Your Money in the News – December 2018
Your Money in the News: Wells Fargo still paying fines, Robinhood’s new not exactly bank accounts, dialing in on post-Christmas consumer debt, more…
How? Explore your options by doing research so that, in trying to get out from underneath the APR burden you are currently suffering, you don’t actually make things worse.
The following two tools could help, but be careful.
Balance transfer cards:
These aren’t a freebee. There is a reason credit card companies offer zero/low interest balance transfer cards. They want to rope you back into the same circumstance you are in now.
First of all, some have an “off the top” transfer fee that equals a percentage of your balance upon transfer. For example, if you have a $5,000 balance to transfer, and their transfer fee is, say 3%, that’s $150 bucks off the top, added to your balance. Some cards don’t have that fee, so look for those cards.
In addition, if you don’t already have an aggressive paydown plan, you will probably end up with their “regular” APR after their “zero/low interest” payment period expires, which is most times really high, like 20% or more. So you need to be diligent about tracking how long their zero/low interest deal lasts, or you might end up in a worse situation down the road than you are now. If you don’t think you can aggressively pay down the balance during that period, which can be anywhere from 6 months to 2 years, balance transfer cards are perhaps not the best option for you.
Customers are going to keep the card for longer than that promotional period. So it’s important to know what the ongoing terms and fees are. – Rachana Bhatt, Managing Director of U.S. branded cards at Barclays
Debt consolidation loans:
We are actually living in good times for this option. There are a lot of lenders out there. If you have a fairly decent credit score, you may be able to get a low interest rate loan with a fixed interest rate (which will protect you in the future as interest rates are rising.)
Like zero/low interest card transfer options, some lenders might charge you a fee off the top. A good credit score gives you more wiggle room here. A consolidation loan will tie you into regular payments for a set period of time, which can be good if you are disciplined about getting rid of your debt. If you can find a good loan, you can at least see the light at the end of the tunnel which can be motivating, whereas transferring your credit card debt to another credit card could just continue the game.
Bottom line? There are tools out there to help you if you are disciplined about getting rid of debt, but make sure you really understand them.
We talked about this before you started shopping for Christmas. But this isn’t about “we told you so.” We don’t work that way. So, if you threw a lot of Christmas gifts on your cards at the last minute, start planning now how you can do it differently next year. Regret isn’t going to pay the bills, so leave it alone.
For example, throughout the year, you could throw your loose change into a “Christmas jar.” By next December, you will be out in front instead of chasing Christmas’ tail with your credit cards.
Even though it feels like we are finished with Christmas, it will surely come again. So, instead of feeling badly about overspending on cards this year, put your energy into planning a strategy for next year as well as aggressively paying down your cards. Your 2020 January self will thank you.
$575 million. That’s a huge chunk of change. And Wells Fargo owes it to the U.S. states. This is on top of the $190 million for Fed claims and over $2 billion in penalties. Why? Because they broke the law. Who suffered? Everyday people.
Over the past two years or so, Wells has been in the news because of its business scandals. Wells opened fake accounts using their existing customers information. Wells improperly charged people for financial products, like auto and life insurance. The question is, did Wells pay more in fines than they made by screwing their own customers? Was it worth it, Wells?
Instead of safeguarding its customers Wells Fargo exploited them. This is an incredible breach of trust that threatens not only the customer who depended on Wells Fargo, but confidence in our banking system. – California Attorney General Xavier Becerra
Robinhood is a popular brokerage app that allows you to buy and sell stocks with no minimum amount and no fees. Sounds pretty cool, right? But now, Robinhood is marketing checking and savings accounts that aren’t exactly checking and savings accounts.
Robinhood is not a bank, it is a broker-dealer but it has been marketing its new checking and savings accounts as banking products. This is raising some eyebrows. Regardless of how attractive the 3% interest rate sounds, these accounts are not insured by the FDIC. They are insured by the SIPC which is a different animal altogether.
FDIC (Federal Deposit Insurance Corporation) insured means that your checking or savings account is insured for the amount of money in your account up to $250,000 dollars by the Federal Government if your bank becomes insolvent.
(To find out if your accounts are insured, go here.)
SIPC (Securities Investor Protection Corporation), protects member broker-dealers up to $500,000, which includes $250,000 in cash, should a firm fail financially. But it only insures the market value of the investment at the time of failure. So, if you “deposit” money into a brokerage account, the amount insured is dictated by the market at the time of insolvency, not your initial investment.
The SIPC does not fully guarantee a depositor’s entire original investment plus interest in the event of the failure of a brokerage. Instead, the SIPC reimburses investors the value of their funds on the day of the insolvency.
In addition, the SIPC simply doesn’t insure checking and savings accounts. It insures money intended for securities. SIPC could possibly turn around and say “Hey Robinhood, we don’t insure checking and savings accounts!” (In fact, they already have.)
SIPC protects cash that is deposited with a brokerage firm for one limited purpose … the purpose of purchasing securities. Cash deposited for other reasons would not be protected. SIPC does not protect checking and savings accounts since the money has not been deposited for a protected purpose. – Stephen P. Harbeck, president and CEO of SIPC
In response to this, it appears that Robinhood is now “rebranding” it’s checking and savings products into something called a “cash management” system. The worry is that consumers will not really understand the risk inherent in the accounts if Robinhood isn’t more transparent about what they actually are.
Always, always read the small print.