Author: Spencer Tierney

Is Your Bank Greenwashing? Here’s How to Check

Posted on by Spencer Tierney

Your bank plays a role in climate change through its lending and other actions. But is your bank making a positive environmental impact? It can be hard to know.

Through their messaging, banks sometimes paint a greener picture of their impact on the climate than what their holdings or other factors indicate, a process known as “greenwashing.”

If your decision on where to bank hinges on an institution’s approach and position on climate change, here’s how to tell whether a financial institution might be greenwashing.

Why does greenwashing matter?

Making banks accountable for overstating their positive claims is an important way of pressuring them to do better about their role in climate change. And if you want to do more, support a bank that divests from fossil fuels and supports effective climate solutions.

Greenwashing can do “one of two things: either it directs investment that wants to go into [climate] solutions away from it or it makes people feel jaded about the space entirely and that this is not solvable,” says Zach Stein, co-founder of Carbon Collective, an investment advisory firm that creates portfolios that focus on curbing climate change.

What is greenwashing in banking?

Greenwashing is misleading or even false messaging about a company’s climate benefits or commitments, whether in annual reports, advertisements or elsewhere. There’s no standard definition of environmentally sustainable banking, which means banks can set their own definitions or methodologies to describe their impact.

The ways that banks lend, invest and underwrite loans are “the most exponentially impactful things they do” for the planet, not “paperless statements and energy-efficient buildings,” says Paul Moinester, co-founder and executive director of The Outdoor Policy Outfit, a think tank aimed at building systemic solutions to environmental issues.

And there’s a clear North Star: The world needs to bring carbon emissions to net zero by 2050 in order to limit rising global temperatures to a 1.5 degrees Celsius increase, according to the United Nations’ 2015 Paris Agreement and its 2021 update. The goal is designed to prevent the worst effects from climate change. The International Energy Agency, aligned with the mission, advocates for two clear actions in its 2021 report:

  • No new investments in fossil fuels.
  • Investing in climate solutions, especially green energy.

For banks committed to climate action, “you have to do both of those things. If you’re not, we argue that you’re in some degree greenwashing,” Stein at the investment firm Carbon Collective says.

4 ways to identify greenwashing in banking

1. Read your bank’s impact reports carefully

Search online for your bank’s name plus “impact report” or “ESG report.” ESG — environmental, social and governance — is a common framework for ethics-driven finance such as ESG investing. The biggest U.S. banks typically have long annual reports and webpages detailing their impact. Smaller banks may not always maintain reports online, so check their recent news updates or what green networks they belong to (more on that later).

For national banks, “we look for how clear are [their] statements around de-carbonizing their investments, specifically removing fossil fuels,” Stein says.

Look at their summaries and be wary of vague verbs such as “mobilized,” “deployed” or “facilitated” financing. The bank’s specific role or steps to reach its commitment might be unclear. And if a bank created targets or methodologies for reduced carbon emission, are they based on a third-party standard to enhance accountability? Are the emission reductions aimed at their investments or their buildings? Investments have a bigger impact.

2. See if your bank finances fossil fuels

Greenwashing at big U.S. banks can include supporting fossil fuels and making political efforts such as lobbying or contributing against climate change, the latter being harder to research, says Sierra Club’s Adele Shraiman, representative for its fossil fuel finance campaign.

Two main resources stand out when investigating a bank’s ties to oil, gas and coal companies: the annual fossil fuel finance report by nonprofits Rainforest Action Network and Sierra Club, among others, and a bank tracking tool by the independent organization BankTrack.

The report shows the 60 biggest financial institutions worldwide that are responsible for fossil fuel expansion through lending or other means of support, such as underwriting bonds and equity. BankTrack provides a directory where you can search for a bank or deal linked to fossil fuels.

The four largest U.S. banks are also the biggest global funders of fossil fuels, and another dozen U.S. banks make the report’s list. Just because banks such as Chase and Citibank contribute billions to green projects and say they support a low-carbon future doesn’t make them environmentally friendly.

But the banks stand by their climate efforts.

“We are also taking pragmatic steps to meet our 2030 emission intensity reduction targets in oil & gas, electric power and automotive manufacturing, while helping the world meet its energy needs securely and affordably,” a JP Morgan Chase spokesperson said in an email.

“As part of our commitment to reach net zero by 2050, we have set 2030 targets — for the energy sector, a 29% absolute reduction in financed emissions and for the power sector, a 63% reduction in portfolio emissions intensity … [in addition to] working with our clients on their low-carbon transitions,” a Citi spokesperson said in an email.

3. Check for external certifications — or the lack of them

Financial institutions most committed to driving positive environmental impact tend to get third-party certifications or join networks focused on climate action. Check the bank’s website, either at the bottom or on an About Us page, for designations including Certified B Corporation, Global Alliance for Banking on Values membership, Fossil Free Certified, and Green America Certified.

