Ask Liz Weston

A rising personal savings rate indicates we’re doing better at putting money aside, but we have a long way to go. A survey released today jointly by the Consumer Federation of American, the Financial Services Roundtable and the Employee Benefit Research Institute shows many American families not only lack savings–they lack a savings account.

Taking data from the latest Federal Reserve Survey of Consumer Finances, they found:

• Less than one-third (32%) of low-income households – bottom quintile with incomes below $18,900 in 2007 – have savings or money market accounts.
• Less than one-half (48%) of moderate-income households – second quintile with incomes $18,900-33,899 – have savings or money market accounts.
• Even less than three-fifths (58%) of middle-income households – third quintile with incomes $33,899-53,599 – have an account.
• But 80% of upper-income households – highest quintile with income above $89,300 – have an account.

The three groups are trying to promote automatic savings–a worthy goal. And their press release includes a handy guide to banks that are currently offering savings promotions. I’m including it here, plus a couple of suggestions of my own:

1. Fifth Third Bank provides a double interest bonus to those who meet a goal in the Goal Setter Savings.

2. U.S. Bank offers a $50 Rewards Card for the first $1,000 in savings and another $50 Rewards Card if that balance is maintained for a year in its S.T.A.R.T. Savings Today and Rewards Tomorrow program.

3. SunTrust, in its Get Started Savings Program that in March will become its Live Solid Savings, offers a 1.5% rate for two months and a 2% anniversary bonus (up to $50) as well as free overdraft protection for those agreeing to automatically transfer at least $25 monthly to savings.

4. Regions, in its LifeGreen Savings, provides a 1% interest rate bonus if automatic deposits are made for 12 months.

5. BBVA Compass, in its Build My Savings^SM, will match, on an annual basis, up to 6% of a customer’s monthly automatic savings transfer amount. This program will be launching in April.

6. Bank of America, in its Keep the Change program, rounds up debit card purchases and transfers the difference from checking to savings where it provides a 100% match for three months then matches 5% a year (up to $250/year).

7. The Way2Save® account, created by Wachovia, will be offered to Wells Fargo customers in the future. It’s a savings account that can be linked to checking, turning purchases into automatic savings by transferring $1 from checking to the Way2Save® account each time you make a check card purchase or use bill pay.

(Liz’s note: With both these programs, make sure you have true overdraft protection, not bounce protection, since they can increase the risk of overdrafts.)

8. Union Bank offering a $25 bonus to those opening a new savings account.

And now my two additions:

9. ING Direct has a refer-a-friend program that currently gives the new account opener $25 and the referrer $20. UPDATE: ING Direct just announced it’s also offering a $25 account bonus to new customers who open an account with the special reference code “AMSAVES2.”

10. Check out your local credit union. Savings bonuses abound. First Entertainment Credit Union in Los Angeles, for example, is currently offering 7% interest on the first $500 you save. Check out FindACreditUnion.com to check out the CUs in your area.

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

Earlier this week I told you how to shop for new bank (or credit union); a week before, I’d written about why you might want to.

As promised, here’s what to do after you’ve made the decision to jump ship.

1. Make a list. Review your transactions for the last few months and list all the automatic and recurring payments being made out of your current account. Don’t forget to include any automatic payments that occur less often, such as quarterly, biannual or annual payments.
2. Open your new accounts. If you open your accounts with a check, there will typically be a holding period before you can access your funds. Also, ask about getting true overdraft protection, which links your checking account to a savings account, credit card or line of credit.
3. Set up online access. Familiarize yourself with the new bank’s system and add the accounts to any personal finance software or site you use (Quicken, Mint, Yodlee, etc.) If you use online bill pay, you can start adding payees to the new bank’s system.
4. Switch any direct deposits. You’ll typically need to contact your employer’s human resources department and fill out a form with your new bank’s routing number and your account number.
5. Transfer any automatic or recurring payments. If you were making payments from your old bank’s bill pay system, set up the payments on the new bank’s system. If the automatic debits are coming from billers, contact those companies and give them your new bank’s information. (You may be able to do this on the billing companies’ Web sites.)
6. Monitor both accounts for a few weeks. Check in frequently to both banks to catch any messed-up or missing payments.
7. Shut down the old accounts. Contact your old bank and ask how it wants you to proceed. Ask that any remaining balances in your accounts be mailed to you or transferred to the new bank. Cut up debit cards and checks associated with the old account.

Too many people stick with a bank that they hate because they don’t know there are better options—and because they dread the hassle of switching their money.

In this post, I’ll cover how to shop for a new bank or credit union. In this post, I write about ways to make the switch as painless as possible.

The best fit for you will depend on how you use banking services and your priorities.

Start by looking at your transactions for the last three months or so. What was the lowest balance in your checking and savings accounts over that time? If you constantly run on fumes or close to it, you’ll want accounts with low minimum balance requirements or that waive minimums when you arrange direct deposit of your paycheck. (My credit union requires a $1 minimum for its basic checking account. Big banks may require a $500 to $1,000 minimum balance to avoid a fee unless you have direct deposit.)

Cast a wide net. Don’t limit your search to name-brand banks. Community banks and credit unions can be good options as well. Move Your Money can help you find top-rated community banks by ZIP code, while Find a Credit Union and CULookup offer similar services for CUs. Community banks are covered by the FDIC insurance that applies to bigger banks, and most credit unions are covered by the National Credit Union Share Insurance Fund, which like the FDIC is backed by the full faith and credit of the U.S. government.

