fees

How to Get Rid of Your Credit Card's Annual Fee

Dan Rafter — Mon, 19 Nov 2018 08:00:13 +0000

You look down at the credit card in your hand. It's one of your older cards, and you've bought plenty with it. The problem is, it charges an annual fee, and you're sick of paying it. You're tempted to cancel the card to eliminate the fee altogether. But you know doing so will hurt your credit score.

Should you cancel your card? Or should you continue paying that annual fee when you could easily find another credit card that provides a generous rewards program without any annual charges? (See also: 8 Fees You Need to Stop Paying Right Now)

Why you shouldn't cancel your card

It can be tempting to cancel any credit card that charges an annual fee, especially if that fee is a big one. But canceling a credit card can hurt your credit utilization ratio. This ratio measures how much of your available credit you are using at any one time. The more credit you use, the more your credit score will drop.

When you close a credit card, your credit utilization ratio will automatically increase, even if you don't make any new purchases. Say you have three credit cards with a total of $15,000 of available credit. You are using $5,000 of that $15,000 in available credit. If you close one of those three cards — the card with a credit limit of $3,000 — you're left with a total credit line of $12,000 rather than $15,000, ultimately increasing your credit utilization ratio. This is why financial experts recommend keeping credit card accounts open even if you aren't using them.

The age of your credit matters, too. The older your credit, the better it is for your score. So if you close an older card, even if it does charge an annual fee you'd rather not pay, you will also hurt your credit score.

How to get rid of that annual fee

How, then, can you get rid of that annual fee without damaging your credit score? You'll have to call your bank and negotiate.

Some banks will agree to downgrade your credit card's annual fee and move it to another card that doesn't charge any fees, or at the very least, offers a lower annual fee. Doing so won't hurt your credit score because you'll maintain your existing credit limit and you won't be closing an older credit card.

Why would a bank approve such a downgrade? Mainly because it doesn't want to lose you as a customer. If you tell customer service that you are considering canceling the card if the annual fee doesn't go away, many credit card providers will agree to a downgrade. They'll earn more money from your continued business than they would have from that annual fee.

It helps, of course, if you always make your payments on time. Your provider will be more interested in retaining your business, too, if you actually use your card on a regular basis. If you haven't made a purchase on your card in months, your provider might be less likely to approve your request for a downgrade.

When you downgrade to a card with no annual fee, you will lose out on perks the original card offered. Your new rewards program won't be as strong. Your new card might not have a rewards program at all. If that's worth dumping the annual fee, though, downgrading your credit card might still be the smart financial move. (See also: How to Decide if an Annual Fee Credit Card Is Worth It for You)

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This article is from Dan Rafter of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

How Paying Attention to Detail Saves Your Finances

Tim Lemke — Wed, 17 Oct 2018 08:00:12 +0000

They say the devil is in the details. When it comes to your finances, this can certainly be true.

Each day, we have the potential to lose money simply because we aren't paying attention. We pay too much for items because we don't notice how much they cost. We lose money in fees or other charges because we don't read the fine print on documents.

We may think this lack of attention to detail costs us just a dollar here or there. But this carelessness can ultimately represent a great deal of money lost over time. Let's examine these ways that being detail-oriented can improve your financial situation.

You'll know a good deal when you see it

If you pay close attention to what items cost, you'll know when you see a good deal. Even if you are not shopping for a specific item, take time to look at its price. That way, when the time comes to make a purchase, you'll have a sense of whether you may be overpaying. If you are keenly aware of pricing, you may learn which retailers consistently have the best deals and which stores to avoid. Depending on who you buy from, you may be able to automate this process by setting up price alerts via email or text. (See also: 10 Shopping Mistakes Even Smart People Make)

You'll notice when a cashier makes a mistake

I used to work as a cashier at an office supply store, and I was not particularly great at it. At the end of the day, I often learned that I had made mistakes when giving change to customers. Few customers ever noticed the errors, so it was their loss. When you pay cash at a store, be sure to count your change before you leave. Take care to remember which bills you used to pay. If the math doesn't make sense to you, don't be afraid to let the cashier know. In addition, be sure to review your receipt to ensure you weren't accidentally charged more than once for an item.

You'll know whether you're paying too much to invest

When we invest, we often pay attention to prices and the basic return on investment. But do we know how much money fund managers takes out as expenses? Are we cognizant of what commissions we pay each time we trade? These costs can take away several percentage points from our overall returns, potentially costing us thousands of dollars over time. To get the maximum return on your investments, it's wise to examine their overall rate of return with fees and expenses included. (See also: 4 Sneaky Investment Fees to Watch For)

You'll see the "catch" when there is one

Congratulations! Your cable company just gave you free HBO. But did you notice that it's only for three months, and then you'll be charged the full monthly fee? Is that "free" cellphone really free, or did they roll the cost into your monthly bill? Whenever a deal appears to be too good to be true, it usually is. Read the fine print on anything you sign and be aware that rarely is anything truly free. (See also: Watch Out for These 4 Sneaky Charges on Your Monthly Bills)

You'll know what's covered by insurance

Several years ago, the basement of my home flooded after our sump pump failed during a heavy rainstorm. I assumed that the damage would not be covered by insurance because I had not purchased extra flood insurance. But, in reading the fine print of my policy, I learned that there was a special provision that covered me in the event of a failed sump pump. If I had not taken the time to read the policy carefully, I may have been on the hook for thousands of dollars in renovations.

Insurance policies are complicated. You may think you're covered for certain things when you aren't. You may be covered for things you aren't aware of. Always be sure to read your policy so that when bad things happen, you feel confident that you're properly insured. And be sure to update your insurance plans if your life circumstances change. (See also: 11 Unexpected Things Covered by Homeowners Insurance)

You'll notice errors in your credit report

By law, you are permitted to get one free copy of each of your three credit reports — from TransUnion, Equifax, and Experian — every year. Even if you have no intention of borrowing something, it's good to review your credit reports when you can, because they may have incorrect information about your finances. Your credit reports may also show you've been the victim of identity theft. By conducting a detailed review of your credit reports, you can ensure that lenders have the most accurate picture of your financial situation. (See also: How to Read a Credit Report)

You'll be billed correctly

Have you ever been to the car mechanic and received a multi-page, itemized list of the work performed? Have you ever been billed by a doctor's office and seen a list of unfamiliar charges? Sometimes, bills can show a lot of charges that you weren't expecting. It's best to review these bills and identify each charge. If you don't understand something or an item seems unfamiliar, don't pay the bill until you get an explanation. You should never pay a bill without reviewing the charges first.

You know you'll be paid correctly

If you have your paycheck direct deposited in your bank account, you may not look at your pay stub regularly. But your paycheck is worth reviewing each time, just to be sure that you're being paid the correct amount. It's also important to check if taxes, 401(k) contributions, or health savings account funds are being deducted correctly. Checking paychecks is especially important for hourly or freelance workers who may have inconsistent income. (See also: Are You Withholding the Right Amount of Taxes From Your Paycheck?)

You will pay the right amount of tax

Taxes are annoying, but they are a necessary part of living in a society. And it's crucial to be organized and detail oriented when filing them. Mistakes on your taxes could end up in you paying too little tax, resulting in penalties. Or, you could end up paying too much tax if you're careless. When claiming deductions, be sure to have proper documentation to justify them so you avoid getting in trouble with the IRS.

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This article is from Tim Lemke of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

6 Monthly Bills That Won't Affect Your Credit Score

Dan Rafter — Tue, 19 Jun 2018 08:00:30 +0000

What's the best way to keep your FICO credit score healthy? Simple: Pay your bills on time and don't rack up too much debt. Some bills, though, are more important to your credit score than others.

In fact, you might be surprised to learn that many of the payments you make every month have no direct impact on your traditional FICO credit score. That's because in order for a payment to boost your score, or a late payment to hurt it, it must be reported to at least one of the three national credit bureaus: Experian, Equifax, and TransUnion. And many of the companies and service providers you pay off each month don't do this.

That's a mixed blessing. Making a payment late to these creditors won't necessarily hurt your score — unless you pay so late that the bill is sent to collections. On the other hand, paying these bills on time won't help your credit score, either. (See also: 5 Money Matters That Won't Affect Your Credit Score)

Which bills are not reported to the credit bureaus?

There are six common monthly bills that have no direct impact on your credit score. They are:

Utilities.
Insurance payments.
Bills from medical providers.
Cellphone payments.
Cable service.
Membership to health clubs or gyms.

