Q&A: Service at online banks

Dear Liz: You recently wrote about online banks versus brick and mortar, but you missed one point in favor of local banks. If there is a major screw-up, you can go there and talk with a person. That’s better than being stuck in an endless phone loop or with an unhelpful “bot” online. And being face to face (pleasantly) is more likely to get help and sympathy.

Answer: Banks vary enormously in the quality of their service. Some online banks pride themselves on quickly connecting their customers to well-trained human representatives around the clock. Meanwhile, some local banks have indifferent staff and inconvenient hours.

But we can agree that chatbots — computer programs that purport to answer common customer questions — often provide a truly awful user experience. Any bank that refuses to connect you to a human being on request is a bank to be avoided.

Q&A: Saving at online banks

Dear Liz: My wife keeps over $60,000 in her checking account at a brick-and-mortar bank. I think that is a bad idea. Too easy for possible fraud. I have tried to convince her the safest place to keep the bulk of her cash is in a savings account, preferably in an online bank, which I believe provides added protection against fraud as long as we maintain good computer health. What do you think?

Answer: Many people have the opposite conviction, which is that online banks are somehow less safe than brick-and-mortar versions. In reality, both types offer encryption and other safety measures to deter fraud. Accounts are insured by the Federal Deposit Insurance Corp. and covered by federal banking regulations designed to protect consumers against fraud.

Your wife’s money wouldn’t necessarily be safer in a savings account, but she’d earn a little more interest. Many online banks currently offer rates of about 1% on savings accounts. If she moved all but $10,000 out of the checking account, she could earn about $500 a year in interest and perhaps more if the Federal Reserve continues to raise rates.

Q&A: Digital is safer than paper

Dear Liz: You’ve advocated for going paperless. My preference for paper financial documentation over electronic versions is that paper provides “proof” in the event something compromises online or email reporting. What am I missing?

Answer: Proof of what, exactly?

That’s not a rhetorical question. If you don’t understand why you’re retaining a document, and what the alternatives are, you risk burying yourself in paper.

Consider your bank statements, for example. Your paper document is just a reproduction of the digital files that the bank securely stores and regularly backs up. If you do the same, regularly downloading statements and backing them up to secure storage, there’s no reason to convert the files to paper. Paper is in fact more vulnerable, since it can burn up in a house fire, be destroyed in a flood or simply have its ink fade to illegibility. In the rare circumstance where you actually need to provide a paper document, you can simply print it out.

Many people don’t even bother downloading their statements. Many financial institutions allow you to access five or more years’ worth of statements for free, which is as long as you’re likely to need such access.

There are a few documents you should keep in physical form either because they’re most useful that way (passports and driver’s licenses, for example) or because accessing or replacing them can be a hassle (birth certificates, citizenship certificates, divorce degrees and military discharge papers, among others). Even these documents, though, should be scanned and stored securely in case they’re lost or destroyed.

Q&A: Switch to electronic documents

Dear Liz: I have to disagree with your suggestion to switch to electronic documents versus using the U.S. mail. People need to keep an eye on dubious actors like cable and cellphone companies, where it’s important to pay attention to sneaky new charges or “expiring discount rates.” The same is true for credit cards, where fraudulent charges are likely to appear. I know I will open and read a bill in the mail while email is much more likely to be deleted unread. It’s a personal preference, but I think it’s sound financial discipline. Also, good luck trying to refinance or get a loan using e-statements — lenders refuse them.

Answer:
Your last statement may have been true for some lenders before the pandemic, but the financial industry was rapidly digitizing even before the lockdowns began. After all, uploading electronic documents is much faster and more secure than relying on the mail. Our last refinance was handled entirely electronically, although we did have to sign a few closing documents in person with a notary who sat six feet away on our porch. Even if our lender had asked for a paper copy of an electronic document, though, that wouldn’t have been a problem: That’s what printers are for.