Another mission-driven movement, 1% for the Planet, requires a business to give the equivalent of 1% of total annual sales to certain environmental nonprofits. However, this certification doesn’t mean a bank divests from gas or oil projects. Bank of the West, for example, has this designation and is owned by parent bank BNP Paribas, which contributes billions of dollars in financing to fossil fuel companies, according to the Rainforest Action Network report.

4. Investigate easy ‘feel good’ tactics

Some financial institutions may describe account features with hard-to-prove or overstated environmental impacts. The nonbank financial tech firm Aspiration, in partnership with a bank, offers a debit card where you “reforest while you shop,” meaning a small amount of every purchase can go toward reforestation. The nonprofit news site ProPublica discovered in November 2021 that Aspiration recently claimed to plant over 35 million trees within a year, but this figure included trees not yet planted.

“As we make clear to our customers, planting trees at this scale the right way with survivability, permanence, and benefits for local communities in mind takes time — up to 18 months but usually shorter,” Aspiration CEO and co-founder Andrei Cherny said in an emailed statement.

“As of June 30th, over 76 million trees have been planted in the ground through Aspiration in less than two years. This almost certainly makes Aspiration the largest private sector reforestation sponsor in the world,” Cherny said.

Support climate solutions

Some banks and credit unions (banks’ not-for-profit counterparts) have renewable energy programs. For example, Climate First Bank and Clean Energy Credit Union both offer loans for electric vehicles and solar panels. And look to other local community banks and credit unions, especially socially responsible institutions, that support sustainable housing or other projects.

“The smaller the banks are, the more environmentally friendly they are just because the majority of their investments tend to be localized,” says Moinester of The Outdoor Policy Outfit.

“All of our cash, all of our investments, hold power,” says Sophie Halpin, certified Sustainable and Responsible Investment counselor and financial advisor at Back Cove Financial.

“And we can send a clear message to companies that they need to do better.”

Spencer Tierney writes for NerdWallet.

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5 Myths About High-Yield Savings Accounts During COVID-19

Posted on by Spencer Tierney

Last year’s savings rates of 2% and higher have come and gone, but that doesn’t mean high-yield savings accounts disappeared.

“There are high-yield savings accounts out there, but it’s all relative,” says Mike Schenk, chief economist for the Credit Union National Association.

When the Federal Reserve cut its benchmark rate to nearly zero in March, many banks and credit unions took their cue to lower rates on savings accounts. This affected online high-yield accounts more drastically than others. And it’s unclear when to expect rates to rise as the monthslong pandemic and related economic uncertainty continue.

If you’re thinking about getting a high-yield savings account or ditching the one you have, don’t fall for these misconceptions.

Myth 1: A high-yield savings account has the same rate over time

Not true, which can be good and bad. Savings accounts have variable rates that are subject to change, so an account you opened last week might not have the same rate this week. This means rising rates can benefit you without you doing anything. But on the flip side, rate drops can occur and, as in recent months, even become common.

From March to September 2020, the average rate across 15 online banks’ high-yield savings accounts dropped from 1.70% to 0.90% annual percentage yield, based on a NerdWallet analysis.

Despite this, having a high-yield and typically online-based savings account still blows traditional options out of the water. Their rates remain far above the national average of 0.05% for savings accounts. And if you already have a high-yield account and you’re itching to switch for a higher rate, maybe reconsider. Rates may keep dropping.

Myth 2: The most important aspect of a high-yield savings account is the rate

Not exactly. The rate has big appeal, but a high-yield account’s safety, lack of fees and easy access to funds shouldn’t be overlooked.

Like other savings options, high-yield accounts are federally insured up to the standard limit of $250,000. This ensures that a bank failure won’t rob you of your money. You can double-check that an account is insured by finding the bank on the Federal Deposit Insurance Corp.’s BankFind tool. Some online banking firms like Chime and Simple have a partner bank to provide their FDIC insurance;
check the fine print at the bottom of the website’s pages for details. Credit unions receive equivalent insurance through the National Credit Union Administration, which you can look up on NCUA’s Research a Credit Union tool.

Most high-yield savings accounts don’t have monthly fees, which can save you money. Quick access to funds is also crucial, especially if you need cash on short notice during a crisis like the current pandemic.

Myth 3: Your money is harder to access in an online savings account

That’s not true in most cases. Like traditional savings accounts, high-yield options provide ways to transfer money online to and from accounts you own at other banks. Generally, it takes a few weekdays for banks to process transfers, but some online banks also offer faster ways to access funds, such as ATM withdrawals and wire transfers.

Since online banks tend to be where the high-yield savings accounts are, chances are you’ll lose branch access in order to gain a top rate. But how often do you visit a branch, especially this year?

Myth 4: All savings accounts make your money accessible at the same speed

Nope, and this may matter. How long a bank takes to process transactions can be the reason you’re waiting for money longer than expected. Every bank has a funds availability policy that states how long it takes to settle transactions: for example, processing cash and government checks the day after a bank receives them.

But banks can make exceptions. Funds can take longer to become available, such as seven days, especially for accounts opened within the previous 30 days and for check deposits over $5,000. Switching banks may also carry an adjustment period with some processing delays. But if your bank processes transactions more slowly than others, it can be a real problem if you expect to need your money soon after depositing it.