If you're a few days late in paying your car insurance bill, don't panic. Your misstep won't hurt your credit score, just as paying your bill on time won't help it.

But that doesn't mean you can just ignore the bill. There are other consequences for late payments. You might face late fees, penalties, or even the cancellation of service. Your auto insurer, for instance, might charge you an extra $25 if you make your payment after a certain date. Your gym might cancel your membership. And both of those scenarios are still not as bad as if your provider sends your account into collections.

That's because, while a biller may not report payments directly to the credit bureaus, if you miss too many payments, they might send a debt collector after you. Once your account falls into the hands of a collections agency, this will be reported to the credit bureaus. Having an account in collections can cause your credit score to tumble by 100 points or more. (See also: Here's What Happens to an Account in Collections — Even When You Pay Up)

What about rent?

Apartment rent is a more complicated issue. In most cases, the rent you pay each month isn't reported to the credit bureaus. Paying your landlord on time every month usually doesn't provide a boost to your credit score.

There is a movement, though, to change this. The theory goes that renters should be rewarded for paying on time, just as homeowners are when they pay their mortgage bill each month.

Some landlords have begun reporting rents to the credit bureaus. And if you want to report your own rent payments, you can sign up for a rent-reporting service such as Rent Reporters or Rental Kharma.

These services are limited. Both Rent Reporters and Rental Kharma, for instance, only report rent payments to one of the credit bureaus, TransUnion. You'll also have to pay for these services. (See also: 7 Ways to Rent An Apartment With Bad Credit)

Some alternative credit scores do include other bills

As lenders try to expand their market reach, some are looking beyond the traditional FICO score to so-called alternative credit scores. Some of these scores include your behavior with the bills listed at the top of this story, or your management of checking and savings accounts. The FICO Score XD, for example, is for people who have such thin credit reports that they're unscorable by traditional methods. It relies on a consumer's utilities, cellphone, and other bills.

The number of lenders who look at alternative credit scores is still in the minority. But if you're applying for credit and have a limited credit record, it never hurts to ask that a lender take into consideration your good payment history on other types of bills. (See also: How Alternative Data Can Help Those With Little or No Credit)

Monthly payments that always impact your credit score

Some of the payments you make each month will always be reported to the credit bureaus. It's important to pay these on time each month if you don't want your credit score to drop. They are:

Credit card bills.
Home equity lines of credit.
Mortgage.
Auto loans.
Student loans.
Personal loans.
Home equity loans.

Note that revolving credit accounts — credit cards and lines of credit — carry more weight in your FICO score than installment loans.

Also, a payment isn't reported as late to the bureaus until you miss it by 30 days or more. Your two-week delay on your credit card payment won't show up in your credit reports.

However, you'll still be charged a late fee for being even one day late. And every day that you delay payment, interest charges mount. So, it still benefits you to make your payments on time, or as soon after the due date as you can. (See also: 5 Simple Ways to Never Make a Late Credit Card Payment)

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This article is from Dan Rafter of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

10 Pointless Fees That Are Sabotaging Your Budget

Carrie Kirby — Tue, 12 Jun 2018 09:00:30 +0000

When I read the word "fee," what I see is, "something you should have avoided paying." No one likes to pay fees, fines, service charges, or anything that sounds remotely like a penalty. While some fees are unavoidable — try taking a flight without paying the Passenger Civil Aviation Security Service Fee — there are plenty that you can sidestep by calling to complain, avoiding certain behaviors, or switching providers.

Of course, to get out of a fee, first you have to know it was charged. Here are the especially pointless ones you need to watch out for.

1. Digital equipment rental fees

A friend recently replaced her internet provider's outdated modem with one she bought herself. When she called to let the company know, they removed a $20 monthly equipment rental fee she hadn't even known she was paying. She just saved $240 a year!

2. Bank fees

Banks love to tack on fees. One of the most insidious is the overdraft fee, which kicks in when a bank allows you to take more money out of your account than you actually have, then charges you for the "privilege." The really devilish thing here is that if the bank doesn't cover the transaction — for instance, if you haven't opted in to the overdraft program — they will deny payment to the merchant and charge you a non-sufficient funds fee. Either way, you pay.

Other sneaky bank fees are account maintenance fees, which might kick in if your account falls below a certain balance threshold, or check writing fees, which can crop up if you signed up for an account that typically allows only a small number of transactions per month.

A few tips for avoiding bank fees: Use a credit card rather than a debit card to avoid accidental overdrafts. Keep an eye on your balance and know what checks are coming in. Keep a buffer of several hundred dollars in your account and set a text alert to let you know if your balance dips below it. Link your checking account to a savings account. Know the terms of your bank account.

If you do see a fee on your bank account statement, call the bank. They may agree to fully or completely reverse the charge, and at the very least, they can let you know how to avoid the fee in the future — for example, by changing account types. If you find yourself getting hit with a lot of fees, consider changing banks or switching to a credit union. (See also: Are You Paying These 6 Unfair Banking Fees?)

3. ATM fees

The average fee for using a cash machine not run by your bank has hit an all-time high of $4.69, according to Bankrate. This may not seem like a big deal until you consider the percentages here. If you withdraw $40 from an out-of-network ATM and pay $4 for it, that's like giving away 10 percent of your hard-earned money just for the privilege of using the machine.

To avoid this fee, always keep a little cash in your wallet in case of an emergency. If I find myself in a crunch, I stop at a grocery or drugstore and make a small purchase to get cash back. I'd rather pay $1 for a pack of gum with my cash than $4 for nothing. (See also: 8 Ways to Make Sure You Never Pay an ATM Fee)

4. Investment account fees

When you invest for retirement, you can expect to pay some fees, but plans and accounts with higher-than-average fees can sap your retirement income big time. There are the fees you can easily see: The average investment manager charges around 1 percent of your assets each year. But you may also be paying fees you don't know about, like load fees on the mutual funds your adviser is buying or excessive trading fees if your manager is moving your money around a lot.

To avoid excessive investment fees, consider a low-cost platform such as Vanguard target date funds or a robo adviser. If you're stuck with your company's 401(k) plan, study the fees carefully and complain to human resources if they're too high. (See also: Watch Out for These 5 Sneaky 401K Fees)

5. Foreign transaction fees

If you go overseas, you may find yourself hit with foreign transaction fees both while using your credit card and while withdrawing cash. The only way to avoid this is to do your homework before you go. There are a lot of credit cards that advertise no foreign transaction fees now, so if your card doesn't offer that perk, simply apply for one that does before your trip. Getting approved should only take a few days, and you can even pay extra for express shipping if you're leaving soon.

If your bank account charges foreign transaction fees, that can be harder to change, because opening a new account takes paperwork and time. If you have more than one account, check with all of them. Last time I went overseas, I learned that my credit union account doesn't charge the fee, while my regular checking account did. So I simply used the credit union account to withdraw cash on my trip. You can also ask your bank if there is a different account type you can switch to that doesn't charge the fee. (See also: 11 Ways to Avoid Bank Fees While Traveling)

6. Library fines

When my kids were little and liked to check out 10 picture books at a time from our local library, the books would end up mixed in with their personal libraries and I would forget we ever checked them out. We ended up running up so much money in fines that my library card was frozen.

A better way to operate is to set a calendar reminder on your phone for the day before books are due. Keep the receipt handy, or consult your online library account, so that you have a list of all the books you checked out. If none of that works, you may have to do what I did: Institute a "read them at the library only" policy for library books.

If you do let those fees add up, find out if your library has an amnesty or fee forgiveness day scheduled. Our local library sometimes forgives fines in exchange for donations to the food pantry. You can also let the library know if you have a financial hardship; as long as they get the books back, they may be willing to waive the fines. Finally, find out if your library offers fine-free cards for children.

7. Credit card fees

If you fail to make the minimum payment on your credit card, you will be charged not only interest, but also a late fee. While traveling last month, I missedpayments on two credit card accounts, each which only had a tiny amount of charges on them. For both, the fee was larger than the balance I'd failed to pay.

