative sources of emergency funds. The best: cash in the bank.

Dear Liz: How can a bank honor a postdated check prior to the date that is written on it, and still claim to have integrity as well as accountability?

Answer: Banks are supposed to cash your checks for the amount written and from the right account. Expecting them to pay attention to your dating games is asking too much.

For those who don’t know, a postdated check is one that’s written with a future date on it, under the idea that the bearer will either wait to cash the check or the bank will wait to process it.

But neither the bearer not the bank is under any obligation to do so, so don’t write checks you can’t cover. If you want to pay debts at some future date, use your bank’s online bill pay service and set the payments to go out when you want.