“Ask your regular bank how long they hold funds,” says Dana Twight, certified financial planner and owner of the Seattle area-based firm Twight Financial. “I just had a call with my credit union where they were withholding an ATM deposit for three days because it came from another credit union.”

Myth 5: The main purpose of a high-yield savings account is to earn interest

It’s tempting to think so, but no. Contributing money to a savings account consistently and over time will likely raise your balance a lot more than interest payments will. And a savings account is the ideal place to grow your money with an eye toward goals, such as saving for a down payment on a house or building an emergency fund of three to six months of living expenses.

“No dollar amount is too small” to save, Twight says. Once “you have an emergency fund, you have increased your ability to make choices when hard times come.”

Your account rate may waver, but your approach toward saving matters more.

John Thompson, chief program officer at the national nonprofit Financial Health Network, says, “To save with a plan … is one of the most critical behaviors for improving and sustaining financial health.”

Spencer Tierney is a writer at NerdWallet. Email: spencer.tierney@nerdwallet.com. Twitter: @SpencerNerd.

The article 5 Myths About High-Yield Savings Accounts During COVID-19 originally appeared on NerdWallet.

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How to Get Started If You’ve Never Had a Bank Account

Posted on by Spencer Tierney

Managing your money without a bank account is doable. But it can pose challenges — and the COVID-19 pandemic has only added more.

Your economic impact payment might’ve arrived weeks or months after others’ did, in the form of a check or prepaid debit card, because you couldn’t choose the faster delivery option of direct deposit into a bank account. And if you’ve gone to the store lately, you may have been asked to pay with a debit or credit card or in exact change due to a nationwide shortage of coins and concerns over germ transmission.

A bank account can make life easier in these situations, among others. To avoid future issues, consider opening one — or try again if you’ve been rejected in the past. Here’s a guide to getting started.

Assess your money needs

If you’re one of the 14 million adults without a bank account in the U.S., you might have a system that works for you. Maybe that includes using alternative products such as prepaid debit cards and check cashing services. Financial counselor Brandy Baxter has worked with clients who used check cashing services for practical reasons.

“They preferred to walk in, walk out with cash in hand,” says Baxter, an accredited financial counselor and financial coach who runs the firm Living Abundantly in the Dallas-Fort Worth area.

Check cashing stores like Check ’n Go and ACE Cash Express may operate for longer hours than banks and have easy approval processes to get cash quickly. But this comes with a steep fee, which can range from 1% to 6%, or more, of the check amount.

Bank accounts can fulfill money needs beyond what prepaid cards and check cashing services can. For example, their fraud protections can limit what you pay if you’re victimized, and many accounts let you lock debit cards remotely when stolen.

And once you’ve begun a relationship with a bank, other doors open: Credit cards, auto or small business loans and cheaper alternatives to payday loans may eventually be within reach.

Checking accounts “don’t just help you save costs; they’re the stepping stones to use other financial products,” says David Rothstein, principal at Cities for Financial Empowerment Fund, who manages BankOn, a national platform that promotes financial inclusion.

Find a bank that fits you

If you find banks intimidating or have had issues getting an account before, community banks and credit unions tend to be more accommodating than national banks and are often mission-driven — for example, focusing on the financial health of their surrounding communities.

“We’re very lenient at giving someone a second chance,” says Pedro Murillo, area branch manager in the San Francisco Bay Area for Self-Help Federal Credit Union. “If an employee comes in to apply for a loan and doesn’t have pay stubs, what else (can they) show us? A letter from (their) employer? We don’t want to give up.”

Like other credit unions, Self-Help requires a person to open a savings account to become a member; the minimum to open an account is typically a few bucks. Then members can apply for other products, like a credit builder loan.

You can search online for the term “CDFI” — which stands for community development financial institution — to find credit unions like Self-Help near you. Many require those who join to be in the same area or state where the credit union or bank has branches.

What to know about applying

To open an account, you’ll generally need your Social Security number, one or two forms of identification and money for the first deposit.

It’s common to apply for two bank accounts at the same time: a checking and a savings account. The checking account grants access to a debit card, bill payment system and other services, while the savings account lets you set money aside and, ideally, grow by earning interest.

Banks usually screen applicants on ChexSystems, a national reporting agency that keeps records of accounts closed against a person’s will. If you have lost access to a bank account in the past, you might be rejected by other banks until you settle your ChexSystems record. This can mean paying off debt to a bank or disputing errors on the record.

Once you’re cleared, consider what banks often call a second chance checking account or a BankOn-approved checking account. Many of these don’t charge overdraft fees, which kick in if you try paying for something that would put your balance in the negative.

Finding and opening the right bank account involves some effort. But once you’re approved, having a safe place for your money and a better chance to get affordable loans can make it worthwhile.

“To have a checking account… is the cornerstone of any financial empowerment effort,” Rothstein says.

This article was written by NerdWallet and was originally published by The Associated Press.

