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.
Dear Liz: I’ve been reading a lot lately about how banks are going to do away with free checking. I’m on a fixed income and can’t afford to pay a bunch of fees. What can I do?
Answer: First, scrutinize every mailing or email you get from your bank to learn about any changes that might be coming to your account. Many banks will still allow you to avoid fees by keeping a minimum balance, arranging a direct deposit or making a certain number of debit card transactions. If you can’t modify your banking habits to avoid the fees, consider switching your account to a credit union. These member-owned institutions are likely to continue offer free checking or to at least make it easier to qualify. You can search for credit unions for which you might be eligible at www.findacreditunion.com.
Dear Liz: My wife and I are rolling over our bank certificates of deposit to another investment company to consolidate our holdings. Two weeks before the CDs’ maturity date, we notified the bank and filed the necessary papers. The bank didn’t complete the rollover for two months and then withheld $50 for something it called a “Trustee to Trustee Transfer Fee.” What is this, and can the bank make this charge?
Answer: Such “exit fees” are a way for banks and brokerages to nip an ounce of extra flesh from departing customers. Many financial institutions charge them, but they often aren’t well disclosed and few investors know to ask about them. You’ll know better next time.
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.’ “