Interested in what the new credit card laws mean for you? Here’s a quick rundown of some of the changes we’ve seen in the recent credit card legislation changes and how it can benefit you:

• Banks can’t raise interest rates on existing credit card balances unless a promotional rate ends, you’ve been late with a payment, or the card has a variable rate.
• Interest on new balances can only be increased after 12 months if the promotional rate ends or payments are 60 days late.
• You must have the right to “opt out” of major changes to your credit card terms. Opting out closes the account but you have five years to repay your debt at the current interest rate and terms.
• Banks can only sign up people under 21 for credit cards if they have an adult co-signer or can prove they have enough income to pay bills.
• You must receive your statement at least 21 days before payment is due.
• Credit card statements must clearly show the date and time your payment is due. The time must be no earlier than 5 p.m. on the due date.
• Statements must explain how long it would take to pay off your balance by making only the minimum payments.

Pay close attention to the fine print in credit card offers to become familiar with the terms and conditions. Also read your statements on existing accounts carefully to understand any changes; think twice before signing up for credit card offers, such as cash advances, related to existing accounts.

Many banks offer “free” checking accounts. Saving money on monthly maintenance fees is a good thing, but signing up for these accounts usually comes with some conditions. Some of the requirements you  may need to meet to qualify for “free checking” include:

• Minimum balance requirements must be met to avoid monthly charges
• Making too many withdrawals and transfers during a statement cycle could result in fees or maintenance charges
• You may be required to set up regular direct deposits for fees to be waived
• Most free checking accounts do not earn interest
• If the account earns interest, rates may drop if you don’t meet the requirements for free checking
• Some banks may require you to link a free checking account to one of their savings accounts

Shop around to compare free checking accounts from several banks. In addition to low or no minimum deposit requirements, banks will oftentimes offer a cash bonus for opening a free checking account. Some banks also offer merchandise such as cameras or gift cards for opening an account. Other incentives to open a free checking account include free checks and debit cards.

Make sure you take the time to read through all the terms for opening a new checking account to understand all the fees and rules.

Free checking isn’t always free – make sure you understand all the requirements before you open a free checking account.

Can a bank take money from your checking/savings account to pay off your loans?

An Atlanta couple were surprised to have their Wells Fargo checking account emptied by the bank in order to pay back a student loan. The bank deducted $4,059.82 from the checking account, which was originally a Wachovia account, to put toward  the $10,000 student loan, according to the Atlanta Journal Constitution.

Wells Fargo had called in the student loan even though the couple thought they had another six months before having to make payments. The student loan account had been turned over to collections.

Wells Fargo was able to take the money from the checking account because of what is called the right of setoff. This means that when people deposit money in banks, they are agreeing that the banks can borrow the money if they promise to repay it. If a person borrows a loan from a bank where they also have money on deposit in a checking or savings account, the bank can take that money and apply it to the loan balance. Banks usually avoid using the right of setoff unless they’ve run out of other options.

“We don’t do this without lots of attempts to communicate with our customers and try to work things out,” said Jay Lawrence, Atlanta spokesman for Wachovia. “When this happens, we don’t like to do this. We want our customers to succeed.”

Unfortunately, the process of removing money from the checking account resulted in the couple being hit with overdraft fees for purchase that would have cleared if the bank had not taken the money, and suffering other financial damage.

5 Tax Season “Gotchas” for the American Borrower to Beware

Gotcha #1: Watch out for Refund Anticipation Loans offered by tax preparers that promise filers immediate access to their projected refund, the effective interest rate can be 50% to as much as 500%

Gotcha #2: Don’t pay your taxes by credit card; it can add another 30% to your tax bill

Gotcha #3: File for an extension, there’s a failure-to-pay penalty of 5% per month – until it reaches 25% of the amount owed and a monthly rate after that

Gotcha #4: You can borrow money from the IRS at low rates and buy time to pay high-interest credit card debt while repaying the IRS

Gotcha #5: Do not increase your withholding. This “forced savings” sounds like a good idea, but you’re actually providing a cheap loan to the IRS

Medical expenses are a major concern for many of us today. With the rising cost of healthcare coverage, more and more employers are cutting costs by providing insurance plans with high deductibles or eliminating healthcare coverage altogether. Whether you are covered by your employer or you choose to purchase your own coverage, a high-deductible health plan will have you paying large out-of-pocket expenses in order to maintain a low premium.