Spencer Tierney is a writer at NerdWallet. Email: spencer.tierney@nerdwallet.com. Twitter: @SpencerNerd.

The article How to Get Started If You’ve Never Had a Bank Account originally appeared on NerdWallet.

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6 Do’s and Don’ts When Saving Money During a Crisis

Posted on by Spencer Tierney

Probably the last thing you want to think about during a crisis is working on healthy financial habits like saving money. But if you’re able to save, you can make your eventual recovery easier.

“Every time you put some [money] away, you’re looking out for your future self,” says Saundra Davis, founder and executive director at Sage Financial Solutions, a San Francisco Bay Area-based nonprofit that offers financial coach training and services to people across the wealth spectrum.

Whether or not your financial situation has changed since the start of 2020, you may benefit from these saving strategies now or down the road.

Do: Reduce costs, including bills if needed

Common advice to save money is to cut unnecessary costs. During an ongoing crisis such as a pandemic, you might need to redefine what is “unnecessary.”

Start with the cost of bare essentials to operate your household — rent or mortgage, utilities, food — and when you factor bills in, don’t treat them all the same. For example, paying your credit card bill in full every month is normally the best tactic, but in hard times, it’s OK not to follow this rule and just pay the minimum. For loan payments, see if your creditor can offer relief.

“Don’t have your lender deciding what you can pay,” Davis says. “Sketch out your own budget.” This might mean working with your lender to reduce payments or suspend them temporarily.

Do: Adjust your savings goals

Having a dollar amount to save up to is generally helpful. An emergency fund, for example, is a standard goal that involves building up three to six months’ worth of living expenses. But during an emergency, consider resetting expectations.

“If your income changes, you aren’t beholden to saving a fixed amount,” says LaKhaun McKinley, certified financial planner and owner of the firm MNM Vested in Katy, Texas.

The way you save might need to be tweaked, too. If you use automatic transfers from checking to savings accounts, see if that amount is still doable for you. If not, reduce the amount. Or, as a last resort, cancel the transfers for the time being and make one-off transfers when possible.

When saving money, “the habit is more important than the amount,” Davis says.

Do: Find a high savings rate

Opening a high-yield savings account at an online bank is a good strategy, regardless of the economic environment. The national average rate is 0.06%, but some online savings accounts are currently offering over 1% annual percentage yield. The account-opening process can take a few minutes.

Opening a high-yield account “can be such a simple way to earn more,” says Kelley Long. She’s a Chicago-based certified public accountant, financial planner and member of the American Institute of CPAs’ Consumer Financial Education Advocates.

Do: Get help from your community to save costs

If you’re experiencing financial hardship, call 2-1-1 or visit the website 211.org. This is a free way to learn about resources in your community, including food banks, meal services for seniors and students, shelters, mental health services and more. If you’ve never asked for help like this before, it may feel uncomfortable. But accepting meals or other support can be an important lifeline as well as help you save money.

“We want to stay aware of what’s available in our community and give ourselves the emotional room to do things we’ve never done before,” Davis says.

Some relief is nationwide, including postponed federal student loan payments and coronavirus-specific unemployment programs, but your local community might have additional resources.

Don’t: Dip into savings without a plan

If you have an emergency fund and you need it now, use it. But estimate the amount you need before withdrawing, and keep tabs on how you spend it.

You’ll eventually need to save up again, and you want to make that process manageable. It might help to settle on a minimum amount you need to keep in a savings account to feel OK.

“Everyone has a different feeling [for] what would give them that security,” Long says. For some people, for example, “seeing a comma in your account can have a formative effect on your feeling of financial security.”

Don’t: Withdraw from savings too often

Keep an eye on the frequency with which you turn to your savings account. Banks can charge an excessive savings withdrawal fee if you go over six per month. During COVID-19, the Federal Reserve has paused this rule, but it’s up to each bank to choose whether to charge the fee. Watch out for other fees, too, such as for overdrawing if you dip past your checking account balance.

If you’re running into trouble with fees, examine why you needed more savings than expected.

“We might be overaggressive in savings goals. That’s usually due to failing to account for certain expenses in our spending plan,” Long says.

“In a crisis,” she adds, “we need to remember that there are times that we can’t be long-term in our thinking.”

Spencer Tierney is a writer at NerdWallet. Email: spencer.tierney@nerdwallet.com. Twitter: @SpencerNerd.

The article 6 Do’s and Don’ts When Saving Money During a Crisis originally appeared on NerdWallet.

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Is Chasing the Highest Savings Rate Worth It?

Posted on by Spencer Tierney

Last year, Peter Hsiao learned about high-yield savings accounts from his friend, and within a week, he had opened one. His rate was above 2%.

High-yield savings accounts pay interest rates far higher than the national average of 0.09% annual percentage yield. They’re generally offered by online-focused banks and credit unions.

Months later, Hsiao’s bank emailed him to say it had lowered his rate. “At that point, I didn’t think much of it,” says Hsiao, a digital marketing professional in Dallas.