Check your target institution’s Web site for the closest branches and ATMs. You can always get extra cash at a grocery store with a debit card, but most people like to have a fee-free ATM and a branch or two close to where they live or work. Credit unions usually belong to the Co-Op Network, giving you access to more than 28,000 fee-free ATMs across the country.

Also check interest rates for checking and savings account. Getting any interest on your checking at big banks typically requires a huge balance ($10,000 and up), but some community banks offer decent rates on so-called rewards checking accounts. Get all the details before you sign up, since a certain number of transactions and a minimum balance are typically required.

Savings account rates vary as well. My big-bank savings account offers a fraction of 1%, while my credit union currently offers a 7% return on the first $500 deposited.

Test their customer service. Don’t just check them out on the Web. Call and talk to a human to ask questions, so you can see how you’re treated. Then, before you commit, visit a branch and ask some of the same questions again in person. What an institution promises and what it actually delivers in customer service can be worlds apart, and there’s nothing like face-to-face contact to help you decide.

What to ask (and make sure to write down the answers so you can compare your options):

• What are the minimum balance requirements (if any) for each account? What monthly fee will I pay if my account goes below the minimum or if there is no fee-free minimum?
• Do you reimburse for transactions made at other banks’ ATMs? If so, how many fee-free transactions can I make each month?
• Do you charge to talk to a teller? If so, how much?
• Do you offer online bill pay for free? Is there a limit on the number of bills I can pay?
• Do you charge for paper statements? If so, how much?
• What do you charge for transfers to outside accounts?
• Do you offer overdraft protection? How much does it cost? (What you want is true overdraft, which links your checking account to a savings account, line of credit or credit card in case a transaction exceeds your available balance. Don’t settle for “courtesy overdraft” or “bounce protection,” which can cost you a fortune in bounced-transaction fees.)
• If you use Quicken, QuickBooks or other personal finance software, ask about fees for those services.
• If you frequently send money out of the country, find out how much is charged for that service.

Next up: How to say goodbye.

I wrote a column called “Ditch your bank for a credit union” for MSN Money way back in 2007, well before the financial crisis, credit crunch and recession. I suggested that if you wanted better interest rates and better treatment as a customer, you might consider a member-owned credit union for your banking needs.

Now the Huffington Post’s Arianna Huffington has started a campaign to get people to ditch their banks in favor of credit unions and community banks. The point isn’t just to get better interest rates and treatment; it’s to protest egregious bank behavior.

Here’s how commentator Bill Maher put it in a recent column “Stop the Abuse: It’s Time to Break Up With Your Big Bank“:

That’s right, I’m talking to all of you that keep doing your banking at the giant, too big to fail, Wall Street banks that brought our economy to the brink of disaster, were rescued by trillions of dollars of our taxpayer money, then paid us back by using that money to hire lobbyists to convince our lawmakers in Washington to kill financial reform.

They took our money… but cut back on lending.

They took our money… and made record profits — and paid themselves record bonuses.

They took our money… then returned to the risky behavior that led to the worst financial crisis since the Great Depression, with record unemployment, bankruptcies, and foreclosures.

They took our money… but kept on with all the greedy, abusive, ruthless, and cold-blooded practices that have earned them untold billions of dollars a year — year after year after year.

If the desire to poke big banks in the eye is what finally gets you to consider your local credit union or community bank, then I’m all for it. Learn more at MoveYourMoney.info.

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.

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photo credit: squidpants

Starting July 1, banks won’t be able to charge bounce fees on ATM or debit card transactions unless the customer has opted in to an overdraft service, the Federal Reserve announced today.

Bounce fees have become a real plague on the U.S. bank patrons, as banks quietly replaced true overdraft protection with “courtesy overdraft” or “bounce protection” services that patrons didn’t ask for–but that generate far more fee income. A single lapse can rack up multiple $35 fees, and many banks re-order transactions to maximize the chances transactions will bounce.

The Fed move is good, but isn’t enough, because:

• It doesn’t cover check or recurring-debit transactions
• It doesn’t cap the amount or number of fees that can be charged
• It doesn’t prevent banks from manipulating how they process transactions to increase fee income

Bills that would put such restrictions on banks have been introduced by Christopher Dodd in the Senate and Carolyn Maloney in the House of Representatives.

For more, read:

• Decline my debit card, please
• Never pay another bounced-check fee
• Don’t be duped by bounced-check “protection”

photo credit: kattebelletje

My buddies on Twitter help me find a lot of great money-related blogs and articles, and today was no exception. Here are three you shouldn’t miss:

How the banking industry wants you to think about overdraft fees. Chris Walters at The Consumerist does a brilliant job of dissecting a particularly absurd press release defending the banking industry’s indefensible overdraft practices.

iPhone data roaming switch is problematic. Yes, the headline seems designed to put you to sleep, but here’s the real story: If you travel out of the country, you could inadvertently rack up hundreds of dollars in fees from your carrier because of a hidden setting in your iPhone or Blackberry. I checked, and mine was switched “on,” even though iPhone insists the default setting is “off.”

Guaranteed income, but at what cost? This posted a week ago, but I just saw it thanks to FMF’s Personal Finance Roundup on Consumerist. Money Magazine’s Walter Updegrave does an excellent job summarizing the risks and rewards of today’s variable annuities.

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: 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.