To avoid this, always make at least the minimum payment each month. Not only will this avoid this month's fee, but it will demonstrate a good payment record which will help if you ever do slip up. Because I'd had a perfect on-time payment record before this, both credit cards forgave my late payments and reversed the fees. (See also: 5 Simple Ways to Never Make a Late Credit Card Payment)

8. Credit report fees

It's a good idea to check your credit report regularly for accounts you don't recognize, accounts sent to collections without your knowledge, or other problems that could prevent you from getting a loan in the future. But you generally don't need to pay for this. Under the Fair and Accurate Credit Transaction Act (FACTA) all Americans are entitled to one free credit report a year from each bureau. (See also: How to Read a Credit Report)

9. Money transfer fees

Sending money to family or even paying bills if you don't have a checking account can run up large fees, but it doesn't have to be that way. There are now tons of ways to send money with no fee or only a small fee, using PayPal, Venmo, Apple Pay, or Square Cash. For PayPal, if you're not making a business transaction, make sure to choose the friends and family option so you're not charged a fee. (See also: 7 Modern Ways to Send Money to Your Kid)

10. Airline fees

We are in the era of a thousand airline fees, and it is annoying. Many of the so-called fees that airlines tack onto your bill are just price increases in disguise, while others are mandated by the government. But there are some that are often avoidable, such as phone booking fees, baggage fees, and ticket change fees.

To avoid a phone fee, book online whenever possible. If you are booking an itinerary that can't be booked online, such as using miles on partners for some airlines, remind the phone agent that your transaction can't be done online and they probably won't charge you the fee.

To avoid baggage fees, look into getting the airline's credit card; many offer a free checked bag and other privileges to cardholders. Another strategy is to bring a roll-aboard bag that fits within the airline's carry-on allowance. In my experience, passengers with these bags are often offered free checked baggage at the gate anyway. Finally, you can stick to airlines that don't charge a fee for the first bag or two, such as Southwest. (See also: 6 Ways to Save On Baggage Fees)

Avoiding ticket change fees can be both the easiest and hardest. When your plans don't change, or if you book with Southwest, it's easy to avoid. If you made a mistake on your booking or if plans change, these can be impossible to avoid. The best you can do is to check and double check your reservation within the first 24 hours, before the airlines are allowed to charge a fee.

Some airlines offer the chance to purchase a ticket with free changes for a higher cost. Naturally, on the flights when I paid extra for that privilege, my plans did not change. If your plans change unavoidably, you can try calling the airline or booking company to plead your case. If the change is due to a death, you'll be expected to produce the death certificate.

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This article is from Carrie Kirby of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

When Should You Pay a Credit Card Convenience Fee?

Holly Johnson — Thu, 10 May 2018 08:30:10 +0000

One of the great things about credit cards is that consumers typically don't have to pay for the convenience of using them at the point of sale. You usually swipe your card, and the merchant bears the 2%-3% transaction fee that covers the cost of processing the payment.

Merchants are actually permitted by law to pass those costs on to consumers in the form of a credit card surcharge, except in the handful of states where such surcharges are illegal. But in reality, most retailers don't do that for fear of alienating customers.

There are exceptions, though. Some utilities tack on a fee if you want to pay with a credit card. The IRS and universities do the same. Sometimes these fees are a flat amount, say, $3-$5. Other times they're a percentage of the purchase price, often 2%-4%. That means that even people who use cash back credit cards or travel rewards credit cards choose an alternate form of payment because the fees are larger than the rewards they'd earn.

There are times, however, when it may make sense to pay a fee to use credit. Understanding these situations can save you money and headaches. Here's a rundown of the situations where paying a flat convenience fee or a percentage of your purchase can make sense.

The rewards you're earning are worth more than the fee

One of the most common scenarios where it makes sense to pay a fee to use your rewards card is if the rewards you earn are worth above and beyond the fee you're asked to pay.

For example, let's say you're considering paying your federal tax bill with a credit card to earn rewards. The IRS offers three payment processors you can use to pay your bill with credit, the cheapest of which charges a 1.87% fee with a minimum fee of $2.59.

If you owed $5,000 in federal taxes and used a card that offered only 1% cash back, you would pay $93.50 to use your credit card but only earn $50 in cash back.

But if you used a card that offers 2% cash back to pay your federal taxes, you would earn $100 in cash back, which would be more than enough to cover the $93.50 fee.

It would make even more sense if you earn rewards that are worth quite a bit more than the fee. For instance, some experts value United Airlines frequent flyer miles at 3-4 cents each when used for international business class award tickets. If you're planning such a trip on United, it's probably worth it to pay your taxes on a United credit card. (See also: Which Airline's Frequent Flyer Miles Have the Best Value?)

You're under the gun to earn a big sign-up bonus

Regardless of your credit card's ongoing rewards rate, there's another situation where paying a fee to use a credit card could make sense: When you're pursuing a big sign-up bonus.

While all rewards cards vary, there are many that offer $500 or more worth of travel rewards after you spend $3,000 or more within the first three months of opening the card. In the scenario above, paying a $93.50 fee to use a credit card to pay your federal taxes could be worth it if you didn't think you'd otherwise make the spending requirement before the deadline to earn your sign-up bonus.

Of course, you don't have to pay taxes specifically to earn a sign-up bonus. You can use your rewards card for shopping, bills, gas, insurance, and all other purchases you make. As long as you meet the minimum spending requirement within the time frame listed in your card's terms and conditions, you'll earn the sign-up bonus whether you pay a fee to use the credit card or not.

You want to take advantage of another credit card benefit

Finally, there are purchases where you may want to take advantage of your credit card's legal protections or other benefits. For example, let's say you hire a contractor to remodel your bathroom. Your contractor charges a 3% fee to use your credit card, but you think it's worth it. Why? Because using a credit card allows you to file a "chargeback" if your contractor messes up your remodel and refuses to refund your money.

Chargebacks are covered under the Fair Credit Billing Act, which set up guidelines to govern the process for consumers to dispute a credit card charge. With a chargeback, your credit card issuer can remove a charge from your statement if it's fraudulent, made in error, or if the merchant did not deliver what was promised. If you paid for the remodeling job with cash or a debit card, on the other hand, you would have to try to get your money back some other way.

There are other benefits your card may offer that make a credit card surcharge worth it. For instance, many credit cards offer extended warranties that add up to a year onto the manufacturer's existing warranty. These warranties can save you hundreds of dollars in repair or replacement costs, and third-party warranties often cost more than $100 themselves. In those cases, if you're asked to pay a surcharge to use your credit card, it may be worth it.

When it doesn't make sense to pay a fee

While these situations may make paying a fee to use a credit card perfectly reasonable, there are situations where using credit never makes sense.

The rewards you earn are worth less than the fee

If you're earning credit card rewards for a purchase but the fees to use credit outweigh the value of your rewards, then you should try to use cash or debit instead. Remember, rewards are only valuable when they're worth more than you're paying to get them.

One example is my Vectren gas bill. During the warm months when my gas bill is only around $25, I don't pay the $1.95 flat convenience fee to use a credit card. But during winter months when my gas bill approaches $200 for the month, it makes sense to pay the $1.95 fee with a card that earns 2% cash-back. Why? Because I would earn $4 in rewards in exchange for paying a $1.95 fee.

You can't pay off your credit card balance in full at the end of the month

Whether there's a convenience fee involved or not, you should never go into debt just to earn credit card rewards. In most cases, the interest you'll pay by carrying a balance far outweighs the value of any rewards you receive. You're better off saving up until you have enough money to make your purchase and then using cash or debit to pay.

If you do have to pay with a credit card and carry a balance, apply for a low-interest credit card and forget about rewards until you're debt-free.

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This article is from Holly Johnson of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

7 Ways to Vet Your Mortgage Lender

Dan Rafter — Fri, 20 Apr 2018 08:30:09 +0000

Buying a home is one of the biggest purchases most consumers ever make. And yet many of us put little to no thought into getting a mortgage loan or the lender we'll work with during the process.

This attitude can cost you. In 2015, the Consumer Financial Protection Bureau found that 47 percent of mortgage borrowers didn't shop around for lenders. The CFPB also found that those applying for a 30-year, fixed-rate mortgage could qualify for interest rates that varied by more than half a percent. This may not sound like much, but the CFPB noted that the difference between 4 percent and 4.5 percent could result in savings of $60 per month, or $720 per year.

So how do you make sure that the mortgage lender you choose will offer you the best deal and the best service? You need to vet these financing professionals.

1. Ask your real estate agent, but also shop around

Real estate agents work with plenty of lenders and should be able to recommend a mortgage loan officer. Because they want their clients to refer them to other buyers and sellers, they tend to recommend loan officers and lenders who provide good service and prices.

