Posts Tagged credit cards
Beware of Debit Card Overdraft Fees
Photo by Medmoiselle T
A recent Yahoo! Finance article highlighted the new tricks that banks are using to increase their profit margins. Here’s the link: Overspending on Debit Cards is a Boon to Banks
People who use debit cards for purchases are making the banks smile. The reason is that many people don’t have enough in their checking account to cover their debit card purchases. This allows the bank to charge an overdraft fee, which increases the bank’s profits. Yay! I knew that bailout money was going to a good cause. But, you might be thinking, shouldn’t the banks try to help their customers by limiting their overdrafts? What, are you a communist or something?
Banks market it as overdraft protection, and the fees it generates have become an important source of income for the banking industry at a time of big losses in other operations. This year alone, banks are expected to bring in $27 billion by covering overdrafts on checking accounts, typically on debit card purchases or checks that exceed a customer’s balance.
Holy smoke! $27 billion made off of people not paying attention. Here’s some good advice: PAY ATTENTION! Don’t be a spend-first sucker. Keep an eye on that checking account balance, because the banks have bent the rules to get even more creative:
Some banks further increase their revenue by manipulating the order of a customer’s transactions in a way that causes more of them to incur overdraft fees.
“Banks will let you overspend on your debit card in a way that is much, much more expensive than almost any credit card,” said Eric Halperin, director of the Washington office of the Center for Responsible Lending.
I guess that would be considered “thinking outside the box” by the banks. They’ve just found another way to exploit their customers, the same people who will foot the bill for the financial bailout. No good deed goes unpunished. They’ll even let you keep on spending because:
In fact, banks now make more covering overdrafts than they do on penalty fees from credit cards.
I rarely make debit card purchases. I like to use my credit cards to rack up rewards points, and then I pay off the balance the next month. But debit cards don’t offer the same protections as credit cards, so be careful. Just look at the case of this poor schlub:
When Peter Means returned to graduate school after a career as a civil servant, he turned to a debit card to help him spend his money more carefully.
So he was stunned when his bank charged him seven $34 fees to cover seven purchases when there was not enough cash in his account, notifying him only afterward. He paid $4.14 for a coffee at Starbucks — and a $34 fee. He got the $6.50 student discount at the movie theater — but no discount on the $34 fee. He paid $6.76 at Lowe’s for screws — and yet another $34 fee. All told, he owed $238 in extra charges for just a day’s worth of activity.
Mr. Means, who is 59 and lives in Colorado, figured employees at his bank, Wells Fargo, would show some mercy since each purchase was less than $12. In addition, a deposit from a few days earlier would have covered everything had it not taken days to clear. But they would not budge.
How nice, they notified him afterward. And they dragged their heels on clearing his deposit. So for $38.14, he got a very expensive cup of joe from Starbucks. Let his $238 in overdraft fees be a lesson to us all: be careful when making debit card purchases, and for Pete’s sake, check your balance first.
Has anyone out there fallen prey to the overdraft fee game? Check out this book for more ways the banks try to screw us:
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Getting Rich in America Book Review and Summary, Part 2
Posted by enrique s in Book & Product Reviews on June 25th, 2009
This is Part 2 of my review and chapter summary of Getting Rich in America: 8 Simple Rules for Building a Fortune and a Satisfying Life by Dwight R. Lee and Richard B. McKenzie.
You can read Part 1 of this review by clicking the following link: Getting Rich in America Book Review and Summary, Part 1
Rule #3.Resist Temptation
“A penny saved is a penny earned.” - Benjamin Franklin
Frugality requires sacrifice. A penny saved can be many pennies earned. The two keys to resisting temptation are recognizing that:
- That there are plenty of things we can easily do without, or with less of.
- That tremendous benefits can be achieved from being frugal.
There are plenty of expenses that you can eliminate and never even miss. You just have to distinguish between needs versus wants. Frugality is not an all-or-none proposition, but can be measured on a continuum.