But his rate kept falling. “When it dropped to 1.70% [from 1.90%], I thought maybe I should consider more options” and switch accounts, Hsiao says.

If getting the best rate made you choose an online savings account, should you keep chasing the highest rate — even if it means switching accounts again? Here’s how experts say you should think it through.

Know how your rate compares

If the rate on your savings account is close to the national average and you’re comfortable with an online bank, consider switching to a high-yield account. But if you’re earning a rate above 1% APY, should you opt for a higher one?

The short answer is probably no, but it depends.

Certified financial planner Dan Stous recommends doing some quick math to decide. Multiply your current rate by your savings balance to estimate your annual interest. Now do the same with the better rate. (A savings calculator can help.)

The result might surprise you. The difference between the interest 2% and 1.50% will earn you on a balance of $10,000 over one year is only $50. And that’s before taxes.

For some, however, the difference may be significant. “The higher the balance in [your] account, the more reason there is to switch to a higher rate,” says Stous, director of financial planning at Flagstone Financial Management in Lincoln, Nebraska.

Weigh the pros and cons

The perk to chasing the highest savings rate is, of course, maximizing your interest earnings. But the reality is more complicated. Competitive rates change over time and usually follow a similar trend. If the Federal Reserve drops its rate, many banks drop theirs, too — so the bank with the highest rate might not stay that way for long.

Plus, every account you open takes some effort to maintain. And a more abstract downside to chasing rates is losing perspective.

“The habit of saving is more important than the rate,” says Natalie Slagle, CFP and founding partner at Fyooz Financial Planning in Rochester, Minnesota. “If you don’t have a great habit of saving, it doesn’t matter what the rate is.”

Saving money is a gradual effort. Regular contributions to your savings account, such as monthly transfers from your checking account, usually play a bigger role in growing your money than interest does.

Think big picture about your money

The cash in your savings account is best for goals you’ll reach within five years. This includes your emergency fund, which should ideally be roughly three to six months’ worth of living costs, in case of an accident or job loss.

If you have considerably more in a savings account — enough that a slight difference in rate matters — consider investing more for retirement. After all, the stock market’s average annual return is about 7% to 8% historically, after inflation, and that’s much more than any savings account pays in interest.

Look beyond the rate

Whenever you choose to open a new savings account, the rate is important, but so are other features. Factor in fees, minimum balances required to earn interest, and access to customer support. Your online bank’s phone line or Twitter page might be your main lifeline in case of issues.

Hsiao ended up choosing a new high-yield savings account with the same rate as his first one, but with an important difference: a $200 sign-up bonus.

“I learned that it’s pretty easy to open an online savings account,” says Hsiao. “Going in, I thought it’d be scarier.”

But he doesn’t plan to open another one anytime soon.

Spencer Tierney is a writer at NerdWallet. Email: spencer.tierney@nerdwallet.com. Twitter: @SpencerNerd.

The article Is Chasing the Highest Savings Rate Worth It? originally appeared on NerdWallet.

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How Banking Apps Can Motivate You to Save

Posted on by Spencer Tierney

Every time Olivia Robinson shops at Nordstrom, $10 moves from her checking account to savings. She set up this automatic transfer, or “rule,” in the savings app Qapital.

The rule “has definitely scaled back my spending at Nordstrom,” says Robinson, 26, a flight attendant and travel blogger based in Seattle. This way of saving money “makes me feel like I can go on a trip and not feel guilty about it.”

Some apps, like Qapital, can help bridge the gap between our desire to save more money and following through. Here’s how tech tools can nudge us to save — with clues from behavioral economics, a field that explores how our thoughts and feelings affect how we handle money.

Automatic transfers: giving in to the ‘default effect’

Studies show that we tend to accept a default option instead of changing it. For example, companies that automatically enroll their employees in 401(k) plans tend to see higher participation rates.

Similarly, some banking apps harness this behavior to help us save gradually.

  • Opting into automatic savings programs: Apps such as Qapital and Acorns — and some banks, too — can round up each transaction to the nearest dollar and transfer the cents over to a savings or investing account. You won’t get rich quick, but the savings add up over time.
  • Setting up automatic transfers: Banks’ apps or websites usually let you transfer money from checking to savings accounts, so you can set up recurring transfers, possibly timed around when your paycheck arrives.

» Looking for a high-yield savings account? See our top choices

Ideally, we’d save by looking at our monthly expenses and carefully calculating how much we can set aside. But automating a fixed-amount transfer offers the luxury of dropping a task from your to-do list.

“Making something default or automatic is a great way to overcome issues of self-control,” says Jeff Kreisler, co-author of the behavioral economics book “Dollars and Sense” and editor in chief of PeopleScience.com.

Savings goals and budgets: using mental accounting

In a 100% rational world, we would treat all our money consistently. But that’s not how it always shakes out.

For example, you might have coffee at home to avoid spending $4 at a cafe, but also buy a $10 beer at a baseball game even though it’s cheaper to buy a six-pack at the store and tailgate. The coffee, you might justify, is a daily expense, while the beer is part of your “fun money.”