But don't automatically take your real estate agent's recommendation. Talk to friends and family members who recently took out mortgage loans. Did their lender do a good job for them? Do they wish they'd worked with a different one?

Search mortgage comparison sites such as LendingTree, too. LendingTree lets you put in your basic financial information and receive preliminary offers from lenders seeking your business. Just be aware that there is no guarantee that these preliminary offers will match the final offers lenders make should you formally apply.

Once you have a list of lenders and loan officers, contact them. It's now that you can ask them questions to help determine if they are worth working with.

2. Do some rate and fee comparisons

When interviewing lenders, ask them how much their borrowers typically pay in closing costs. These are the fees that lenders and other third-party providers, such as real estate attorneys and title insurance companies, charge to originate your mortgage loan. These fees can quickly add up, often totaling 3 percent or more of your loan amount. Ask the lenders you are interviewing, too, what interest rate someone with your finances can expect to be charged.

Be careful, though: Some lenders might quote you a lower interest rate, but charge you a higher closing fee at the same time. Make sure to consider both the rate and fees. (See also: Here's What's Included in a Home's Closing Costs)

3. Ask about closing times

Originating a mortgage loan takes time. You can expect to wait 30 days or more between the moment you apply for a loan and the day you sign the papers. But some lenders are faster than others. Ask your lender how long it takes borrowers on average to get to the closing table. If most lenders say 30 days, but one says 60? You might want to skip working with the outlier. (See also: How Long Does It Really Take to Close on a House?)

4. Ask your lender to explain the entire lending process

Most of us aren't familiar with how the mortgage-lending system works, so it's important to work with lenders who can explain this often-complicated process clearly. If the lenders you are interviewing can't or won't do this, find a new one to vet. (See also: 5 Homebuying Questions You're Embarrassed to Ask)

5. Ask to speak to past clients

Ask your lender to provide you the names and contact information of at least three past clients. When you get a hold of these referrals, pick their brains. Ask if the lender responded quickly to phone calls, if the closing costs they charged were higher than expected, and if they fixed any problems that popped up during the lending process. If lenders balk at providing referrals, don't work with them.

6. Do your online research

Once you've found a lender you like, do some online research. Check out sites such as Yelp or Zillow to find online reviews of the lenders you are considering. If a lender has an overwhelming number of negative reviews, you might want to steer clear.

7. Get preapproved

During the preapproval process, a lender will run your credit and verify your income. You help the process along by sending copies of financial documents such as your recent paycheck stubs, bank account statements, and income tax returns. Your lender will use this information to determine how much loan money they are comfortable giving you, and will send you a letter stating the results.

The best thing about preapprovals is that they are free. If you find three lenders you like, get preapproved with all three. You aren't obligated to work with any lender that preapproves you. But you might discover that one lender approves you for $200,000 while two others approve you for loans as high as $250,000. This could influence which lender you finally choose.

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This article is from Dan Rafter of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

6 Investment Truths to Remember When the Stock Market Is Down

Damian Davila — Tue, 20 Mar 2018 10:00:05 +0000

Forget Halloween — February 5, 2018 stands as the new scariest day. On that day, the Dow Jones industrial average (DJIA) plunged almost 1,600 points, marking its biggest point decline in history during a trading day. If you felt like you wanted to sell off all of your stocks and take the money, you were not alone. Still, it's at times like these that you need to keep a cool head and stick to your original financial plan. Here are a few things to remember when the stock market takes another dive. (See also: 6 Confidence-Inspiring Facts About the Stock Market)

1. Historical average return of stocks is close to 10 percent

Take it from Sir John Templeton, who created one of the world's largest and most successful international investment funds: "The four most dangerous words in investing are 'This time it's different.'" (See also: 14 of the Coolest Sayings About Investing)

While losing 1 percent of your 401(k) balance on a single day may seem terrible, the reality is that it's probably going to be a small hiccup on an ever-increasing journey. The average return of the S&P 500 from 1968 to 2017 was 10.05 percent. Even when you take a look at a smaller period of time, this benchmark of the health of the overall stock market performs quite well. The S&P 500's average return for the 2008–2017 period was 8.42 percent.

2. The longer the holding period, the higher the average return

The concept of "buy and hold" has been around for quite some time, and it's a key thing to remember when the market looks rocky. Experts have long recommended riding out the rough times.

"The market pays a premium to those willing to endure the angst of watching their net worth fluctuate beyond what Wall Streeters call the 'sleeping point,'" wrote former Federal Reserve Chairman Alan Greenspan. (See also: 3 Pearls of Financial Wisdom From Alan Greenspan)

Warren Buffett, better known as The Oracle of Omaha, famously echoed the sentiment: "If you aren't willing to own a stock for 10 years, don't even think about owning it for 10 minutes." (See also: The 5 Best Pieces of Financial Wisdom From Warren Buffett)

Here's an example of why buy-and-hold holds true: The S&P 500 index increased 21.64 percent and 102.50 percent during the 2016–2017 and 2000–2017 periods, respectively. In investing, it truly pays off to go the distance.

3. Great time to pick up bargains

Think about the last time that you bought that new car, fancy new outfit, or high-tech 4K TV that you're so proud of. You probably spent days watching like a hawk for the moment that a deal would come up. When it did, you jumped on it. So, why would buying equities be any different? Wouldn't you also want to buy a share of a well-diversified portfolio or the stock of a great company at a discount?

If you keep in mind that the historical returns of stocks is close to 10 percent and you're planning to buy equities anyway, do consider buying when stock prices are low. After all, you have heard of "buy low, sell high," right?

4. Tolerance to risk changes over time

From tying the knot, to buying your first home, to being just five years away from retirement, several milestones will affect your perspective on life. And investing is no exception. If a market downswing hurt more than it did five, 10, or 15 years ago, you should revisit your portfolio allocation.

There is a plethora of investment options, including bonds, annuities, and mutual funds. If you feel that you need to dial down your exposure to stocks, you can allocate those funds to financial vehicles better suited to your updated view on life and investing. (See also: The Basics of Asset Allocation)

5. Trading triggers fees (most of the time)

A 2018 survey from TD Ameritrade found that more than 75 percent of Americans don't know how much they're paying in 401(k) fees. Even worse, 37 percent of those respondents mistakenly believe that they don't pay any 401(k) fees at all. The reality is that all 401(k) plan holders pay some type of fee.

And trading can trigger many of these fees. For example, a fund may have a redemption fee that requires you to hold on to shares of that fund for a minimum period of time or be hit with a fee ranging from 0.01 to 2 percent of the transaction value. Firing away trades without awareness of applicable fees can backfire by setting back your 401(k) balance even further. (See also: Watch Out for These 5 Sneaky 401K Fees)

6. Sell based on an objective reason

So far, we have discussed reasons why you should hold on to your stocks or even buy more. But there will be times that you will have a valid reason to sell your equities during a market downturn. Here are a few examples:

Tax loss harvesting: In a year that you're expecting a large tax liability, you could take a hit on realized losses on your investments and offset taxes on both gains and income.
Portfolio rebalancing: Balances on specific asset classes fluctuate over time as prices go up and own. So, it may be necessary to do a couple of trades to readjust your portfolio back to its original asset allocation.
Dramatic change in company policy: Let's imagine that you bought a stock purely because its board of directors had provided a dividend every quarter for the last 10 years. If the company's board were to suddenly do away with the dividend, would you still want to own it?

Just because the stock market goes up and down doesn't mean that you need to make a move. Stick to your original financial strategy and remember that stocks do outperform most types of investments in the long run. This may mean tuning out from the financial news for a while so it doesn't play into your fears. In the long term, you should do just fine. (See also: Want Your Investments to Do Better? Stop Watching the News)

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Your Bank Took Away Free Checking. Now What?

Rachel Slifka — Fri, 02 Mar 2018 09:30:06 +0000

You are a financially responsible adult who has been a loyal customer of the same bank for years. Now you find that you've been hit with a random checking account fee. What gives?

If you're like most people, you keep enough in your checking account to pay the bills, but you don't store your life savings there. Unfortunately for you, many big banks are changing how they do things. Checking accounts that used to be free are now being charged a monthly service fee if they don't meet certain criteria, like minimum balance and direct deposit amounts per month.

So what are your options? If you've been hit with a monthly checking account fee, here are some things you can do. (See also: 5 Signs It's Time to Find a New Bank)

Ask your bank for an explanation

If you're finding new fees being tacked onto your bank account statement, you will want to go directly to your bank. Ask them what the fees are and how you can avoid them. If you've been a longtime customer, you may even have leverage to have these fees waived. In any case, find out what is required to avoid these fees altogether in the future.