“But I want to spend my money while I can enjoy it.” How many times have you heard that line, or said it yourself? Life is full of trade offs, and getting rich is no exception. If you spend it all now, you’ll leave nothing for later. Cutting back on spending will do little to reduce the pleasure of life. Life can be enjoyed at any age.
The spending trade offs are quantified with a table showing the increase in retirement wealth that comes from choosing the more frugal option. These include buying a used cars rather than a new ones ($869K savings from age 23 to 67), brown-bagging your lunch (something I’ve written about, a $283K savings), and even not buying lottery tickets ($106K savings). These not only provide for better financial health, but also a sense of security:
- Establishing a saving and investment plan gives you more control over your life;
- Saving is easier if you make a game out of it;
- Reduce the immediate cost of saving by adjusting your payroll tax withholding;
- Invest in your company’s 401(k) plan.
One way that helps curb temptation is not to use credit cards, which make it easier to spend more. But not all spending is consumption. A new computer may help boost your output, or a health club membership might make you healthier. The authors recommend buying a computer for work from your own funds, if your boss won’t pay for one, if you think it will increase your productivity.
My Take
It’s tough to distinguish between needs and wants, as the determination is very subjective. Some expenses are easier to give up than others, and that would depend on the person. For instance, I don’t have a smartphone, just an old-fashioned cellphone that basically allows for calls and texting. My buddy has a phone with a slide-out keyboard for texting. To me, theat option is a want, as I don’t text frequently. My buddy thinks I’m a Luddite for using the old phone for texting, and considers the keyboard a necessity. Different strokes for different folks.
I don’t feel that credit cards are evil. I’ve used them for 0% arbitrage, and have taken advantage of their cashback awards. I’ve used them for big ticket purchases, and when I didn’t have enough cash on hand when a great opportunity surfaced. But I’ve managed to pay the balances off promptly. Someone with less self-control might be better off not using credit cards.
As far as buying stuff for work, I’ve never paid for my own office computer, but I have sprung for highlighters, pens, and other accessories if I felt they would help. But I’ve never spent more than a small amount, and I can’t see myself ever doing this.
Rule #4. Get a Good Education
Getting a good education is a worthwhile idea if even your goal is not to get rich. It’s also a good rule for building a satisfying life. You’ll develop interests and insights that will enrich you, and you may get more enjoyment from the extra money that often accompanies more education.
The difference in income that you’ll earn from pursuing a bachelor’s degree compared to a high school diploma is about $25,730. Assuming a 1.5% income growth until retirement, and investing the difference at an 8% yield, nets the college grad an extra $3.15 million. This also takes into account the extra four years that the high school graduate worked while the college grad was still in school.
Obviously, you would have to be passionate about a field of study in order to realize your earning potential, so don’t choose a college major just to chase the bucks. Interacting with fellow college students also helps build your network, and increases your learning opportunities. It’s the old “not what you know, but who you know” argument.
Another way of increasing the education payoff is to get through college quickly. You’ll start your career earlier, allowing you to throw money at your nest egg, which will have more time to marinate in the compound interest. Going back to college for an post graduate degree will also pay off in increased income, especially if your company pays for it.
Doing well in school will help you develop productive attributes such as:
- Showing up on time
- Paying close attention to assignments
- Completing assignments on time
- Doing more than the minimum required
- Expressing your views forcibly, yet reasonably
- Treating the views of others with respect and consideration
- Struggling with difficult tasks rather than giving up in frustration
- Organizing your time and activities to satisfy a number of pressing demands
My Take
Going to college definitely increased my earning potential. Going back for my MBA increased it even more, and I got my company to pay for most of it. I probably should have done more networking while I was still in college, but studying and my part-time jobs usually got in the way (Note to Junior: Join some clubs!).
I have a problem with trying to get through college quickly. My college years were some of the best times of my life; I wouldn’t have wanted to rush through them and miss out on the experience. Sure, you’ll accumulate more money by graduating early, but you’ll miss out on all of the good things that college has to offer. I favor postponing the start of your grown-up life in order to work on your networking.
Read Part 3 of my review by clicking here: Part 3
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