If you’re in the habit of scrutinizing paper bills while ignoring your email, switching to electronic documents can be tricky. Some people use personal finance apps to help them monitor what’s happening in their accounts while others put reminders on their calendars to review their transactions.

Reminders also can help you avoid paying more when you take advantage of a limited-time offer, such as an introductory rate for a service or a teaser rate on a credit card. Put the expiration date on your calendar as a prompt to renegotiate with the company or find another deal.

Simplifying your finances also can help you more easily spot fraud and unnecessary charges. It’s easier to monitor one checking account, one savings account and one credit card than a bunch of accounts spread across multiple companies.

Of course, there will be some people who simply can’t change the habits of a lifetime. For those who can, though, electronic documents are the way to go.

Q&A: When a full-service brokerage doesn’t want your business anymore

Dear Liz: Can a brokerage firm drop a 26-year customer because their account falls below $200,000? I have been told that they don’t normally have accounts under that limit. Of course, my balance is lower because of the market slide. This policy doesn’t seem very ethical. Ten years ago, I had another account with them and it fell below $100,000 and nothing was said about that.

Answer: Your full-service brokerage may have just done you a favor. After charging you high fees for years, it has set you loose to find an alternative that will cost you much less.

Discount brokerages such as Vanguard, Fidelity, Charles Schwab and T. Rowe Price will welcome your business. You also could explore robo-advisory options that manage your money for a fraction of what you’re paying now.

Q&A: When institutions won’t go paperless

Dear Liz: I have for years insisted on being paperless, not only for credit card statements and utility bills but also for tax documents such as the 1099-INT and 1099-DIV. My problem is that I receive income from two lifetime annuities and those of course generate 1099-R forms each year, which are mailed to me. I have requested to receive those as PDFs from the companies that execute those annuities, and they claim they cannot do so and are not required to. Are they right, or is there some federal regulation I can quote to force the issue?

Answer: The idea that a business can’t generate an electronic form for a customer is a little ridiculous, but there’s not much you can do to force these companies to get with the times.

The IRS requires that any person or entity that files more than 250 information returns — 1099s, W-2s and other forms that report potentially taxable income — do so electronically. But that requirement applies only to forms being sent to the IRS, says Mark Luscombe, principal analyst for Wolters Kluwer Tax & Accounting. There’s no requirement that such forms be issued electronically to individuals.

Which is unfortunate, since as you know getting forms electronically is much safer than having your private financial information sent through the mail. Since these companies are so insistent on clinging to paper, consider sending a letter — certified mail, return receipt requested — to the companies’ chief executives requesting that they join the 21st century.

Q&A: Safe deposit box shortcomings

Dear Liz: You recently advised against keeping one’s will in the bank safe deposit box. That was on the grounds that upon death, the bank could seal the box. My daughter is named on my box (she is also named as executrix) — that is, the bank ran her through several hoops, and the result is she can gain access to the box as she wishes. Does your advice hold in this case?

Answer: Find out what the bank’s policy is. If the bank confirms your daughter will have access in the event of your death, ask that the assurance be put in writing.

One problem with keeping anything in a safe deposit box is that the contents can be escheated — turned over to the state — if the bank decides the box has been abandoned. That usually won’t happen if you’re paying the bill for the box on time and making sure the bank has up-to-date contact information, but physically checking the box’s contents once a year or so is a good practice.

Q&A: Mailing checks really is a bad idea

Dear Liz: I differ with your opinion that electronic payments are far more secure than sending checks through the mail. My own personal experience sending checks for about 40 years with only one mishap (which wasn’t attributable to the USPS) provides great confidence in mail as a payment system. In contrast, not a month goes by without news of some large organization entrusted with all kinds of personal and financial information being breached in a cyberattack. If the bad guys get my credit card information, I’m out no greater than $50. I’m not also going to risk them having my bank account and routing numbers for the dubious convenience of saving a stamp. Yes, mailboxes get broken into, but until there are real penalties for inadequate computer security, corporations will continue to underfund their network security and be reactive instead of proactive. I’ll take my chances with the local thieves and not the worldwide population of black hat hackers.