At the very least, your bank should be helpful in working with you to solve this issue. Be sure they spell out exactly what criteria they require for a checking account and what charges they'll make you pay if you fail to meet their requirements. (See also: Are You Paying These 6 Unfair Banking Fees?)

Utilize direct deposit

To avoid a monthly checking account fee, your bank may require you to have a minimum amount directly deposited into your account every month. For example, this minimum may be $250 per month.

Banks like direct deposit because when you have money regularly deposited into your account, you are less likely to overdraft. So long as you have a steady job and your employer utilizes direct deposit, this should be a relatively simple fix. You can ask your human resources department whether you are eligible for direct deposit, or if you can change your current setup.

Keep up that monthly minimum

Does your bank require a monthly checking account minimum? If so, you will need to keep that minimum amount available in order to avoid additional fees.

Keep in mind, if the minimum is very high, your money could possibly be put to better use. Money in a checking account likely isn't earning very high interest, if it's earning anything at all. You could earn a better return by investing that money or using it to pay off high-interest debt.

Take a look and consider your options. If the checking account minimum is too high for your taste, you may want to consider finding a new bank.

Switch banks

Changing banks can be a hassle, but it's one that can be very worth your while. If your current bank is charging you more fees than it's worth, it's time to make a switch. There are still plenty of banks out there currently offering free checking accounts, many of which even earn interest. You have other options. Don't settle for a bank that is not meeting your needs. (See also: Switch to a Better Bank in 5 Easy Steps)

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Here's What to Do If You Get Audited

Mikey Rox — Tue, 27 Feb 2018 09:30:09 +0000

We often exaggerate the phrase, "My worst nightmare," but when it comes to getting audited, it's true. Audits are many people's worst nightmare — but they don't automatically have to mean financial disaster. To help navigate the unwelcome process, consider these important steps to take as suggested by tax professionals.

1. Don't panic

A lot of folks' first response to receiving their audit notice is to panic. Just the word "audit" has the ability to throw everything into a tizzy. But in all probability, if you've reported your taxes accurately (or at least tried to), the situation is likely not as bad as you think.

"It can be easy to fly off the handle and make what can be simple requests for information into a pressure-filled, stress-inducing scenario," says certified financial planner Joel Ohman. "This need not happen if you have someone — a CPA, tax attorney, or other trusted professional — representing you and counseling you."

Slow down, take a deep breath, and call whoever does your taxes. Trust them; rely on their advice.

2. Read the notice carefully

Take a good look at the audit notice you received. Many audits are desk audits or computer document-matching audits rather than the complete tax return audits done in-person.

"If the audit request is a document-matching audit, they will typically ask you to verify certain lines on the return," explains Grafton "Cap" Willey, CPA and managing director of the New England division of CBIZ MHM. "Very often they will propose an adjustment based on the information they have received. They will state that you reported 'such and such' and they have additional documents that they do not see reported."

3. Prepare the required documents

Documentation is the key to success in audits. Provide organized documents such as 1099s, K-1s, W-2s, and canceled checks, and reconcile them to the amounts claimed on the return. If you do not have adequate documentation, it's more likely that you won't get the deduction.

"IRS information is not always correct, so look it over carefully and make sure that they have the correct information," Willey adds. "Investment gains and losses are often misrepresented and very often the IRS will assume a zero-cost basis on unreported transactions. Providing corrected information will usually satisfy them."

When going through your documentation, if you come up with more deductions than you claimed, don't be afraid to submit them in your response. The IRS can be very strict on accepting documentation for charitable donations and business expenses, however.

4. Submit your documents on time

Don't make matters worse by missing deadlines. An audit is a serious matter that can result in heavy fines, and you don't want to put more stress on the process by being uncooperative. Follow the guidelines and get your documents submitted by the date expected. (See also: The Easiest Way to Avoid a Tax Audit)

5. Don't let your mouth get you in more trouble

The IRS is very good at making people feel nervous about being audited, and when people are nervous, they tend to ramble — sometimes to harsh consequences.

"Remember the IRS's job is to appropriate your money for government needs, and your job is to justify why you should keep the money yourself," explains CFP Brent Dickerson, owner of Trinity Tax Advisory. "They are not your friend, and they are not there to help you keep money for yourself; many people in an audit situation fail to remember this fact. They let down their guard and often say things that they don't even realize can bite them. Therefore, it's in your best interest to have a representative work on your behalf with the IRS."

6. Bring your CPA with you to your in-person audit

If the audit is an in-person audit, consider bringing along a tax professional to represent you at the audit.

"The IRS is not afraid to try to intimidate a taxpayer representing themselves," Willey says. "A tax professional that has experience with tax audits should be aware of the rules and know when the agent may be fishing for issues. Very often, giving a tax professional a power of attorney authority may avoid the taxpayer from having to sit down with the IRS agent, which many taxpayers would like to avoid."

Make sure your records are well organized and well documented; make it easy for the agent to follow. If they have confidence that you're presenting good documentation, they will be more likely to accept what is presented to them.

7. Don't be afraid to disagree and negotiate

Sometimes a tax audit is a negotiation — you may have to concede to some changes on smaller items in order to not have big changes on larger items. It really depends on the agent. Some agents nitpick minor items, while other agents go straight for the big issues.

"In my experience, IRS field agents tend to rigidly apply the law in favor of the Treasury," says Matthew T. Eyet, Esq. of Sandelands Eyet LLP. "If at the end of the audit you think the agent got it wrong, file a protest to take your case to the Office of Appeals where the appeals officers are typically more taxpayer-friendly in their analysis."

In addition, he adds, unlike field agents, appeals officers are allowed to consider the hazards of litigation when negotiating a settlement. This almost always means a better result for you.

8. Hire an enrolled agent if you're caught red-handed

If you've really dug yourself a hole and committed criminal acts by submitting fraudulent taxes, you'll need more than a CPA to help you. An enrolled agent is a tax expert and recognized by the IRS as having unlimited right of representation. They're your best hope of the least amount of recourse.

"If you are facing counts of criminal charges, you'll need a lawyer," says Dickerson. "If your business is being audited or if you have a sole-proprietorship with lots of accounting needs, then you may want to opt for a CPA. All of these professionals have their own specialties when it comes to tax and each is able to represent clients in front of the IRS — but only attorneys can represent in cases of criminality." (See also: 10 Reasons You Should Really Fear an IRS Audit)

9. Pay what you owe ASAP

You want this situation to be over, and the best way to accomplish that is to pay what you owe immediately. If you don't, you run the risk of added interest and penalties with late fees on top of that.

If you don't pay the balance in full in the first 21 days of receiving notice of what you owe (for balances less than $100,000), penalties begin accruing. The faster you can get this squared up and put behind you, the better.

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This article is from Mikey Rox of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

The Millennials Guide to Avoiding Credit Card Debt

Tim Lemke — Mon, 22 Jan 2018 10:00:06 +0000

Americans owe billions of dollars in credit card debt, and the high interest rates that come with it can lead to a debt spiral that is very challenging to overcome.

Millennials, having lived through the financial crisis and other economic downturns, appear to be more wary of credit cards than other generations, according to several recent surveys from sources including Bankrate and TransUnion. This wariness is healthy, but it's important for this younger generation to know that credit cards by themselves can be harmless and perhaps even beneficial if used wisely. (See also: Why Millennials Should Embrace Credit Cards)

If you're a millennial, consider these tips on how to use credit cards while avoiding getting into dangerous debt.

Pay attention to interest rates

Sometimes when you're in a financial pinch, you may be relieved to see a new credit card application come in the mail. But it's a bad idea to apply without looking at the terms first. Not all credit cards are created equal, and some have very high interest rates that could cripple you financially. An annual percentage rate of about 15 percent is standard, but some can go well above 20 percent, and it's possible to find rates below 12 percent. Be sure to read the fine print on all cards, and compare rates to find the best card available for you. (See also: Best Credit Cards for Millennials)

Also, don't get too enamored with low introductory rates; remember that all introductory rates eventually aren't introductory anymore. If you're struggling to get out of debt, it may be helpful to transfer a balance to a card with a 0% introductory APR, but be aware that rate will jump after a certain amount of time. (See also: The Best 0% Balance Transfer Credit Cards)

Avoid fees

Some credit cards will charge you an annual fee just to have them. Sometimes, this annual fee allows you to receive special benefits, but the average person should never feel the need to pay money just to have access to credit. You may feel like you've "arrived" because you are spending $550 per year for that platinum card, but it's a silly expense if you're only using the card to pay for lunch and fill your gas tank. These premium credit cards come with many perks and benefits that only benefit certain people. (See also: How to Decide if an Annual Fee Credit Card Is Worth It for You)

Pay on time

The nice thing about credit cards is that if you pay off the balance every month, on time, you're not charged any extra fees or interest. There's really no down side to using a credit card to buy items and paying the bill in full each month.