These plans require you to pay for medical expenses until the deductible is reached, which could cost you thousands of dollars. However, there is a smart saving option to help you pay for these expenses, and save money at the same time: a Health Savings Account (HSA).

Using your HSA to pay for qualified medical expenses is easy. You are allowed an unlimited number of tax-free payments or withdrawals to pay for qualified, out-of-pocket medical expenses as they occur. Oftentimes the bank will give you a debit card for you to use on all your health related spending.

As the owner of your account, you are responsible to report HSA activity by completing and filing Form 8889 with your federal tax return. As a result, you must hold on to your qualified health care expense receipts to ensure accurate tax filings.

You may not always use every dollar you contribute to your HSA. So, you may wonder, what happens to that left-over money?

An HSA is not a “use it or lose it” account. Any unsed funds that are contributed to your account stay in your account. They don’t expire and disappear like a Flexible Spending Account (FSA). Unused funds rollover into the next calendar year and can accumulate in this way year after year. And, you can continue to make your maximum annual contribution regardless of the dollar amount that has rolled over or accumulated.

After age 65, unused funds can be used for any purpose – not just qualified health care expenses. Continue reading…

Savings Account vs CD

You’re sitting on some cash and you’re wondering whether to put it in a CD or savings account. Given the current rate environment, there are some advantages and disadvantages to each option.

Should I put my money in a certificates of deposit?

Before you decide on a savings or CD, you’re going to want to ask yourself if you’re going to need the cash in the near future. Depositing your money into a CD will lock up your money for some time. Most CDs can be purchased in fixed terms such as 3 months, 6 months, 1 year, etc. Your money would be locked up for that time frame and in exchange you would get an interest rate typically higher than the savings rate, and that is guaranteed by the FDIC.

Most banks or brokerages will charge a penalty if you withdraw or cash out the CD prior to the end of the term. This will impact any interest earned as the fee would likely be greater than any interest earned. You need to make sure that you’re not going to need the money prior to the end of the term. Currently the highest CD rates are the long term CDs – anywhere from 2-10 year terms. These long term CDs have the best rates but you won’t be able to touch your money for the term of the CD, and if rates go up you will not be able to take advantage.

Should I put my money in a savings account?

Putting your money to work in a savings account can also generate a solid interest payment every month while maintaining liquidity with your money. In most times, you’ll get a rate that’s generally lower than a CD but without having to tie up your money. This would likely benefit those that want to earn a great interest savings rate but want to make sure to have immediate access to their cash.

You’re going to have to be careful because some banks do charge monthly fees and have account balance minimums that will impact interest earned. In addition, you’ll have easy access to your money which makes it harder to save if you don’t have self control.

In today’s rate environment, it makes the most sense to put your money in a high yield online savings account such as Ally Savings or WT Direct. Both of these online savings accounts provide high rates – Ally has no minimum balance while WT Direct has a $10,000 minimum balance. By using an online savings account, you can earn a decent interest rate while waiting for rates to improve.

A spousal IRA allows contributions to be made to into an account on their spouses behalf. They were created to allow stay at home parents to put away money for retirement even if they don’t earn any income. Normally you’re allowed to contribute $5,000 or 100% of your income to your IRA. However if you’re a stay at home mom or dad you don’t have an income, which is where the spousal IRA comes into play. The working spouse may put away money into their spouse’s IRA.

You can setup a spousal roth IRA or a traditional IRA. In order to qualify for a spousal IRA you need to file your taxes jointly with your spouse. All the rules that apply to a regular IRA apply to a spousal IRA. Instead of contributing a maximum of $5,000 to your own IRA you can contribute $5,000 to yours and $5,000 to your spouse’s for a total of $10,000 in contributions. You can also contribute an additional $1,000 for you or your spouse if either or both of you are over 50.