Answer: You’re quite right that databases where information is stored can be vulnerable to hackers if companies don’t take the proper precautions. But avoiding electronic payments doesn’t keep your information out of those databases. Information about you is collected and stored whether you like it or not. You didn’t contribute your Social Security number, date of birth and credit account details to Equifax, for example, but chances are good you were one of the 147 million Americans whose information was exposed when that credit bureau was breached.

In contrast to some databases, electronic payment transactions have strong encryption that makes it extremely difficult for hackers to intercept and read the information. Criminals would much rather target information that’s at rest in databases than try to capture and decode it in transit.

Your checks are almost certainly being converted to electronic transactions, in any case. Few checks are physically passed between banks these days. Often a biller will take the routing and account numbers that are printed on your check and use them to request an electronic funds transfer through a clearinghouse such as the Automated Clearing House (ACH).

Because those numbers are printed on every check you send out, by the way, anyone who sees that piece of paper, from a mail thief to someone inputting the payment into a company’s computer system, could misuse that information. That’s a far bigger risk than the possibility an electronic payment could be hacked in transit.

Q&A: This guy still sends checks through the mail. How that could mess up his credit score

Dear Liz: My husband has a lower credit score than I. He gives me a check every month from his personal checking account, which I deposit in our family account so I can pay our credit cards. He thinks that he needs to pay some of the cards directly in order to improve his score. He likes to send checks by mail, the old fashioned way (which drives me crazy!). Do you think this practice will improve his score?

Answer: The short answer is no. Credit scoring formulas don’t care who pays the bills, as long as the bills get paid on time.

Perhaps explaining some credit scoring basics would help.

People don’t have one credit score. They have many, because there are many different scoring formulas in use.

The most commonly used credit score is currently the FICO 8. There are many other versions of the FICO scoring formula, including some that are tweaked for different industries such as credit cards and auto loans. In addition, there are VantageScores, a rival formula created by the three major credit bureaus: Equifax, Experian and TransUnion.

Credit scores are based on the information in your credit reports at those bureaus, which are private companies that typically don’t share information. Because information can vary from bureau to bureau, your credit scores from each bureau may differ as well.

There’s no such thing as a joint credit report or a joint credit score, so couples typically will have different scores even if they have some joint accounts. How long a person has had credit, how many credit accounts the person has and the mix of credit types can be different, resulting in different scores.

Your husband may have lower scores than yours currently, but that’s not in itself a problem that needs to be fixed. If his scores are generally above 760 on the typical 300-to-850 scale, he’ll get the best rate and terms when applying for credit.

If his scores need improving, he should start by checking his credit reports from each of the three bureaus at www.annualcreditreport.com. (These reports used to be free just once a year, but you can now get them for free every week until April 2022.) He should dispute any information that’s inaccurate such as accounts that aren’t his or accounts showing missed payments if all payments were made on time.

He may be able to improve his scores by lowering how much of his available credit he’s using or adding an account or two. Opening accounts may temporarily ding his scores, but typically the new account will add points over time if used responsibly.

And do try to persuade him to stop sending checks in the mail. A check that goes astray can result in a missed payment that can knock 100 points or more off credit scores. Electronic payments are far more secure and efficient.

Q&A: Dementia and financial accounts

Dear Liz: You recently discussed the importance of adding spouses to financial accounts before one of them dies to make it easier for the surviving spouse. I wholeheartedly agree. I would add that this needs to be done sooner rather than later. If one of the spouses is diagnosed with dementia, the bank will likely not make changes to accounts. People have to be able to understand what they are signing.

Answer: That’s an excellent point. Another important task is to create powers of attorney for healthcare and finances. These allow someone else to make decisions for you if you are incapacitated. Someone in the early stages of dementia could sign such a document if they understand what it is, but otherwise the family might have to go to court to get a conservatorship, which can be an expensive process.