Paying your bill on time is the number one factor in determining your credit history. Miss a payment, and you are subjecting yourself to late charges and a hefty amount of interest. Additionally, you could see your credit score suffer. (See also: 5 Simple Ways to Never Make a Late Credit Card Payment)

Watch the revolving balance

Even if you pay your bill on time every month, your credit score could be hurt if you have a high balance each month. Credit bureaus don't like it when you are bumping up against your credit limit on a regular basis. In fact, as much as one-third of your credit score is based on "credit utilization," or the amount of debt you have versus the amount of credit you have available. In other words, you should still try to avoid racking up a large credit card bill, even if you're diligent about paying on time. (See also: This One Ratio Is the Key to a Good Credit Score)

Use them to build credit

When used responsibly, credit cards can help you build a credit history and make it easier to get favorable terms when borrowing money elsewhere. If you are applying for a mortgage, for example, a lender will review your credit score and payment history to determine the rate and size of the loan that you are eligible for. Without a lengthy credit history, lenders may find it hard to give you good terms, or you may be turned down altogether. (See also: 5 Ways to Improve Your Credit Score Fast)

Have multiple cards, but be careful

People with high credit scores tend to have more cards than those with lower scores. This is because your credit score is partially based on how much debt you have compared to your overall availability of credit. Since more cards will generally mean more available credit, there is an advantage to having multiple cards. The very, very big caveat to this is that if you have more cards, you have more ability to borrow and rack up debt.

Having multiple cards can give you flexibility, because not all cards are accepted everywhere. Additionally, it may be helpful to have credit cards with varying kinds of rewards. There is no universal rule of thumb regarding the optimal number of credit cards, but it's likely that you can get away with having two or three.

Track your spending

One nice advantage to using credit cards is that it will allow you to keep a real-time record of your purchases. If you use cash instead, recording your spending is more of a manual chore.

Most credit card companies allow you to check your transactions online and will even categorize your purchases, thus helping with budgeting. If you use credit cards, don't just mindlessly pay your bill when it comes. Take the time to review what you spent during the previous month, and try to identify where you may be able to cut expenditures and boost your savings.

Use your rewards

There's a healthy competition among credit cards to offer rewards to cardholders when they make purchases. Some cards give you cash back. Many offer airline points or other travel rewards. There are cards offering cash back to be used at Disney theme parks, and some that allow you to direct money into retirement accounts.

When used responsibly, these credit cards can save you a lot of money. Do some research to find the credit cards with the best rewards for you, and try to stay away from cards with an annual fee, if possible. (See also: 5 Tricks to Making the Most of Your Reward Miles)

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The Encouraging Truth About How Americans Are Covering the Cost of College

Carrie Kirby — Wed, 10 Jan 2018 09:30:06 +0000

The average annual costs for tuition plus room and board have reached an average $45,000 for private colleges and $35,000 for out-of-state-students at public colleges. When students and parents learn about these staggering figures, panic and resignation can set in.

But it's important to keep in mind that most people don't pay the full sticker price for college — and what they do pay tends to come from a variety of sources, not just from savings or loans. Sallie Mae's 2017 How America Pays for College survey casts light on how families afford higher education costs, and may offer some reassurance that one way or another, you, too, can afford college.

Here are some of the most interesting findings.

1. Few families pay the highest prices you hear about

Despite those high average costs, Sallie Mae found that the average family paid only $23,757 for college in the 2016–2017 academic year.

Why is this so much lower than the scary averages reported in the news? For one thing, the private schools that charge the highest prices account for a small minority of all college students in America. Sure, Harvard is expensive, but most of us aren't going there. Many students go to community colleges, where the nationwide average for tuition and fees is just $3,347, according to AffordableColleges.com. Some community colleges are even tuition-free. Other students may attend in-state public universities, where College Board reports the average tuition and fees are below $10,000 a year. (See also: What Does "Free" College Tuition Really Pay For?)

These examples don't include room and board, nor do they include other expenses that students often fail to account for, such as travel to and from school. But even if you factor in those expenses, these costs are a lot lower than the scary headlines would lead you to believe. (See also: 9 College Expenses You Aren't Saving For)

2. Half of students don't pay room and board

According to Sallie Mae's survey, a full 50 percent of college students now live at home with their parents, saving a ton of money on rent and cafeteria food. Even if they contribute to household expenses, the cost is likely to be less than it would be if they lived on their own.

3. Scholarships and grants cover more than you think

Funds that students don't have to pay back, such as federal grants, grants provided by the schools, and scholarships, cover more than a third of the cost of college for the average student. That's the largest funding source, greater than what either parents or students contribute, and it's been on the rise in recent years. In 2016–17, scholarships and grants covered 35 percent of the average student's costs, while back in 2012–13, they covered just 30 percent.

That 35 percent translates to $8,390 that the average student receives toward college expenses and does not have to pay back. At more expensive schools, especially those with large endowments, the grants from the institution may be much larger.

Where do those scholarships come from? Most families — 87 percent, the survey says — get one or more scholarships from the college itself. Three out of four students also earn scholarships from companies or community organizations, and 65 percent of students get a scholarship from state or local governments.(See also: How to Increase Your Child's Odds of Winning a Scholarship)

4. Grandma may chip in

Four percent of the average student's college costs are covered by relatives and friends. That may not seem like much, but it works out to $900 for the average student, which isn't nothing.

5. Parents and students share the load

Parents, don't feel like you've failed if you don't cover 100 percent of your kids' college expenses. Students, don't feel like a leech if you can't handle 100 percent of your college costs on your own.

The fact is, in the average family, students and parents each contribute about the same amount to college expenses; 30 percent comes from the student and 31 percent comes from the parent. On each side, that contribution is a combination of savings, earnings, and loans.

6. If you don't feel prepared, you're not alone

Only around four in 10 families say they have a plan to cover all four or more years of undergraduate studies before a student enrolls. Most certainly don't have the entire sum saved up in advance. In fact, between student and parent contributions, only about 34 percent, or $8,000, comes from savings and income. The rest comes from those loans, grants, scholarships, and family gifts mentioned above. (See also: 12 Surprising Ways to Get More College Financial Aid)

7. Most families don't have 529 college savings plans

For better or for worse, use of this tax-advantaged savings vehicle is waning, with only 13 percent of parents of freshmen paying college costs out of a 529 account. Use of these accounts appears to have peaked at 17 percent in the 2012–13 school year.

The lapse in popularity of the 529 program could be chalked up to the lack of planning noted above, or maybe more families are worrying that money they put into 529 plans could count against their kids when they apply for financial aid. However, if you have established a 529 account for your kids, pat yourself on the back, because you're in the virtuous minority. (See also: The 9 Best State 529 College Savings Plans)

8. Smart students find ways to save

Budget-savvy students know that the cost of college doesn't have to be so high if you work at saving money. Half of students are living with their parents; others are renting textbooks or buying them secondhand, living off campus, and bicycling to class.

Budget shopping also comes into play when selecting a college. According to the survey, 69 percent of students eliminated a school due to cost, up from 58 percent in the 2008 survey. This is probably a wise decision. (See also: 10 Ways for College Students to Save Loads of Money)

While past studies indicated that more expensive schools offered a greater return on investment, a more recent study, A Regression Analysis of College Tuition and Mean Income, concluded that's no longer true. Nowadays, once differences in family earnings, race, and test scores are eliminated, there is little difference in earnings between graduates of expensive schools and graduates of more affordable schools. The study suggested that the only variable in colleges that might lead to increased earnings is the expenditure per student, which isn't always highest at the most expensive schools.

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6 Important Things to Look for in a Savings Account

Dan Rafter — Tue, 19 Dec 2017 09:30:09 +0000

Having a savings account is important. It's a good place to store your emergency fund, which you’d tap if your car unexpectedly needed repairs or you had to weather months without a job.