This tendency to think about money differently depending on where it is, such as which bank account it’s in, is called “mental accounting,” Kreisler says. Such categorizing isn’t a bad thing if you can use it to your advantage:

  • Tracking spending by category. Budgeting apps such as Mint and You Need a Budget can sync with your bank accounts and break down your spending in specific areas, such as dining and grocery shopping. This helps keep tabs on where you overspend and curb any bad habits.
  • Using separate accounts. Some online banks let you open multiple savings accounts and give each a nickname that can map to your savings goals, such as a future vacation or an emergency fund, and use an app to view balances and set up transfers. You’re less likely to dip into that money if it’s not part of your checking balance.

» See which banks offer multiple savings accounts

Spending locks: accepting the ‘pain of paying’

“There is a pain we all feel when we give up something,” Kreisler and Dan Ariely wrote in “Dollars and Sense.” Buying things means we’re giving up money.

Credit cards, e-wallets and the latest payment technology make paying more effortless and less painful than using cash, but their convenience has a downside.

“Pain serves a purpose,” Kreisler says. “It makes us pay attention to what we’re doing and adjust” when necessary.

But using cash isn’t the only way to raise spending awareness. Apps can help here, too.

  • Locking debit and credit cards: Some banks let you switch your plastic on and off within their mobile apps, which can help control impulse buying. This might be handy if you associate spending categories, such as ride-sharing or eating out, with certain cards.

» Learn more about credit card locks

  • Blocking certain spending categories: Though only available overseas so far, one major credit card issuer and some online-only banks in the U.K. have rolled out an app option to block certain types of transactions, such as those from bars and gambling websites.

Of course, you control the locks and blocks. But adding an extra barrier to paying might be enough to prevent unnecessary spending.

As banking technology advances, we’ll likely see other ways that apps can help motivate us, such as more timely and personalized advice.

“We aren’t yet at the step where many banks are offering those proactive suggestions or reminders with respect to a budget,” says Daniel Latimore, chief research officer at financial analyst firm Celent. “But I can see that happening in the near future.”

You can’t literally download motivation. But some banking tools may give you just the right push to boost your savings habits.

—

The article How Banking Apps Can Motivate You to Save originally appeared on NerdWallet.

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Inflation Erodes Your Savings. Here’s How to Shore Them Up

Posted on by Spencer Tierney

One million dollars might sound like enough to retire with today, but by the time you reach your last day of work, it’ll be worth less than you might think.

The reason is inflation, and it impacts how you plan for the future. Here’s a look at what inflation is and how to keep it from draining your short- and long-term savings.

Here’s what inflation is…

Broadly speaking, inflation is the increase in overall prices for goods and services in an economy. You’ll need more money tomorrow to buy the same things you buy today.

“Inflation is the silent killer of your financial plan,” says Derek Brainard, manager of education services at AccessLex Institute, a nonprofit that helps law students understand their finances.

When putting away money for retirement, Brainard says, “you might need to be saving a lot more than you think because of inflation.”

The long-term average rate of inflation is between 2% and 4% annually, based on data from the Bureau of Labor Statistics’ Consumer Price Index, one of the most common measurements of inflation. So, if you kept money in a safe, it’d be worth 2% to 4% less per year.

…and here’s how to beat it

You can’t stop inflation, but you can make your money work better for you. These two strategies can help:

Invest your money for retirement with a 401(k) or IRA. You might already do this, but you might not know why it matters: These accounts are your best bet for earning long-term returns that beat inflation.

Investing in the stock market through brokerage accounts such as 401(k)s and IRAs has led to an average return in the past century of about 10% annually. When you factor in inflation, that leaves the real return closer to 6% to 8%.

For short-term savings, find a high-yield certificate of deposit. Some online banks and credit unions have one-year CDs with annual percentage yields higher than 2% and five-year CDs with APYs over 3%. These federally insured bank accounts lock up funds for a fixed period, so they’re best for money you don’t need for months or years.

“You can beat inflation by a little bit right now if you pick a good CD,” says Robert Frick, the corporate economist at Navy Federal Credit Union.

But keep your emergency fund separate

Investing to curb inflation’s effect is smart, but you also need savings outside of CDs and brokerage accounts to cover emergencies.

Dana Twight, a Seattle-based certified financial planner and owner of Twight Financial Education, says “your emergency fund’s purpose is not to beat inflation.” Rather, it’s for easy access to money when you need it. A regular savings account is easier to withdraw money from than a CD or investment account.

An emergency fund should cover three to six months of living expenses, but “that’s based on the costs today,” says Brainard. “It’s important to revisit that [number] every single year.” Inflation will likely increase those costs.

Should I worry about inflation?

A little inflation is not a bad thing. “Around 2%” is generally an acceptable rate, according to the Federal Reserve. And it helps stave off deflation, which is when overall prices and even wages can decline, which happened during the Great Depression.

Since the 2008 recession, inflation has been historically low. But “there’s some sign that inflation is ticking up,” says Jim Benedict, North Carolina-based certified financial planner and senior wealth strategist at PNC Wealth Management.

Still, “it’s certainly not out of control,” says Frick of Navy Fed, “but it should enter into people’s decision-making when they invest long term.”

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How to Avoid Overdraft Fees

Posted on by Spencer Tierney

When your checking account drops close to zero, your next debit card purchase can cost you more in fees than you might expect.

If your bank covers the transaction and your account dips into the red, you can be charged an overdraft fee — not just once, but several times if you keep making purchases following a negative balance. The median cost of an overdraft fee is $34, so three purchases, for example, can mean more than $100 in fees.

This nightmare is avoidable if you follow some of these protective strategies.

1. Opt out of overdraft coverage

Banks get to decide either to cover or reject a transaction that would make your balance negative, but you can control one thing. Opting out of an overdraft coverage program means that your bank cannot cover one-time debit card or ATM transactions or charge overdraft fees on them. Banks can cover checks and recurring debit transactions without asking for your permission.

Debit card transactions cause more overdrafts than any other transaction type, according to a 2014 report from the Consumer Financial Protection Bureau.

Without overdraft coverage, transactions get declined if there isn’t enough money, which likely will result in a nonsufficient funds or returned item fee. This fee usually is the same cost as an overdraft fee, but you’ll know you’re overdrawn, so as long as you don’t keep charging with your debit card, you can avoid additional overdraft fees.

2. Watch your account balances regularly

Check your accounts weekly or even more frequently to make sure your balances aren’t too low. Most overdraft fees from debit cards happen with transactions of $24 or less, according to the CFPB. Balances can be checked online, via mobile app, by a phone call or by visiting an ATM or branch.

3. Set up alerts for low balances

Automate the process of checking your balance. Find out whether your bank lets you set up email or mobile text alerts so that you get notified when an account goes below a certain threshold that you set.

4. Deposit or transfer money quickly after an overdraft occurs

When you know that a low balance has just triggered an overdraft, you might still be able to prevent an overdraft fee. See if your bank has a daily cutoff time, or deadline, for adding money to an account to correct a negative balance that same day to avoid fees. Even if you miss the cutoff, transferring money into the account soon can prevent other fees. Leaving a balance negative for several days, for instance, can result in an extended overdraft fee.

5. Link to another account

Your bank might also offer an overdraft protection transfer service. This involves linking a checking account to another account, such as a savings or credit account, at the same bank. When there’s not enough cash in your checking account to cover a transaction, money will be transferred from the linked account to cover the shortfall. There usually is a fee, but it’s cheaper than overdraft coverage fees. If you link a credit account, like a credit card or line of credit, you’ll have to pay interest on the overdrawn amount and possibly a transfer fee.

6. Get a prepaid debit card

If you continue having trouble keeping your checking account in the black, a prepaid debit card might be a solution. These cards work like debit cards, so you can deposit, withdraw and spend money, but they aren’t linked to checking accounts. Prepaid debit cards generally don’t have overdraft services or related fees, but they can have fees for declined transactions. Find a card with few fees that can provide the services you need.

These strategies can help minimize overdraft costs. In the long run, it’s better to have enough money in the account and avoid altogether a scenario where a transaction can be rejected by the bank.

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Spencer Tierney is a staff writer at NerdWallet, a personal finance website. Email: spencer@nerdwallet.com. Twitter: @SpencerNerd.

Anisha Sekar of NerdWallet contributed to this report.

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Can You Afford to Give Up Your Brick-and-Mortar Bank?

Posted on by Spencer Tierney

There are nearly 90,000 bank branches across the U.S., but when was the last time you visited one?

“I haven’t set foot in a bank branch or had a reason to since 2014,” says Jonathan Hasson, a user interface designer in Palo Alto, California.

For people like Hasson, banking online and by mobile device has replaced the need for branch visits. Last year, 46% of banking customers said they interacted with their bank only through digital channels, up from 27% in 2012, according to a survey by accounting firm PricewaterhouseCoopers.

As more people embrace digital banking, the idea of quitting a brick-and-mortar institution may become easier to consider, especially given the perks of going online. Online checking accounts rarely have monthly fees, and some online savings accounts earn annual percentage yields over 1.40%.

But traditional banks offer certain services, especially at branches, that aren’t so easily replaced by online banks. If you’ve thought about giving up your brick-and-mortar bank, consider these questions.

1. Do you ever deposit cash or write checks?

Many online banks offer nationwide fee-free ATM networks to make getting cash out of an account easy, but depositing cash is not usually an option. So if you end up with a wad of cash from a garage sale, for example, you might need to buy a money order and use the bank’s mobile check deposit to get the money into your account.

Writing checks can be another obstacle. Some online banks offer boxes of checks like traditional banks do, but it’s not a given, and you never know when you might need a check.

“Last year, I got married, and a lot of vendors only took checks as payment,” says Brendan McGuire, an iOS developer in New York City.

Buying checks from a third-party service might be an alternative. But some online banks either won’t let you write checks or won’t be held responsible if a third-party check has difficulty processing.

McGuire’s primary checking account is with an online bank, which would send checks on his behalf, but he found it easier and faster to simply write his own checks from an account he had at a local credit union.

2. Do you need any specialty banking services?

Be it online bill pay or mobile check deposit, online banks tend to cover core checking and savings account services, and some even provide loans, but they can’t do everything. Here are two examples:

Safe deposit boxes: These small vaults store valuable jewelry and important insurance or other documents that might be better off behind many banks’ steel-barred concrete walls instead of in a personal safe at home.

Wire transfers: Whether you’re closing on a home or need to send money to family overseas, you might need to wire funds, something that isn’t always an option with online banks. A bank branch is handy for sending time-sensitive or big transfers, especially if the destination is within the United States. But if you’re wiring funds abroad, you can find alternatives that are even cheaper than banks, at online companies such as TransferWise and OFX. (Read up on how to send money online.)

There are also some bank services that are easier and faster to do at a branch. Cashier’s checks, for example, are available at some online banks, but since those checks generally are mailed to your recipient, the time for delivery might take several business days.

3. Do you need the personal touch?

If your financial life isn’t complicated, you may not need an in-person contact. Many online banks offer customer service phone lines and online chat messaging when issues or questions arise.

“Say you want to open a small business or get help on some investment strategy, then it can be really helpful to have a face-to-face relationship” with a community banker, says Terry Jorde, senior executive vice president and chief of staff for the Independent Community Bankers of America.

You can manage most of your finances online, including getting a mortgage and auto loan, so it’s really about your comfort level with the internet. Some people just prefer in-person interactions.

“With older clients, a lot of times they’ve developed a relationship with someone at that bank,” says Missie Beach, certified financial planner at Modera Wealth Management in Atlanta.

“It’s not the bank they have a relationship with,” Beach says. “It’s that person.”

Combining the best of online and traditional banks

As more banking customers go online, many Americans do still visit the teller, according to a 2015 FDIC survey that examined unbanked and underbanked households.

But you don’t need to keep a bank that charges you monthly fees on checking or savings. Credit unions, the nonprofit equivalent of a bank, as well as community banks tend to have lower fees and better rates than national banks do.

Smaller banks have downsides such as less access to the latest technology or nationwide ATM networks, but that’s where online banks come in. Balancing your financial life with two banks might be worthwhile, especially if you want cutting-edge technology as well as access to a branch, just in case.

“It’s not an all-or-nothing thing,” says Jorde of the ICBA. “There are times that people will find it more efficient to use branches.”

The article Can You Afford to Give Up Your Brick-and-Mortar Bank? originally appeared on NerdWallet.

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How to Cancel a Check

Posted on by Spencer Tierney
If a personal check gets lost or stolen, or you pay a merchant and decide he’s swindling you, you’re not out of luck. You can try asking your bank or credit union to cancel the check, also known as a stop payment order. Timing may be crucial, so follow these steps as soon as you can.

1. See whether the check went through

A stop payment request will cost you a steep fee, so make sure you still have the chance to cancel the check. In general, you can stop a check only if your bank hasn’t paid it.

Look through your account’s transaction history online or on your mobile device to see if it has posted. Or call the recipient and ask if she’s cashed it.

2. Gather information

Find your account number, check number and the exact amount of the check, because you’ll need that information when you contact your bank. Other details you might need include the date on the check and the name of the recipient (the “payee”) and the person who signed the check, especially if you have a joint account and someone else wrote it.

3. Contact your bank

You must give your bank notice orally or in writing to request a stop payment. Banks recommend various ways to contact them, but you can generally make a request online, at a branch or by calling the phone number on the back of your debit card. Some banks charge more for requesting a stop payment over the phone, while others recommend you call or visit a branch.

4. Note the stop payment order’s expiration date

A stop payment order typically lasts about six months, but at some banks it can last a year or longer. Whenever the order ends, you have the option to renew it for another period. Most banks won’t cash a check that’s six months old.

Other things to note:

  • You can request stop payments for a series of checks and pre-authorized ACH debit transactions, such as recurring bill payments. Federal law requires you to make a request orally or in writing to your bank at least three business days before the transfer date. If you call, your bank may require written confirmation of the request within 14 days. By law, you can’t cancel one-time electronic ACH transfers.
  • You can’t stop cashier’s checks, although the bank might in the case of fraud. Because these forms of payment rely on bank funds, a bank must honor them.
  • A stop payment order is not your only line of defense if a check is stolen. If a fraudulent check goes through, you might be able to get charges removed by reporting the incident to your bank in a timely manner.
  • Contact the payee if necessary. In the event of an error or lost check, let the recipient know about the request to stop payment and arrange a way to send a new check.

When it comes to checks, time can be of the essence. Knowing how to cancel them can save you from losing money and the uncertainty over the fate of a lost check.

Spencer Tierney is a staff writer at NerdWallet, a personal finance website. Email: spencer@nerdwallet.com. Twitter: @SpencerNerd.

This article originally appeared on NerdWallet.

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