Unlike a joint account where all money is kept in one account IRAs are separate accounts. If a married couple gets divorced then each partner takes their own IRA account. If you do get divorced you can’t take a tax deduction on spousal IRA contributions the year you get divorced.

Just like with regular IRAs you can receive IRA disbursements at the age of 59 ½. Creating an IRA for your non-working spouse is important to ensure an enjoyable retirement for the both of you. A financial consultant or retirement planner can give you more information if you want to learn more about spousal IRAs.

What is a soft credit pull?

A soft credit pull will not affect your credit at all and they will not be visible to other people who are pulling your credit. You’ll want to try to make sure that applications for savings accounts or certificates of deposits do not require a hard credit pull because that can hurt your overall credit score.

These “soft pulls” typically occur when applying for a new job, new apartment, etc. You may also make these soft pulls yourself which should give you an accurate calculation of your current credit standing. One thing to be aware of is that these pulls can be generated by credit card companies whom issue you “pre-approved” credit cards.

Always be wary of anyone giving you credit history forms to fill out and be sure they give you an exact response as to what type of credit check will be conducted. In most cases, you’ll want to try to avoid hard credit pulls whenever possible.

What is a Hard Credit Pull?

A hard credit pull usually occurs when you are seeking some form of credit. These pulls are visible to other people who want to look at your credit. A common red flag is someone with many recent credit check requests, which suggests that they might be overextending their credit.

As a result, every time you have a “hard pull” on your credit history you will take (at least) a minor ding to your overall credit score. It’s hard to predict the EXACT affect both of these examinations (hard and soft pull) have on your overall score, however realizing the difference between the two should give you some insight.

A hard pull should only occur when you give express written consent for it to happen. This type of credit pull will have a (slight) negative effect on your overall score. These usually occur when you are seeking some form of credit (think – insurance, loan app, new credit card, etc). Records of these inquiries will remain with you for 1 or 2 years and should be used primarily when obtaining new lines of credit. Sometimes companies may require these reports be pulled before you purchase a certain product or service (satellite television, utility companies, etc).

Unlike a hard credit pull, a soft credit pull will not affect your credit score.

A bond is defined as an interest-bearing certificate issued by a government or business, promising to pay the holder a specified sum on a specified date.

Common wisdom says bonds are a safe haven from stock market turmoil. Does that mean you should buy bonds if that turmoil comes from recession or inflation?

Complicating the situation is the fact that there is no one-size-fits-all-situations bond. The Treasury Department issues bonds, so do corporations, municipalities and banks. There are short-term bonds and long-term bonds; bonds with pristine credit ratings and junk bonds.

Remember, while bonds may protect you in hard economic times from the deep dives that stocks sometimes take, there is no guarantee you won’t lose money. With bonds, you can get hurt while standing on the sidelines.

Stability versus volatility
It’s a given that most people, especially as they near retirement and need to reduce volatility in their portfolio, should have a smattering of bonds for stability and to provide fixed-income.

The ratio of bonds to equities and cash depends on your needs and your risk tolerance. We won’t specifically address allocation in this article, but we will try to provide some guidance for when it’s appropriate to load up a bit more on your bond allocation.

Cash, U.S. bonds and foreign bonds
There are 3 different types of bonds.

The first is “short money,” comprised mainly of money markets and, occasionally, short-term CDs; assets that mature in less than two years. Second is U.S. bonds, and the third is foreign bonds.

Short money has probably been the riskiest investment over the past couple of years. The dollar has dropped in value and its buying power has dropped tremendously. By proxy, the second riskiest investment is U.S. bonds. They’ve appreciated some in the recent market downturn, they’ve paid a little bit better interest rate, but in terms of purchasing power, they’ve been one of the worst investments in the last two years.

Foreign bonds do the best during a recession and during inflation. During a recession, the bond category as a whole will do well, but during inflationary times, the U.S. dollar is dropping in value. Your foreign bonds are going to get both the good return you get in a bond portfolio during a recession and an extra kick because the value of the U.S. dollar is dropping.

When the dollar drops, your foreign bonds are going up in value because they’re invested in foreign currencies, which aren’t being devalued as much as the dollar. When you invest in foreign bonds in this mode, you want to invest in unhedged foreign bonds.