But all savings accounts are not created equal, and there are important factors you should consider before opening one. Here are six features to look for if you are searching for the best possible savings account.

1. Interest rates

The single most important attribute of a savings account is its interest rate, of course. The problem is, interest rates attached to most savings accounts are frustratingly low, with many banks offering a minuscule interest rate of 0.01 percent.

You can’t grow your money quickly with a rate like that. But the argument has always been that savings accounts aren’t the place for stashing money if you want it to grow. Instead, it’s a safe place to keep money that you might need to access quickly for an emergency. But if you can find a higher rate, you might as well take it. They’re pretty rare. (See also: 5 Best Online Savings Accounts)

2. No monthly fee

You’d think that with such low interest rates, savings accounts wouldn’t come with fees. But several banks do, indeed, charge monthly fees to keep a savings account there. Usually, you must maintain a certain minimum balance to avoid those fees.

A bank might charge $5 per month if you don’t keep at least $300 in your savings account at all times, for instance. Even if you're pretty good about keeping enough funds in your account, why take the chance of incurring a penalty if you ever dip too low?

When you’re shopping for a savings account, be sure to pick a bank that doesn’t charge any monthly fees. These savings accounts are rarely worth the hassle. (See also: Are You Paying These 6 Unfair Banking Fees?)

3. No minimum opening deposit

Some banks require that you deposit a certain amount of money into your savings account when you open it. Usually, this is a small amount; say $25. This isn’t too onerous, especially because you are opening a savings account to actually put money in it, after all.

But if you want more freedom to start your savings account with an even lower amount, you’ll have to search for accounts that don’t require any minimum opening deposit. There are some out there, especially in the form of online-only banks. Just make sure that these accounts don’t come with any other fees that might haunt you later.

4. Automatic transfers

Saving money isn't easy. But if you can automate regular deposits into your savings account, you're far more likely to save at least some money each month.

You'll want a bank that offers automatic transfers from your checking to your savings account, and make sure that the bank doesn't charge a fee for this service. Even if you set up an automatic transfer of just $50 per month into savings, you'll have $600 after a year. That can add up. (See also: 5 Ways to Automate Your Finances)

5. Mobile check deposits

You just received a check that you'd like to deposit into your savings account. It's a hassle to head to your nearest ATM or bank branch, but mobile deposit solves that. You simply use your bank's app to take a photo of your check — front and back — and tell your bank to deposit that check into your savings account.

This was once a rare feature. Today, though, it's becoming expected, and it is awfully convenient. Whatever bank is behind your savings account, make sure it offers mobile deposits.

6. Easy withdrawal

What if you need quick access to your savings account to cover a financial emergency in the middle of the night? If your bank has a large network of ATMs in your area, you'll be able to get the money quickly. (See also: 6 Big Ways ATMs Are Changing)

Be careful, though, not to use your savings account as if it's actually a checking account. Federal regulations say that you can't make more than six withdrawals from your savings account a month. If you withdraw more, your bank will charge you fees for each withdrawal.

Some banks might allow even fewer withdrawals every month. Look into a bank's withdrawal policies before you take out a savings account with it.

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Don't Be Fooled by an Investment's Rate of Return

Tim Lemke — Fri, 08 Dec 2017 10:00:07 +0000

When you invest, you are looking for return. You want your money to grow over time, preferably at a rate that will allow you to achieve your financial goals.

An investment's rate of return can be a deceptive thing, however. The amount of money that an investment has made in the past isn't a guarantee of future returns. Moreover, these returns by themselves don't tell you a whole lot about what you are investing in.

Learning how to analyze an investment's returns — and understanding its limitations — will help you on the path to financial freedom. Just remember these key facts about an investment's return when examining it.

Short time frames don't tell you much

"Hey, this mutual fund went up 29 percent last year! Woo hoo!" That's great, but what did it do the year before? And the year before that? How has it performed over the last decade? Looking at the rate of return for a single year is not particularly useful, as any investment can have a hot 12 months. To get a sense of how an investment may perform in the future, it helps to have a long record of performance to examine. Fortunately, most brokerages and financial websites have comprehensive information on historical returns, so you're not simply looking at the performance of the last year.

It offers no information on the type of investment

It's great if an investment has a solid rate of return, but that should not be the only consideration when looking to buy shares. If you are buying a stock, you need to ask yourself key questions aside from just looking at performance. What industry does the company operate in? How big is the company? Does it operate internationally? If you're talking about a mutual fund, what is the investment mix? Answering these questions will help you understand whether you already own similar investments, and whether it makes sense to add them to your portfolio.

It's almost useless without context

Let's say you come across a mutual fund that earned a 9 percent return last year. You might think that is pretty good, right? Well, it doesn't look so good when you consider the S&P 500 returned 11.96 percent. Information on returns is only meaningful when it is paired with information about the broader stock market, comparable investments, and specific indexes. A small cap ETF, for example, should be examined alongside the Russell 2000 index. A mutual fund focused on technology should be compared to prominent technology indexes. Fortunately, most brokerage firms and financial websites do provide this, so it's important to analyze market returns using that context.

It does not always factor in all costs

If you purchase a mutual fund or ETF, a certain portion of your investment is taken in expenses and fees. While mutual fund returns are usually reported net of expenses, not every cost is included in this calculation. Many funds have sales charges and commissions (also known as loads) that you pay when buying and selling. Your brokerage firm may also charge a commission to execute the trade. This can reduce your overall return. The good news is that there are many good no-load mutual funds out there, and many can be traded without a commission, depending on the broker.

One more caveat regarding costs. Capital gains taxes will also reduce your balance when you sell. Be sure to factor in these costs when examining an investment's rate of return.

It does not offer detail on volatility

Let's say you have a stock that rose in value from $50 to $90 in five years. The annualized return on that stock is 16 percent. But that does not tell you whether the stock's performance has been consistent or wildly up and down.

For example, during that five-year period, that stock may have risen 20 percent, then dropped 25 percent, then risen 44 percent, dropped 10 percent, and finally rose 53 percent. That's pretty volatile, and may be outside the comfort zone of many investors even though the overall return is good. To get a better picture of the investment's performance, you need to look at the returns from each individual year, but even that offers no insight into price swings within any given year.

It can't answer the question "Why?"

An investment's rate of return may be the crucial piece of information you need to know before investing, but there's a lot that it doesn't tell you. Perhaps most importantly, it does not offer any insight into why an investment's price moved up or doing during a certain period.

Investment values go up and down for a variety of reasons, not all of them related to company performance. Perhaps a retailer saw its shares fall sharply during one quarter due to a series of natural disasters. Perhaps another company saw shares rise dramatically because of hype over its Super Bowl commercial. Returns on investment are crucial to know, but if you are an investor, it's important to do your own homework to understand why a price went up or down. Doing so will help you better understand how an investment may perform in the future.

It gives you no information on fundamentals

An investment's historical rate of return can give you insight into how it might perform in the future. But the company's actual financial performance may be even more important. It's not enough to just examine an investment's return. You should also look at company balance sheets, analyze earnings reports, and look at things like cash flow, debt, and price-to-earnings ratio. This will help you understand whether an investment's price is justified. Examples abound of companies that saw share prices skyrocket based on speculation although earnings weren't there to support it.

It tells you nothing about taxes

Let's say you invested $1,000 in a company stock and it earned an annual return of 9 percent a year over five years. That means you'll end up with $1,450 when you sell, right? Well, not exactly. Remember that unless you are investing in a tax-advantaged account such as a Roth IRA, the government takes its share when you sell. Assuming that you'll be taxed at the long-term capital gains rate of 15 percent, suddenly, that 9 percent annual return became something closer to 7 percent. Keep this in mind when trying to calculate how much money you'll actually walk away with.

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This article is from Tim Lemke of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

First Rule of Financial Wins: Avoid Losses

Tim Lemke — Tue, 14 Nov 2017 09:31:09 +0000

The task of accumulating wealth and ensuring long-term financial security is often discussed alongside the idea of winning. And while it's fine to think of financial planning this way, it may be just as important to simply avoid losing. Smart investing involves looking for gains over time, but also escaping costly losses when the market goes down. Let's take a look at some ways we can "win" financially simply by avoiding losses.

1. Avoid overpriced stocks

The last thing you want is to buy a stock and immediately see it take a dive. If you are a young investor with a long time horizon, you can usually get away with putting your money in the market at any time. But it is important for anyone to avoid buying stocks when they are overvalued and perhaps due for a correction.

It's tempting to buy a stock if shares have been moving upward, because we all like to invest in companies that are doing well. At a certain point, however, share prices can be too high based on the company's earnings. It's important to learn the basics of how to tell if a stock is fairly valued.

A price-to-earnings ratio is an important consideration in valuing a stock. A P/E ratio is the share price divided by earnings-per-share (EPS). A P/E of more than 25 is on the high side, though P/Es vary by industry. Take time to learn what typical P/E ratios are for the sector you're looking to invest in.

Another rule of thumb to keep in mind: If a stock has been consistently setting new 52-week highs, it may be due for a pullback.

If a company's share prices seem overvalued, it's wise to practice patience or look elsewhere for better value. This will decrease your likelihood of losing money on the investment.

2. Know when to cut your losses

One common piece of investing advice is to stay the course and avoid panicking when shares of stock fall. This is sensible, but it should be balanced with an awareness of when to cut your losses.

There's a fine line between being patient and sticking with a dud investment for too long. It's OK to stick with an investment if the company's underlying financials are still strong, but if the company is seeing shrinking profit margins and revenues, or has completely lost its competitive advantage, it may be time to cut and run. In particular, hanging onto investments during major market downturns can result in massive losses that will take years to recover from. Some financial advisers suggest selling an investment if it drops more than 10 percent in a short amount of time. (See also: 10 Signs a Stock Is About to Tank)

3. Be truly diversified

Most investors know to avoid investing in too much of one thing. Diversification of investments is a key way to avoid a big loss. But sometimes, it's possible to think you are diversified when you aren't. For example, you may think you are diversifying your portfolio by investing in both U.S. based and international stocks. But have you considered that many U.S. companies already have a huge presence internationally? And even if you think you are diversified with various investments and asset classes, many investments still perform similarly, meaning that you're not as diversified as you think.

Financial advisers have varying thoughts on the ideal way to diversify. Of course, everyone's portfolio will differ depending on their age, risk tolerance, and projected retirement year. But the basic tenet applies: Don't be too invested in one area.

4. Watch out for investment fees

When you buy and sell stocks and other investments, you'll likely be stuck paying a variety of fees. There are transaction costs for every trade, and maintenance fees and other costs for mutual funds and ETFs. These are costs that are taken out of money you invest, so you not only lose money immediately, but lose out on its potential gains. This can add up to thousands of dollars in the long run.

Savvy investors know how to invest well while avoiding high costs. Discount brokerages such as Fidelity and Scottrade allow you to buy and sell stocks for as little as $4.95 per trade. Mutual fund companies including Vanguard, T. Rowe Price, and others have become more cognizant of fees, and are increasingly offering funds with super-low expense ratios. (Generally speaking, it's best look for funds that charge less than 1 percent for expenses.)

Keep your costs low when you invest, and you'll find that avoiding these "losses" can boost your gains.

5. Understand when the markets may be due for a dip

It's very difficult to time the stock market, and for young investors, it's a good idea to just invest as soon as you can. But it's also possible to avoid big losses by recognizing when the markets may be due for a correction. If it seems like stocks are priced too high based on their earnings, that's one bad sign. A slowdown in economic growth is another, and you should be wary of a spike in inflation and interest rates, too. It's also worth noting if companies are downgrading their earnings predictions for the upcoming quarter, as that could be a sign that business executives are pessimistic. If you recognize any or all of these signs, it may be worth waiting a while before investing too heavily.

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This article is from Tim Lemke of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

Autopay Is Great for Money Management — Until It Starts Costing You

Emily Guy Birken — Fri, 27 Oct 2017 08:30:08 +0000

I'm a big believer in the set-it-and-forget-it lifestyle. I have cleaning products and paper goods delivered to me monthly via an automatic subscription, so I never have to think about whether we're running short on laundry detergent or toilet paper. I've set up automatic transfers to savings and retirement accounts each month, so I never have to think about building my emergency fund and my nest egg. And I have several of my bills automatically paid out of my checking account so I never have to remember a due date. (See also: 5 Ways to Automate Your Finances)

Of course, what I love about all of this automation is exactly what makes automation potentially costly: When you don't have to think about something, you might end up forgetting about it.

While automatic payments allow you to effortlessly stay on top of your bills and other financial obligations, they can also become a budget leak that you aren't even aware of. Here's what you need to know about the downside to automatic payments, and how to make sure you don't automatically waste your money. (See also: 7 Ways Auto-Payments Can Screw You)

Automatic payment or gray charge?

Automatic bill payments that you've willingly signed up for can be a great way to manage your money and avoid late charges. But some automatic payments are actually what's known in the industry as "gray charges."

These are little recurring automatic payments that you have not necessarily agreed to and do not know about. For instance, I had to deal with a gray charge earlier this year when I realized (after several months had gone by) that I was being charged twice a month for a single digital newspaper subscription service. It turned out that each of my two subscriptions was associated with a different email address, and I had not realized I'd accidentally signed up for the second subscription.

I have no one to blame but myself for that unnecessary subscription charge, but most gray charges have much more pernicious origins:

"Free" trials that require a credit card: With this type of gray charge, the merchant is counting on you to forget that you provided a credit card to sign up for a free trial. Once the trial period ends, the merchant charges your card. These types of charges account for nearly half all gray charges.
Phantom charges: These gray charges piggyback on an online purchase you did make. With these types of charges, you might be charged for an extra product or service that you didn't request. For instance, a consumer might pay for their credit score without realizing they have also signed up for (and will be charged for) monthly credit monitoring. Phantom fees account for 18 percent of all gray charges.
Zombie charges: These types of gray charges are well-named, since they are the automatic payments that simply will not die even after you cancel your subscription or membership. A common example of a zombie charge is the gym membership fee that is charged to your credit card even after you have quit the gym. Zombie charges account for about 6 percent of gray charges.

The high cost of forgotten automatic charges

According to a study by Aite, gray charges on credit cards accounted for more than $14 billion in 2012, which translated to approximately $215 per cardholder.

It's completely understandable how this can happen. Often consumers will agree to a charge without realizing it because they did not read the terms of service. At that point, it's up to the consumer to notice the recurring charge on their account — and it often takes several months before the cardholder notices. By the time consumers realize what has happened and cancel the service, it often seems pointless to try to reverse the previous months' charges.

In addition, the majority of gray charges are perfectly legal, which means it can be next-to-impossible to get previous months' charges reversed. The companies that are using gray charges to pad their bottom lines are counting on the apathy and inattention of the average cardholder, and they unfortunately have the law on their side.

Combating gray charges

There are several options for keeping unnecessary automatic payments from taking a bite out of your budget.

1. Calendar reminders can keep you from paying for "free" trials

The companies that offer "free" trials assume that you will forget when the trial period ends — and they already have your payment information. The best way to take advantage of free trials is to set up a calendar reminder for the day before the end of the trial. That way, you'll remember to cancel the subscription a full 24 hours before you might get charged.

2. Read through the fine print

Skimming through the terms of service may be no one's idea of fun, but it's a lot better than having to make an angry call to customer service several months later and several sawbucks poorer.

3. Research complaints about phantom charges

Before you buy, Google the company whose product or service you are considering to see if anyone has had trouble with phantom charges from them. Then you'll know what to look for in the terms of service and you can determine if you can avoid charges by unclicking a box — or just choosing a different merchant, if necessary.

4. Review your statements regularly

Making a monthly date to look over your credit card and bank statements will help you identify gray charges as soon as they occur. You can call to cancel these subscriptions or notify your credit card that you would like to dispute the charge. In many cases, your credit card company will reverse the charges if you can prove that you did not consent to recurring charges.

5. Use apps to monitor your accounts

If you would rather not the spend the time combing over your accounts and canceling unnecessary automatic payments, there are several apps available that will do the work for you. Clarity Money helps you organize your entire financial life, including helping you to find and cancel unused subscriptions. Trim identifies recurring payments that can be canceled and will take care of contacting the merchant on your behalf to do so. Truebill notifies you of subscriptions that can be canceled and offers you a one-click cancellation process.

Stay on top of your automatic payments

Automatic payments are a major boon to busy budgeters. But it's important to remember that your automatic payments should be like the cruise control on your car: It can relieve you of a little work, but you can't fall asleep at the wheel. No matter how automated your financial life may be, you need to still keep an eye on things to prevent automatic payments from causing a financial crash.

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This article is from Emily Guy Birken of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread: