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Banking & Finance

Mark Kolarik

2013-02-01 09:24:27

Q-I may be interested in opening an Individual Retirement Account (IRA) at my financial institution. Can you provide me with information about an IRA account?

A-Most credit unions and banks offer IRA accounts. An IRA is an excellent tool for retirement savings. Unlike most investments, depending on the type of IRA you choose, contributions may be tax deductible and will grow either tax deferred or tax free. IRA accounts must be opened and funded by April 15th, the tax deadline to receive a tax deduction on the previous year’s earning. To be eligible for a Traditional IRA, you must be under the age of 70 ½ and must have some form of compensation to contribute. The annual contribution limit is $5,500 for 2013. Contributions are tax deductible if you are not an active participant in an employer retirement plan. Deductibility may be limited if you or your spouse are an active participant in an employer retirement plan. An owner of an IRA must be 50 ½ before making a withdrawal from a traditional IRA without incurring an additional 10% tax penalty. There are several exceptions that allow an owner to avoid the tax penalty for early withdrawals such as, qualified higher education expenses, certain qualified first time home buyer amounts, significant unreimbursed medical expenses among other exceptions. Earnings are taxed only upon withdrawal or distributions. Traditional IRAs are subject to a minimum required distribution rule when the owner reaches age 70 1/2/. The minimum required distribution amount is determined by using a life expectancy table and the account balance. Calculate the annual estimated dollar distribution amount needed to bring the account to zero when the owner reaches the life expectancy age. IRA accounts grow by using compound interest over an extended period of time, meaning that accumulated interest is added to the principal each time in calculating earnings. Over the course of 20 or more years, these accumulations can be substantial. To obtain more information about IRAs go to www.irs.gov.

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Banking & Finance

Mark Kolarik

2013-01-02 15:53:37

Q-During the holiday season I have trouble balancing my checking account. Can you give me some help to get my checkbook back on track?

A-Ever bounce a check? If you’re like most Americans you probably answered yes. In fact, Americans bounce more than 125 million bad checks each year. With so many online transactions, recurring automated bill payments, growing use of debit cards, and so many trips to the ATM, keeping track of the balance in your checkbook can become a guessing game, one that becomes expensive if you’re not careful. An overdraft means you don’t have money to cover a check or other transactions against your checking account, but your financial institution pays it anyway. A bounced or NSF (nonsufficient funds) fee occurs when your financial institution returns your check to whomever you wrote the check to without paying it. And when that happens, the store can charge you a retuned check fee. A bounced check every now and then could be a fluke. But if it’s more than an occasional event, improve your record keeping by being diligent in recording written checks, debit card and ATM transactions, and other fees. But if there’s still a bit of bouncing going on, consider using these three tools. 1. Transfer from other accounts – This kind of protection kicks in when you prearrange to have funds from one account transfer to your checking account when you don’t have enough in your checking account to cover a transaction. The best thing about this service is it helps avoid NSF fees. 2. Line of credit – A line of credit generally covers amounts higher than those associated with the occasional bounced check. If you overdraw your checking account, the financial institution transfers a matching amount from the line of credit into your checking account. While this service generally means avoiding bounced check fees, keep in mind that interest rates on a line of credit can run as high as credit card rates. 3. Courtesy pay – In a courtesy program, your financial institution will pay your over drafted checks, up to a maximum amount. Generally, you must bring the balance in your checking account balance back into the black within 30 days or the account could be closed. Courtesy pay fees generally will be a lot less than the fees you would accumulate without it. The fees might be about the same as the financial institution’s charge for nonsufficient funds, but less than the total NSF fee plus the penalties that merchants impose for receiving a bad check. These tools can help you stay on track, but the best way to stay on top of your finances and prevent being overdrawn in the first place is to be aware of what you’re spending every day. Focus on recording every transaction in a timely manner.

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Banking & Finance

Mark Kolarik

2012-11-19 11:49:47

Q- There are several credit unions located in my community. Can you tell me the difference between a credit union and a bank?

A- Credit unions have been around for a long time. The first credit union in the USA was chartered in 1909 in Manchester, New Hampshire. A credit union is a nonprofit, cooperative financial institution owned by the members of the credit union. A volunteer board of directors oversees the credit union and is elected by the members. Each savings account holder has one vote, when the election of the board is conducted. The board employs a president, which oversees the daily operation of the credit union. Credit unions offer many of the same financial products and services offered by a bank, such as savings and checking accounts, certificates of deposit, auto loans, mortgage loans, debit and credit cards, and much more. Since credit unions do not have stockholders or are owned by a for profit corporation, profits are given back to the member owners in the form of low loan interest rates, high deposit rates, and low fees. Deposits in a credit union are federally insured up to $250,000 by the National Credit Union Share Insurance Fund. There are about 8,300 credit unions with over $1 trillion in assets serving more than 93 million people in the United States. To join a credit union, you must be eligible for membership. Each credit union decides who it will serve. Most credit unions are organized to serve people in a particular community, group or groups of employees, or members of an organization or association. More and more people join credit unions every year and they are pleased with the service. Year after year, credit unions’ national customer satisfaction ratings far exceed banking institutions’ ratings (as reported in the American Bankers annual customer service survey). Call your local credit union to find out if you are eligible to become a member. Then compare your bank’s product pricing to the products offered by the credit union. You may be surprised by what you could save by joining a credit union.

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Banking & Finance

Mark Kolarik

2012-11-07 11:33:34

Q- Can you tell me how banks resell home loans and why they do it?

A- The home loan market is huge and one single bank or credit union is unable to fund all the mortgage loan requests. Federal regulations and the asset size of the financial institution limit the amount of home loans that can be held by any one institution. These regulations are designed to help keep financial institutions healthy, protecting them from large and rapid changes in interest rates. The following scenario would show how changing interest rates could affect the financial strength of an institution. Scenario: A bank lends all of its available deposits in 30 year home loans, at an interest rate of 2%. The bank pays the depositors .25% on money deposited in the bank. In this scenario, the bank has a margin of 1.75% to create income to operate the bank. If the economy changes and deposit interest rates increase to 2%, the bank now needs to pay depositors 2% to maintain deposit balance levels. Since the bank has locked in all their available funds for 30 years earning only 2%, in a rising rate scenario they will be unable to generate income to operate the bank. In this situation, eventually the bank will fail. To avoid the above scenario, banks/credit unions will originate and fund home loans, then resell the loans to have money available to fund more home loans. Most home loans are sold to Fannie Mae. This agency was formed by Congress to keep money flowing to home loan lenders. A financial institution selling home loans must follow the underwriting standards established by Fannie Mae or Fannie Mae will not purchase the loan. Fannie Mae then groups these home loans into large securities and provides investors an opportunity to invest in the security. When investors purchase the securities, Fannie Mae is then able to purchase more home loans from lenders. Once the loan has been funded and sold to Fannie Mae, the servicing (payment collection/statements) may be retained by your financial institution, or transferred to another servicer. However, the actual home loan is no longer owned by the originating financial institution. The financial institution earns income from loan origination and servicing fees. By selling home loans, the financial institutions can keep making home loans and avoid the interest rate risk of holding long term home loans.

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Banking & Finance

Seth Holder

2012-10-03 11:20:57

Q- Should we be preparing for a fiscal cliff or ignore such warnings?

A- As an investor, you can sometimes still feel you’re at the mercy of forces beyond your control. This may be especially true today, when the Federal Reserve has warned of an approaching “fiscal cliff.” What can you do in the face of such a dire prediction? First of all, you need to understand what led to the Fed's remarks. Here’s the story: Some $1.2 trillion in spending cuts are scheduled to begin in 2013 while, simultaneously, the Bush-era tax cuts — including the reduction in capital gains and dividend taxes — are set to expire. This combination of spending cuts and higher taxes could take some $600 billion out of the economy, leading to a possible recession — and maybe something much worse, at least in the eyes of the Fed. Still, there’s no need for panic. Despite its political infighting, Congress is likely to reduce the “cliff” to a smaller bump, though it probably won’t happen until after the election. But as an investor, you may need to be prepared for two significant events: market volatility, at least in the short term, and higher taxes, probably for the foreseeable future. To combat market volatility, you need to own a broadly diversified portfolio that can handle “bumps,” “cliffs” and other rugged investment terrain. This means you’ll need a mix of stocks, bonds and other securities that are suitable for your needs. (Keep in mind, though, that while diversification can reduce the impact of market volatility, it cannot guarantee profits or protect against losses.) You may also need to “rebalance” your portfolio to ensure that it’s still aligned with your goals, risk tolerance and time horizon, despite the impact of volatility. Now, let’s turn to taxes. Even if taxes on income, capital gains and dividends do rise, they will still, in all likelihood, be much lower than they’ve been at various points in the past. Nonetheless, you may want to consider a variety of steps, including the following: • Take advantage of tax-deferred vehicles. Contribute as much as possible to your traditional IRA, your 401(k) or other employer-sponsored retirement plan, and any education savings accounts you may have, such as a 529 plan. • Consider converting your traditional IRA to a Roth IRA. A Roth IRA provides tax-free earnings, provided you don’t start taking withdrawals until you’re 59½ and you’ve had your account for at least five years. (Be aware, though, that this conversion is taxable and may not be appropriate if you don’t have money readily available to pay the taxes.) • Consider municipal bonds. If you’re in one of the upper tax brackets, you may benefit from investing in “munis,” which pay interest that’s free of federal taxes, and possibly state and local taxes as well. Not all these choices will be suitable for your situation, of course. Before taking action on these items, you may want to consult with your tax and financial advisors. But give these options some thought because they may prove helpful in keeping your financial goals from going “over a cliff.”

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Banking & Finance

Mark Kolarik

2012-10-02 15:00:58

Q- I never seem to have enough money, how can I plan my future finances?

A- The following are 10 Way to Improve Your Financial Health. 1. Grow Your Emergency Fund If you don’t have an emergency fund it’s a good idea to start one, even if you can sock away a small amount every month. At a minimum, try to accumulate at least 6 month of monthly expense. Try to handle emergency from savings, rather than having to dip into retirement accounts or on high interest credit cards. 2. Pay Off Credit Cards Interest paid on credit cards is to high. If you have a $5,000 credit card balance and an 15% APR, and you make only the minimum payment each month, you’ll be stuck paying off that debt for 24 years. And you will pay over $7,000 in interest. 3. Put 10% of Your Income Toward Retirement Target to save and invest at least 10% of your income, no matter how little or how much you make. The sooner you start the more wealth you’ll be able to build. If you save and invest just $5,000 a year when you are 25 and earn a 6% rate of return, that will have grown to $773,809 by the time you are 65. 4. Pay Off Your Mortgage Before Retirement After you retire, your income will probably drop. If you eliminate the burden of a monthly mortgage payment, you will have more flexibility to handle any rising costs. 5. Track Your Expenses Write down every cent you spend over the course of a week will give you a very clear picture of exactly where your money is going. 6. Envision Your Future Develop a single exciting mental picture of where you want to be in five years. Each day as you pull out of your driveway on the way to work think about that image. When the same outcome is kept top of mind for a sustained period of time, your attitude shifts and over time real progress is made. 7. Improve Your Credit Score A higher credit score will get you lower interest rates that can save you hundreds of thousands of dollars over your financial lifetime. The first step to improving your score is to know what your credit looks like. Get a copy of your credit report at www.annualcreditreport.com. 8. Live Below Your Means Just because you can afford to buy something doesn’t mean you should. Save for retirement and invest for the future. 9. Act Like You Can’t Just Throw It Away We are spending our hard-earned dollars on highly packaged products that are easily disposed of. Our homes and landfills are cluttered with depreciated junk. The solution to saving more money is to stop wasting it on consumer items that quickly become garbage, and switching to quality items that endure. 10. Move Your Money Around Take a couple of hours to figure out how to cut spending across your budget, make use of online apps and price-comparison sites to find cheaper alternatives on everything from gasoline to cell phone service. Then, move those savings into an emergency or retirement fund, put them toward credit card debt.

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Banking & Finance

Mark Kolarik

2012-08-30 08:15:00

Q- I have heard about Identity theft, can you tell me how I can protect my identity?

A- Cyber criminals are getting craftier. Dependent as we are on our computers and mobile devices, it’s no surprise that more fraudsters are out there, developing scams, aimed at getting more people to give them more of their money. Here are some of the most important trends you should be aware of to keep fraudsters from separating you from your money. ? ID theft has doubled in the past year for children. Children are being targeted as much as 35 times more frequently than adults, and the younger the child the more vulnerable. That’s because this gives the fraudsters more time to go undetected while they use the child’s identity. Treat your child’s personal information as carefully as your own-educate them early to do likewise. Order a free credit report for your child once a year. ? A weak PIN increases your risk of ID theft. Debit card fraud, where Personal Identification Numbers (PIN) are often required, accounts for 35% of payment card fraud. A surprising number of these PINs are easily discovered, such as in wallets. Easily guessed PINs are also prime targets. The biggest offenders? Birthdays and repeating or sequential numbers. Difficult PINs are harder to guess, making your identity that much safer; use a combination of letters and numbers. ? Mobil phones and social media are the new identity theft frontiers. Fraudsters are expected to introduce as many as 1,000 different phone/social media scams this year. In fact, your social media identity may be more valuable to cyber criminals than your credit cards, because it offers them the opportunity to manipulate your friends. Keep smart phone operating systems up-to-date; use passwords to gain access to your phone; install apps that will enable remote deletion of phone data if it is stolen or lost. ? Tax return fraud using stolen identities is costing $24 billion. Identity thieves are filing fake tax returns using stolen social security numbers and claiming refunds worth billions. Tax payers-victims only learn of the fraud when their return is rejected by the IRS because someone already received the money using their identity. File your return early. Don’t answer any emails allegedly fro the IRS – they will never contact you via email. ? Where you can go for help and information. ? Internet Crime Complaint Center: www.ic3gov ? Consumer Fraud (Department of Justice Homepage): www.usdoj.gov ? Federal Trade Commission Consumer Response Center: www.ftc.gov ? Consumer Guides and Protection: www.usa.gov ? Financial Fraud Enforcement Task Force: www.stopfraud.gov ? On Guard Online: www.onguardonline.gov You are the most important link in ID theft prevention. Upgrade your electronic security; make sure computers and phones are locked and password protected when not in use; do not share personal information unless you know the other party; monitor your accounts regularly.

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Banking & Finance

Lori Johnson

2012-08-29 15:46:45

Q- My high school grad is off to college. With this being his first time (on his own) managing money, credit cards, and basically life in general, what can I tell him to make sure he understands the importance of maintaining his money and his credit?

A- Autumn is in the air and college campuses are abuzz with the pursuit of higher education. For many students, college is their first experience with managing personal finances, and the allure of credit cards – spend now, pay later – can be hard to resist. A study by Sallie Mae found that 82 percent of college students with credit cards carry a balance from month to month, incurring finance charges and putting their credit history at risk. Once a person’s credit history becomes adversely affected by poor financial choices, it could result in more than just a high interest rate. Job applicant – Nowadays employers routinely check a person’s credit history as part of the hiring process. Some employers use credit checks as a simple character reference tool. A good credit report may indicate trustworthiness and dependability. For rent – Landlords often rent to people with the best credit histories, and for good reason. Having a favorable credit history may also help lower the security deposit required or the need for a co-signer on a lease. Loan approval – Getting approved for a car loan or mortgage is easier with good credit standing, and often leads to a more competitive interest rate. Car and home insurance – History has shown a connection between credit history and insurance risk. A possible reason is that people who are financially responsible tend to be responsible in other areas of their lives, which may lead to fewer accidents. For that reason, a good credit history usually means lower insurance premiums. Making smart financial choices while earning a degree could help future graduates save money now and in the future.

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Banking & Finance

Mark Kolarik

2012-08-02 11:41:19

Q- I have many records, financial statements, and bills every month. Can you tell me how long I need to keep these records?

A- The typical family receives 5 to 10 important items relating to school, finances, social events, or work. That equates to 50 items a week or 2,500 items a year (according to the Consumer Federation of America). Before you send all your documents through a paper shredder or file them in your pile of bills, know what to keep and what to throw away. The following is a list of records you should keep and for how long. ? Credit Card Receipts and Statements – Keep receipts until your monthly statement arrives. I f the receipts match the statement, shred the receipts. Keep your statements for seven years if they contain tax related expenses. ? Pay Check Stubs – Make sure your pay check stubs matches your annual W-2, then shred the stubs. ? Retirement and Savings Plan Statements – Keep quarterly statements until you receive your annual summary, if everything is correct on the annual summary, shred the quarterlies. Hold the annual statements until you retire or close the account. Keep important notices and contracts for retirement plans and pensions permanently. ? Checking Account Records – At the end of the year, go through your checking statements and only keep those related to taxes, business expenses, and housing or mortgage payments. ? Bills – Keep bills for major purchases (car, jewelry, furniture, computers, etc.) to show proof of their value in the event of loss or damage. For other bills, once you know payment has cleared your bank account, and the return/refund period has expired, shred that bill. ? House Records – Keep purchase price information and the cost of permanent improvements to your property. Also, if you buy or sell property, keep records of legal fees and your real estate agent’s commission for six years after you sell your house. ? Tax Records – The IRS has three years to audit your return, and you have three years to file and amended return to claim a refund if you make a mistake. If you made the mistake of underreporting your gross income by 25% or more on a return, the IRS has six years to challenge it. If you filed a fraudulent return or didn’t file one at all, the IRS can catch you on it any time. Keep a copy of all 1040 tax forms permanently. ? IRA Contributions – Keep nondeductible contribution records permanently in case you need to prove you paid tax on the money when you want to withdraw it. ? Miscellaneous – Also keep permanently; updated household inventory, birth and death certificates, marriage licenses, divorce papers, military records, insurance claims, accident reports and claims, proof of ownership and major debt repayments, and legal correspondence. Store anything you need to keep permanently in either a fireproof storage box or safe deposit box.

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Banking & Finance

Seth Holder

2012-08-02 11:04:18

Q- I want to start building an investment portfolio but do not know where to start. Can you give me some tips?

A- The best place to start is by educating yourself about investing. To get the most out of your investment education, ask yourself these questions: • What are my goals? Your financial goals should drive your investment decisions. You probably have short-term goals, such as making a down payment on a home or paying for a vacation, and long-term goals, such as saving for your children’s college education or building resources for your retirement. Once you’ve identified your goals, you can create an investment strategy to help achieve them. • What is my risk tolerance? Self-awareness is important in every aspect of life — including your approach to investing. As you create your investment portfolio, you need to understand your own views on risk. Would you consider yourself an aggressive investor — that is, someone who can accept a relatively higher degree of investment risk in exchange for potentially higher returns? Or are you a more conservative investor — someone who is willing to take lower returns in exchange for lower potential risk? Or perhaps you’re a moderate investor, less risk-averse than some but less aggressive than others. However you’d characterize yourself, it’s essential that you factor in your risk tolerance when choosing investments. Otherwise, you’ll likely end up causing yourself needless worry over your investment portfolio’s performance. • When should I make changes to my investments? Once you’ve built an investment portfolio, you shouldn't leave it on “autopilot.” Over time, you most likely will need to add new investments or sell others. However, try to avoid selling quality investments just because their share price has dropped — they may still have good long-term prospects. In general, you should sell an investment under certain circumstances. For example, if your goals have changed, you may find the need to sell some investments and purchase others. You may decide to sell an investment if it’s no longer what it was when you purchased it. For example, maybe you’ve invested in a company whose products are less competitive than they once were, or perhaps the company belongs to an industry now in decline. And finally, if your portfolio has become “overweighted” with certain types of investments, you may decide to sell some of them to bring your holdings back into balance, based on your goals, risk tolerance and time horizon. • Whom should I consult for help? You can do a lot to educate yourself about investing — but when it comes to making the right choices for your future, you may need help. A professional financial advisor who is familiar with your family situation, short- and long-term goals and investment preferences can help you build and maintain a portfolio that can help meet your needs. The investment world can be complex, so the more knowledge you have on your side, the better off you’ll be. Take the time to learn as much as you can about investing. It’s an education that can pay off in the long run.

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Banking & Finance

Mark Kolarik

2012-08-01 16:16:11

Q- I am active in the green movement, is there a way to do green banking?

A- Yes you can do your banking in an eco friendly way. To reduce your carbon footprint and save money, you can practice eco-friendly methods when you visit your financial institution. Use an ATM. If you need to make a deposit or withdrawal, use an ATM machine rather than a bank teller. When you make a transaction through a teller, more paper is used and processed. This causes more environmental waste. And when using an ATM, do not take a receipt. If every person in the U.S. chose not to receive a receipt each time they went to the ATM, we would save a roll of paper more than 2 billion feet long (long enough to circle the equator 15 times)! Participate in online banking. By receiving your bills, making payments, and checking your account balance online, you will save time, gas, money, and paper. If every household in the U.S. paid just their credit card bills through the Internet, $2 billion per year in postage costs would be saved. Receive paperless bank statements and request automatic deposits for your paychecks. Participating in a direct deposit program will not only reduce time and fuel you use traveling to the bank, but it will also get you your money a lot faster. If everyone in the U.S. who is eligible for an automatic deposit program chose direct deposit for their checks, $65 billion in fuel costs and time would be saved. Use a Debit Card Instead of writing paper checks to pay bills or purchase items, use a debit card. When using a debit card the transaction amount is automatically taken from your checking account, eliminating the need for paper checks. Do your taxes online. Get your tax forms online and e-file your tax returns. If every U.S. tax return were electronically filed, at least 660 million sheets of paper would be saved each year!

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Banking & Finance

Seth Holder

2012-08-01 15:49:12

Q- I have heard the term “behavioral finance” when it comes to investing. Can you educate me on what this means and the research that comes from these experts?

A- If you’re like most people, you go through many complex thoughts and emotions when choosing investments. In fact, a field of study called “behavioral finance” is devoted to understanding why people make their investment decisions. As part of their work, behavioral finance researchers examine “biases” that affect people’s investment selections. And as an individual investor, you, too, can benefit from understanding these biases — so that you can avoid them. Here are some of the key biases identified by behavioral finance experts: • Overconfidence — Overconfidence leads investors to believe they know the “right times” to buy and sell investments. But if you’re constantly buying and selling in the belief that you are correctly “timing” the market, you maybe wrong many times, and you may incur more investment fees, expenses and taxes than if you simply bought quality investments and held them for the long term. • Representativeness — If you make decisions based on preconceived ideas or stereotypes, you may be suffering from a bias called “representativeness.” For example, if you see that investments from a particular sector, such as energy, have performed particularly well in one year, you might think these types of vehicles will do just as well the next year, so you load up on them. Yet every sector will go through ups and downs, so one year’s performance cannot necessarily predict the next year's performance. Instead of chasing “hot” investments, try to build a balanced portfolio that reflects your individual goals, risk tolerance and time horizon. • Anchoring — Similar to representativeness, an anchoring bias occurs when investors place too much emphasis on past performance. If you own shares of XYZ stock, for instance, and the stock price hit $60 per share, you might assume XYZ will always sell for at least $60 a share. But if XYZ drops to $30 per share — perhaps as a result of a broad-based market decline — you might think it’s now “undervalued,” leading you to “snap up” even more shares. However, XYX shares could also fall due to a change in its fundamentals, such as a shake-up in the company’s management or a decline in the competitiveness of its products. As an informed investor, you need to work with your financial advisor to determine the causes of an investment’s decline and any actions you may need to take in response. • Confirmation — If you are subject to confirmation bias, you may look for information that supports your reasons for choosing a particular investment. This type of bias can lead to faulty decision making, because you’ll end up with one-sided information. In other words, you may latch onto all the positive reasons for investing in something — such as a “hot stock” — but you may overlook the “red flags” that would cause you to think twice if you were being totally objective. To fight back against confirmation bias, take your time before making any investment decision — a quality investment will almost always be just as good a choice tomorrow as it is today. Being aware of these investment biases can help you make better decisions — and over a period of many years, these decisions can make a difference as you work toward achieving your financial objectives.

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Banking & Finance

Seth Holder

2012-06-05 09:44:06

Q: I’ve always invested primarily in CD’s because of their perceived safety. With interest rates as low as they are right now, I don’t feel like I am being a good steward of my money by continuing to reinvest my CDs at these low interest rates. What else should I consider taking a look at?

A: Not long ago, the Federal Reserve (Fed) announced that it plans to keep short-term interest rates near zero until late 2014. The Fed initially pushed rates to that level in 2008, in an effort to stimulate economic growth. Clearly, low interest rates have a wide-ranging impact — but what effect will they have on you, as an individual investor? If you need income from your investments, then the continuation of ultra-low interest rates may be a matter of some concern, particularly if you own certain types of fixed-income investments, such as certificates of deposit. While CDs are insured, offer return of principal at maturity and provide regular interest payments, they are not risk-free. With low interest rates, you risk losing purchasing power. Still, fixed-rate vehicles may well have a place in your portfolio. If you’re even somewhat dependent on your investments for income, you may need to broaden your search. Here are a few ideas to consider: • Build a bond ladder Long-term bonds, by their nature, are more subject to interest rate risk than shorter-term vehicles. In other words, interest rates are more likely to rise during the life span of a longer-term bond — and when rates go up, the prices of existing bonds will fall. To help lower this risk, you may want to build a “ladder” of bonds of varying maturities. Then, if market interest rates are low, you’ll still have your long-term bonds earning higher rates, but if rates rise, you can take advantage of them by reinvesting the proceeds of your maturing short-term bonds. But remember to work with your financial advisor to evaluate whether a bond ladder and the securities held within it are consistent with your investment objectives, risk tolerance and financial circumstances. • Consider dividend-paying stocks You can find companies that have paid dividends for many consecutive years — and in some cases, increased their dividend payout each year. In 2012, companies listed in the S&P 500 are on track to pay out more than $252 billion in dividends, a record amount, according to data compiled from Standard & Poor’s. (Keep in mind that the S&P 500 is an unmanaged index and is not available for direct investment.) Of course, stock prices will fluctuate in value, and you may receive more or less than your original investment when you sell. Historically, dividend-paying stocks have been less volatile than non-dividend-paying stocks. Be aware, though, that companies can lower or discontinue dividend payments at any time without notice. Past performance is not a guarantee of future results. • Refinance your mortgage Today’s low rates are good news for borrowers. With tougher standards in place, it may not be as easy to refinance a mortgage as it once was, but if you qualify, you may want to think about refinancing. You may be able to save quite a bit of money on your monthly payments — and lower payments can translate into a greater cash flow. Plus, if you don’t need all the savings, you can put some of the money into an Individual Retirement Account (IRA) or another retirement savings vehicles. Ultimately, an extended period of low interest rates is just one more factor to consider in creating and adjusting your investment strategy. Work with your financial advisor to help ensure low rates won’t affect your income needs.

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Banking & Finance

Mark Kolarik

2012-06-05 09:30:14

Q: Should I co-sign on my friend’s loan to purchase a used vehicle?

A: Think twice before co-signing your friend’s loan. You should be willing to do almost anything to help a friend except co-sign a loan. Here’s why co-signing is a financial land mine: You may be on the hook to repay the loan Someone needs a co-signer because a lender isn’t completely comfortable with that person’s finances. If your friend gets sick, dies, loses a job or is otherwise unable to pay back the loan, the lender may look to you to make the payments on the loan. If you refuse, it can get nasty, and it can include the lender filing a collection suit against you. It may hurt your credit Late payments, repossessions or collections can show up on your credit report in addition to your friend’s. Those black marks can stay on your report for as long as seven years and may increase your credit score. The black marks may affect your chances of getting a loan in the future or cause you to pay a higher interest rate to obtain a loan. It can hurt down the line Even if the loan is being paid on time, the co-signed loan payment would be included in the co-signer’s debt-to-income ratio calculation, when applying for a loan. The extra payment will increase the co-signer’s debt-to-income ratio and may exceed the lender’s ratio limits. If the ratio limits are exceeded, there is a chance your loan request would be denied. I would recommend that you not co-sign your friend’s loan. This will not only protect your credit but also maintain your friendship.

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Banking & Finance

Seth Holder

2012-04-20 12:01:51

Q: Well, with the closing of another school year drawing near, my children one less year away from college. What are my options and how can I properly plan to fund such an expense?

A: Now that another school year is drawing to a close, your young children are a step closer to the day when they’ll be heading off to college. Of course, as you’re probably aware, higher education doesn’t come cheap — and the costs seem to continuously climb. You can help your children — or even your grandchildren — meet these expenses by investing in a 529 plan. And this college savings vehicle offers estate-planning benefits. As a college funding vehicle, a 529 plan offers some significant benefits. When you contribute to a 529 plan, your earnings accumulate tax free, provided they are used for qualified higher education expenses. (Keep in mind, though, that 529 plan distributions not used for qualified expenses may be subject to federal and state income tax and a 10% IRS penalty.) Furthermore, your 529 plan contributions may be deductible from your state taxes. However, 529 plans vary, so be sure to check with your tax advisor. The lifetime contribution limits for 529 plans are quite generous. While these limits vary by state, many plans allow contributions well in excess of $200,000. Plus, a 529 plan is flexible. If the child, grandchild or other beneficiary decides against college, you can transfer the unused funds to someone else, tax and penalty free. Now, let’s turn to a 529 plan’s estate-planning benefits. If you think that you may need to reduce the size of your taxable estate and also want create a legacy to enjoy during your lifetime, you may find that the 529 plan offers a solution for you. When you establish and contribute to a 529 plan , the assets leave your estate — but they don’t leave your control. If your named beneficiary decides against college and you don’t have another family member to whom you can transfer the account — or if you simply change your mind about funding the 529 plan — you can get your money back at any time, although, as mentioned above, you’ll have to pay taxes, and possibly a 10% IRS penalty, on the earnings. Your contributions to a 529 plan also qualify for the $13,000 annual gift tax exclusion, so you can give large amounts each year without incurring the gift tax. In the investment world, you can find many vehicles that can help you make progress toward one goal. But it’s far less common to find something that may give you a boost toward two. And when the two goals are helping a child or grandchild go to college and lowering the value of your taxable estate — while still maintaining control of your assets — you’ve got an investment worth considering. So consult with your tax and financial advisors to determine if a 529 plan is right for you. And if it is, think about taking action soon, because the more years you can contribute to a 529 plan, the better the outlook for both your future student and your estate plans.

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Banking & Finance

Mark Kolarik

2012-04-20 11:17:20

Q: I often hear finance related terms mentioned and do not understand the meaning of many of them. Could you please give a brief definition of the most common financial terms.

A: Last month, we discussed many of the common terms in the financial field. This month we will continue on, getting in depth on some of the less known terminology. Dividend - A payment made by a company to a stockholder to share in the company’s profits. Finance Charge - The fee you pay when you do not pay off the entire credit card debt within a single payment period, usually about 25-28 days. Insured Savings - Accounts that are insured up to $250,000 by a federal insurance agency (NCUA-credit unions or FDIC-banks). Interest - The amount paid by a borrower to a lender for the privilege of borrowing the money. Interest Rate - The price paid for the use of someone else’s money expressed as an annual percentage rate, such as 6.5%. Money Market Account - A form of a savings account. The account typically requires 1) a minimum deposit and 2) that you maintain a minimum balance. The account may pay a rate of interest that rises and falls with the economy. Mutual Fund - A savings fund that uses cash from a pool of savers to buy a wide range of securities, like stocks, bonds, and real estate. This is a way to diversify investments because you own small units of each of the fund’s investments. The fund is managed by professionals and permits small amounts of money to be invested. Return - The amount of money a saver receives from a savings account or fund. The return is usually talked about as a percentage, such as “This account returns 7.37%.” Share - A unit of ownership in an investment or a company. Shareholder - Someone who owns stock in a company. Unearned Income - Money you make that is not the result of your labor, such as interest from a savings account or other kind of investment. Variable Expenses - Kinds of spending that can be controlled and typically change from month to month. For example, groceries can be a variable expense. You can choose to buy expensive food (steak, lobster, lamb chops, or shrimp) or inexpensive food (chicken legs, turkey, hamburger). With variable expenses, you have choices. Withdraw - To take money out of an account.

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Banking & Finance

Mark Kolarik

2012-03-27 10:21:10

Q: I often hear finance related terms mentioned and do not understand the meaning of many of them. Could you please give a brief definition of the most common financial terms.

A: You’re right, staff at most financial institutions often forget that most customers do not understand many of the financial terms discussed. Thanks for asking, here is a list and definition of common terms. Annual Percentage Rate (APR) - The rate of interest (in terms of a percent, such as 8.75%) being charged for a loan over a year’s time. The APR rate includes interest, transaction fees, and service fees. Annual Percentage Yield (APY) - The amount of compounded interest earned on a deposit account after one year. ATM Surcharge - A fee charged by the owner of an ATM for use by non-customers. Bond - An IOU issued by a corporation or government that confirms you are lending the corporation or government money. Bonds pay interest regularly to lenders. At the end of the term of the bond, the borrower returns to the lender the face value of the bond (the amount the lender invested in the bond). Broker - A licensed professional who advises people about investments; also helps people buy and sell stocks, bonds, mutual funds, etc. The broker earns a fee for this help, called a commission, usually a percentage of the transaction. Credit Rating - Credit agencies are companies that keep track of how you pay your debts (bills). Do you pay on time? Do you make the required payments? When you want to borrow money from a financial institution or apply for a credit card, the financial institution or the credit card company will ask a credit agency to rate you. Lenders want to know if you are a reliable bill payer before they approve your loan or credit card. Debit Card - This plastic card looks like a credit card, but it is used to withdraw money from a savings or checking account. When you use a debit card at Automatic Teller Machines (ATM) or in stores to make purchases, money is immediately withdrawn from your account. You cannot withdraw more money than you have in the account. Next month, we will get into interest rates, shared, variable expenses and more.

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Banking & Finance

Seth Holder

2012-03-26 16:40:06

Q: As I plan for my future, I am wondering if it is absolutely necessary to plan for long-term care. Can you give me your thoughts?

A: Like everyone else, you hope to remain physically and financially independent your entire life. And you may well achieve this goal. Nonetheless, the future is not ours to see, so you’ll want to prepare yourself for as many contingencies as possible — one of which is the high cost of long-term care. As you may know, long-term care primarily refers to nursing home expenses, but it also includes services provided in your own home. In either case, though, it could be expensive. The national average rate for a private room in a nursing home was more than $87,000 per year in 2011, according to the 2011 MetLife Market Survey of Long-Term Care Costs. The same survey found that the average private-pay hourly rates for home health aides and homemaker companion services were $21 and $19, respectively. With luck, of course, you won’t need to worry about these types of expenses. But consider this: People who reach age 65 have a 40% chance of entering a nursing home, according to a study by the U.S. Department of Health and Human Services. And about 10% of those who enter a nursing home will stay there five or more years. Clearly, if you take no steps to prepare yourself for the potentially devastating costs of an extended nursing home stay, you could be jeopardizing the assets you’ve worked so hard to accumulate. Even worse, if you run through your money, you might end up creating a financial and emotional burden for your grown children. Unfortunately, many people assume that a federal or state government program will help them pay for their long-term care expenses. However, Medicare pays only a small portion of nursing home costs, and to be eligible for Medicaid, you would likely have to divest yourself of most of your financial assets. Consequently, you’ll probably need to find another way to pay for long-term care. Fortunately, there are investment or protection vehicles designed specifically to help you meet long-term care expenses. Your financial advisor can help you pick the option that’s most appropriate for your individual situation. Having the ability to pay for long-term care is obviously important. But other issues may also enter the picture. For example, if you need to enter a nursing home, you may be suffering from a physical or mental disability that might prevent you from handling your own affairs. This impairment could prove disastrous to your finances — which is why you can’t afford to take that type of chance. Instead, consult with your legal advisor to determine if you can benefit from a durable power of attorney — a document that lets you delegate your financial decisions to a relative, close friend or anyone else you might choose. None of us like to think about spending time in a nursing home or needing round-the-clock care in our own homes. However, life is unpredictable. But even if you can’t avoid the need for long-term care, you can take steps to help reduce the financial strain it can cause you and your family.

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Banking & Finance

Seth Holder

2012-02-28 12:24:07

Q: What should I consider in investing and planning for the future?

A: As an investor, what are your goals? You can probably think of quite a few — but over the course of your lifetime, your objectives typically will fall into five key categories. And once you’re familiar with these areas, you can start thinking of what they’ll mean to you in terms of your financial and investment strategies. So, let’s take a look at each of these areas and see what they might entail for you: • Preparing for retirement With advances in health care and a greater awareness of healthy living practices, many of us can expect to live two or three decades in an active retirement. To pay for all those years, you’ll need to save and invest early and often. So, while you’re working, take full advantage of your 401(k) or other employer-sponsored retirement plan, as well as contribute to a traditional or Roth IRA. After understanding your desired retirement lifestyle, your financial advisor can help you determine how, and how much, to save to provide for your income in retirement. • Planning for the unexpected You can’t see into the future, so you’ll need to prepare for anything that comes your way. By building an emergency fund containing six to 12 months’ worth of living expenses, you can possibly avoid dipping into your long-term investments to pay for things such as a new furnace or a major car repair. And planning for the unexpected also means having sufficient life insurance to provide for your family in case anything happens to you. • Educating your children College is already expensive — and college expenses have been rising faster than the overall rate of inflation. If you want to help your children, or grandchildren, pay for school, you may want to invest in a college savings vehicle, such as the 529 plan. You can contribute large amounts to a 529 plan, and earnings have the opportunity to grow tax-free, provided withdrawals are used for higher education. (Withdrawals not used for education are subject to income taxes and a 10 percent penalty.) • Living in retirement Once you reach retirement, your investment emphasis will shift somewhat, from accumulating resources to making them last. By working with a financial advisor, you can develop a withdrawal strategy that can help make sure you don’t outlive the income you receive from your 401(k), IRA and other sources. At the same time, given the possible length of your retirement, you can’t ignore the need to invest for growth, so you may need to consider some growth-oriented vehicles in your portfolio to help your income keep pace with inflation. • Transferring your wealth When you’ve worked hard your whole life, you want to be able to leave a legacy — one that allows you to provide financial resources to the next generation and to those charitable organizations you may wish to support. So, when it’s time to think about transferring your wealth, you’ll want to consult with your financial and legal advisors to create an estate plan that’s appropriate for your needs. And because these plans can take significant time to create, you won’t want to wait too long to start. So, there you have them, the five key financial areas on which to focus as you travel through life. By doing your homework, planning ahead and getting educated.

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Banking & Finance

Mark Kolarik

2012-02-28 11:43:57

Q: I am confused! What is the difference between a credit card and debit card, which is better?

A: You have a debit card that can be used like a credit card. Huh? Lots of people are not clear on the difference between a credit card and debit card. What’s the Difference? Credit. Every time you use a credit card you are borrowing money from a financial institution. The institution pays the debt to the vendor and in turn, you pay the money back to the institution. By signing up for a credit card, you agree to pay back the money that you borrowed, in addition to any interest drawn on the amount you borrowed. Debit. Debit cards take funds directly from the money that you have in your bank account--in a sense acting like a check, just faster. With a debit card, you don’t have to carry cash or checks, and they provide instant access to your money and are accepted worldwide. Debit cards are used much like credit cards. The store you are shopping at ‘swipes’ them, and you are normally given the option of signing your receipt instead of using a required PIN number (you can enter your PIN number if your prefer). You also typically don’t have to show a picture ID. Which is Better? It depends. The features that make debit cards convenient--instant access to your money, lack of a required PIN number and not having to drag out your photo ID when you use it--makes fraud that much easier. Unless reported quickly, theft of your debit card can quickly devastate your bank account. In addition to stricter liability laws, credit cards also offer more consumer protection on purchases made. Use credit cards for very large or fragile purchases, and for objects that will be delivered to your home after the purchase. This gives you added insurance in case the purchase is damaged en route. Credit cards are also a great tool for consumers that are seeking to establish or reestablish an attractive credit history. Responsible credit card usage can improve one’s credit rating. Discipline Yourself Probably the main thing to remember if you are using a debit card regularly is that it’s not just a card; it’s ready access to your money. Be as careful with it as you would with your wallet if it had the contents of your entire bank account in it.

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Banking & Finance

Seth Holder

2012-01-30 11:09:52

Q: When should you start taking Social Security?

A: If you are of a certain age, the new year means you are that much closer to a day you may have anticipated with a combination of humor and resignation — specifically, the day you are eligible for Social Security. But just because you can take Social Security, it doesn’t mean you must take it. So, should you? Before we get to that question, let’s review the basic rules governing Social Security payments. You can typically start collecting benefits at age 62, but you’ll get only about 75% of what you’d receive if you waited until your “full” retirement age, which varies according to your birth year but is most likely 66. You’ll get even bigger monthly checks if you delay collecting them until you’re past 66, and you’ll “max out” on your payments once you reach 70. So, the question boils down to this: Should you start collecting Social Security early — thereby receiving smaller, but more numerous, checks — or later, when your checks will be bigger but fewer? If you really need the money once you reach 62, you’ve already got your answer. But if you could potentially afford to wait, we recommend you view your decision through a LENS: •L: Your projected lifespan —You can’t see into the future, but given your family history and general health, you can make an educated guess about your projected longevity. If you’re fairly confident that, once you reach 66, you’ve still got another two or more decades in front of you, you may want to consider delaying taking Social Security past age 62. •E: Your employment status — If you’re under full retirement age — between 62 and 66 — then for every two dollars you earn over $14,640 (in 2012), you’ll lose one dollar in Social Security benefits. In the months before you reach your full retirement age, for every three dollars you earn over $38,880 (again, for 2012), you’ll lose one dollar in benefits. But starting in the month you reach your full retirement age, you can earn as much as you want without losing any benefits. •N: Your need, including your other sources of retirement income — If you have a pension, or you’ve built substantial resources in your IRA, your 401(k) or other employer-sponsored retirement plan, and you can support your income needs with modest withdrawals from these accounts, you might decide it is worthwhile to delay taking Social Security to maximize your benefits. Remember that regardless of your Social Security decision, you typically would have to pay a 10% early withdrawal penalty if you started taking withdrawals from these accounts before you reach age 59½. •S: Your spouse/marital status — If you’re single, you basically just need to think of yourself when making this decision. But it is a different story if you are married. If you die first, your spouse can keep receiving his or her own Social Security benefit or receive yours — whichever is larger. Consequently, you and your spouse will want to coordinate when you take Social Security benefits so that you can maximize the benefit for the spouse likeliest to live longer. The choice of when to start taking Social Security can affect your lifestyle throughout your retirement years — so weigh all the factors and make the choice that is right for you.

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Banking & Finance

Mark Kolarik

2012-01-26 16:40:07

Q: I have several teenage and college age children. What type of financial advice can I give them?

A: To successfully reach their financial goals, a lot depends on what they do and when. Here are just a few ideas young adults can consider at key stages of their life. If you’re in high school Get a job: babysitting, lawn mowing or working in a movie theater or another “real” business. A job can provide a sense of accomplishment and responsibility. Automatically put some money into savings or investments before you’re tempted to spend it. Consider opening an account at your local credit union or financial institution, either on your own or with a parent or other adult. You also may want to start using a debit card or credit card. A debit card can be used it to make purchases but you won’t pay interest or get into debt because the money is automatically deducted from your checking account. There are credit cards designed just for teens including ones with a low credit limit that can keep you from getting deeply in debt. Another is a pre-paid card that comes with parental controls, including spending limits. If you’re in college Realize that as you pay bills and debts on your own; you are building a “credit record” that could be important when you apply for a loan or a job in the future. Pay your bills on time, and borrow only what you can repay. Choose a credit card carefully. Understand the risks as well as the rewards and do some comparison shopping. Don’t apply for a credit card just because you received an invitation in the mail or a sales person was offering a free gift on campus. Safeguard your personal information like Social Security number (SSN), when using the Internet or borrowing a computer provided by your school. Consider a paying job or even an unpaid internship at a workplace related to a career you’re considering. If you’re starting a career Keep your credit card and other debts manageable and maintain a good credit record. Contribute as much as you can to retirement savings and take advantage of matching contributions that your employer will put into your retirement savings. Do your best to stick to a budget and control your spending, especially if you’re still paying back student loans or working at an entry-level job. Check into low-cost or free insurance offered through your employer. If you’re starting a family Continue saving and investing money, including in retirement accounts. A home purchase can be expensive but it also can be an excellent investment and a source of tax breaks. Make sure you are properly insured, including life, health, disability and homeowner’s or renter’s insurance. Talk with an attorney about the legal documents you should have to protect your loved ones if you become seriously ill or die. These documents typically include a will, a “durable power of attorney”) and a “living will.”

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Banking & Finance

Seth Holder

2011-12-27 14:37:33

Q: As an investor, you know that 2011 was a somewhat “choppy” year, with the financial markets going through many ups and downs. So what can you expect in 2012?

A: As baseball Hall of Famer Yogi Berra is quoted as saying: “It’s hard to make predictions — especially about the future.” And these words are certainly applicable for anyone who would like an accurate forecast of the investment climate. Yet we do know of some factors that may affect your portfolio in the months ahead. Here are a few of them: •Strong business fundamentals. This past year, all the noise about the debt ceiling debate, the size of the U.S. deficit and the European financial situation tended to drown out some fairly good news: U.S. businesses’ balance sheets were strong for the most part, borrowing costs remained low, and corporate profits were good — and corporate profitability remains a key driver of stock prices. Heading into 2012, these fundamentals continue to look positive, which may bode well for investors. • Europe’s debt crisis — Greece’s economic problems made a lot of news in 2011, but they weren’t the end of the story in Europe, as major financial difficulties also face Italy, Spain, Portugal and Ireland. It’s by no means clear how these problems will be resolved, so don’t be surprised to see them lead to intermittent, if short-lived, shocks to the markets. • Election-year patterns — As you’re well aware, we’re voting for president in 2012. But you might be surprised to learn that the S&P 500 index has shown negative returns in only three of the last 21 presidential election years. Coincidence? No one can say for sure — and at this point, no one can say if this pattern of positive returns will continue during this election year. Still, it’s an interesting phenomenon. So there you have it. The good, the bad and the quirky. Take them all together, and you still may not be able to foresee what will happen with the markets this year, but you’ll have a lot to think about. But instead of trying to predict what will happen in 2012, you may be better off following these tried-and-true investment strategies: •Diversify your holdings. By spreading your money among a wide range of investments, you can reduce the effects of volatility on your portfolio. Keep in mind, though that diversification, by itself, can’t guarantee profits or protect against loss. •Don’t ignore your risk tolerance. If you worry excessively about market fluctuations, you may have too much risk in your portfolio, which means you may need to make some changes. •Always look at the “big picture.” Financial markets will always fluctuate. But if you can keep your focus on your long-term objectives, and make decisions accordingly, you can avoid overreacting to short-term events. Like other years, 2012 will bring with it periods of both turbulence and smooth sailing. But by making the right investment moves, you can still chart a course that can allow you to move ever closer to your future goals.

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Banking & Finance

Mark Kolarik

2011-12-27 13:53:11

Q: We have a son that will be attending college next fall. As parents, what should we do to educate him on money management.

A: College is a critical time to teach young adults budgeting and money management. Statistics show having a good understanding of financial skills is critical for college-bound students: •College students have the second-highest personal bankruptcy rate in the U.S., and student loan defaults are on the rise. (EDSA Group) •Half of college undergraduates had four or more credit cards in 2008. (creditcards.com) •In 2011, the average college student graduated with a debt of $22,900. (Wall Street Journal blog) Here are a few tips in helping parents teach soon-to-be college students critical lessons in money management. Guide them in establishing a credit card account. Using a credit card wisely is a good way to build a credit history, but stress that all credit cards are not the same. Encourage them to carefully scrutinize any credit card offers they receive. Consider applying for a joint credit card with your student – that way, you can monitor the spending activity and step in if things start to get out of hand. Stress the importance of protecting their personal information. Identity theft is on the rise, so teach them common-sense monitoring: review statements each month and report suspicious charges, protect all passwords and PINs and never share them with others. Shred receipts or papers containing personal or financial information, including pre-approved credit card offers and don’t mail checks from home mailboxes or apartment mail drops – use post-office locations when possible. If you pay bills online, only send payments over secured networks. Teach organization and budgeting skills. Make sure they stay on top of due dates for their bills. Have them keep receipts and balance their accounts regularly. Help them understand that late or missed payments, along with bounced checks or overdrawn balances, can damage their credit history and make it difficult to get a loan for their first car or home. Stand your ground. Establish ground rules about how much financial assistance you will provide before they leave home – and stick to it. If they need extra help once in a while, that’s fine, but don’t make it a habit. They need to learn on their own. Many local credit unions or banks offer special accounts, credit cards and saving programs designed especially for college students. Contact them to learn more.

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Banking & Finance

Chris Senecaut

2011-12-05 15:24:04

Q: What should I do with the money in my former employer’s retirement plan?

A: Last month, we talked about weighing the decision and the benefits of Rolling your retirement plan assets to a Rollover IRA. In addition to the IRA, you can also roll over proceeds from a Roth 401(k) plan or Roth 403(b) plan directly to a Roth IRA. You may be able to make a direct rollover from traditional (pre-tax) 401(a), 401(k), 403(b) and governmental 457(b) plans directly to a Roth IRA, if your plan allows for this type of transaction. Please note: This transaction is subject to ordinary income taxes. Direct Rollover – Assets from your employer’s qualified plan are rolled directly to your IRA. You don’t receive the distribution. Indirect Rollover – The employer distributes the retirement assets to you and withholds 20 percent of the proceeds for federal income tax purposes. To avoid taxation and a possible 10 percent federal penalty, you must roll over your gross distribution, including any amount withheld for taxes, to your IRA within 60 days after you receive it.

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Banking & Finance

Chris Senecaut

2011-12-05 15:19:54

Question: What are my options concerning my IRA?

Answer: It’s your decision, choose wisely. If you recently left your job, lost your job or plan to retire soon, you face an important decision. What will you do with the money in your former employer’s retirement plan? Before you decide, stop and think. The choice you make could have long-lasting consequences. Making the right decision can: • protect your money from current taxes and penalties • keep you in control of your money • help you reach your retirement goals Making the wrong decision can: • cost you money • reduce the amount of control and flexibility you have over your assets • shortchange the retirement savings you’ve accumulated throughout your career The right decision Rolling your retirement plan assets to a Rollover IRA may be your best decision. A Rollover IRA allows your retirement dollars to continue growing on a tax-deferred basis. It offers you more control than with other options. With the help of a knowledgeable financial adviser, Rollover IRA’s are easy to establish. A Rollover IRA can accept after-tax contributions as well as pre-tax contributions and earnings. You can roll over eligible distributions from these employer-sponsored qualified retirement plans: • Defined Benefit Plan • Defined Contribution Plan • 401(k) • Money Purchase Plan • Profit Sharing Plan • 403(b) TSA • Governmental 457(b) Plan • Qualified Stock Bonus Plan and Employee Stock Ownership Plan • Thrift Savings Plan Next month we’ll talk about rollover proceeds from Roth plans, including the difference between Direct and Indirect Rollovers. Remember, it’s your money, choose where you place it wisely.

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Banking & Finance

Seth Holder

2011-11-21 13:04:01

Q: Is investing just too risky right now?

A: If you’re an investor, you might be shaking your head in dismay after looking at your recent brokerage statements. In fact, you might even be thinking about giving up on Wall Street all together. But before you do, consider the following story. Two typical American children, Mary and Michael, begin their day with a hearty breakfast of oatmeal produced by Quaker Oats, a subsidiary of PepsiCo, based in Purchase, New York. At school, they work on a computer, using a Windows operating system produced by Microsoft, based in Redmond, Washington. Upon returning home, they do their homework under a lamp containing light bulbs produced by General Electric, headquartered in Fairfield, Connecticut. That night, their parents, pressed for time, take them to McDonald’s, whose corporate office is in Oak Brook, Illinois, and the children eat Big Macs and drink Cokes, produced by Coca-Cola, based in Atlanta, Georgia. Before going to bed, Michael and Mary wash up with Ivory Soap, produced by Proctor & Gamble, based in Cincinnati, and are thrilled to learn their parents are going to take them to Walt Disney World, owned by The Walt Disney Company, which operates out of Burbank, California. You get the picture. None of these businesses are on Wall Street — and when you invest in them, you’re not investing in “Wall Street,” which is really just a shorthand term for our system of trading stocks. Unfortunately, many people seem to think they are actually investing in the system itself, rather than in individual businesses, so when they repeatedly hear that “it’s been a wild day on Wall Street,” they start believing that the very act of investing has become too risky for them. But that’s not the case. As you can tell by their products, the companies mentioned above are likely to be around for a long time — or at least until people stop using computers, washing their hands and eating hamburgers. Does that mean that the stock prices of these types of companies will just keep climbing? Of course not. These businesses, like all businesses, will go through good and bad periods, and their stock prices will reflect these ups and downs. But here’s the key point: Barring an unforeseen calamity of epic proportions, there always will be businesses in which you can invest. And if you buy quality companies, and hold them for the long term, you’re going to increase your chances for success. So when you’re considering your investment strategy, don’t worry about today’s turbulence on “Wall Street.” Instead, look at tomorrow’s prospects for the companies in which you’re interested. Are their products competitive? Do they belong to an industry that is on the ascent or the decline? Do they have good management teams? Have they been consistently profitable over the years? By answering these and other key questions, you should be able to get a good sense of whether a stock is a good investment candidate. By thinking more about the individual businesses in which you might invest, and less about “Wall Street,” you can become a more focused investor. And, over the long term, that focus can pay off for you.

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Banking & Finance

Chris Senecaut

2011-11-21 12:09:58

Q: My wife and I are in our 40’s and have always struggled to make a decent living. Since we’ve always lived paycheck to pay check, we have not done any financial planning. We do not have savings, but we also do not have any debt. I have pretty much resolved that I will need to work until I die. Is it too late for us to start financial planning, given the limited budget?

A: It’s never too late for financial planning and believe it or not, it sounds like you are on good solid ground to make some gains. In the scheme of things, 40 is a relatively good time to get things in order. It’s your choice whether you want to start saving now or work until you die. The problem is many people get frail or sick or experience dementia in their old age and can’t earn income even though they have decades more to live. Add to that the fact that most need daily care that isn’t covered by health insurance, Medicare, or Medicaid. I hope that that won’t happen to you, but there are things you can do to make strides for a more secure future. First, begin a retirement plan. You can create it yourself or get the help of a financial planner. Saving to an IRA is very simple and anyone can open and contribute to one. Deposit at least a few dollars into it with every paycheck. If your income is low enough to get the tax break from a traditional IRA, open that. If not, open a Roth IRA. To start, don’t worry about all the investment options. Just put the IRA money in the FDIC insured savings investment option for your IRA. Next, consider all your options now, while you can. In your 40’s a second job is still a real option and can give you a good chance at retiring. Also, considering a second job now is wise as the options decrease with time. Finally, talk to a financial advisor about all of your options. You may have more opportunity than you realize and having a plan and knowing the facts can minimize or eliminate any discouragement you may feel. When you have a plan in place, it is much easier to work toward a specific goal. Good luck!

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Banking & Finance

Mark Kolarik

2011-11-21 12:05:23

Q: I am shopping for a new vehicle, should I take the 0% financing offered by the dealership?

A: More and more dealers are offering 0% financing, low rate loans, or cash-back rebates. While it’s nice to have choices, they can be down right confusing and expensive. In the final analysis, you may be better off with conventional auto financing from your credit union or bank. Here’s why: Regardless of which financing option you are interested in, a rebate vs. a low-rate auto loan, know the hidden costs in dealer financing options. • Dealers 0% financing, low-rate loans, and rebates almost always are available only on slower-selling models. These vehicles often have lower resale values. • Dealers 0% financing or low-rate loans can have bigger prepayment penalties and can require bigger down payments. • Dealer financing plans usually are limited to dealer stock. That means you may have to sacrifice color, style, and/or options you want. Unwanted options can add 25% to 30% to the sticker price of your car. • You could save money if you are one of the few eligible for 0% financing. Only buyers with “pristine” credit qualify. The auto manufactures define what they consider “pristine credit”. Consumers that do not qualify for the 0% rate are moved to higher rates. • These offers usually are restricted to short-term loans such as 12 months or 36 months. With such short term loans, the monthly payments may be more than you can handle. • You are unlikely to be able to negotiate the price of a vehicle and could end up paying more for a vehicle in order to get 0% financing. You also are less likely to get a good price on a trade-in. • If you choose the dealer’s rebate plan, you forego the low interest rate loan, but you get a cash rebate. Adding the rebate to your down payment can make credit union or bank financing very attractive, because the larger down payment reduces the amount you need to finance. Shop around for financing, just like you shop for a vehicle. Get preapproved at your credit union or bank before you shop for a vehicle. Ask the loan officer to help you evaluate which financing option is best for you.

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Banking & Finance

Seth Holder

2011-10-24 10:49:26

Q: I have a few investments but am thinking about getting more serious about investing. Why should I have an investment strategy?

A: Some people buy investments here and there, now and then. Others open an Individual Retirement Account (IRA), put some money in it, and then forget about it. But this type of haphazard investment behavior can lead to haphazard results. On the other hand, you’ve got five good reasons for creating and following a comprehensive, long-term investment strategy. • Reason No. 1: You want to enjoy a comfortable retirement lifestyle. For most people, building resources for retirement is the most powerful reason to invest. As a key part of your investment strategy, you’ll want to consider investments that have growth potential. The proportion of your portfolio devoted to these growth investments should be based on your individual risk tolerance and time horizon. And, as you move much closer to your actual retirement date, you may decide to shift some — but certainly not all — of your portfolio from growth-oriented vehicles to those investments that can provide a reliable income stream and incur less volatility. • Reason No. 2: You need to stay ahead of inflation. Over the past few years, we’ve experienced relatively low inflation, but over time, even a low inflation rate can dramatically erode the value of your savings and investments. That’s why you may want to consider investments that provide the potential for rising income. • Reason No. 3: You need to help manage the unexpected. You can’t predict what life will hold in store for you. To cope with unexpected costs, such as a major car repair or a new furnace, you’ll need to create an emergency fund containing six to 12 months’ worth of living expenses so that you won’t be forced to dip into your long-term investments. And to deal with other major uncertainties of life, you’ll need adequate life and disability insurance. • Reason No. 4: You need resources for major life events. Your retirement may eventually require the bulk of your financial resources — but it’s not the only milestone for which you’ll need to save and invest. You may need a down payment on a house, or you may someday even want to purchase a vacation home. And if you have children or grandchildren, you may want to help them pay for college. • Reason No. 5: You’ll want to keep in mind investment-related taxes. Taxes, like inflation, can eat into your investment returns. You’ll need to evaluate whether you can benefit from tax-advantaged investments and retirement accounts, such as traditional or Roth IRAs. So there you have it: five good reasons to adhere to a unified investment strategy that’s tailored to your situation. This type of “blueprint” may not sound glamorous, and it’s certainly not a “get rich quick” formula, but it will help you stay on track toward your important financial goals.

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Banking & Finance

Mark Kolarik

2011-10-20 11:33:29

Q: I am having trouble balancing my checking account, what can I do to keep from bouncing checks?

A: Americans bounce more than 125 million bad checks each year. And that figure will go up as technologies decrease your float time (the time it takes your checks to clear). With so many online transactions, recurring automated bill payments, growing use of debit cards and so many trips to the ATM, keeping track to the balance in your checkbook can become a guessing game. One that becomes expensive if you’re not careful. A bounced check every now and then could be a fluke. But if it’s more than an occasional event, examine your habits. Start by keeping a balanced checkbook; be diligent in recording debit card and ATM transactions, and other fees and keeping better routines and records overall. Use an online banking tool to review your checking account daily. But if there’s still a bit of bouncing going on, consider using these three tools: 1. Transfer from other accounts This kind of protection kicks in when you’ve prearranged to have funds from one account transfer to your checking account when you don’t have enough in your checking account to cover a transaction. Some financial institutions charge a fee for each transfer. You may have to request this service and choose which account the transferred money will come from. The best thing about this service is it helps avoid NSF (non sufficient funds) fees. For instance, if you write a bad check, you could end up paying your financial institution a NSF fee and the merchant could also charge you a fee for the bad check. 2. Line of credit A line of credit generally covers amount higher than those associated with the occasional bounced check. You apply for a line of credit just as you would apply for a signature loan. The line of credit could then be accessed to cover checks that overdraft your checking account. While this service generally means avoiding bounced check fees, keep in mind that the interest rate on a line of credit can run as high as credit card rates or higher. 3. Courtesy pay Should you inadvertently overdraw your checking account; programs such as courtesy pay can help. If sufficient funds are not available in your checking account to cover a check, your financial institution will cover the check up to a certain maximum dollar amount. The amount covered by courtesy pay must then be paid back to the financial institution within 30 days. The fee to cover the check will be about the same as a NSF fee. However, courtesy pay can save you the embarrassment and inconvenience of a returned check as well as the fee merchants normally charge for checks returned to them. These tools can help you stay on track, but the best way is to manage your finances and prevent being overdrawn, be aware what you’re spending-every day. If you frequently use your debit card and ATM card, focus on recording every transaction in a timely manner. And eliminate missed deposits by setting up an old service standby – direct deposit.

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Banking & Finance

Chris Senecaut

2011-10-20 11:06:47

Q: I am thinking about starting an IRA. Do you have any recommendations or things I should consider?

A: Yes, absolutely. If you are going to start IRA, Roth IRAs, CDs and also interested in rolling over accounts, it’s in your best interest to do so before Jan 2012. In an effort to boost the economy, the Federal Reserve sold $400 Billion of long-term securities for an equal amount of shorter-term instruments. This stimulus measure, dubbed Operation Twist, will be completed by June 2012 and will drive interest rates even lower, according to an ABC News Consumer Report. If you shop around, you will be able to roll over your funds into a higher earning account and lock into a better rate before the interest rate is expected to fall in or soon after January of 2012. Since we are nearing the end of the year, time is of the essence as it can take as much as 30 days for rollovers to be complete. According to the Federal Reserve’s Open market Committee, economic conditions warrant “exceptionally low” interest rates through mid-2013. What does this mean for Americans in the general sense? While your savings will not add interest as quickly, lower rates will make it easier for you to borrow money to make large purchases such as cars and homes, which in turn stimulates the economy. Additionally, with interest lower, you won’t have to spend as much on interest, leaving more for other purchases.

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Banking & Finance

Chris Senecaut

2011-09-29 15:52:58

Q: I have a couple of kids, and do not make much money. I want to start saving for college for them though, figuring every bit counts. Any tips on saving for college and making the most of the money?

A: First, it is never too late to start saving, because every bit does count. Just ask any ramen noodle eating college student. However, the sooner you start saving, the better. One of the most important things to remember is that time is a tool. No matter where you are starting in the saving process, you will need to make some serious decisions based on time. For example, some people choose to dip into their retirement account to pay for their children’s college tuition. On the surface, it seems like a wise decision. However, when you think of time as a tool, you see that the financial opportunities offered to your child in their college years far exceed the opportunities that will be offered to you in your retirement years. Depleting your retirement savings may eventually add a burden to your child. According to the College Board, the average cost for tuition and fees at four-year public institutions has increased nearly 51% over the last 10-years (after adjusting for inflation). You can expect these costs to continue to rise. Saving just .50 a day can result in $6,500 in 18-years in a plan that gives 7% annual return. Saving $100 a month can result in $43,300 in the same amount of time. Next, you need to investigate your options in college savings plans. You may want to talk to a financial advisor or someone knowledgeable about savings plans to help you understand and leverage the tax benefits. A number of college savings plans offer additional advantages, beyond a traditional savings account. The 529 plan, for example is set up specifically to reap optimum advantage for college savings. Finally, examine fees and expenses for plans in and out of your home state. Every option will involve some type of fee-table and individual state taxes will vary. No matter when you start saving, every bit will help reduce reliance on debt.

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Banking & Finance

Mark Kolarik

2011-09-29 15:33:44

Q: What is a substitute check?

A: To make check processing faster, federal law permits retailers and financial institutions to replace original checks with “substitute checks”. Retailers and financial institutions are converting paper checks into electronic images for collection purposes. Once the image is transferred, the financial institution may create, from the image of the original check, a substitute check. These checks are similar in size to original checks with a slightly reduced image of the front and back of the check. The front of a substitute check states: “This is a legal copy of your check. You can use it the same way you would used the original check.” You may use a substitute check as proof of payment just like the original check. The substitute check allows more rapid processing of checks and will reduce float (the time between when a check in written and when it clears your account). On average, the float time has been reduced to approximately 24 hours. So consumers will want to make sure that adequate funds are in their account when checks are written to avoid potential problems. Many retailers, after scanning the check, give the check back to you. If you believe that you have suffered a loss relating to a substitute check that was posted to your account, contact your financial institution immediately. You must contact your financial institution within 40 calendar days of the date that an account statement was sent to you. Your claim must include: • A description of why you have suffered a loss (for example, you think the amount withdrawn was incorrect); • An estimate of the amount of your loss; • An explanation of why the substitute check you received is insufficient to confirm that you suffered as loss, and • Copies of the substitute check (and/or) the following information to help indentify the substitute check: the check number, the name of the person to whom you wrote the check, and the amount of the check. The losses you may attempt to recover under this procedure may include the amount that was withdrawn from your account and fees that were charged as a result of the withdrawal.

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Banking & Finance

Seth Holder

2011-09-29 13:56:38

Q: What should I do with an inheritance?

A: Will you ever receive a sizable inheritance? You can’t plan on it. But if you do get one, you can plan on using it to help achieve some of your key financial goals. Once you get word of an inheritance, what steps should you take? Above all, don’t rush to act. If you are in the midst of the grieving process, it’s hard to make good decisions about money. Consequently, you may want to consider “parking” your inheritance temporarily in a liquid vehicle, such as a cash or cash alternative investment. Don’t fret if your inheritance isn’t really growing much for a few months — you’ll have time to put it to work later. After you’ve parked your money and some time has passed, you can think about what to do with your inheritance. Here are a few ideas: • Get rid of debts Use your inheritance to pay off as many debts as you can, especially those consumer loans that are not tax-deductible and that carry high interest rates. • Establish an emergency fund This fund should contain six to 12 months’ worth of living expenses. Without it, you may be forced to dip into your investments to pay for unexpected costs, such as an expensive car repair or a hefty medical bill. • Review and adjust your financial strategies If your inheritance is large enough, it may be a “game changer” in terms of how you pursue your financial strategies. For example, you may now be able to speed up your timetable toward retirement, if that’s what you want. Or you may be able to pay more of your children’s college education, thus freeing up more funds for your own retirement savings. In fact, by investing your inheritance in certain ways, you can influence many desired outcomes that you’ve identified in your overall financial strategy. Your financial advisor can help you make those moves that are most appropriate for your individual needs. • Plan for taxes Unless you are “inheriting” your spouse’s assets, you may be subject to some type of taxes when you receive an inheritance. Some types of inheritance, such as the proceeds from a life insurance policy, are tax-free. On the other hand, if you inherit a non-spousal 401(k) plan and are forced to take the money as a lump sum, which is likely because most 401(k) providers would prefer to remove the account from their books, your inheritance will be subject to federal, state and local income taxes. However, thanks to recent tax law changes, as a non-spouse beneficiary you can now transfer an inherited 401(k) to an IRA, which allows you to avoid immediately paying taxes on your inheritance. You’ll still be required to take annual withdrawals, which are taxable, but the amount will be based on your life expectancy, so you can spread out your tax burden. To make sure you’re making the right moves with an inherited 401(k), consult with your tax advisor. You may get only one inheritance in your life — so do whatever you can to make the most of it.

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Banking & Finance

Chris Senecaut

2011-07-01 10:51:00

Question: How can I financially protect my family when dealing with a loss due to death?

Answer: If you want to protect your family against the financial consequences associated with death, both term life insurance and permanent life insurance can meet your goal. But the two life insurance products are very different. With term life insurance you purchase life insurance for a specified number of years. At the end of that time period, your life insurance coverage ends. Often, term life insurance is less expensive to obtain than permanent life insurance. However, each time you renew a term life insurance contract, your premiums will probably increase. Premiums for term life insurance are based on your attained age at renewal. Many people choose term life insurance when they need death benefit protection but are unable to pay the higher premiums of permanent life insurance. Later, when they can afford it, they convert their term life insurance to permanent life insurance. Term life insurance also helps you provide money if you die while still owing for a mortgage, car loan or other major debt. If you’re looking for death benefit protection for your entire life, permanent life insurance can be the better choice. As long as you pay the premiums, the death benefit will always be there. And premiums for permanent life insurance usually remain the same throughout the life of the contract. Most permanent life insurance plans offer a cash value in addition to the death benefit. The cash value is a sum in the contract that usually increases through the years on a tax-deferred basis under current tax laws. Some people borrow against the cash value to help pay for unexpected emergencies or college expenses, or to help supplement their retirement income.

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Banking & Finance

Mark Kolarik

2011-07-01 08:19:00

Question: Can I get a copy of my credit report?

Answer: You can get a free report from each of the three nationwide consumer reporting companies every 12 months. The official web site, annual creditreports.com is the only authorized online source for you to get a free credit report under federal law. Some other sites claim to offer “free” credit reports, but may charge you for another product if you accept a “free” report. The three nationwide consumer reporting companies have set up one central web site, toll-free telephone number and mailing address through which you can order your free annual credit report. • Visit annualcreditreport.com or • Call 1-877-322-8228 or • Complete the Annual Credit Report Request Form and mail it to: Annual Credit Report Request Service P.O. Box 105281 Atlanta, GA 30348-5281 Do not contact the three nationwide consumer reporting companies individually. They are only providing free reports through the contacts listed above. Once you get your report, review it closely. If you are disputing or correcting information in your report, contact the reporting agency at: • Equifax-www.investigate.equifax.com • Experian-www.experian.com • Transunion-www.transunion.com

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Banking & Finance

Seth Holder

2011-07-01 08:19:00

Question: What are the benefits of a Roth IRA? How does it differ from a traditional IRA or a 401K and are there any tax penalties?

Answer: Some investments are appropriate during your working years, while others are more suitable for retirement. But a Roth Individual Retirement Account (IRA) can provide you with benefits at virtually every stage of your life. Let’s take a quick “journey” through some of these stages to see just how valuable a Roth IRA can be. To begin with, you can open a Roth IRA at any age, provided you have earned income and meet certain income limits. So if you’re just starting out in your career, put as much as you can afford into your Roth IRA and gradually increase your contributions as your income rises, up to the contribution limit. A Roth IRA is an excellent retirement savings vehicle because it can grow tax free and your contributions can be invested into just about any investment you choose — stocks, bonds, mutual funds, CDs and so on. Of course, when you’re young, you might not be thinking much about retirement. But the earlier you start contributing to a Roth IRA, the more you could end up with — and the difference could be substantial. In fact, if you started putting money into a Roth IRA at age 30, and you contributed the maximum amount each year until you reached 65, you would accumulate more than $766,000, assuming you are in the 25% tax bracket and you earned a 7% return, compounded annually. But, given the same assumptions, you’d end up with only about $365,000 if you waited until 40 before you started contributing. It clearly pays to contribute early and annually to a Roth IRA. (In 2011, the annual contribution limit is $5,000, or $6,000 if you’re 50 or older). There are additional benefits to funding a Roth IRA, such as its flexible withdrawal options, which are available to you even before you retire. Since you already paid taxes on the money you put into your Roth, you can withdraw your contributions at any time without paying taxes or penalties. Generally speaking, it’s certainly best to leave your Roth IRA intact for as long as possible. But if there’s an emergency and you need access to the funds, you can also withdraw your Roth’s earnings tax free, provided you’ve held your account at least five years and you don’t start taking withdrawals until you’ve reached 59½. Now, let’s fast-forward to your retirement. Unlike other retirement accounts, such as a traditional IRA or a 401(k), your Roth IRA does not require you to start taking withdrawals at age 70½ — or ever. If you don’t need the money, you can leave it alone, possibly to grow further, for as long as you like. This means that you might have more money to bequeath to your children or other beneficiaries, and they won’t have to pay income taxes on withdrawals from either your contributions or your earnings, provided your Roth IRA account has been open for at least five years. Keep in mind, though, that your beneficiaries will be required to take distributions based on their life expectancy. As you can see, a Roth IRA can be an excellent financial “traveling companion” as you go through life. So consider adding a Roth to your portfolio — and bon voyage.

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Banking & Finance

Chris Senecaut

2011-06-01 12:22:00

Question: What common mistakes are made when saving for retirement?

Answer: If you want to reach your retirement savings goals, avoid these common mistakes. Guess your retirement needs: Make a retirement needs estimate. Seventy to 80 percent of your current income (or projected income at retirement) is a good amount for most people, but you may want to save more or less, depending on the lifestyle you’d like to maintain. Rely entirely on Social Security: Social Security benefits only replace about 40 percent of preretirement income for the average earner. Save too little: Contact a financial planning adviser for help determining if you’re saving enough money each month to reach your retirement savings goal. Forget about IRAs and Roth IRAs: Consider these solid retirement savings vehicles in addition to your employer-sponsored plans. Pass up your 401(k) plan: If you have an employer-sponsored retirement plan, it should be the heart of your retirement planning. Take full advantage of your employer match, if you don’t, you’re giving away free money. Cash in your 401(k) plan: View the money in your 401(k) as money already spent. If you’re changing jobs, transfer it to another tax-deferred savings vehicle or leave it alone so it can continue to accumulate funds for your retirement. Give up: The sooner you start saving, the easier it will be to accomplish your retirement goals. Even if you can only save a small amount right now, it will add up over time - start now! Avoid these retirement planning pitfalls, and you’re on your way to reaching your retirement goals!

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Banking & Finance

Seth Holder

2011-06-01 12:22:00

Question: I’ve always invested in CD’s because they are safe but am tired of the low interest rates. What other types of investments should I consider?

Answer: Many people depend on certificates of deposit (CDs) to provide extra income. Yet CD rates have been fairly low for a while. In recent months, in fact, one-year CDs were paying about 0.5%, two-year CDs topped out at around 1%, and five-year CDs paid in the 2% to 2. 3% range. Those rates are scanty enough, but they can seem even lower in an economic environment marked by rising food and gas prices. Before you consider alternatives, keep in mind that CDs still offer a key advantage: safety of principal. The Federal Deposit Insurance Corporation (FDIC) typically insures CDs up to $250,000. And since CDs are relatively short-term in nature, you don’t have to worry about locking away that money for long periods of time. So there can be a place for CDs in the fixed-income portion of your portfolio. However, during times such as these, you might consider looking at additional options, keeping in mind that, when seeking greater income, you’ll likely be taking on more risk. Let’s consider a few alternatives: • Fixed annuities: Many people buy fixed annuities to supplement their retirement income. But most annuities also allow you to take up to 10% of your account value each year without penalty. Plus, the interest rate you receive on a fixed annuity may be more competitive than that currently paid by a CD. Keep in mind, though, that annuities are not backed by FDIC insurance, and any guarantees are backed solely by the paying ability of the insurance company. Additionally, early or excessive withdrawals may be subject to penalties. If you believe a fixed annuity might be appropriate for your situation, speak with your financial advisor. • Bond ladders: If appropriate for your situation, you can potentially gain extra income through a strategy known as a bond “ladder.” To build a ladder, you buy several bonds with varying maturities — short-, intermediate- and long-term. Once you’ve constructed your ladder, you could gain some advantage in various interest rate environments. When market rates are low, you’ll still have your longer-term bonds earning higher interest rates. And when market rates rise, you can reinvest your maturing short-term bonds at the higher rates. But if you need income in addition to your regular interest payments, you can get it from the maturing bonds. Unlike CDs, however, bonds are not covered by FDIC insurance and are subject to credit risks. Bonds are also subject to interest rate risk: When interest rates rise, bond prices generally fall, and you may lose some or all of your principal if you sell your bond prior to maturity. But by holding your bonds until maturity, you can avoid loss of principal, assuming the issuer doesn’t default. • Dividend-paying stocks: Some companies have paid and increased their stock dividends for many years now. If you don’t need the dividends to boost your cash flow, you can reinvest them to help boost your ownership stake. However, companies can reduce or discontinue their dividends at any time, and since stock prices fluctuate, you risk losing some or all of your principal. By exploring alternatives to short-term CDs, you may find other appropriate investments that may better position you to reach your financial goals so look around to see what’s available in the financial marketplace.

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Banking & Finance

Judd Schossow

2011-06-01 12:22:00

Question: What is an “umbrella” policy? What losses do they cover?

Answer: Standard auto, homeowner’s and boat insurance policies cover liability a person may have for injuries or property damage suffered by someone else. Insurance companies design them to cover accidents for which the insured person may owe tens or even hundreds of thousands of dollars. However, sometimes the person may be responsible for an accident so catastrophic that the damages are $1,000,000 or more. To cover financially devastating events like these, insurance companies offer personal umbrella policies. These policies provide additional protection when an accident uses up the amounts of insurance provided by the other policies. They may also cover some types of losses these other policies do not cover. There is not a “standard” umbrella policy; each company’s offering will be different. Therefore, it helps to have a checklist of considerations when evaluating a policy. First, identify those things that could expose you to a catastrophic loss. How many cars do you own? Do you have inexperienced drivers in your household? Household attractions like swimming pools, trampolines, and swing-sets present an exposure to severe losses. Boats, like cars, can cause serious injuries and damage if the operators are inattentive, intoxicated, or inexperienced. Next, identify other exposures you may have that do not involve potential physical injury or illness or property damage or that might require different coverage. Does anyone coach a youth sports team, belong to the governing board of a non-profit organization, write computer code as a hobby, or give music lessons? These activities present different exposures to legal liability. Review your insurance policies. How much will your auto insurance pay for injuries to one other person? How much will it pay collectively for injuries to more than one? How much will it pay for property damage? How much will your homeowners policy pay for your personal liability for an accident? How much will your boat-owners policy pay for your liability for boating accidents? The answers to these questions will tell you where an umbrella policy can help. For example, if your auto policy will pay up to $250,000 for injuries to one person and $500,000 for injuries to multiple people, an umbrella with a $1,000,000 limit will give you insurance equaling $1,500,000 for injuries to two or more people. If your homeowner’s policy will pay up to $300,000 for your liability, the same umbrella will afford $1,300,000 if someone gets seriously hurt at your home. The umbrella limit of insurance also applies on top of the limit on the boat policy. In addition, the umbrella may cover things like volunteer activities, statements made online, and certain business activities that a homeowner’s or auto policy might not cover. Normally, the insurance company will require you to pay a deductible amount (such as $250 or $500) before it will pay for a loss that one of these other policies does not cover. A professional insurance agent can help you sort out what your current insurance does and does not cover and what additional coverage’s an umbrella will provide. It is important to compare all the coverage’s the policies provide and not just their prices. Fortunately, catastrophic accidents are extremely rare, but having an umbrella policy when they happen can make it easier to get through them.

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Banking & Finance

Mark Kolarik

2011-06-01 12:07:00

Question: I have fallen behind on my mortgage payment what should I do?

Answer: Millions of American homeowners are lying awake at night wondering how they’ll make their mortgage payments. Lurking nearby is the companion worry: Will we lose our home? If you are in this situation because of job loss, medical bills, or other misfortune, you might be a candidate for a loan modification. Typically loan modifications benefit people who have a long-term financial problem. Or, if you’ve fallen behind in mortgage payments due to a temporary setback, your lender may suggest a forbearance agreement. In which you agree to resume monthly payments, tacking on an extra amount each month to bring you up-to-date on payment in a short time. But someone with long-term financial troubles may not have the money to catch up over a short time. Then, a loan modification is a better solution. The lender modifies the loan to lower the rate or stretch payments over more years, making payments more affordable. If you owe past-due payments, the lender rolls those into the loan, so you can pay back the overdue amount over the life of the mortgage. No matter where you got your mortgage, if you’re having difficulties contact our lender right away. Tell your story and be accurate. A housing counselor can help determine the options available to you. A counselor can also provide objectivity and look at the pros and cons of various situations. Beware of solicitors who offer to help you save your house, for a hefty fee. No legitimate housing counselor is out looking for delinquent borrowers. There are a lot of scams out there. Be careful.

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Banking & Finance

Mark Kolarik

2011-05-01 13:04:00

Question: What is online banking and is it safe?

Answer: Making sure your money is where it’s suppose to be, when it’s supposed to be there, is getting simpler all the time with online banking. If you overlook online banking services, you’re missing opportunities to make your life easier and safer. You can handle personal finances when you choose to and can do so with efficiency, privacy and accuracy. You can: •Monitor your account balances and track transactions •Get immediate access to account information You can reconcile your account whenever you choose to. No need to wait a whole month to receive your statement. •Routinely pay bills on time That’s the strongest contributor to a stellar credit record, and that’s your best way to earn the lowest borrowing rates. Plus, you never need to worry about incurring late-payment fees or interest rate penalty hike for late payments. Paying bills online is one the biggest time-savers online banking creates. You enter account information such as the merchant’s name, address and so on when you sign up for the services, then return to the site to pay a bill with a mouse click. You also might be able to set up automated payments to handle recurring bills, such as insurance premiums or utility bills. •Cut costs You will purchase fewer paper checks, as well as eliminate the need for stamps and envelopes. •Automate other functions to save time and help you achieve financial goals For example, you can move funds automatically from checking to savings to help reach the goal of, say, a down payment on a house. •See details of checks you have written, so you can verify the recipient, date, and amount If instance, if you forget to record the amount of a debit card purchase, online banking allows you to retrieve a current statement listing the transaction. Safeguard your accounts. Studies show that most identity theft still occurs when thieves obtain information on paper by digging through trash cans or stealing from mailboxes. Online banking protects you from many types of fraud. You will reduce that risk when you receive electronic statements or send payments online. To stay safe: •Monitor accounts and debit and credit card activity daily to quickly catch and counter attempts to transfer funds or make unauthorized purchases. •Change online passwords frequently. Avoid telling your password to anyone. •Never respond to e-mail purporting to be from a financial institution requesting account or password information. We never will ask for this information by e-mail or phone; it’s already on file. •Make sure the secure area of the site – those Web pages you access after you log in with your password – always has “https” at the beginning of the address at the top of every page, and a padlock on the browser frame, not within the page. •Never share personal account information in e-mails. •Install and keep updated a personal firewall and antivirus software.

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Banking & Finance

Seth Holder

2011-05-01 10:46:00

Question: I’ve always thought a will is all I needed to take care of my estate, can you explain some of the other estate planning options?

Answer: During your lifetime, you make a lot of moves to provide financial security to your loved ones. You put away money for college for your children. You save and invest for your own retirement so that you won’t burden your grown children with significant expenses. And you purchase adequate life insurance to enable your family to maintain its lifestyle should anything happen to you. Yet, if you’re going to help preserve your family’s financial well-being after you’re gone, you also need to take one additional step: Create an estate plan. Toward that end, you’ll want to start by learning a few of the estate plan basics, such as these commonly used tools: Will: For most people, a will is probably the most essential estate-planning document. Regardless of the size of your estate, you need a will to ensure that your assets and personal belongings will be distributed according to your wishes. If you die intestate (without a will), your belongings will be distributed to your “heirs” as defined by state laws — and these distributions may not be at all what you had in mind. Living Trust: A simple will may not be sufficient for your needs. Consequently, you may want to design a living trust, which provides you with more flexibility in distributing assets. For example, you could direct your living trust to disperse assets to your children or grandchildren at specific ages. Also, a living trust makes it possible for your assets to be distributed without going through the often time-consuming, and public, probate process. Beneficiary Designations: Over time, your life may change in many ways, through marriage, remarriage, children, stepchildren and so on. That’s why it’s important to periodically update your beneficiary designations on your insurance policies and retirement accounts, such as your IRA and 401(k). These designations are powerful and can even supersede the instructions left in your will or living trust, so it’s essential that you’ve got the right people listed as your beneficiaries. Irrevocable Life Insurance Trust: Depending on the size of your estate, your heirs may ultimately have to pay estate taxes, though the estate tax laws have been in flux in recent years and may continue to evolve. If estate taxes are a concern, you may want to take steps to alleviate them, such as establishing an irrevocable life insurance trust, under which you’d transfer a life insurance policy out of your estate and have the trust distribute the proceeds to the beneficiaries you’ve chosen. Power of Attorney: A power of attorney allows you to appoint a person (an “Attorney-in-Fact” or “Agent”) to handle your affairs if you can’t do so yourself. Health Care Directive: A health care directive allows you to name someone to make health care decisions on your behalf, should you become physically or mentally incapacitated. Estate planning can be complex, so you’ll need to work with your tax, legal and financial advisors to make the arrangements that are appropriate for your needs. It may take some time to develop your estate plan, but it’s well worth the effort.

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Banking & Finance

Seth Holder

2011-04-01 13:55:00

Question: I’ve recently changed jobs and will be enrolling in my new employers 401(k) soon. What information and advice can you give me about 401(k)’s?

Answer: Your 401(k) offers tax-deductible contributions, tax-deferred growth of earnings potential and a variety of investment options — so it’s a great tool for building retirement savings. Yet, like all tools, your 401(k) must be used properly to get the best results. That’s why you should review your 401(k) at least annually and make whatever adjustments are needed. Depending on where you work, you may get some 401(k) review help from your plan provider. But if that assistance isn’t available, you might want to consult with a financial professional to make sure you’re getting the maximum benefit from your plan. As you begin to review your 401(k), your first question should probably be this: “How much should I contribute?” At the very least, try to put in enough to receive your employer’s matching contribution, if one is offered. If you don’t earn this match, you are essentially walking away from “free money.” Beyond this, though, the amount you put in to your 401(k) might depend on what other retirement savings vehicles you have available. For instance, if you’re eligible, you may also want to contribute to a Roth IRA, which offers tax-free growth potential, provided you’ve had your account for five-years and don’t start taking withdrawals until you’re 59-1/2. Of course, it’s not only how much you put into your 401(k) that determines its success — it’s also how you choose to allocate your investment dollars. (Keep in mind that asset allocation does not ensure a profit or protect against loss). Your 401(k) may have a dozen or more investment choices, such as stock funds, bond funds and money market funds. To choose the right investment mix, you’ll need to consider a variety of factors, including these: • Your age - Generally speaking, the younger you are, the more aggressive you can afford to be with your 401(k) investments, because you’ll have decades in which to overcome the inevitable down periods of the market. As you get older, you may wish to invest somewhat more conservatively, but you’ll still need some growth potential in your 401(k) portfolio. • Your goals - Everyone has different goals for retirement. You might want to retire early and travel the world, while your co-worker desires to work as long as possible and then, upon retirement, stay close to home and pursue hobbies. Because you each have different goals, with different income needs, you also may need to follow different investment strategies within your 401(k). •Your other retirement income sources - If you have a variety of retirement income sources - a pension from another job, an IRA, a spouse with generous retirement benefits - you may need to invest differently, perhaps less aggressively, than if you had fewer options for retirement income. Apart from putting away as much as you can in your 401(k) and choosing the right investment mix, what else can you do to get the most out of your plan? Here’s a suggestion: If you have worked at various jobs and you have multiple 401(k)s, consider rolling them over them into one account. You might save money on fees and reduce paperwork, but, more importantly, you’ll be able to concentrate your resources and pursue a unified investment approach, with all your investment dollars working together toward your ultimate retirement goals. As you can see, a 401(k) review and rollover can reward you in many ways — so do whatever it takes to maximize your 401(k)’s performance.

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Banking & Finance

Judd Schossow

2011-04-01 10:42:00

Question: Can you explain the differences between a CD and an Annuity? Which is better long term?

Answer: If you’re quickly approaching retirement, you’re probably asking yourself an all-too-common question: should I invest in a bank CD or an annuity? You’re not alone. Consumers across the nation are struggling with the same dilemma. The first step in making this important decision is to understand the differences between these two products. Annuities and CDs (short for bank certificates of deposit) might appear to be very similar at first glance. Both are secure, low risk investments that are designed to help you accumulate wealth. However, these two types of investments are actually very different products. First of all, CDs are generally issued by banks while annuities are offered by insurance companies. Secondly, a CD is typically a better investment for short-term goals, such as a down payment on a new home or car, while an annuity is a better choice for longer term goals, like generating a lifetime stream of retirement income. Here are a few things to keep in mind as you weigh the differences between CDs and annuities: CD interest rates are uncertain Interest rates have plummeted in recent months. While that’s a great thing for homebuyers, it translates into lower returns on bank savings. Right now, one-year CDs often pay 1.5 percent or less—a huge drop from a couple of years ago when CDs paid more than 3 percent. The future is uncertain for CD interest rates. Your rate on a CD may be higher or lower a year from now—it’s too hard to predict. So, if you’re looking to maintain a certain retirement income level, a CD may not be the best bet. Guaranteed rates with fixed annuities Fixed annuities offer a guaranteed minimum. This ensures that your investment will not drop below the minimum performance. When interest rates drop, so do returns on CDs. But fixed annuity returns never fall below a certain point. Therefore, if you hold a fixed annuity until maturity, you are guaranteed to earn a minimum stated rate of interest regardless of what happens to interest rates or stock market indexes. Because fixed annuities are lower risk, conservative investments, they are often ideal for retirees or soon-to-be retires. Fixed annuities offer incredible tax advantages With CDs, you must pay taxes annually on the interest earned even if you haven’t withdrawn any money. Alternatively, fixed annuity earnings are tax-deferred. You only pay taxes on interest earned when you withdraw money from the annuity. This means that you end up earning an increasing amount of money with fixed annuities because the deferred tax on your interest remains in the investment instead of being paid out to state and federal taxes each year. CDs aren’t as flexible Fixed annuities also offer more flexibility than CDs. With a CD, you cannot remove any money before the term is over without incurring an early withdrawal penalty. Although fixed annuities also have early withdrawal penalties known as surrender charges, they include provisions that typically allow you to withdraw 10% of your investment value each year without penalties. Additionally, with many fixed annuities, you can withdraw the earned interest on your investment each month. Some fixed annuities offer you access to the sum total of your investment funds in the event of a financial hardship. For example, you may be allowed to withdraw from your fixed annuity penalty free if you are hospitalized, develop a life-threatening illness or are forced to live in a nursing home for an extended length of time. With a fixed annuity, you can also choose an option to receive a predetermined amount of income from the investment over a fixed time period, such as five or ten years. This option offers enhanced income security while spreading out any taxes that your earnings might incur over many years. Annuities are extremely safe While CDs are issued by banks, annuities are issued by insurance companies. As compared to banks and brokerage firms, insurance companies have a historical record of stability. This is largely because insurance companies offer conservative investment options that carry very little risk. Just think...insurance companies have survived times of war, global depressions, government failures, industry scandals and disastrous stock market plunges. However, in even the worst of times, Americans have been able to safely insure their homes, health, life, cars and businesses. Survey says… All things considered, fixed annuities are a solid option for retirement-focused investors. These superior, reliable investments can provide higher returns, tax advantages and enhanced flexibility, all while providing safety and security. Not to mention that fixed annuities can generate a guaranteed stream of income. Talk to your financial advisor or insurance agent today about whether a fixed annuity is right for you.

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Banking & Finance

Mark Kolarik

2011-03-01 14:39:00

Question: I would like to purchase a home. Can you give me information on the financing?

Answer: Congratulations; you’ve decided to buy a house. Can you afford it? Becoming a homeowner is fun and rewarding, but it also can be stressful. The more prepared and educated you are about the home buying process, the less stress you’ll encounter. After you have determined your personal readiness to buy a house, such as narrowing down a location and if you will enjoy maintaining a house, the next thing you need to do is crunch some numbers to find out how much house you can afford. To estimate an affordable monthly payment, the majority of lenders use the classic 28/36 guideline. First, your monthly house payment (including mortgage principal and interest, property taxes and home insurance) should amount to no more than 28% of your monthly gross income (what you earn before income taxes, Social Security and other deductions come out of your paycheck). Second, total monthly debt obligations (mortgage, car payments, credit cards and other loans) should not exceed 36% of your monthly gross income. In calculating your cost to own a house, keep in mind that your down payment and monthly payments are only part of the cost of buying. If you buy a house with less than a 20% down payment, your lender will require you to purchase private mortgage insurance (PMI), which will increase your monthly payment. You will need additional money to cover closing costs: lenders fees, property appraisal, escrow payments,and more. And once you’re a home owner, you will face ongoing expenses for routine maintenance that protects your investment. Over the life of your loan, your mortgage amortizes. That’s the process by which you gradually pay down the loan. In the early years of your mortgage, most of your payment goes toward interest. As years go by, your payment gradually shifts between principal and interest until, by the last year, almost all your payment is toward principal. For more specific information, talk with a mortgage loan officer at your credit union or local financial institution.

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Banking & Finance

Mark Kolarik

2011-03-01 11:31:00

Question: What is a Health Savings Account?

Answer: On December 8th, 2003, President Bush signed a law authorizing financial institutions to make available Health Savings Accounts. A Health Savings Account (HSA) is an account that you can put money into to save for future medical expenses. There are certain advantages to putting money into these accounts, including favorable tax treatment. Any adult can contribute to an HSA if they: •Have coverage under an HSA qualified “high deductible health plan” (HDHP). •Have no other first dollar medical coverage (other types of insurance like specific injury insurance or accident, disability, dental care, vision care, or long-term care insurance are permitted). •Are not enrolled in Medicare. •Cannot be claimed as a dependent on someone else’s tax return. Contributions to your HSA can be made by you, your employer, or both, however, the total contributions are limited annually. If you make a contribution, you can deduct the contributions (even if you do not itemize deductions) when completing your federal tax return. Contributions to the account must stop once you are enrolled in Medicare. However, you can keep the money in your account and use it to pay for medical expenses tax-free. You can use the money in the account to pay for any “qualified medical expense” permitted under federal law. This includes most medical care and services, and dental and vision care and also includes over-the-counter drugs such as aspirin. The account can be used for medical expenses of yourself, your spouse, or your spouse and dependent children even if they are not covered by your HDHP. Any amounts used for purposes other than to pay for “qualified medical expenses” are taxable as income and subject to an additional 10% tax penalty. After you turn 65, the 10% additional tax penalty no longer applies. If you become disabled and/or enrolled in Medicare, the account can be used for other purposes without paying the additional 10% penalty. Advantages of HSAs Security – Your high deductible insurance and HSA protect you against high or unexpected medical bills. Affordability – You should be able to lower your health insurance premiums by switching to health insurance coverage with a high deductible. Flexibility – You can use the funds in your account to pay for current medical expenses, including expenses that your insurance may not cover, or save the money in your account for future needs, such as: •Health insurance or medical expenses if unemployed •Medical expenses after retirement (before Medicare) •Out-of-pocket expenses when covered by Medicare •Long-term care expense and insurance Savings – You can save the money in your account for future medical expenses and grow your account through investment earnings. Control – You make all the decisions about: •How much to put into the account •Whether to save the account for future expenses or pay current medical expenses •Which medical expenses to pay from the account •Which financial institution will hold the account •Whether to invest any of the money in the account •Which investments to make Portability – Accounts are completely portable, meaning you can keep your HSA even if you: •Change jobs •Change your medical coverage •Become unemployed •Move to another state •Change your martial status Ownership – Funds remain in the account from year to year, just like an IRA. There are no “use it or lose it” rules for HSAs. To open a HSA, check with your local credit union or bank to see if they offer HSA accounts.

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Banking & Finance

Seth Holder

2011-03-01 10:08:00

Question: I have a small business and am interested in setting up a retirement plan through my business. What are some of the options available to me?

Answer: If you’re self-employed or you own a business, you’ve got a lot to think about: attracting new customers, maintaining cash flow, upgrading equipment and facilities — the list goes on and on. Yet, as busy as you are today, you can’t forget about tomorrow — which means you need to have a solid retirement plan in place. All retirement plans offer some features in common, such as tax-deferred growth of earnings. So how can you pick the plan that’s right for you? You’ll need to consider your business’ annual income, number of employees and other factors. Fortunately, you have some good plans from which to choose. Here are a few to consider: • Owner-only 401(k) — If you are self-employed with no employees other than your spouse or a partner, the Owner-only 401(k) may be an option for you. Also known as an individual 401(k), an owner-only 401(k) offers you many of the same advantages of a traditional 401(k): a range of investment options, tax-deductible contributions and tax-deferred earnings growth. You may even be able to choose a Roth option for your owner-only 401(k), which allows you to make after-tax contributions that have the opportunity to grow tax-free. For 2010, you can contribute up to $16,500 as a deferral, and total contributions cannot exceed $49,000 or $54,500 if you’re 50 or older. • SEP IRA — If you have just a few employees or are self-employed with no employees, you may want to consider a SEP IRA. For the 2010 tax year, you can put in the lesser of $49,000 or 25 percent of your compensation, which is capped at a maximum of $245,000. You fund the plan with tax-deductible contributions, and you must cover all eligible employees — at a minimum, those who are at least 21 and have been with your company for three out of the immediately preceding five years. (Employees themselves cannot contribute). Keep in mind, though, that the percentage of compensation contributed to a SEP IRA must be the same for you and your employees. If you don’t get a plan set up prior to year-end, the SEP IRA is the only plan that you can set up and fund, up until your tax filing deadline, to get a 2010 tax deduction. • Solo defined benefit plan — Generally speaking, this plan, which is similar to a traditional pension plan, may be suitable for you if you have relatively high earnings and can afford to take advantage of the high contribution limits, which are determined by an actuarial calculation. Your contributions are tax deductible. In choosing a retirement plan, you may want to consult with your tax adviser. But don’t wait any longer to get started. The future will be here soon enough — so you’ll want to be prepared for it.

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Banking & Finance

Mark Kolarik

2011-02-01 14:24:00

Question: With technology advancing every day, criminals seem to have a whole new arsenal to defraud the public. Recently, I heard someone mention ATM skimming as a new way thieves can access your account. Can you tell me exactly what this is, and how I can prevent it?

Answer: ATM skimming is practice crafty thieves have been using since the early 90’s but, with the advent of ever smaller devices, is on the rise. ATM Skimmers will insert a skimming device on the faceplate or card reader of an ATM machine. When the ATM user swipes the card, the account information is stored in the skimming device, and used later by the thief to steal funds out of the account connected to that card and PIN number. Skimmers are actually stealing all of the information encoded on the magnetic strip of your card. Once they have that, they can re-create, or clone, your card. Many people are not aware of this practice and therefore do not know what to do to prevent fraud. It is important to know that there are two basic types of skimming devices. There is a device that interferes with your transaction and devices that do not. One that interferes with a transaction will let you enter your PIN but display an error message and no money is withdrawn. The second is more difficult to detect because it does not disrupt your transaction, and you may not know anything is amiss. The best way to protect your account information is to use ATMs with which you are familiar and be aware to any changes in the machine or the surroundings. If the machine seems to have been moved, or if the face plate is loose, walk away. If you notice new light bars, brochure holders or paneling, consider finding a different ATM. Also, frequently review your account transaction history for unauthorized transactions. Contact your credit union or bank immediately if unauthorized transactions are discovered.

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Banking & Finance

Judd Schossow

2011-02-01 14:24:00

Question: Could you explain the differences between term vs. whole life insurance?

Answer: Over the last few decades, term life insurance seemed to be the best way to provide for your family if you were to die. It was affordable and paid out well, but after years of renewing policies that did not guarantee any benefits, people have started to turn back to whole life insurance coverage. Whole life coverage has gotten a reputation for being a little expensive when compared to term life plans, but then again, your money stays your money with a whole life plan. There are many reasons why these life insurance policies have recently become so popular. First of all, interest rates are presently at all-time lows, but whole life policies pay out guaranteed rates that go far beyond what could be earned in a savings account or certificate of deposit with a similar duration. Better yet, taxes do not apply to the cash value growth of a whole life policy. Also, insurance companies offer a variety of different whole life plans that can help policyholders to reinvest dividends and increase interest on its cash value, further protecting the investment. Taxes are another reason people are turning to whole life insurance. Although taxes on capital gains and dividends have been recently reduced, the proceeds of whole life policies are generally not taxed, even when the benefactor dies. In all, whole life policies can do things that term life coverage just cannot offer. For instance, once premium payments accrue enough cash value in the policy, premium costs may be reduced or even eliminated, without affecting the benefits or coverage terms. Policyholders can even borrow money from their whole life policy’s cash value without needing to go through a lengthy loan approval process. And since it’s actually the policyholder’s money, there’s no rush to pay it back. There are few guarantees in life, but people can count on the guaranteed benefits of whole life coverage. Every time a term life policy gets renewed, the process of investing begins anew, not to mention that term life coverage can be cancelled if a payment is missed or late. Watch your money grow and rest assured that it will be there during times of need with whole life insurance.

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Banking & Finance

Judd Schossow

2010-12-01 14:26:00

Question: What can I do to ensure my home is winterized?

Answer: The chill in the air tells you it’s time to pull out the heavy clothes and brave the falling temperatures. That chill should also tell you it’s time to perform a check of your home to ensure it can withstand the rigors of the upcoming winter. Start with a top down approach by taking a good look at your roof. Inspect it for cracked or missing shingles, worn patches on shingles, missing or damaged flashing and any other conditions that might permit water to leak through. If your shingles look haggard, try bending the corner of one. If it breaks, it is time for a new roof. Your gutters are another part of your anti-leak prevention system, so they should also be carefully inspected. Remove all leaves and other debris to allow water to flow freely. If the gutters remain clogged, they will fill with rainwater or melting snow and can easily overflow, which can cause basement flooding and water damage to siding, windows and doors. The added weight may also pull the gutters down from the eaves. Next, check the siding for cracks, damage and separations between the individual siding boards. Seal any empty spots with a clear caulking compound, or buy caulking that can be painted if you want to make sure repairs match the original siding. With looming escalating home heating costs, the condition of your weather stripping is another consideration. Good weather stripping prevents cold air from coming inside. If it’s damaged, it needs to be replaced. Your furnace can be your best friend or your biggest enemy, depending on whether or not you have it serviced before the winter season. Servicing usually involves having your heating contractor clean or replace the filter, brush and vacuum the blower blades, repair any leaks around the air ducts and vacuum the chimney. To keep storm doors working properly, oil hinges and latches. Be sure the door closer is working properly and the closing speed of a pneumatic closer is correct. If you have a storm door with interchangeable glass and screen panels, don’t forget to remove the screens and put in the glass panels. As important as your pre-season check is, it is not enough to keep your house protected during the winter months. Heavy rain and snow can wreak havoc on your home if you don’t exercise some caution when it comes to maintaining proper drainage. The Institute for Business & Home Safety suggests the following guidelines: Watch for snow accumulation on the downwind side of a higher-level roof where blowing snow can collect. This could cause the roof to collapse. Remove snow from window wells and all walls. Clear debris from basement drains and make sure gutters are clean and stable. In addition to ensuring proper drainage, it lessens the chance they will become flying debris in high wind. Ensure downspouts are sloping away from the house and carrying water at least five feet away from foundation walls. Examine window and door flashing, seals or weather stripping. If sealants around those openings are no longer pliable and continuous, reseal and caulk them. Keep your attic well ventilated this winter in order to maintain a temperature close to that of the outdoors. This minimizes the risk of ice dams. A warm attic melts snow on the roof, causing water to run down and refreeze at the roof’s edge where it’s cooler. If ice builds up and blocks water from draining, water is forced under the roof and into your attic or down the inside walls of your house.

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Banking & Finance

Mark Kolarik

2010-12-01 14:26:00

Question: For simplicity, this year I am thinking of gifting money to family members & friends as Christmas presents. What is the easiest way to do this?

Answer: Visa Gift cards are a simple and secure way to gift money this holiday season. Visa gift cards are accepted at millions of locations across the world and online and are used in the same way as a debit card would be. There are two types of gift cards you may want to consider: Gift Cards: The purchaser loads the gift card with the amount of cash that they wish to gift. The card can then be used as a debit card anywhere Visa is accepted, whether it is to buy gifts, or at a gas station. They are much safer than cash, and very simple to use. Though gift cards are not re-usable, it is wise to hold on to them for a time. If you purchase something using the gift card and want to return it, the store may require the card in order to refund the full purchase price of the return. Re-loadable Pre-Paid Visa Cards: Another option is the re-loadable Visa card. This is especially helpful if you plan to give money for subsequent gifts, such as for birthdays. These work like debit cards with a set amount on the card. The user cannot go over the amount on the card. Once the funds are exhausted, the card is saved. When the need or occasion arises, a gift giver can add more funds to the card.

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Banking & Finance

Mark Kolarik

2010-11-01 13:31:00

Question: I am considering opening an account with a credit union or bank. Can you explain how accounts are insured, and for how much?

Answer: Sure! Thank you for asking. It is a common question, and one many people would like answered. First, let us address how credit unions and banks are insured. As you know, the Federal Deposit Insurance Corporation, or FDIC secures accounts with banks. The National Credit Union Administration or NCUA secures accounts with credit unions. Like the FDIC, NCUA is a federal government agency that charters and supervises credit unions. NCUA operates the National Credit Union Share Insurance Fund (NCUSIF). NCUSIF insures the accounts of millions of account holders in all federal credit unions and the majority of state-chartered credit unions. Only those credit unions with sound operational standards qualify to NCUSIF coverage, so it is important to choose a credit union that has this designation. The NCUSIF is fully backed by the U.S. government in the same way as the FDIC, and the coverage for each is the same $250,000. However, it is possible to obtain more than $250,000 in coverage. NCUSIF provides coverage up to $250,000 for individual accounts including regular shares, share drafts, money market accounts and share certificates. If a person has more than $250,000 in a credit union, there are several options to obtain more coverage through different types of accounts. Retirement Accounts: Members with IRAs and KEOGH retirement accounts have additional coverage available. NCUSIF insures traditional and Roth IRAs for $250,000 at each credit union. NCUA insures each KEOGH account separately for $250,000. This account insurance protection is separate from other credit union accounts, so if you have a regular share account, an IRA and a KEOGH at the same credit union, each account is covered for $250,000. Joint Accounts: NCUSIF provides joint account holders with $250,000 in coverage for each. Therefore, a two-person account would have $500,000 in coverage. This coverage is separate from and in addition to the coverage available for other accounts, such as individual accounts and retirement accounts. Trust Accounts: Trust accounts provide additional options. The NCUSIF provides separate coverage for both revocable and irrevocable trusts. Revocable trust accounts may qualify up to $250,000 per beneficiary named by the owner. Funds placed in an irrevocable trust have separate coverage based on the interest of the beneficiary. If the beneficiary has an interest in more than one account created by the same owner, interests in all accounts are added together and insured for a total of $250,000. All of this can be confusing at times and individual situations should be discussed in detail at the credit union or bank. To help get an idea the different account structure scenarios, an interactive insurance estimator is available on the NCUA website at http://webapps.ncua.gov/ins

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Banking & Finance

Judd Schossow

2010-10-01 13:41:00

Question: My son is attending college this fall for the first time. Will he have coverage for his belongings under our current homeowner’s policy or will we need to take out a renter’s policy?

Answer: So you have a child going off to college. Well, there are a couple of things to keep in mind when it comes to insuring your college bound student. They move away, and they are living either in a dorm or a place off campus. Do you need to have a renter’s policy for them? If they are still considered a resident of your household, which is, they still live in your place permanently in the summer or they come home on their breaks, they are considered a resident and they have coverage. Usually most policies offer 10 percent of your personal property coverage that will extend to off premises. Usually that is sufficient, so they typically do not need a renter’s policy. However, if they permanently leave your household, and they are permanently on their own, then they will likely need a renter’s insurance policy. This type of policy will cover all their personal property as well as liability protection. In fact, most college students have more equity in their belongings than they know. Take a look inside their school backpack and you’re likely to find at least one, if not all, of the following items: iPod, cell phone, digital camera and laptop. And that’s just the beginning... The average college student owns more than $10,000 in personal belongings, from text books and furniture, to apparel and electronics. A renter’s insurance policy will help replace their possessions in the event that they are damaged or stolen. There are two primary types of renter’s insurance policies: Actual Cash Value (ACV): ACV coverage pays for what your property is worth at the time of the damage. For instance, if your Laptop cost $1,000 four years ago, it will be worth significantly less today. An ACV policy covers the depreciated cost of the Laptop, not the amount that you paid for it. Replacement Cost Coverage: This coverage pays for the cost to replace your belongings today, not when they were purchased. There is usually a limit on how much you can receive and the premiums tend to be higher than those for ACV coverage. College life can be stressful enough. Protect yourself against any unforeseen devastation and loss that can occur.

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Banking & Finance

Mark Kolarik

2010-10-01 10:11:00

Question: I’m in the market of buying a vehicle, how do I get pre-approved before shopping and exactly how does my credit score affect my interest rate?

Answer: Before applying for a loan, it is wise to do a little preliminary homework to aid you in your purchasing decisions. Check your Credit History: As with all things, the better your credit score, the better the rates and terms will be. Credit scores range from about 350 to 800. If your score is not above 600, more than likely you will get the least attractive interest rate. Scores of at least 720 qualify for the best rates. Obtaining a car loan depends largely on the three C’s: Credit: You must be able to show a history of responsible financial management, of course, credit. This includes paying bills on time, limiting debt and saving regularly. If you are not sure where you stand, you can obtain your credit report free online from www.annualcreditreport.com. Your personal inquiry will not count against your score, but lender inquiries will. Always limit the number of inquiries initiated to protect your credit score. Capacity: You will need to show sufficient income and that you have the ability to repay the loan for which you are seeking approval. Employment income and secondary forms of income such as child support and/or alimony payments will all be considered. Collateral: Lenders are generally more comfortable with highly liquid assets that can be recovered in the event of default. In this instance, the car itself will serve as collateral. Depending on your credit qualifications, a down payment may be required to purchase the vehicle. Words of Wisdom: •Buying a vehicle is a large purchase, and the loan a considerable one. Remember that you have time to make a decision. Take your time and consider if you want to keep more money in your pocket. An example might be; if you are interested in a $20,000 loan over 5 years to finance your vehicle purchase. The difference in the amount of interest you will pay between a 5% and 7% interest rate loan is $1,116. Why pay more, when rate shopping can save you hundreds or thousands of dollars. •Most dealerships can provide financing through their own finance departments. The rate offered to you may or may not be competitive. Many dealerships offer teaser rates of 0% financing, however, only a small handful of buyers are eligible for these rates. •Contact your local credit union or bank before you visit the dealership. They will ask you to complete a loan application, review your loan request, and then if approved provide you with a loan interest rate. It’s best to shop around for the best interest rate before you visit the dealership. Then you will be in a position to make a good choice on the interest rate to finance your auto purchase. Whether you opt for credit union/bank or dealer financing you are in control of the loan process. Become informed about the interest rates and terms. If a reasonable offer is not available to you, your best decision may be to hold off until you have an improved credit score or a significant down payment.

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Banking & Finance

Scott Wilson

2007-12-01 10:04:00

Now that the holidays are here, you’re probably looking around for the right gifts for your loved ones. Of course, as you know, it’s not always easy to find gifts that are both meaningful and useful. This year, why not add financial gifts to your shopping list? What types of financial gifts should you consider giving? Let’s look at a few possibilities:

Answer: Contributions to Section 529 plans — If you have a child (or grandchild) that will be headed off to college in a few years, you may want to contribute to a Section 529 college savings plan. Your earnings and withdrawals will be exempt from federal taxes as long as the money goes toward paying college costs. There may be additional tax benefits to those who participate in their own state’s plan. Also, you can contribute generous amounts to your savings plan. Plus, you can change beneficiaries; if you’ve been putting money in a Section 529 plan for your child or grandchild, and he or she decides to forego college, you can transfer the money to another family member. • Contributions to an IRA — If you know a loved one has an IRA, consider making a contribution. Many people don’t fully fund their IRA each year — so any help you can give toward that goal will be important. • Stocks — Consider giving shares of a company that produces products or services that are used by your intended recipient. If you’re going to give away some of your own shares, you’ll need to know what you originally paid for the stock, how long you’ve held it and its fair market value at the date of the gift. Recipients of your gift will need this information to determine gains or losses if they decide to sell the stock. (You’ll also need to determine if you have to pay gift taxes.You can give up to $12,000 per year, free of gift taxes, to as many people as you want; over your lifetime, you can give up to $1 million without incurring gift taxes.) • Savings Bonds — They may sound old-fashioned and stodgy, but U.S. Savings Bonds can still make nice financial gifts, especially for young people who can use the money in the future. Among the most popular savings bonds are Series EE Bonds, which can be purchased in denominations ranging from $50 (or $25.00 for Electronic EE Bonds) to $10,000. Paper EE Bonds are sold at half their face amount and will increase in value until they are cashed in or reach final maturity in 30 years. Electronic EE Bonds are sold at face value and reach maturity immediately. You can learn more about Series EE Bonds and TIPS, or even purchase them directly, from the Treasury Department’s web site devoted to savings bonds: www.savingsbonds.gov. A financial gift may not be traditional, but it can have a big impact on the recipient’s life — and it won’t be forgotten after the holidays are over.

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Banking & Finance

Scott Wilson

2007-11-01 10:18:00

Are there any tips or strategies on leaving a legacy to my children?

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 You work hard to provide a comfortable retirement lifestyle for yourself. But, if you’re like most people, you want to do still more - you want to be able to leave a legacy to your children, your grandchildren and those charitable organizations you support. These are all ambitious goals but fortunately, you’ve got some good tools available to help you achieve them.

To begin with, consider your current assets and how you can most efficiently pass them on to your heirs. For example, suppose you’ve built up a considerable balance in your traditional IRA, but you don’t think you’ll need to use it all to help pay for your retirement. Can you pass on your IRA’s tax deferral to your children?

Yes, you can - through the concept of the "stretch" or "multi-generational" IRA. To understand how the stretch IRA works, you need to know one of the rules governing traditional IRAs - specifically, you have to start taking "required minimum distributions" at age 70 1/2. Basically, the IRS has always required you to take minimum distributions based on your life expectancy. However, in 2002, the IRS changed the life expectancy factors used to determine your required minimum distribution calculations. Consequently, you can now take out smaller amounts of money from your IRA, which allows you to extend the number of years your IRA money grows tax-deferred.

Obviously, this change will positively affect how much of your IRA money you can leave to your children. But the new rules also permit your children, once they inherit your IRA, to base their minimum required distributions on their life expectancies. So, if they are in their early middle-aged years when they receive your IRA, they can take out relatively small amounts, thereby avoiding big tax hits.

The stretch IRA can be a valuable estate-planning tool. But you can also build your legacy while you’re still around to enjoy the results. One vehicle for helping you accomplish this goal is the Section 529 plan, which you can use to help pay for your child or grandchild’s college education. Section 529 plans, named after the appropriate section in the tax code, are offered as either prepaid tuition plans or state-sponsored college savings accounts.

Section 529 plan contribution limits are typically quite high - over $200,000 per beneficiary in many state plans. Also, under current law, all qualified withdrawals will be free from federal income tax, although the money will appear as income on the child’s tax return.

Thus far, we’ve only talked about vehicles that can help you leave a legacy to your family. But what about charitable organizations? What are some good ways to leave your legacy there?

One possibility is to donate an appreciated asset, such as stock or a piece of real estate, to a charitable remainder trust. You’ll get an immediate income tax deduction for a portion of the value of your gift. The trust can sell the asset, without incurring any immediate capital gains taxes, and invest proceeds in a diversified portfolio designed to pay you an income stream for life. Upon your death, the trust will pay out the remaining funds to the charity or charities you’ve chosen.

As you can see, there are several ways in which you can link your name to a legacy of generosity. But before you take action, consult with your tax and legal advisers. You’ll get more enjoyment out of leaving your legacy if you know you’ve done the best you can for everyone involved.

 

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Banking & Finance

Richard Ciemny

2005-05-01 09:03:00

: Is there a checklist where one can find the things that need to be done prior to and during the opening of a business?

ANSWER: As a matter of fact, there are several.  Over the next several issues, I will try and provide you with a list of items that need to be attended to.  Many of these things can also be found elsewhere, in places like the IRS's website at http://www.irs.gov/For the first four parts of this series, please see the January '05 through April '05 issues.  This time we will talk about 'recordkeeping' and the questions that are usually asked.QUESTION:  Why should I keep records?ANSWER:  Good records will help you monitor the progress of your business, prepare your financial statements, identify source of receipts, keep track of deductible expenses, prepare your tax returns, and support items reported on tax returns.QUESTION:  What kinds of records should I keep?ANSWER:  You may choose any recordkeeping system suited to your business that clearly shows your income. Except in a few cases, the law does not require any special kind of records. However, the business you are in affects the type of records you need to keep for federal tax purposes.QUESTION:  How long should I keep records?ANSWER:  The length of time you should keep a document depends on the action, expense, or event the document records. You must keep your records as long as they may be needed to prove the income or deductions on a tax return.QUESTION:  How long should I keep employment tax records?ANSWER:  You must keep all of your records as long as they may be needed; however, keep all records of employment taxes for at least four years.QUESTION:  How should I record my business transactions?ANSWER:  Purchases, sales, payroll, and other transactions you have in your business generate supporting documents. These documents contain information you need to record in your books.QUESTION:  What is the burden of proof?ANSWER: The responsibility to prove entries, deductions, and statements made on your tax returns is known as the burden of proof. You must be able to prove (substantiate) certain elements of expenses to deduct them.

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Banking & Finance

Richard Ciemny

2005-01-01 09:20:00

:  Is there a checklist where one can find the things that need to be done prior to and during the opening of a business?

ANSWER:  As a matter of fact, there are several.  Over the next several issues, I will try and provide you with a list of items that need to be attended to.  Many of these things can also be found elsewhere, in places like the IRS’s website at http://www.irs.gov/The first thing you have to consider is whether it actually is going to be a business, or a hobby.  It is generally accepted that people prefer to make a living doing something they like.  A hobby is an activity for which you do not expect to make a profit.  If you do not carry on your business or investment activity to make a profit, there is a limit on the deductions you can take. You must include on your return income from an activity from which you do not expect to make a profit.  An example of this type of activity is a hobby or a farm you operate mostly for recreation and pleasure.  You cannot use a loss from the activity to offset other income.  Activities you do as a hobby, or mainly for sport or recreation, come under this limit.  So does an investment activity intended only to produce tax losses for the investors. The limit on not-for-profit losses applies to individuals, partnerships, estates trusts, and S corporations.  We will talk more about these structures next month in this same series.  In determining whether you are carrying on an activity for profit, all the facts are taken into account.  No one factor alone is decisive.  Among the factors to consider are whether:• You carry on the activity in a business-like        manner, • The time and effort you put into the    activ ity indicate you intend to make it    profitable, • You depend on income from the activity    for your livelihood, • Your losses are due to circumstances      beyond your control (or are normal in    the start-up phase of your type of     business), • You change your methods of operation in     an attempt to improve profitability, • You, or your advisors, have the knowledge     needed to carry on the activity as a     successful business, • You were successful in making a profit in     similar activities in the past, • The activity makes a profit in some years     and the amount of profit it makes, • And, whether you can expect to make a     future profit from the appreciation of    the assets used in the activity.Next issue, we will talk about business structures, and selecting the right one for your business before you begin.

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Banking & Finance

Stan Cowan

2004-12-01 10:02:00

: Who ever conceived of the idea for a credit union?  When did they first originate?

ANSWER: From their early origins, credit unions were unique depository institutions created, not for profit, but to serve members as credit cooperatives. The earliest financial cooperatives date back to the beginning of 19th century in England. However, in the mid-1800's Germany was the home of the first credit unions as we know them today: • Democratically governed; • Each member having one vote; • Member-elected board of directors; and • Volunteer based. These early German credit unions were organized by Herman Schulze-Delitzsch and Friedrich Raiffeisen. The crop failure and famine of 1846 caused Schulze-Delitzsch to organize a cooperatively-owned mill and bakery which sold bread to its members at substantial savings. Schulze-Delitzsch took this cooperative notion to address the needs of credit. In 1850, he organized the first cooperative credit society, known as the "people's bank." In 1900, the credit union concept crossed the Atlantic to Levis, Quebec, where Alphonse Desjardins organized La Caisse Populaire de Levis. A court reporter, Desjardins became aware of the outrageous interest being charged by loan sharks and organized the credit union to provide relief to the working class. In 1909, Desjardins helped a group of Franco-American Catholics in Manchester, New Hampshire organize St. Mary's Cooperative Credit Association--the first credit union in the United States. By 1925, 26 states had passed credit union legislation. By 1930, that number grew to 32 states with a total of 1,100 credit unions. In 1934, President Roosevelt signed the Federal Credit Union Act into law, authorizing the establishment of federally chartered credit unions in all states. The purpose of the federal law was "to make more available to people of small means credit for provident purposes through a national system of cooperative credit..."  More next month...

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Banking & Finance

Mike Sikes

2004-10-01 14:42:00

: What is Check 21?

ANSWER: Check Clearing for the 21st Century or Check 21 as it is commonly known takes effect October 28, 2004. This new federal legislation permits banks to convert a paper check into an electronic image and send this image or a substitute check back to the bank it is drawn on for collection rather than the original check. What does this mean to you as a consumer?1) Checks will be processed more quickly. In the past, some consumers often relied on what is known as float time (the time from which a check is written to the time it actually clears the customer's account) to avoid being overdrawn. Float time will now be greatly reduced or even eliminated as electronic images can be transmitted between banks nationwide the same day. If you write a check make sure funds are already in your account to cover the check as it is likely to clear more quickly than it has in the past.2) You may not receive your original check back. Most banks already provide an image of your canceled check rather than sending the original check back to you. These electronic images make filing and storing bank statements much simpler. Some banks, however, still continue to send original checks to the customer with their monthly statement. With Check 21, the collecting bank may now actually destroy the original check once an electronic image is made, thereby, not allowing your bank to send you anything but an image of the check or a substitute check for record keeping. A substitute check is the legal equivalent of the original check and will contain images of both the front and back sides of the check.3) Any check errors should be resolved faster. Transmission of electronic images will allow banks to view disputed checks or errors more quickly enabling faster resolutions to a problem. If the bank cannot resolve the dispute within 10 business days, the bank is required to credit your account for up to $2,500 of the face value of the check, plus any applicable interest. If the dispute is not resolved within 45 calendar days, the bank will credit the remaining amount due, plus any applicable interest. Overall fraud should also reduce under Check 21 due to banks being able to collect data more quickly which will help in identifying fraudulent activity.Paper checks continue to play an important role in the financial industry, but the way they are processed is changing in efforts to remain efficient and effective in today's electronic world.

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Banking & Finance

Mike Sikes

2004-09-01 12:08:00

: How does a bank decide whether to give me a business loan?

ANSWER: Under-standing a few fundamentals can make the process a lot smoother.  Before making the decision to grant a business loan the bank will want to meet with the business owner and spend some time getting to know the owner as well as get a thorough understanding of the business and how it operates.  The bank will most likely require the borrower to provide at least 3 years of financial statements and tax returns.  Depending on the size of the loan the bank may require reviewed and audited financial statements.  Typically the bank will also require the owner of the business to personally guarantee the loan.  If this is the case the bank will also require at least 3 years of personal tax returns and a current personal financial statement.  Once this information is received the loan officer will analyze the information to determine the creditworthiness of the business.  The bank will analyze a number of items including the company's profit trend, sales, expenses, liquidity, cash flow and current amount of debt.  The bank will also analyze the creditworthiness of the guarantor(s) by analyzing the tax returns, the personal financial statement and a credit report.In addition to analyzing the financial information the bank will review the type of collateral that will be used for the loan.  Typically a business loan will be used to finance inventory and receivables, purchase new equipment or purchase or refinance real estate.  The type of collateral will normally determine the length of term the bank will allow.In making the decision to make the loan the bank will look to see if the business is generating sufficient cash from the operation of the business to pay the existing bills as well as service the debt on the new loan.  Normally the cash flow is the most important factor that the bank considers, although the type and value of the collateral as well as the creditworthiness of the guarantor are also looked at very closely.Most banks try to structure the loan in a way that meets the demands of the business while maintaining a good quality loan for the bank.  Many banks will also offer business loans guaranteed by the Small Business Administration, which can be helpful for newer businesses which lack sufficient collateral to secure the loan.

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Banking & Finance

Stan Cowan

2004-08-01 11:28:00

: How are members of credit unions partial owners?  Do they have any power or say so in how the credit union is operated?

ANSWER: One of the many differences be-tween banks and credit unions is the concept of ownership.  Credit unions are not-for-profit financial cooperatives.  Members of credit unions are called 'owners' because their 'share' account (or savings account) is their share in the credit union.  And, when you keep your membership in good standing, as an owner, you have the privilege of voting for your board of directors during the election process.  This is the 'power' that every member has, just like in our Democratic society in America.

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Banking & Finance

Mike Sikes

2004-08-01 08:22:00

Question:  What is the difference between a home equity loan and a HELOC?

ANSWER:  A home equity loan and a HELOC (home equity line of credit) have several things in common, however there are also several very important differences.  On both types of loans the borrower uses their home as collateral and the proceeds are typically used for home improvements, a child's education, a new vehicle, vacation or many other things. The interest on both types of loans is also generally tax deductible.  Consult your tax advisor to determine deductibility.A home equity loan allows you to borrow a certain amount of money that is repaid over a term of 5-20 years, normally at a fixed interest rate, much the same as a car loan or home loan.    Home equity loans are ideal for borrowers who have an immediate need for a fixed amount of money and want to know exactly what their payments will be each month. Unlike a HELOC, a home equity loan does not give you the option of re-advancing up to the original amount of the loan as you pay down on the principal balance.A HELOC works much the same way as a credit card.  You will be able to borrow a certain amount of money which is available for you to access as needed.  Typically this money is accessed by writing a check.  You can access all or a part of the funds and then repay to the lender a set amount monthly based on the amount you have drawn on the loan.  Lenders typically will require you to pay a minimum of the interest due on the amount drawn, however some lenders will require a payment of 1.0%-2.0% of the outstanding balance.  On a HELOC as you reduce the outstanding balance you will be able to re-advance the loan funds up to the original amount of the loan.  The interest rate on a HELOC is typically a floating rate at least 1%-2% above the Prime rate depending on the lender.  HELOC loans typically set a fixed time during which you can borrow money, normally 10 years, and at the end of this period you may be able to renew the credit line or you may be required to either pay the balance in full or repay the balance over a fixed period of time. Both types of loans are popular ways to borrow money for larger expenses, however when looking at these types of loans it is important to remember that your home is at risk and you should get all the details about loan costs, terms and interest rates prior to closing the loan.

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Banking & Finance

James Graham

2004-04-01 16:41:00

Question:  I think we are out of control financially.  How do we  regain it before it’s too late?

ANSWER:  This question is probably asked in every household in the country. The short answer; we need to be better educated in "How Money Works", to understand how to better manage our personal finances. Recently, I stopped by the Federal Courthouse to check on the number of bankruptcies. Within the last week, over 97 separate filings had been submitted. The unfortunate thing is, after reviewing the numbers, a large majority of these filings should not have been filed. It is obvious that individuals would rather take the easy way out instead of learning some very easy processes to resolve their financial problems.The problem concerns education and having the necessary facts concerning our personal financial situation in order to make good decisions. We live in a time where it's easier to pay someone else, such as a credit counselor or attorney, to fix the problem instead of taking time to educate ourselves. Personal debt is often the cause of high divorce rates, personal stress, and the ruin of the individuals' financial future. My question is why is someone so willing to jeopardize his or her entire financial future instead of obtaining some very simple financial rules that could save their financial life?We are a society where it is acceptable to "want it now" and worry about paying for it later often getting to a point where we are in a financial bind. We then resort to having someone else negotiate interest rates, or payments, or even refinance the home, freeing us to then go back out and charge up again. Just refinancing the home not only puts the home in jeopardy, but to keep the payment within our budget we finance for 30 years which results in us wasting our retirement money making interest payments, either on the mortgage or on credit cards. There's an old saying, "If you keep doing the same things that you have done in the past, and expecting different results, not only is it foolish, it does not solve the problem, but makes it worse." Once we are aware of "How Money Works" and implement a few easy procedures, we have total control over our finances, and the associated problems disappear.Another area of personal debt is the issue of credit repair. Individuals need to check their credit report at least quarterly and fully understand what that report is telling them. It is your report and your responsibility. Another important item is the matter of Identity Theft. By not being aware of your current credit status as outlined in your credit report, you put yourself and your family in a financially dangerous situation. The Federal Trade Commission Title 15 Chapter 41, "Consumer Protection Act" is written to protect you and provide the necessary guidelines to assist in dealing with consumer credit matters. The next item is taxation. The average individual pays approximately 43 cents on the dollar on every dollar in State, Federal, and local taxes. "Knowing the Rules", and understanding taxation, puts you at an advantage in dealing with your financial situation. Individuals will purposely have extra money taken out of their monthly checks so that they can receive a refund, which does not pay interest! That money could be going to savings, retirement, or debt elimination, which improves your financial net worth. I would recommend that people get familiar with IRS Publication 919, page 3, column 2, concerning W-4 withholding. It's FREE.As I have said in previous articles, "Get the facts before you make decisions concerning your financial situation." Your financial future is too important to allow someone else to control. It is great to have advisors, but know the rules, if for no other reason than to protect yourself. You do have options; keep doing what you've done in the past and get the same results, or you can get a free financial analysis, educate yourself, and have a better, less stressful life. I sincerely wish you the very best in your decision.

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Banking & Finance

Janie Carr

2004-04-01 14:46:00

Who orders an appraisal on a home that one is buying? Who does it?  Why is it necessary?

ANSWER:  A real estate appraisal is ordered by the lender for the purpose of establishing the correct fair market value of a particular parcel or parcels of real property upon which they are considering making a mortgage loan. The appraisal takes into consideration such factors as the land value, and all of the improvements, if any, located on that land. The appraiser will thoroughly inspect and gather information about the subject property and the surrounding area. The appraiser will consider all of the relevant factors about the property and the neighborhood, both negative and positive. A search for similar properties that have sold will be made, and the most relevant of these will be inspected by the appraiser and photographed. Adjustments will be made in certain value considerations that will bring to or remove support from the subject property being appraised.  After the appraiser has gathered as much information as is needed relevant to the property being appraised, the appraiser follows a process that leads them to a logical conclusion as to the fair market value of the property. Depending on the type of property, it might take the appraiser anywhere from a few hours to a few days, sometimes weeks to complete an appraisal. The property owner usually only sees the appraiser when their property is being inspected. Most of the appraiser's time to complete the appraisal is spent away from the subject property location. Most appraisers utilize similar tools to aid them in establishing the value based upon a cost approach workup, which give the appraiser value factors that are updated quarterly. This portion of the appraisal is known as the Cost Approach. The most weight in a residential appraisal is normally given to the Comparative Market Analysis, wherein homes that have sold recently in the nearby neighborhood that are similar to the subject in size, features, quality, etc. are compared and adjusted to the subject property. Through experience, practice, and required continuing education, a certified appraiser gains the expertise and knowledge to perform to the high standards required by most lenders and underwriters in the mortgage business today.The appraiser works for their client, who is the person or corporation that hired them. For example, when you apply for a mortgage loan, the lender is going to have your house appraised in order to determine the value, so that they can loan you a certain, known percentage of the correct market value. The lender engages an appraiser from their "approved appraiser" list to perform the appraisal. The lender is the client so the appraiser works for the lender. But some folks think that since the lender charged them for the appraisal that the appraiser should be working for them, the buyer of the home. The answer is no, even though the lender passed along the appraisal fee costs to the buyer as a required loan cost,  the lender is still the client because they hired the appraiser. But, if the home buyer did pay for the appraisal fee, the lender is legally obligated to give them a copy of the appraisal if they ask for it in writing. In addition, they should not hesitate to ask the appraiser questions or point out any discrepancies on the appraisal report to the lender. After all, even though the buyer is not the client of the appraiser, the appraisal affects them and their loan. More Next Month…

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Banking & Finance

Stan Cowan

2004-04-01 14:46:00

:  Are funds in a savings account as secure in a credit union as they are in a bank?  Does the FDIC guarantee funds in a credit union up to $100,000? 

ANSWER:  Banks that are members of the FDIC have their customers' deposit accounts insured normally up to $100,000.  Credit unions are regulated by the National Credit Union Administration (NCUA), so that's where their deposit accounts are insured normally - also up to $100,000.  Some institutions choose to insure their customers'/members' funds using supplemental insurance beyond the $100,000 limit.  Remember, this goes for all types of deposit accounts, not just savings accounts.  Some limits do apply, so be sure and get all the facts from your financial institution.QUESTION:  Is one's credit union a good place to seek refinancing of his/her house?  If so, are rates typically competitive?  ANSWER:  Yes!  Your credit union is a very good place to start.  But don't stop there.  Compare your credit union's rates, fees and mortgage loan features to many other banks.  Only then can you truly see the differences.  Some features to consider include:• Payment options (biweekly, online access, balloon payments)• Fees (closing costs, rate locking, application)• Rates (adjustable, fixed)• Down Payment (many programs exist from 0% down to 20% down to avoid private mortgage insurance) Be sure and ask for a 'good faith' estimate from your real estate loan officer.  Also, remember that personal service plays a huge role as well.  Expect exceptional service from your financial institution.  It's your money.  You have the power!

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Banking & Finance

Larry Cheatham

2004-04-01 14:46:00

:  Some time back I read an article on interviewing do’s and don’ts.  I can’t find it now.  Can you provide some tips?

ANSWER:  First and foremost, come to your interview(s) prepared. Be prepared to talk about the company or agency interviewing you, your work background and education plus the skills you have that the potential employer needs.Have a good idea of the company's history, markets, products and major clients. What awards has it won recently? What press events were covered recently? Do you know the salary range of the position you want?  Are you aware in general of the benefits programs the new employer offers? Be ready to answer why (based upon your research of the company) you are intrigued by this company and want to be a part of the organization.Second, never lie on your resume, application or in the interview. However, do be extremely positive about your previous education and work experiences. Describe quickly the positions you held and the duties you performed. Talk about the challenges you met and successfully overcame. Those challenges may have been production related. The challenges could have come from difficult people in a customer service position. What did you do yourself and whom around you did you enlist to help in becoming successful in the situation? Speak specifically about the increase in sales by your previous department; the specific gains in quality or reliability of your products; or, how much profitability grew from the hard work of you and others in the succeeding months.Elaborate on the work skills you gained from your work life. Did you learn a specific trade? Become certified in a particular field or to operate a type of equipment? Are these certifications current now? Did you learn or grow significantly in a "soft" skill - patience, customer relations, technical writing? Tie these into the present position you want - how will this background help you and your potential employer be successful? Third, ask questions. An interview should be a two-way exchange of information. Ask why the position is open? Is it new because of company growth? Is it open because the previous employee retired? Was let go? When do they want the new employee to start? What are the work hours? Ask what kind of benefits program the company has to offer? When will you be eligible? I would wait for the employer to talk salary.Remember, in an interview you are selling yourself. Be on time. Be clean and well kept. Dress appropriately for the job you are applying for and look like you are ready to go to work. Use good posture. Make eye contact. Smile and be friendly with everyone you meet. Speak confidently. Now, go get the job you want!

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Banking & Finance

Janie Carr

2004-04-01 09:19:00

Can I get a loan for a home if I have no money for a down payment?

ANSWER:  Many people who are making rent payments to a landlord think they cannot buy a home because they don't have any money for the down payment and closing costs. In today's world, there are several ways that someone with little or no money can buy a home.  One solution is to use a down-payment gift assistance program, or as it is sometimes called, a down-payment grant program. There are also conventional loan programs that allow the financing of 100% of the purchase price of your home. Your credit score will help determine what type of loan program will work for your particular situation. There are even programs that can help people with less than pristine credit scores become homeowners, and these usually result in a little bit higher interest rates for the borrowers. But the benefits of owning over renting far outweigh the penalties for a lower credit score. If you can afford to rent, you probably cannot afford not to look into owning.How Do Down-Payment Gift Assistance Programs Work? Home sellers can help buyers pay closing costs by giving a portion of their sales proceeds back to the buyer at closing. The amount of seller assistance that is allowed depends upon the type of loan the buyer is getting. Sellers cannot directly give home buyers money for their down-payment. That's where gift assistance programs step in, providing a way to "work around" those laws. 1. The seller enrolls their house in a suitable program and contributes an amount equal to the assistance their buyer will receive at closing--plus a fee. (Sometimes that fee is disclosed as 0.75% of the home's sales price.)2. When the transaction closes, the down-payment funds are wired from the gift assistance program to the closing agent. It's important to note that the seller has no part in the transfer of funds.Program guidelines may differ slightly, but they all offer similar basic services to the consumer.  Home buyers must qualify for a loan that allows gift funds. There are no minimum or maximum income requirements for buyers, but there may be top limits set on the sales price of homes. Typical assistance can usually range from 1% to 7%. Funds can be used for both the down-payment and the closing costs. Gift funds can be used for new or existing homes. Unused funds aren't kept, but must be returned to the gift program. Assistance programs cannot be used to refinance a house or to make home improvements. Only for the purchase of a home for the owner to occupy.Sellers cannot use the gift as a charitable contribution, but it may be deductible as a selling expense. Find out by consulting a tax preparation professional.Home sellers usually, not always, price their homes to include some negotiation space. What matters to a seller is his bottom-line--how much money he takes away from the closing table. A buyer who has the funds to close may get a better deal on the house, while a buyer who needs help will pay closer to (or even more than) the asking price, but in return can negotiate help from the seller. One thing you must keep in mind is the home's appraised value. The lender will not allow gift funds which result in a loan that exceeds the appraised value of the home. If you're working with a real estate agent, he or she can help you determine if the home is realistically priced and will help you evaluate where it should be priced. Your lender can help you choose a down-payment assistance program and explain how your offer to purchase should be worded to ensure compliance with your particular lender's underwriting guidelines. More to come...

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Banking & Finance

Janie Carr

2004-03-01 15:26:00

Janie Carr Question: What does an underwriter look for in the home loan process?

ANSWER:   An underwriter works for the lender and must decide whether to approve your loan or not. Underwriters evaluate loan applications and documentation to see if the criteria meets the minimum guidelines for the specific loan program being requested.Usually they look at three general areas:• Income and EmploymentUnderwriters will naturally ask, "How will this borrower repay this loan? What is the source of income?" For those employed by someone else, the old way of doing this was to mail a "Verification of Employment" to your employer. When your employer had verified all the pertinent information, such as how long you have worked there, what you currently earn as a base income, how much you make typically in bonuses or commissions, and how likely it is that you will continue to be employed there. Today, we may still do that but we have alternatives too. We can provide your last two years' W2 statements and tax returns, and your most recent pay stubs covering a minimum of 30 days showing you are still employed. This is called "alternative documentation" and is much faster than waiting for snail mail and your employer who may or may not be cooperative.What they are looking for: Sufficient income to cover your proposed total debt load. Do you make enough money to actually pay for all this debt you're taking on after paying for taxes and living expenses, and going out for dinner and a movie once in a while?• AssetsIn the case of a purchase, you obviously must have sufficient cash to actually close the deal. Cash means money in bank accounts, of course, but also any other liquid assets such as stocks, bonds, mutual funds, etc. In addition to enough for the proposed down payment and closing costs, you must also have some reserves. This will vary by lender, but as a conservative rule-of-thumb you should have at least three months gross income in reserves when the deal is closed. They will also want to document less liquid assets, such as life insurance policies, retirement plans, real estate, businesses owned, automobiles, and personal assets. You are not obligated to disclose or document everything, only those assets you want considered to induce the lender to make the loan.What they are looking for: Sufficient assets to cover contingencies. If you lost your job tomorrow, would you default on all your debt the next day, or can you carry yourself for a while?• Credit HistoryThe lender wants to know about your current obligations and the payments you must make each month. They also run your credit report to see how well you have handled your debt in the past. Lenders are coming to realize that how well you have paid your obligations in the past is a better indicator of their safety than any other criterion they may consider.What they are looking for: Is the amount of proposed total debt reasonable for your income and lifestyle? Have you somehow found a way to pay all your obligations in the past no matter what? These are some of the ways that an underwriter for your home loan will arrive at the decision.

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Banking & Finance

Larry Cheatham

2004-03-01 15:26:00

:  I recently  heard a story of a company who failed to deduct enough from employees pay for state income taxes. What are the ramifications of such an action and who is to blame? Explain what amount a person should have deducted for their tax returns. How do you ensure that it is enough?

ANSWER:  In very general terms there are two types of compensation an employee receives from their employer - direct and indirect. Direct Compensations is: base pay, shift differential, short or long-term incentive pay, recognition and achievement awards. Indirect Compensation is: legally required benefits, disability insurance, hospital and medical benefits, deferred pay, unpaid leave, perquisites. Direct Compensation is taxable when earned and paid.Employers collect the following taxes from each payroll check: Federal income tax, FICA (social security), FICA Medicare and, where applicable, State income taxes. The employer withholds the amount of federal tax as directed by the employee on the Federal W-4 Form. The W-4 Form tells your employer how much federal income tax to take out of each paycheck.State income tax is withheld either by the direction the employee has given in the Federal W-4 Form or by an individual State tax withholding form. Kansas is a state that withholds the tax based on the marital status and exemptions claimed on the Federal W-4 form. If the employer does not withhold enough income taxes and the employee must pay additional taxes on April 15 then the employee should change their W-4. There is no employer liability here.

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Banking & Finance

Larry Cheatham

2004-02-01 16:25:00

: What is Workers' Compensation?  What are employer responsibilities?  What expenses are covered?

ANSWER: Workers' Compensation is a state insurance program paid for by the employer.  Individual states regulate Workers' Compensation.  The purpose of Workers' Compensation is to protect workers in case of a work-related injury or disease that comes from, or in the course of, employment. The states determine the coverage, eligibility, types of benefits, and the financing of the benefits.  Employers are responsible for all costs of work-related injuries or diseases regardless of who is blame - employer or employee.The categories of Workers' Compensation benefits:• Permanent and temporary total disability income;• Permanent and temporary partial disability income;• Survivor's benefits in cases of fatal injuries;• Medical care expenses; and• Rehabilitation.The employee's earnings at the time of injury and the nature of the impairment are the basis for disability income payments.Workers' Compensation covers health problems identified as work-related.  Injuries or health problems resulting from activities away from the workplace are not covered by Workers' Compensation.All business owners know Workers' Compensation is a large cost of business.  Some may not appreciate this as an area where costs can be minimized.  Costs can be managed by employing occupational clinics, instituting prevention programs and training employees in safe work practices.

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Banking & Finance

Stan Cowan

2004-02-01 16:25:00

: What's a Credit Union?

ANSWER: A credit union is a cooperative, not-for-profit financial institution organized to promote thrift and provide credit to members. It is member-owned and controlled through a board of directors elected by the membership. The board serves on a volunteer basis and may hire a management team to run the credit union. The board also establishes and revises policy and sets some dividend (interest) rates. The result: members are provided with a safe, convenient place to save and borrow at reasonable rates at an institution which exists to benefit them, not to make a profit.  More emphasis is placed on member service instead of making money. Who owns a credit union?  Most financial institutions are owned by stockholders, who own a part of the institution and intend on making money from their investment. A credit union doesn't operate in that manner. Rather, each credit union member owns one "share" of the organization. The user of credit union services is also an owner, and is even entitled to vote on important issues, such as the election of member representatives to serve on the board of directors.  How did credit unions start?  The first credit union cooperatives started in Germany over a century ago. Today, credit unions are found everywhere in the world. The credit union movement started in this country in Manchester, New Hampshire. There, the St. Mary's Cooperative Credit Association, a church-affiliated credit union, opened its doors in 1909. Today, one in every three Americans is a credit union member.  What is the purpose of a credit union?  The primary purpose in furthering their goal of service is to encourage members to save money. Another purpose is to offer loans to members. In fact, credit unions have traditionally made loans to people of ordinary means. Credit unions can charge lower rates for loans (as well as pay higher dividends on savings) because they are nonprofit cooperatives. Rather than paying profits to stockholders, credit unions return earnings to members in the form of dividends or improved services. All savings accounts are insured up to $100,000 by the NCUA, the National Credit Union Administration, an agency of the federal government.   Who can join a credit union?  A credit union exists to serve a specific group of people, such as a group of employees or the members of a professional or religious group. This is called a "field of membership." The field of membership may include where they live, where they work, or their membership in a social or economic group.

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Banking & Finance

Janie Carr

2004-02-01 16:25:00

: What is a pre-approval… how do I get one…and can I use gift funds as a down payment?

Janie Carr Question: What is a pre-approval… how do I get one…and can I use gift funds as a down payment?Answer: A Pre-approved Mortgage pro-vides an interest rate guarantee from a lender for a specified period of time (usually 60 to 90 days) and for a set amount of money. The pre-approval is calculated based on information provided by you and is generally subject to certain conditions being met before the mortgage is finalized. Conditions would usually be things like 'written employment and income verification' and proof of available down payment funds from your own resources, as an example. A pre-approval letter is a great tool to help your realtor with the process of the presentation of your offer. If the Seller of the home is making a choice between two offers equal in value otherwise, and one has a pre-approval letter with it, and the other one doesn't, it makes the choice a little clearer for the Seller.The easiest way to get a Mortgage Pre-approval is by calling your mortgage consultant. You will be asked some questions to determine your financial situation and then your mortgage consultant will calculate the size of mortgage you qualify for, using this information. With your authorization, they will then proceed with arranging a pre-approval letter for you if you are planning to buy property in the near future. Most successful Real Estate Professionals will want to ensure you have a pre-approval letter from a lender in place before they take you out looking for a home. This is to ensure that they are showing you property within your affordable price range. In answer to the second part of your question, yes, most lenders will accept down payment funds that are a gift from family as an acceptable down payment. A gift letter signed by the donor is usually required to confirm that the funds are a true gift and not a loan. Where the mortgage requires private mortgage insurance, most mortgage brokers and other lenders will require the gift money to be in the purchaser's possession before the application is sent in to their underwriters for approval. In summary, a pre-approval appointment with a good mortgage broker is one of the first steps a home buyer should take before beginning the buying process. It's better to know in advance if there will be any other requirements or stumbling blocks so that these can be worked out and not be allowed to interfere with your dream of owning your own home.

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Banking & Finance

Janie Carr

2004-01-01 12:02:00

:  How much money will I have to come up with to buy a home?

ANSWER:  Well, that depends on a number of factors, including the cost of the house and the type of mortgage you get. In general, you need to come up with enough money to cover three costs: •  earnest money - the deposit you make on the home when you submit your offer, to prove to the seller that you are serious about wanting to buy the house. •  down payment - a percentage of the cost of the home that you must pay when you go to settlement. •  closing costs - the costs associated with processing the paperwork to buy a house. When you make an offer on a home, your real estate broker will put your earnest money into an escrow account. If the offer is accepted, your earnest money will be applied to the down payment or closing costs. If your offer is not accepted, your money will be returned to you. The amount of your earnest money varies. If you buy a HUD home, for example, your deposit generally will range from $500 - $2,000. The more money you can put into your down payment, the lower your mortgage payments will be. Some types of loans require 10-20% of the purchase price. That's why many first-time home buyers turn to HUD's FHA for help. FHA loans require only 3% down - and sometimes less. With good credit scores, a buyer can structure the offer to purchase contract in such a way as to allow him or her to get a home bought and the loan closed with little or no out of pocket money. With interest rates at or below 6%, a 40+ year low, the financing should not be the reason a person does not own their own home. If your credit scores are less than perfect, there are lenders who specialize in making B or C loans to those buyers. Closing costs - which you will pay at settlement - average 3-4% of the price of your home. These costs cover various fees your lender charges and other processing expenses. When you apply for your loan, your lender will give you an estimate of the closing costs, called a "good faith estimate", so you won't be caught by surprise. If you buy a HUD home, HUD may pay many of your closing costs.

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Banking & Finance

James Graham

2004-01-01 11:40:00

: How do I maintain a good credit rating and lower my debt?

ANSWER:  When tempted to reach for the plastic, installing control mechanisms to properly regulate card use becomes important. Some strategies, although they may seem simple, are valuable in keeping credit card spending under control.Don't use credit cards to pay for day-to-day expenses. Set sufficient cash aside for these expenditures. Place "needs" over "wants". Tracking spending and proper budgeting, will net the necessary cash.Identify good debt and bad debt. Good debt involves financing a purchase that will outlast the loan. And that purchase, such as a home, will continue to grow in value. The asset you finance by borrowing should provide a return that will offset the cost of interest. Another good debt is financing education, such as student loans. Debts such as these will enhance your life and allow you to grow. Good debt can turn to bad. Everyone wants to own a home and many will do anything to own one, including applying for a HVLM (High Value Loan Mortgage). This type of loan allows the homebuyer to borrow up to 150% of the value of the home at interest rates close to those of credit card companies. Paying interest on one of these loans for ten years won't make a dent in the principle. Credit can cost you considerable interest in "The Trap of Mortgage Refi-nances."  Refinance can be an effective tool in a families financial program, but can be bad for people who take out extra equity from their home to pay off credit card debt. For example, if you transferred $15,000 in credit card balances to a new mortgage of $93,000, you finance $108,020 plus $2,160 in closing costs. In a 30-year refinance loan, the total cost to refinance and pay off credit cards is $20,090 in interest. That's $5,000 more in interest than the amount of the credit cards. More simply put, a $19 pizza charged on a credit card will cost $19 if paid when the credit card bill is due. However, paying the minimum payment, (with an average balance of $5,000), a $19 pizza will cost $40.04. Understand the cost of credit.  Credit cards aren't as attractive as they once were. Consider a bank debit card, which withdraws directly from a checking account, as an alternative to credit cards. They allow the user the convenience of a credit card without the interest. Again, maintaining a budget, tracking spending and using a spending planner are important.The Federal Trade Commission Act, Title 15, Chapter 41, addresses consumer credit reporting and provides consumer guidelines on how to acquire credit reports, repair problems on your credit report and more. Every 90-120 days, use the Internet to receive a free credit report to make sure the information is correct. Nearly all lenders have come to rely heavily on computerized profiling to determine credit they are willing to expend.Keep credit card balances and any excessive house and car debt to a relatively modest 5-15% of your monthly income. To determine excess debt, examine financial records for the last 3-6 months. Tracking spending and recording it is valuable.  Bad debt between 15-25% of your income, calls for more systematic debt management. You may be tempted to fold these debts into a home equity loan or new mortgage to reduce monthly payments. This is a good idea, but use at least half of the savings for debt acceleration on the new mortgage loan. Carefully examine refinance fees and hidden charges. For debts of 25-50% of monthly income, consider consulting a professional for a free debt analysis.

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Banking & Finance

Larry Cheatham

2004-01-01 11:10:00

: May an employer ask a prospective employee their high school graduation rate?

ANSWER: An inquiry regarding a prospective employee's high school graduation rate, date of birth or age may be construed as an improper inquiry that might be cited as evidence of discrimination. The Equal Employment Opportunity Commission takes the position that because such inquiries may be made with a discriminatory purpose application questions eliciting such information will be closely scrutinized. Some state and local agencies charged with enforcing anti-discrimination laws also take the position that such an inquiry is unlawful.If an employer is concerned about federal and state law restrictions/requirements concerning the employment of minors, the employer can inquire as to whether the prospective employee is over 16 years of age. The employer should indicate that if the answer is "no", employment is subject to verification that the applicant is of minimum legal age and that the applicant is able to supply any required work permit. Other "no-no’s" for an interviewer are questions regarding race, national origin or religion. A photo attached to the application form is potentially discriminating. Inquiries about the nationality of the applicant's spouse, birthplace of applicant's parents, applicant's native tongue or maiden name of a married woman must never be asked in an interview. Questions about the applicant's religious affiliation or which religious holidays the person observes are also discriminating. The following questions may be asked: Does the applicant have relatives employed by the Company? Does the applicant have the legal right to be in employed in the United States? Can the applicant perform essential job-related functions for the position? What academic, vocational or professional schooling does the applicant have? Any training received in the military? Membership in any union or trade or professional association related to the position? Job references? In summary, the interviewer must take care that an individual's privacy is not violated. If a question is job-related, it is probably appropriate to ask. If it is not job-related, be careful. Avoid all questions that are not necessary to judge an applicant's qualifications, skill level and competence.

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Banking & Finance

Larry Cheatham

2003-12-01 08:08:00

: I understand that more companies are using direct deposit as the main method for paying their employees.  What are the common types of direct deposit and what are the advantages of these methods for the employee and the employer?  Can a company require employees to use direct deposit?

ANSWER: Direct Deposit is the term used to describe a form of salary payment where the employer electronically deposits a paycheck directly into the employee's designated bank account(s). Whether the employer can make direct deposit a requirement is a matter of state law.    As you may suspect, these laws vary from state to state. In Kansas, this practice is allowed upon written consent of employee to employee's account at a financial institution. The employer must pay any service charges incurred for the first withdrawal of funds. (44-314, 49-20-1)   An advantage to direct deposit for employees is that their pay is deposited into the designated account(s) on the same day and at the same time each and every pay period.  Direct deposit can eliminate employee concerns of not being able to personally make a regular-type deposit when he or she is out of town, is ill or cannot make the deposit due to other personal reasons. An employee with one or more checking or savings accounts simply provides the employer with the name of the financial institution, the institution routing numbers and the employee account numbers.  The deposit is made at no charge to the employee.    For employees that do not have a financial institution account, the Debit Pay Card is an alternative to Direct Deposit.  The debit pay card is similar to that of an automatic teller machine (ATM) card.  Funds are deposited by the employer and can only be withdrawn by the employee using a personal identification number (PIN).  Use of the debit pay card eliminates check cashing fees - which in Wichita can be as high as 3% of the total amount of the employee's paycheck ($15 for a $500 check).  With the debit pay card, the employee pays only $1.50 for each ATM withdrawal.  An added advantage of the debit pay card is that it can be presented by the employee as a cash alternative to pay for goods and services in the marketplace.  The total amount of each purchase is automatically deducted from the card balance at the time of purchase.   Employers find reduced costs through less inventory of check paper, bank reconciliation and check distribution from the practice of paying employees through traditional paper checks.  Employers with sites in multiple states no longer need to be concerned with shipping or mailing delays of checks due to weather or disasters (such as September 11th).   Employers should consult an attorney for specific concerns relating to state and local laws before implementation of a direct deposit or debit pay card program.

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Banking & Finance

James Graham

2003-10-01 09:00:00

: I really appreciated your last month's article on how money works.  Do you have some tips for me to help me keep my spending under control?

ANSWER:  Well, this is a very common situation that a large majority of individuals find themselves in each month, and the reason so many individuals get into debt.  Uncontrolled spending is one of three main areas that directly affect personal debt.  The key to solving this problem is the process of "tracking the spending", and when you track your spending, you control it.  To properly control spending, you first have to realize that spending is emotional, and once we accept this, then we can set priorities on how the money can be spent.  By setting spending priorities and tracking the spending, we are taking tremendous steps in removing the problems that lead to personal debt. This process of tracking spending can be very tedious, but it is absolutely essential in getting your total personal finance program under control and proceeding into the next step of debt management and elimination.  One excellent thing to remember is that by using the process of tracking spending, the average family can find $200-$300 in wasted spending each month, and sometimes more.  When I mention the process of control spending, it's not so much the fact of having to resort to "starving" on the food bill or completely eliminating large numbers of items in your budget, but instead, it requires you to make some very logical decisions, and deciding if the items that you are purchasing and the way you are purchasing them is of the "need" or "want" basis.  A majority of times, it is as simple as rearranging our spending habits and using a little process thinking.  It isn't always a matter of cutting back, but a lot of progress can be made simply by setting the necessary priorities and not repetitive buying.    Take the following example I refer to often using the food budget.   Usually at the first of every month, we sit down and make our grocery shopping list of items needed for the month or every two weeks, which ever is the time frame for purchasing groceries.  Let's say that we spend approximately $150 every two weeks for a family of four.  We get the groceries home and put away and are usually tired, so we go out to eat.  What we have just done is the best example of how to start in the process of "control spending."  While we are enjoying our meals in our favorite restaurant, we have just spent $150, plus the price of the meals which for a family of four could be approximately $40-$50 depending on where you were.  So, for the first part of the month, we have spent $190-$200 for eating.  Suggestion- why not establish nights that you want to eat out and buy your groceries around that schedule?  You'll be surprised how much you can save, particularly when using the options of coupons and buying large quantities.   As long as we are on the subject of groceries, we need to provide some options, such as: buying large quantities, dividing up the portions for separate meals, or using the proper use of coupons and double coupons.  All of these little items can definitely up to be very significant in properly managing the budget.  If an individual was to save only $10 a month on the food bill, they could apply that $10 either to savings or debt reduction.   Although I have just addressed one area of spending, it is an area that provides several options for savings.  There are other areas that can be addressed such as, the amount paid for insurance premiums and saving on healthcare.   These are just a few of the areas that can produce even greater amounts of saving when tracking is implemented.   The next and probably most important matter is controlling spending is the ability to set spending priorities.  Too many times we purchase items that we want instead of need.  Now there is nothing wrong with buying something we want, but the matter of need should take precedence in managing our spending.  We as a society have the unique ability of buying what we want, and being able to justify it as a need.  This explains why at the end of the month we have too much month and not enough money.   According to the School of Consumer and Family Affairs at Purdue many consumer purchases are made on impulse.  One of the best ways to properly manage spending is to base your spending decision on the following three elements: 1) Utility - Do I need or want this item?  Does the item being purchased do what it's intended to do? (i.e. color, flavor, power, dependability and performance) 2) Availability - Can I satisfy the vendor? (i.e. money in my pocket, checking account, credit card, loan, lease, etc.) 3) Affordability - Can I afford the item? Will it require financing on a long term?  How much will I have to pay in interest?   Last, but not least, is the matter of how we spend money using credit cards.  Credit card spending is probably the most misused and is the biggest cause of consumer debt.  The reason for this is that we don't properly manage the use of the credit card.  For example, don't ever buy anything that is consumable (food) on a credit card unless you plan to pay the entire amount off at the end of the month.  That very small purchase of bread and milk on the Visa, at 19% interest, could end up costing you 3-4 times the amount if the bill isn't paid at the end of the month.  One of the best ways in the proper use of spending is the use of the 'Debit Card.' This provides a way of tracking your spending via your check register.     These are just a few of the problems that people run into in their daily life, and unfortunately, these problems result in a greater problem of personal debt, because of the mismanagement of spending.  Remember, tracking your spending and setting spending priorities is the first and best process in debt elimination.

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Banking & Finance

Stan Cowan

2003-10-01 09:00:00

:   Is there a difference between credit unions and corporate credit unions?

ANSWER: Yes, and some similarities!  Both serve their 'members' and each 'member' is an owner of the credit union.  We already discussed what consumer credit unions look like in other Q&A's, so here's a brief definition of what a corporate credit union is.   A corporate credit union exists to provide financial services to other consumer credit unions.  There are many things that go on behind the scenes at credit unions for which they need assistance from corporate credit unions.  They range from Account Reconciliation, Security Services (brokerage), Financial Products (investments, liquidity management) and Correspondent Services (check collection, settlement services, wire transfers and corporate cash.)  Locally in Kansas, ours is called the Kansas Corporate Credit Union, located right here in Wichita, KS and was founded in 1951.    Just like regular credit unions, corporate credit unions also have a volunteer board of directors and committees.  They share the same core values as consumer credit unions, providing exceptional service to its members.

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Banking & Finance

James Graham

2003-09-01 15:27:00

QUESTION:  Help! I just can't seem to get ahead. I don't spend unnecessarily, I feel like I live well within my means, and I always pay my bills on time, but I am always into the next paycheck well before I receive it. Any advice?  

ANSWER: Your problem is common. In order to solve it, you first have to understand, "How money works" and, its effect on Personal debt. This powerful principle makes fortunes for people who understand the process, and unfortunately for those who don't understand the process, can put people in severe financial distress, including bankruptcy.    The term "Personal Debt" is most often misunderstood as a problem within itself, but in fact, it is the result of several things such as uncontrolled spending, not setting the proper financial priorities, and deciding between WANT and NEED. Personal debt has a tremendous impact on our lives by causing such things as personal stress, divorce, and in a lot of situations, bankruptcy. The one realistic thing about personal debt is that it can be managed, and eliminated.   Like everything else of this importance, it requires dedication and personal commitment in order to achieve the desired result. We live in a society where we want instant gratification, and that of course includes using credit to obtain it. It's always the old saying, "I deserve it and I'm going to reward myself". Personal debt is many times the sole result of living beyond our means. The following national statistical data references this:l According to the Consumer Credit Assoc-iation, January 2002, the total credit card debt in the U.S. was approximately $668 billion.l Mismanagement of personal finances including credit card debt is the #1 cause of stress.l 89% of all divorces were the result of mismanagement of personal finances.l Every year, approximately 1.4 million bankruptcies are being filed, and the numbers are increasing by approximately 15% each year. (Bankruptcy report, The Wichita Eagle newspaper, March 2002. Kansas recorded 15,250 filings in 1998. The office handled 13,554 total filings in 1999 and 13,331 in 2000. At the end of September 2001, there were 10,661 filings.) The numbers of filings continue to increase. Note: After reviewing hundreds, if not thousands of bankruptcy filings, over 95% of these filings need not have been filed. Of course, there has to be a source on income.   There is a common saying, "The rich keep getting richer, and the poor keep getting poorer." The only counter to this is that the rich, i.e. banks, mortgage companies, credit unions, and finance companies, understand the process of "How Money Works" and the rest don't. But, the upside to this is that regardless of your financial status, you can effectively apply the same process to make it work for you, and obtain the same results.   There are two main ingredients in this very unique financial process. They are the Rule of 72 and Compound Interest. Dr. Albert Einstein once said, "The most powerful formula in the world was the power of compound interest and it's effect on money." This particular item is powerful enough by itself, but when you combine it with the Rule of 72, the results are at times…unbelievable. I'll share just a few of the many examples of just how powerful this combination is.    The Rule of 72 says: if you divide the number 72 by the compound interest rate, the answer will be the number of years it will take for your money to double in value. For example, if you put $2,000 in an account with 6% compound interest, your money will double to $4,000 in approximately 12 years, without you having to add any additional funding. Obviously, if you increase the rate of return or the amount of the investment, then your final value will be much greater. Basically it's money working on money!   Now, understanding the basic foundation of the unique combination, let's visit how this process works for and against you. When you purchase a home, regardless of the interest rate, you will probably request a 30 year mortgage simply because you want to keep the payment low. After all of the paperwork is finished and you begin making payment, you will be paying approximately 2.83 times what the house is worth. So for a $100,000 mortgage, you will pay approximately $300,000 over a 30-year period, for the home and approximately 2/3 of that amount will go to interest payments. In obtaining the luxury of paying the mortgage over 30 years, which does nothing more than lower your mortgage payments, it also consumes a tremendous amount of money that could have been applied to your retirement or to your children's college education. The common argument against this process is that you lose the mortgage interest deduction. My question is, "What is more important, saving ten's of thousands of dollars in interest and applying the mortgage payment to retirement at a conservative rate of 7% over a period of time such as 15 years and ending up with approximately $300,000 extra for retirement, or having a $1,000 or less mortgage deductions each year?" Again, it's all in understanding the process of "How Money Works".   Let's examine the matter of the infamous credit card and how his process again can work against you. This time it has much far reaching effects. The credit card has been provided to us as a luxury item. Instead, we as a society have abused this capability of buying now and paying later. When we acquire a credit card, we justify it as establishing our credit. However, when we start using it, it has the immediate potential to destroy our financial lives. Credit cards are good and very useful, when properly selected and managed.    Here is a situation that is quite familiar to most individuals. A person obtains a store credit card with a balance of $3,000, with an interest rate of approximately 19.5%. Only the minimum monthly payment is made, and no new charges are added. It will take this individual 39 years to pay this credit card off and cost them approximately $10,000 in interest alone! Consider this, if you were that individual, and paid off the credit card and invested the $10,000 at a modest rate of 7% for 25 years, you could provide for yourself or your family approximately $85,000 plus.   Consider this example of how the situation really gets out of control and the process starts working against you. Suppose that the individual did not pay off the credit card and instead chose to consolidate the family debt problem by refinancing the family home. Now the home is in jeopardy, and chances are, they go back out and charge up the card again.   The examples that I have shared will help you to understand that understanding "How Money Works" is a very important tool to have in your possession. Proper debt management requires the use of proper spending management, personal commitment and dedication, plus the invaluable knowledge and understanding of the Rule of 72 and compound interest to make your financial future a successful one.   I have laid the foundation to understanding the basic aspects of personal debt and how that debt can be properly managed and eliminated. Next month, I will expand on the first of three legs of proper money management controlled spending.

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Banking & Finance

Richard Ciemny

2003-09-01 10:08:00

: There has been so much talk about the Feds lowering or raising interest rates.  Who exactly are the 'Feds'?  

Richard Ciemny    Question: There has been so much talk about the Feds lowering or raising interest rates.  Who exactly are the 'Feds'?   Answer: The Federal Reserve System, also known as the Fed, is the central bank of the United States. It was founded by Congress in 1913 to provide the nation with a safer, more flexible, and more stable monetary and financial system.  Over the years, its role in banking and the economy has expanded. Today, the Federal Reserve's duties fall into four general areas:1.  Conducting the nation's monetary policy by influencing the money and credit conditions in the economy in pursuit of full employment and stable prices 2.  Supervising and regulating banking institutions to ensure the safety and soundness of the nation's banking and financial system and to protect the credit rights of consumers 3.  Maintaining the stability of the financial system and containing systemic risk that may arise in financial markets 4.  Providing certain financial services to the U.S. government, to the public, to financial institutions, and to foreign official institutions, including playing a major role in operating the nation's payments system.

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Banking & Finance

Chuck Bullock

2003-08-01 13:57:00

: Are balloon notes possible for residential mortgages?

ANSWER:  While they comprise a small part of the overall mortgage market, balloon notes are available, and serve as a viable alternative to their fully amortized counterparts.  Because a mortgage is typically the largest financial commitment most of us undertake, making an informed decision is important in determining whether this type of loan is the best value for you.  Understanding the mechanics of a balloon note is where we'll start.     Balloon notes, on the surface, have similar characteristics as any other - they have a stated term and loan payments are applied in the same fashion.  Their distinguishing factor is a "call provision" that is defined in the Note, declaring the loan due-and-payable at a predetermined date.  And it is at that date the consumer must pay off the balance of the loan.  Lenders that offer this type of financing vehicle commonly feature a 7, 10, or 15- year balloon provision.       This raises the all-important question, "What if I don't have the liquidity to pay off the balance?"  The consumer has two options. First, negotiate a new loan with their current lender, rewriting the balance at the then-current interest rate.  Second, arrange for a refinance with a different lender, prior to the call date specified in your current note.  In either situation, don't wait until the last minute to begin your refinaning.  Today's rate environment has most lenders averaging 45 - 60 days turnaround time, from time of application to funding.  Begin doing your homework early.     Given the multitude of alternatives in today's product rich environment, why would someone opt for a balloon note?  Risk.  You see, by building in a call provision, the lender is hedging their interest rate risk, and subsequently may offer the consumer an attractive mortgage rate as an incentive to do business with them.  Both parties benefit from such an arrangement - the lender isn't committed to a rate for thirty years and the consumer realizes a lower monthly payment.       Balloon loans can be a good value for the rate-conscious consumer.  And statistics show that you'll move from your current home in 7 years anyway.  The average life of a mortgage loan today is about 48 months.  So, if you fit the profile of the average homeowner, the possibility that you'll be faced with a "call" is not much of a consideration.     In conclusion, balloons aren't for everybody.  But they do provide a good value for a big segment of our mortgage population.  As always, do your homework and weigh your options carefully.

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Banking & Finance

Brad Kidd

2003-08-01 11:28:00

: Why do some lending institutions for mortgage financing concentrate on little money needed at the time of closing and others concentrate on the interest rate?

ANSWER: The simple answer is that both scenarios have appeal to different types of borrowers.  Lending institutions use one, or sometimes both of these strategies to satisfy a particular borrowers' needs for their circumstances.The in-depth explanation requires an understanding of how lending institutions make their money.  A lender or broker makes their money in two ways: the fees they charge up front and by the rate the customer is paying in interest. Again, depending on the borrowers' needs, one or both of these methods may be used.The majority of borrowers who are purchasing a home seem to be primarily concerned with having to come up with as little money as possible at closing.  Therefore, lenders and brokers search out programs to meet this need.  A program with little or no money down will normally carry a higher interest rate and an increase in the amount of mortgage insurance coverage required.The majority of borrowers refinancing their homes don't need cash to close because of the equity they have in their home.  Therefore, they are searching out the deal that makes the most sense to meet a short term or a long term goal.  If their motivation is to consolidate debt, they may use most or all of their equity, creating the need for little or no up front costs.  If they have plenty of equity and don't need to consolidate debt, they may choose to pay up front fees in order to receive a lower interest rate. When the borrower's situation is such that they can put their fees up front and receive the lower rate, that is usually the scenario that will create the most savings over the life of the loan.  To illustrate this point, observe the following example of a refinance of $125,000.

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Banking & Finance

Stan Cowan

2003-08-01 11:28:00

: What are low-Income designated credit unions?   

ANSWER:  Low-income designated credit unions are a unique form of credit union. They serve primarily low-income members in distressed and financially underserved areas. In the past few years, NCUA (The National Credit Union Administration) has emphasized the benefits these institutions provide to the many people who are often unserved by traditional banking institutions. NCUA also manages a Revolving Loan Fund and provides technical assistance grants to low-income designated credit unions. The purpose of the revolving loan fund is to stimulate economic activities in the communities served by low income credit unions which will result in increased income, ownership and employment opportunities for low-wealth residents and other economic growth. The policy of NCUA is to revolve the loans to qualifying credit unions as often as practical in order to gain maximum impact on as many participating credit unions as possible.   Loans are limited to a maximum amount of $300,000 per credit union. Loans issued between January 1, 1995, and December 31, 1998, carry a fixed interest rate of 3%; and loans issued after January 1, 1999, carry a fixed rate of 2%. Interest and principal are repaid on a semiannual basis beginning six months and one year, respectively, after the initial distribution of the loan. The maximum term of each loan is five years. Participating credit unions are required to match the value of the loan within one year of the date of approval of the loan. Currently, there are 949 low-income designated credit unions in the U.S., four of which are located in Kansas (one in Wichita).

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Banking & Finance

Stan Cowan

2003-07-01 10:56:00

:  Who owns credit unions? How are dividends calculated and distributed?  

ANSWER: The people who BANK at a credit union OWN the credit union. That's why your 'savings' account is officially called a SHARE account. It's your "share" of the credit union. Dividends are called dividends because of credit union regulation and because we're a not-for-profit organization. They are the same thing as INTEREST is at a bank.

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Banking & Finance

Richard Ciemny

2003-06-01 12:47:00

: What is the process for getting one's credit report and repairing errors?

ANSWER: If you've been denied credit, insurance, or employment because of information supplied by a CRA, the FCRA says the company you applied to must give you the CRA's name, address, and telephone number. If you contact the agency for a copy of your report within 60 days of receiving a denial notice, the report is free. In addition, you're entitled to one free copy of your report a year if you certify in writing that (1) you're unemployed and plan to look for a job within 60 days, (2) you're on welfare, or (3) your report is inaccurate because of fraud. Otherwise, a CRA may charge you up to $8.50 for a copy of your report. If you simply want a copy of your report, call the CRAs listed in the Yellow Pages under "credit" or "credit rating and reporting." Call each credit bureau listed since more than one agency may have a file on you, some with different information. The three major national credit bureaus are:      Equifax - P.O. Box 740241, Atlanta, GA 30374-0241; (800) 685-1111.      Experian (formerly TRW) - P.O. Box 2002, Allen, TX 75013; (888)      EXPERIAN (397-3742). Trans Union - P.O. Box 1000, Chester, PA 19022; (800) 916-8800.    Under the FCRA, both the CRA and the organization that provided the information to the CRA, such as a bank or credit card company, have responsibilities for correcting inaccurate or incomplete information in your report. To protect all your rights under the law, contact both the CRA and the information provider.    First, tell the CRA in writing what information you believe is inaccurate. Include copies (NOT originals) of documents that support your position. In addition to providing your complete name and address, your letter should clearly identify each item in your report you dispute, state the facts and explain why you dispute the information, and request deletion or correction. You may want to enclose a copy of your report with the items in question circled. Send your letter by certified mail, return receipt requested, so you can document what the CRA received. Keep copies of your dispute letter and enclosures.    CRAs must reinvestigate the items in question--usually within 30 days--unless they consider your dispute frivolous. They also must forward all relevant data you provide about the dispute to the information provider. After the information provider receives notice of a dispute from the CRA, it must investigate, review all relevant information provided by the CRA, and report the results to the CRA. If the information provider finds the disputed information to be inaccurate, it must notify all nationwide CRAs so they can correct this information in your file. Disputed information that cannot be verified must be deleted from your file.    If your report contains erroneous information, the CRA must correct it. If an item is incomplete, the CRA must complete it. For example, if your file showed that you were late making payments, but failed to show that you were no longer delinquent, the CRA must show that you're current.    If your file shows an account that belongs only to another person, the CRA must delete it.    When the reinvestigation is complete, the CRA must give you the written results and a free copy of your report if the dispute results in a change. If an item is changed or removed, the CRA cannot put the disputed information back in your file unless the information provider verifies its accuracy and completeness, and the CRA gives you a written notice that includes the name, address, and phone number of the provider.    Also, if you request, the CRA must send notices of corrections to anyone who received your report in the past six months. Job applicants can have a corrected copy of their report sent to anyone who received a copy during the past two years for employment purposes. If a reinvestigation does not resolve your dispute, ask the CRA to include your statement of the dispute in your file and in future reports. Second, in addition to writing to the CRA, tell the creditor or other information provider in writing that you dispute an item. Again, include copies (NOT originals) of documents that support your position. Many providers specify an address for disputes. If the provider then reports the item to any CRA, it must include a notice of your dispute. In addition, if you are correct-that is, if the disputed information is not accurate-the information provider may not use it again.  When negative information in your report is accurate, only the passage of time can assure its removal. Accurate negative information can generally stay on your report for 7 years. There are certain exceptions:      Information about criminal convictions may be reported without any time limitation.      Bankruptcy information may be reported for 10 years.      Credit information reported in response to an application for a job  with a salary of more than $75,000 has no time limit.      Credit information reported because of an application for more than $150,000 worth of credit or life insurance has no time limit.      Information about a lawsuit or an unpaid judgment against you can be reported for seven years or until the statute of limitations runs out, whichever is longer. Criminal convictions can be reported without any time limit.    Your credit file may not reflect all your credit accounts. Although most national department store and all-purpose bank credit card accounts will be included in your file, not all creditors supply information to CRAs: Some travel, entertainment, gasoline card companies, local retailers, and credit unions are among those creditors that don't. If you've been told you were denied credit because of an "insufficient credit file" or "no credit file" and you have accounts with creditors that don't appear in your credit file, ask the CRA to add this information to future reports. Although they are not required to do  so, many CRAs will add verifiable accounts for a fee. You should, however, understand that if these creditors do not report to the CRA on a regular basis, these added items will not be updated in your file.    

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Banking & Finance

Stan Cowan

2003-06-01 10:13:00

: What is a 'field of membership' in a credit union? How does a person know whether or not he qualifies to join a particular credit union?

ANSWER: Way back in the 1930's when credit unions started up in America, they were created by a group of people who shared a 'common bond.' For example, a group of teachers could form a credit union based upon that similarity. Or, all employees from a specific company could. That common bond became what is known today as a 'field of membership,' the group of people that define who can join a particular credit union. Over the past 20 years or so, however, many credit unions have defined their field of membership to be a specific geographic region, i.e. a particular county or city, or even a whole state! That's called a community charter.    So, no matter where you work or live, there are probably several credit unions in your area that you can join. Here are some ways that you can find out:    Check the yellow pages - several credit unions will be listed for you to investigate.    Check with your employer - there could already be a credit union out there that has your company within their field of membership.    Ask your family - many fields of membership include 'family' in their definition. Just being a relative of an existing member in most cases will qualify you as a potential member.    Ask your neighbors - as stated earlier, many credit unions have community charters that you are automatically eligible to join.    Log on to http://www.creditunion.coop/cu_locator/index.html. This is the easiest way to find a credit union closest to you nationwide. Or call (800) 358-5710.

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Banking & Finance

Janie Carr

2003-05-01 14:10:00

:  Is the only reason to re-finance to get a lower interest rate and a lower monthly payment?

ANSWER:  Not necessarily so.  If you have a low, 30-year fixed interest rate you're in good shape. But if any of these five reasons applies to your situation, you may want to look into refinancing.      1. Decrease monthly payments. If you can get a fixed rate that's lower than the one you currently have, you can lower your monthly payments.     2. Get cash out of your equity.  If you have enough equity you can get cash out by refinancing. Just decide how much you want to take out and increase the new loan by that amount. It's one way to release money for major expenditures like home improvements and college tuition.      3. Switch from an adjustable to a fixed rate. If interest rates are increasing and you want the security of a fixed rate, or, if interest rates have fallen below your current rate you can refinance your adjustable loan to get the fixed rate you're looking for.      4. Consolidate debt.  You can refinance your mortgage to pay off debt, too. Simply increase the new loan amount by the amount you need and the lender will give you that cash to pay off creditors. You'll still owe the lender but at a much lower interest rate - and that interest is tax-deductible.      5. Pay off your mortgage sooner.  If you switch to a shorter term or a bi-weekly payment plan, you can pay off your home earlier and save in interest. And if your current interest rate is higher than the new rate, the difference in monthly payments may not be as big as you'd expect.  

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Banking & Finance

Newton Male

2003-05-01 14:10:00

:  In your answer to a question about On-Line Banking in a past issue of the Q and A Times, you mentioned that banking on-line is secure. We have all read how a hacker can figure out passwords and get access to accounts? Is that true? How often does it happen? What protection or guarantee does a bank provide against this kind of loss?

Newton Male Question:  In your answer to a question about On-Line Banking in a past issue of the Q and A Times, you mentioned that banking on-line is secure. We have all read how a hacker can figure out passwords and get access to accounts? Is that true? How often does it happen? What protection or guarantee does a bank provide against this kind of loss?Answer:  Banks have firewalls, but it has been proven that people who really want that information are professional criminals and can get through a firewall, passwords and things of that sort.     It is true that hackers could potentially figure out passwords and access accounts, especially if the bank customer is careless.  There is no guarantee that they cannot.  It is important that financial institutions minimize to what hackers might have access, but the possibility of this happening is very rare.  There are more beneficial and easier targets than a financial institution.  Defrauding a federally insured bank carries stiff penalties.     The following steps are usually taken by prudent financial institutions to prevent and detect hackers.  The security of on-line banking is based on these five important points:     1. A firewall is a hardware box that has a connection to the internet and the inside system.  It uses rules and filters (tests) to monitor a system's inbound and outbound traffic.  By using the rules and filters, a monitoring system is able to detect a hacker's attempt to penetrate the system.  Most internet banking providers use multiple firewalls.  Financial institutions normally use a third-party provider, such as Digital Insight, to handle their internet banking.  This helps prevent a hacker from infiltrating the bank's main frame system.     2. The hardware firewall also provides the encryption of the data being transmitted from the remote user back to the host.  An encryption is a code by which data is scrambled, and thus, is unrecognizable to an remote user.  The data is then unscrambled, or decrypted, when it reaches the host.  Internet banking providers have encryption keys that are kept secret.  Each time a connection is made to the host, a new key is issued to the remote user.  This allows only one remote user to use the encryption key at any given time.  In other words, encryption makes the jewelry box indistinguishable from the cereal box.  If a person cannot keep the thieves out of the house, at least prevent them from finding the jewelry.      3. A password is probably the easiest way for a hacker to gain access to an account.  The failure to change passwords often enough and not keeping passwords confidential are the main problems with unauthorized account access.  Passwords should not be personally associated with the bank customer.  Pet names, birthdays, addresses, telephone numbers, etc., should be avoided.  A password should be a combination of random numbers and letters.  Protection of the passwords is the host's best defense against hackers.     4. Most on-line bank providers conduct a quarterly intrusion detection test.  This test can be conducted by a third party multi-vendor at any time without notice.  This is a test of the on-line bank provider's hardware firewall and monitoring systems.  The results are given to the on-line banking company for review and to tighten security if necessary.  A variety of vendors are used because each uses a different technique for attempting intrusion.     5. Financial institutions carry insurance covering any losses due to intrusion of their systems.  The amount of this insurance may vary from institution to institution.     On-line banking is secure.  However, this does not relieve the bank customer of responsibility to reconcile and monitor accounts.

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Banking & Finance

Brad Kidd

2003-05-01 12:39:00

:   What is the difference between a Mortgage Broker and a Mortgage Banker and where can the consumer get the best deal?

ANSWER:  Mortgage Brokers use their affiliations with independent wholesale lenders to secure financing for their clients.  Mortgage Brokers are not lenders in that they do not make or fund loans in their own name.  They serve their customers by shopping many lenders to get the best loan possible for their clients.     Mortgage Bankers differ from Mortgage Brokers in that they act as the bank and actually issue mortgage loans in their name and provide the cash to fund the loan at closing.  This is usually accomplished through the use of a warehouse line of credit.  The Mortgage Banker will then sell the consumers note to an investor or other lender in order to replenish their warehouse line of credit and issue new loans.For the consumer, either option can result in the best deal.  Good Mortgage Brokers have lots of affiliated wholesale lenders and constantly update these relationships to remain competitive in the marketplace.  It is the offerings of the wholesale lenders that determine the quality of the consumers deal, not the Mortgage Broker.The same can be said of Mortgage Bankers.  Their investors, or buyers of their loans, ultimately determine the quality of the consumers’ deal as these investors determine the interest rates, and sometimes, the fees charged.     In the final analysis, the consumer should consider the costs of the mortgage loan against the services provided by the Broker or Banker.  Often times the cheapest option is not the best when professional services are needed.  The better companies will earn their fees by streamlining the process and minimizing the "brain damage" that sometimes comes with securing mortgage financing.  Look for in-house processing services, quick approvals, willingness to attend your closing, and competent professional loan officers.  If you consider all these variables, chances are you will be pleased with your choice of Mortgage Broker or Mortgage Banker.

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Banking & Finance

Charlie Traffas

2003-04-01 15:30:00

:  When is mortgage insurance required on a home loan? When can it be taken off?

ANSWER:  The Homeowner's Protection Act, a new law requiring mortgage lenders to automatically cancel private mortgage insurance (PMI), will likely save an estimated quarter million homeowners $250 to $1,200 a year in unnecessary PMI payments. Additionally, the law creates the potential for significant savings for the one million homebuyers that obtain PMI-supported loans annually, according to Mortgage Insurance Companies of America."PMI allows homebuyers to purchase a home with less than 20 percent down, and has been instrumental in allowing more Americans to achieve homeownership. It also insures lenders against a loss in the event the homebuyer defaults on the loan. The Homeowner's Protection Act requires lenders to automatically cancel PMI coverage when the loan-to-value reaches 78 percent and the loan payments are current. Homeowners will no longer have to worry about paying unnecessary PMI payments because they will automatically drop off their payments, allowing them to spend their money on other things."The new law applies to home loans on primary residences financed after July 28, 1999. It automatically cancels PMI for homeowners whose payments are current and who are still paying for PMI when their equity hits 22 percent.The law also allows homeowners to initiate procedures to terminate PMI when their equity hits 20 percent. However, it is the homeowner's obligation to prove they have 20 percent equity in their home, which can be accomplished by providing evidence such as an appraisal of value.Every homeowner's eligibility to drop PMI is different and is based on such criteria as loan-to-value status, pay habits, whether the property is a rental or owner-occupied and many others. Homeowners who believe they are eligible to stop paying PMI should contact their mortgage lender to learn the specific guidelines and processes to follow. There are other options for homebuyers who want to avoid paying PMI. If homebuyers are purchasing a property and have less than a 20-percent down payment, some lenders offer a "no mortgage insurance" loan.  While these loans typically have a slightly higher interest rate, they do result in lower monthly payments and may have some tax benefits, because, generally, the interest paid on home mortgages is tax deductible.

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Banking & Finance

Richard Ciemny

2003-04-01 12:22:00

:  What does the term 'bank guarantee' mean?

ANSWER:  A bank guarantee is a commercial instrument in the nature of a contract, intended between two parties, to secure compliance with the contract. It is an off-shoot of the main contract between two parties.In simple terms, a bank guarantee is defined as an accessory contract, whereby the promisor undertakes to be answerable to the promisee for the debt, default or miscarriage of another person, whose primary liability to the promisee must exist or be contemplated.The instances when a bank guarantee may be given are as follows:A bank guarantee may be given by a buyer to a seller as a guarantee for the future payment. A bank guarantee may be given by the contractor as a guarantee for any amount advanced. A bank guarantee (letter of credit), given by an importer to safeguard against governmental policy changes and as a guarantee of due payment.Since this guarantee is called a bank guarantee as it is provided by a bank or a financial institution.QUESTION:  How do bank guarantees help in commercial contracts?ANSWER:  Guarantees are important instruments used to minimize the risks that are involved in commercial contracts. For the enforcement of ordinary guarantees, the construed dependence of the guarantee on the main contract may lead to unnecessary disputes and litigation, arising from the main contract. These disputes may have a material effect on the guarantee, thereby blocking funds in litigation. Hence, there was a need for an innovative instrument which would enable the guarantee to serve its original purpose; namely, providing a form of security.The bank guarantee is one such innovative financial instrument whereby, if the beneficiary perceives that there has been a breach of contract by the other party, he can encash the guarantee and avail of the amount immediately, without having to undergo the hassles of litigation. Thus, the relevance of a bank guarantee achieves relevance.QUESTION:  What is the difference between a bank guarantee and a usual guarantee?ANSWER:  Following are some points of difference between a bank guarantee and a usual guarantee:A usual guarantee is governed by Sec. 126 of the Indian Contract Act, 1872. A bank guarantee is not directly governed by Sec. 126. An ordinary guarantee is a tri-partite (3 parties) agreement involving the surety, the debtor and the creditor. But a bank guarantee is a contract involving two parties i.e. the bank and the beneficiary. In an ordinary guarantee, the contract between the surety and the creditor arises as a subsidiary to the contract between the creditor and the principal debtor. The bank guarantee is independent of the main contract. In an ordinary guarantee, the inter se disputes between the debtor and the creditor have a material effect upon the surety's liability. However, the bank guarantee is independent of the disputes, arising ex contractu (arising out of the contract). An ordinary guarantee does not have any time limit before which the debt has to be claimed. Bank guarantees generally have a specific time within which they are functional.

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Banking & Finance

Janie Carr

2003-04-01 12:15:00

What is Fannie Mae?  How do they work with home buyers?

ANSWER:  Fannie Mae is part of the mortgage industry. Fannie Mae does not lend money directly to home buyers, but instead works with mortgage lenders to provide money for mortgage funds. The lenders are part of the primary mortgage market -- the place where mortgages are originated and funds are loaned to borrowers. Primary market lenders include mortgage companies, savings and loans, commercial banks, credit unions, and state and local housing finance agencies.Lenders sell mortgages into what's called the secondary market -- the place where mortgages are bought and sold by various investors. Secondary market investors include Fannie Mae, various pension funds, insurance companies, securities dealers, and other financial institutions. Once a mortgage is originated, lenders have a choice. They can either hold the mortgage in their own portfolio or they can sell the mortgages to secondary market investors, such as Fannie Mae. When lenders sell their mortgages, they replenish their funds so they can turn around and lend more money to home buyers.Fannie Mae was created by Congress in 1938 to bolster the housing industry in the aftermath of the Great Depression. At that time, Fannie Mae was part of the Federal Housing Administration (FHA) and authorized to buy only FHA-insured loans to replenish lenders' supply of money. In 1968, Fannie Mae became a private company operating with private capital on a self-sustaining basis. Its role was expanded to buy mortgages beyond traditional government loan limits, reaching out to a broader cross-section of Americans.Today, Fannie Mae operates under a congressional charter that directs them to channel their efforts into increasing the availability and affordability of homeownership for low-, moderate-, and middle-income Americans. Fannie Mae stock (FNM) is is a private, shareholder-owned company and is traded on the New York Stock Exchange and other exchanges and is part of the Standard & Poor's 500 Composite Stock Price Index.

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Banking & Finance

Chuck Bullock

2003-04-01 11:53:00

:   We are looking to refinance.  Since money is money, isn't the best deal on mortgage refinancing the one that offers the lowest rate, for the longest period, for the least amount of cost?

ANSWER:  Without question, this formula makes sense.  Being able to obtain the lowest monthly payment with the least closing costs is preferable.  By reducing the monthly debt service on your mortgage, you free up available funds to apply toward the reduction of other debt, your savings account, or for other worthwhile purposes.  There are four other questions, however, that should be considered.First, how long do you plan on remaining in your current home?  If you anticipate moving within the next few years, the total cost of refinancing your existing mortgage may far outweigh the amount you would save as a result of a lower interest rate.  With a calculator, take the total costs of refinancing your loan and divide by the amount of monthly savings you've realized.  This will tell you how many months it will take to recoup your costs.  And, will serve as a good barometer of value. Second, does the "deal" sound too good to be true?  All too often, I hear consumers say they can get an interest rate that is far below what the market seems to offer.  The old adage "if it sounds too good to be true, it probably is" rings true in mortgage lending.  A sub-market rate is typically associated with high closing costs, resulting from either hidden fees or excessive discount points.  As a consumer, you can protect yourself by asking your Loan Officer to provide you with a Good Faith Estimate of closing costs before you write them a check for your application fee.  By comparing apples-to-apples, you'll be able to determine which is the best deal for you.    Third, would you be better off refinancing at a shorter term?  On average, you'll find 15 year fixed rate loans to be 50 basis points (or ½ of 1%) lower than their 30 year counterparts.  While your payment on a fifteen year loan will be higher than that of a thirty year loan, you'll be pleasantly surprised as to how close the two payments really are.  The difference is not that significant.  But most importantly, you'll be amazed as to how much you'll save in interest!  Again, your Loan Officer will be happy to provide you with a comparison of the two terms.  Finally, how well do you know your lender?  A great deal can be spoiled by:  delays in processing and closing, surprises in interest rate changes, and servicing nightmares.  All too often, I hear of situations where the closing was delayed, thus causing the borrower to lose the commitment on their interest rate; of a last-minute interest rate change, not to the consumers advantage; and of problems with the posting of monthly mortgage payments, or delinquent payouts of escrow-related items like real estate taxes or insurance.   We are fortunate to have some top-notch local and national lenders represented in Wichita.  Many have excellent reputations for customer service and satisfaction.  My recommendation is, do your homework.  As with any major purchase, take time to shop and compare.  The investment in time to find out "who" the mortgage company is will pay big dividends.As you can see, there is an awful lot to consider.  Take your time and don't be afraid to ask questions.  If you find your mortgage loan officer communicating in "mortgage speak", ask them to explain it in terms that you understand.  Making an educated decision is crucial for getting the best deal for you.       

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Banking & Finance

Richard Ciemny

2003-03-01 14:09:00

:  How much mortgage do I qualify for?

ANSWER:  Traditionally, the way to determine how much mortgage someone qualifies for was to review their income and debts and then apply a mathematical formula that will provides the answer. The rules, however are changing in this business daily and the traditional formulas may not exist in your situation. It is always best to visit with your prospective lender face to face to discuss your individual situation.Once the prospective lender knows the facts they can quickly do a calculation for you.QUESTION:  Zero down and no closing costs... does it really exist?ANSWER:  We've all seen those great teaser ads.   As you have heard before, if it looks too good, it probably is. Keep in mind that the lender is going to get paid one way or another. Usually if they are advertising no closing costs they're simply rolling those costs into the loan via a higher rate. So now instead of paying those costs up front, you have financed them over the life of the loan.  It now will cost you more than double the original costs. Now it doesn't sound like such a great deal after all.

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Banking & Finance

Stan Cowan

2003-03-01 13:26:00

:  Can you explain the different types of interest and how they are calculated?

ANSWER:  There are two types of interest and interest calculations.  They are simple interest and compound interest.  Both are expressed as percentages.  I will illustrate the difference with an interest-earning deposit.A person makes a deposit with a financial institution, which promises a certain rate of interest per year, paid after specified intervals of time. With simple interest, the amount of the deposit remains the same, and the amount of interest is paid to the depositor at the end of each interval of time. With compound interest, the amount of the deposit rises because the interest is added to the deposit at the end of each interval of time.For example, suppose the deposit is $1000, the rate of interest is 6 percent per year, and the payment intervals are quarterly.  If this is simple interest, the financial institution will pay the depositor $15 at the end of each quarter, for a total of $60 interest earned for the year (6 percent of $1000). The total assets of the depositor after one year will be $1060.If this is compound interest, the payment will still be $15 at the end of the first quarter, but the interest will be added to the deposit, making the deposit now $1015. At the end of the second quarter, the interest will be calculated using this larger amount and will come to $15.225, which will be added to the deposit, making the new total $1030.225.The interest paid at the end of the third quarter will be calculated using the second-quarter total, and will come to $15.453375, which will again be added to the deposit, for a total of $1045.678375.At the end of the last quarter, the interest will be calculated based on the third-quarter amount, and will come to $15.685175625. Thus the total assets of the depositor at the end of the year will be $1061.363550625.Of course, financial institutions do not keep track of these fractions of cents, and interest payments are rounded to the nearest cent. This means that the actual amounts paid are not the numbers shown above. Instead, the second interest payment will be $15.23, the third will be $15.45, the fourth will be $15.69, and the total assets will be $1061.37. Notice that with compound interest, the depositor's assets at the end of the year are $1.37 more than with simple interest. This is because during the last three quarters of the year, the depositor is earning interest on the interest previously earned.Note: All the formulas below assume that interest earned is computed exactly, and not rounded at all. The effect of rounding is usually an extremely small amount over the course of many payments.

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Banking & Finance

Janie Carr

2003-02-01 15:30:00

:  When is mortgage insurance required on a home loan? When can it be taken off?

ANSWER:  The Homeowner's Protection Act, a new law requiring mortgage lenders to automatically cancel private mortgage insurance (PMI), will likely save an estimated quarter million homeowners $250 to $1,200 a year in unnecessary PMI payments. Additionally, the law creates the potential for significant savings for the one million homebuyers that obtain PMI-supported loans annually, according to Mortgage Insurance Companies of America."PMI allows homebuyers to purchase a home with less than 20 percent down, and has been instrumental in allowing more Americans to achieve homeownership. It also insures lenders against a loss in the event the homebuyer defaults on the loan. The Homeowner's Protection Act requires lenders to automatically cancel PMI coverage when the loan-to-value reaches 78 percent and the loan payments are current. Homeowners will no longer have to worry about paying unnecessary PMI payments because they will automatically drop off their payments, allowing them to spend their money on other things."The new law applies to home loans on primary residences financed after July 28, 1999. It automatically cancels PMI for homeowners whose payments are current and who are still paying for PMI when their equity hits 22 percent.The law also allows homeowners to initiate procedures to terminate PMI when their equity hits 20 percent. However, it is the homeowner's obligation to prove they have 20 percent equity in their home, which can be accomplished by providing evidence such as an appraisal of value.Every homeowner's eligibility to drop PMI is different and is based on such criteria as loan-to-value status, pay habits, whether the property is a rental or owner-occupied and many others. Homeowners who believe they are eligible to stop paying PMI should contact their mortgage lender to learn the specific guidelines and processes to follow. There are other options for homebuyers who want to avoid paying PMI. If homebuyers are purchasing a property and have less than a 20-percent down payment, some lenders offer a "no mortgage insurance" loan.  While these loans typically have a slightly higher interest rate, they do result in lower monthly payments and may have some tax benefits, because, generally, the interest paid on home mortgages is tax deductible.

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Banking & Finance

Richard Ciemny

2003-02-01 15:14:00

:  I've got poor credit and no cash for a down payment. Can I still get a mortgage?

ANSWER: Yes, it is possible for people with poor credit or no cash to obtain a mortgage but your individual situation would still need to be  evaluated.If you have both poor credit and no cash it may make it a little more challenging, but with a little guidance most people can repair their poor credit and get over the cash to close hurdle. Think of the process of getting approved for a mortgage like going on a job interview. Like an interview, it's a matter of packaging yourself neatly and presenting it with your best foot forward, always remembering... the most important thing a lending institution is looking for is your ability to re-pay the loan... in prompt fashion.Credit issues need to be resolved, or determination needs to be made as to the cause of these issues.  In some cases, poor credit is not an individual’s fault but a result of a situation (i.e. divorce, sickness etc.)  If the issue is cash availability, there are low down payment programs or a variety of alternatives to explore. The most important thing for someone to understand that may feel they are prevented from securing a mortgage because of credit or cash problem is, with time and effort it is achievable. If you can’t get approval for a mortgage today, the most important thing is to get on a path towards getting approval on a mortgage tomorrow.Most lending institutions will be happy to assist.

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Banking & Finance

Richard Ciemny

2003-01-01 11:40:00

:  What is a Credit Score as it relates to applying for a loan?

ANSWER:  A credit score is a method of determining the likelihood that credit users will pay their bills. Scores are calculated using scoring models and mathematical tables that add or subtract points for different pieces of credit information that best predict future credit performance. These mathematical models were developed after studying the credit histories of millions of consumers. The specifics of how these scores are computed is a closely guarded secret, however, we do know that the following items will impact your score.- Late payments- The length of time credit has been established- The amount of credit used versus the amount of credit available- Employment history- Negative information such as bankruptcies, foreclosures, judgments, liens, collections, charge-offs etc.If you feel that your credit score is low contact the institution that provided you with this information for a thorough review. The good news is that poor credit is repairable with a little time and effort on your part. There is no magic to improve your credit scores overnight however, once you start to demonstrate a good payment history and resolve any negative information your credit score will begin to grow. Here are some of things that you can do to maintain good credit or begin the process of clearing up poor credit.Pay your bills on time. Late payments and collection accounts can have a very negative impact on your score.Do not apply for credit frequently. If you have frequent inquiries on your report it could mean your shopping for credit and can reduce your score.Reduce your balances.  Max out your credit card and making minimum payments even if they're on time can have a negative effect.If you have little or no credit history obtain addition credit sources and pay your bills on time. This will begin to develop your history.

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Banking & Finance

Richard Ciemny

2002-12-01 09:46:00

:  Should I Re-finance?

ANSWER:  This is a complex question and varies based upon an individuals situation. In addition to lowering your monthly payment and saving money, some of the more common reasons to re-finance include; conversion of an adjustable rate loan to a fixed rate loan, reducing the term of your loan (30 year to 15 year), convert your equity to cash which can then be used to pay other debts, invest or spend at will. The general rule of thumb if you're re-financing to reduce your monthly payments has always been the 2% rule. If you can reduce your interest rate by 2% then it makes sense to re-finance.However,  a better way to approach this might be to calculate your costs recovery period. This is how it would work:Example:a. Determine the costs of your re-finance. $2,000b. Determine your monthly savings (old payment minus new payment) $100c. Divide the results in (a.) by the results in (b.) ($2,000/$100 = 20 months)The number of months needed to recover your costs in this example is 20 months. If you were planning to live in the house for longer that 20 months then you would be money ahead and it would make sense to re-finance your loan. ( This calculation does not include the impact of tax savings or investment opportunity loss).

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Banking & Finance

Richard Ciemny

2002-11-01 15:46:00

:  What is the FDIC?  What does it do?

ANSWER:  The Federal Deposit Insurance Corporation  (FDIC) was established by Congress in 1933 to insure deposits and to help maintain sound conditions in our banking system. An independent agency of the federal government, the FDIC insures deposits in banks and savings associations for up to $100,000. The FDIC examines and supervises state-chartered banks that are not members of the Federal Reserve System (also known as "state non-member" banks). The FDIC also promotes public confidence in the banking system. The FDIC enforces compliance by state non-member banks with consumer protection, fair lending, and civil rights laws. The Corporation also assesses compliance through on-site examinations, community outreach, investigation of complaints and inquiries, and other efforts.FDIC's Consumer Affairs Specialists are responsible for keeping abreast of changes to existing consumer protection rules and regulations to ensure that your concerns are addressed quickly and accurately.

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Banking & Finance

Stan Cowan

2002-10-01 13:30:00

:  What exactly is a credit union?  How does it differ from a bank?  Can anyone be a depositor/borrower?  Are all depositors/borrowers members?  Do the members own the credit union?  Are profits distributed to the members?  What can a bank do that a credit union cannot?  What can a credit union do that a bank cannot?

Stan Cowan Question:  What exactly is a credit union?  How does it differ from a bank?  Can anyone be a depositor/borrower?  Are all depositors/borrowers members?  Do the members own the credit union?  Are profits distributed to the members?  What can a bank do that a credit union cannot?  What can a credit union do that a bank cannot?Answer:  Although a credit union performs most of the same financial services as banks do, a credit union is unlike any other type of financial institution. Owned and operated by the people it serves, every credit union is formed by a group of people wanting to control their own financial destiny.  Bringing their money together as savings and by making low-cost loans to each other, they establish a cooperative serving its members.  At the heart of a credit union are goals of placing service and members' needs above all else. Every credit union operates democratically giving each member equal voice and an equal vote. Regardless of his or her assets in a credit union, each members has an equal say in the operations and decisions made.  Each member of the Board of Directors are voted in by the members/owners.  And, like the Board of Directors, other volunteers (who do not get compensated for their time) also serve on committees (Credit committee, Supervisory committee, and others).  Since credit unions are non-for-profit, any excess income is given back to the members in the form of better rates (deposits and loans), lower fees and better convenience (ATMs, branches, etc.).  Just like a bank, depending on how large the credit union is, most credit unions can provide the same services that a bank can, even services like, commercial loans, business accounts, investment products, insurance and trusts (some of these services would be provided by a subsidiary of the credit union for regulatory reasons).  Some credit unions have limited membership eligibility requirements, such as a single employer sponsor or a certain geographic area.  While others have huge 'fields of membership.'  One thing is certain.  No matter who you are, there are several credit unions that you are eligible to join.  One common qualification of membership is the 'share' account, a savings account that is your 'share' of ownership in the financial cooperative.  Normally a very small minimum deposit is required to maintain membership.

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Banking & Finance

Richard Ciemny

2002-10-01 12:36:00

: What is APR?

Richard Ciemny Question: What is APR?Answer: APR or Annual Percentage Rate is the interest rate that you are paying after adding in some of the costs associated with closing the loan.It is always different from the note rate that is stated on your loan.  Because different lenders charge different fees for their loans, the Federal Truth in Lending Law requires mortgage companies to disclose APR when they advertise a rate as a way to compare lenders. For example, two lenders may advertise an 8% rate but if their closing costs are different, this will show up in the APR rate with the higher closing cost lender having a higher APR. The APR does not affect your monthly payment. Your monthly payment is based on your note rate and the life of the loan.

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Banking & Finance

Richard Ciemny

2002-09-01 10:32:00

: What is Private Mortgage Insurance(PMI)? Can it be avoided?

Richard Ciemny Question: What is Private Mortgage Insurance(PMI)? Can it be avoided?Answer: PMI or Private mortgage insurance is normally required when you buy a house with less than 20% down. Mortgage insurance helps protect the lenders against foreclosure and is provided by a private mortgage insurance companies. It enables lenders to accept lower down payments than they would normally accept. In effect, mortgage insurance provides what the equity of a higher down payment would provide to cover a lenders losses in the event of a foreclosure.The cost of PMI increases as your down payment decreases. For example, the cost of PMI for a 10% down payment is less than the cost of PMI for a 5% down payment. Your PMI payment is normally added on to your monthly payment.The decision to cancel your private mortgage insurance rests with the  lender. However, in most cases, the lender will allow cancellation of mortgage insurance when the loan is paid down to 80% of the original property value.To cancel the PMI on your loan, contact your lender to determine what requirements must be met.

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Banking & Finance

Richard Ciemny

2002-08-01 12:08:00

:  What's the difference between being pre-qualified and pre-approved for a home loan?

Richard Ciemny Question:  What's the difference between being pre-qualified and pre-approved for a home loan?Answer:  A pre-qualification is an estimate of how much mortgage you may qualify for based on preliminary information that you have provided to a loan officer. This preliminary information would include such things as income, debts, assets and liabilities. It is important to understand that a pre-qualification is not a commitment by the lender but rather a preliminary"looks good" test by the loan officer.In contrast, a pre-approval is a formal commitment by the lender to grant you a mortgage based on a set of conditions. In order to issue a pre-approval, a lender must review your application and verify your income, employment, assets, liabilities, credit history and cash available to close the transaction. Upon completion of the verification process the lender will issue a pre-approval letter that can be used with your offer on your next home. You may find that being pre-approved prior to making your offer will strengthen your offer and put you in a better negotiating position. In the Greater Wichita housing markets, it really is a must. With today's emerging technology, borrowers can be pre-approved in as little as 24 hours with one phone call.

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Banking & Finance

Janet LloydWilliams

2002-05-01 14:55:00

: I'm thinking about opening a checking account, but there are so many banks and checking account options out there that I'm not sure how to make the right decision. How do I pick which one is best for me?

Janet Lloyd-Williams Question: I'm thinking about opening a checking account, but there are so many banks and checking account options out there that I'm not sure how to make the right decision. How do I pick which one is best for me?Answer:  Chances are, you will be starting a long-term relationship with a bank based on your checking account choice. That's why it's important to select a bank that not only has a wide selection of checking account options but has a savings program, an investment plan (CDs or savings plan) and, for later years, a trust plan.      Checking accounts can provide you with convenience, cost savings, the safekeeping of your money, and a way to help budget. How do you plan to use your checking account? Financial institutions offer different types to fit just about everyone's needs. The two main factors to remember, however, are cost and convenience. To make an informed choice, be sure to get answers to the following questions:     How many checks do you plan to write each month? If it's fewer than 10, you may want to choose a low-cost checking account. However, this type of account may limit the number of checks you can write without an additional charge.      Are you willing to pay a monthly service fee? If so, how much? A regular checking account often requires a minimum balance to waive this. Other fees may be applied for insufficient funds, phone inquiries or per-check. These can vary from bank to bank, so ask a prospective bank for their fee schedule. How much money will you need to keep in your account? With interest-bearing checking accounts, such as Negotiable Order of Withdrawal (NOW) accounts and money-market accounts, you can earn interest and avoid fees but will usually need to maintain a higher balance in order to do so.      These days, most day-to-day banking can be conducted using an ATM, but if you prefer to use a teller, find out if the bank or its branch is located in your neighborhood. Do you plan to use an ATM on a regular basis? Ask if the bank is affiliated with one close to where you work or live. Are you interested in Internet banking? Many banks now offer this online option, along with automatic bill pay, and are more than willing to explain how to get started.     Some banks even offer an ATM checking account for free or at a reduced cost if you do all of your banking by phone and ATM. This type of account usually offers unlimited check-writing privileges. In other words, there are no additional charges based on the number of checks you write, but the bank may charge you a fee if you use the services of a teller.     Besides the basics listed above, much consideration should be given to the relationship that you will have with your bank. Is their service personalized? Do they value your business? Do they treat you as an individual? With so many bank options, you can afford to be choosy.      Once you find a bank that is flexible enough to meet your needs, don't forget to be a savvy consumer. Ask plenty of questions and read the bank's disclosures. Then you'll be ready to sign on the dotted line.

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Banking & Finance

Erick Kern

2002-04-01 14:40:00

: We are just about 'credit carded out'.  In the past we have rolled balances to new credit cards but aren't getting out of the soup.  Are there other options? 

Erick Kern Question: We are just about 'credit carded out'.  In the past we have rolled balances to new credit cards but aren't getting out of the soup.  Are there other options?  Answer: This is a problem many people deal with. Rolling credit card balances to new credit cards is not always the best solution for getting these debts paid off. Even with lower credit card interest rates, it is often difficult to reduce the outstanding balances and it is hard to determine when your obligation will be paid in full. If you only make the minimum monthly payment these balances can take several years to pay off. If you are able to pay more than the minimum amount required the credit card balances can be paid off much earlier and you will save a lot of interest expense. This takes discipline to accomplish.Another solution to consider, if you have equity in your home, is to refinance your first mortgage and roll the credit card debt into the total loan balance. This would probably lower your total monthly payments and it might allow more of the interest you are paying to be taken as a itemized tax deduction. If you refinance your home mortgage, it is also a good time to consider shortening the term of your existing mortgage. If you currently have a 30 year mortgage, with more than 15 years until payoff, you will save a considerable amount of interest expense by reducing the duration to a 10 or 15 year loan. It is often possible to combine credit card and other debt into a new mortgage, with a shorter term, and still find your new payment to be  the same, or even less, than the total of all your current payments are.You can also consider a second mortgage. This allows you to obtain a fixed interest rate and you can pay an extra amount to reduce the loan balance each month. Because this is an installment rate, you can determine exactly when the debt will be paid off. It is often the case that the payments on a second mortgage will be less than what you are paying on the credit cards so more of the payment will be applied to the outstanding principle balance.You will want to consult with your Certified Public Accountant or other tax advisor on any questions regarding the deductibility of mortgage interest. This is a complicated area in the tax law, so it is prudent to consult with a knowledgeable professional to be sure you handle this correctly.

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Banking & Finance

Newton Male

2002-03-01 16:32:00

Question: My uncle died in September of 2000.  I was named Executor of his estate.  Now it is 2002.  I just became aware of a CD he had with a bank in another state.  The CD matured in August of 2001.  The Bank told me that they were going to pay a substantially lower amount of interest on the funds than what the CD was earning since the maturity date as the CD was not renewed.  Is this proper?  Do all banks do this?

Answer:  The scenario that is posed is a classic example of why people need safe deposit boxes.   If your uncle had placed his valuables in such a box and you had known about it, you would not have been taken by surprise months later to learn of the existence of this certificate of deposit.It is surprising the bank issuing the certificate did not attempt to notify their depositor and, finding him deceased, get in touch with you, the executor.  But, taking the facts as you have given them and realizing the bank and you had no communications until recently, we will try to answer your question.Your situation raises all kinds of issues, such as…if your uncle died in September, 2000, is the estate still open?  The fact the bank told you they were going to pay a substantially lower amount of interest on your uncle's certificate of deposit (than what it had formerly been earning), indicates to this writer they are trying to be fair.  They are under no legal obligation to pay any interest.  However, most banks would not stand on this legal ground if they were doing their best to help people and gain the trust of their customers.  More than likely, the lower amount of interest on the funds could have been caused by a rapid drop in the certificate of deposit interest rates.  A 12-month certificate of deposit, issued about a year ago at 5.75% or 6.00%, would now be drawing less than 3.00%.  It is possible the bank is not penalizing you, but instead merely paying their current rate on the certificate of deposit.   One would think the bank would be willing to pay you a reasonable amount since August, 2001, which in this writer's opinion would have been the then current rate of interest.  They have had the use of the funds, hopefully loaned the money at the prime rate or higher, or invested in Federal funds or U.S. Treasury obligations at somewhere just under 2.00%Most banks issue certificates of deposit that are automatically renewable.  In other words, if a certificate of deposit is a one-year certificate, it will be automatically renewed and continue for one year increments (that is, if the bank hears nothing from the depositor).  Had your uncle invested in an automatically renewable certificate of deposit, your current problem would not exist.  The rate of interest normally paid on the automatic renewal of a certificate of deposit is the prevailing rate at the maturity date.  In August, 2001, on a 1-year certificate of deposit this would have been approximately 4.15%.  This process could go on indefinitely.  However, with the single maturity on your uncle's certificate of deposit, interest would have legally ceased.  In your case, the bank is willing to pay some interest.Is this proper banking procedure and do most banks do this?  Yes.  However, getting back to your question… if, in fact, your uncle's bank is penalizing you, they could justifiably lose your business.   But, if the amount the bank is offering reflects rapidly dropping interest rates, you have no reasonable complaint. 

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Banking & Finance

Stephen English

2002-02-01 15:35:00

: Could you please explain to me how Government bonds and T-Bills work? Are they not opposite investment products…one dealing with a note from the government and the other dealing with a note owed the government?

Stephen English Question: Could you please explain to me how Government bonds and T-Bills work? Are they not opposite investment products…one dealing with a note from the government and the other dealing with a note owed the government?Answer:  Both T-Bills (United States Treasury Bills) and Government Bonds are obligations of the United States Government.  They represent the debt of the United States, guaranteed by the full faith and credit of the United States of America.  Such borrowing requires congressional approval.  Debt is issued for a variety of reasons.  Direct debt instruments are typically sold at large government "auctions" to determine their relative market price.  Large institutional participants (buyers of the debt) at these auctions include banks, brokerage houses and foreign institutions.  These direct obligations of the United States are considered the safest debt investment available any where in the world.  The quality rating is the highest. The interest rates paid to the owner are modest compared to other types of debt instruments (e.g., corporate bonds) since there is little fear of default.  Individual owners of the direct government debt are currently not required to declare the income for Kansas Income Tax purposes.

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Banking & Finance

Stephen English

2002-01-01 14:20:00

Question:  My wife and I own a restaurant. We want to sell. Some consultants tell us to sell at a price that is a percentage of gross sales. Others say it should be a multiple of net income or cash flow. In our case, there would be a substantial difference using all three scenarios. What is the best way to sell a business so that both parties end up with a fair deal?

Answer:  It's a good idea to ask some basic questions before embarking on a discussion about the "best" way to sell a business.  Is the business in question profitable?  If not, a "liquidation" may be more appropriate than a "sale".  If there is little profit or little potential for profit, then there probably is little to sell.   Does the business rely on the unique talents of one individual?  If so, there may realistically be little chance that a buyer would be able to continue the business.Let's assume for the sake of discussion that the business is profitable, has a good reputation, and can be operated by new owners.The type of business will dictate the acceptable formula for figuring a "fair" sales price.  Some businesses are typically sold at a price based on a percentage of sales, while others are traditionally sold as some multiple of "book value".  The people who best know the norm for a particular industry are the owners themselves.  Trade groups frequently discuss the latest standards for determining the market value of their similar businesses.  The local library and the business school of your local university are also good resources for assistance with determining the industry norms. No profitable business should be sold without first obtaining a comprehensive appraisal from a reputable business appraisal service.  There are fees involved, but a professional appraisal may be the best money a seller can spend. The appraisal is the seller's "private" valuation, and can be the seller's starting point for all negotiation.  If the valuation is low, in the seller's estimation, it might be wise to re-evaluate the decision to sell before engaging a realtor or business broker and beginning to incur advertising expenses.  An appraisal is but one professional's opinion, however, and many factors can affect the ultimate sales price.   An important matter to consider is taxation on the sale proceeds.  A seller should always think in terms of net proceeds after taxes.  A good accountant should be consulted so the owners will understand the meaning of "net-net" proceeds (i.e., proceeds after taxes and expenses of the transaction).  Does that "net-net" amount meet the owner's expectations?Once a valuation formula is found and the expectations of the owners are determined to be reasonable, then the next step is to find a suitable and qualified buyer. This can be difficult.    Fortunately, professional business brokers are available, and are networked for the purpose of finding viable parties for both sides of business sale transactions.  They are also likely to be aware of which banks in the area are willing to lend to qualified buyers.  A rule of thumb for sellers:  Never sell a business if you cannot retire ALL of the debt of the business.  Do not assume the new owners will meet your obligations with regard to any outstanding debt.  Too many times, a seller can end up finding it necessary to take back the business just to retire bank and supplier debt.  Be cautious if you elect to "carry back" a portion of the sale proceeds, as the new owners will then control a portion of your finances.  That's not always the best situation.  It is generally preferable to arrive at a sale agreement that results in cash proceeds to the seller for the full expected amount. All of these factors are important when deciding to sell a business.  Each business is unique.  The bottom line is to receive fair value for your business, and not to have the new owners adversely affect your lives in the future.

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Banking & Finance

Newton Male

2001-12-01 14:55:00

Question: What are the different ways I can use my home's equity?

Answer:  First of all, we believe a definition of the term home equity is helpful.  Home equity is defined as the difference between any debt on one's home and the market value.  Home equity, can in many ways, be viewed as an investment, equivalent to money in the bank.  If a person chooses to borrow and use this home equity, it can be done through a closed-end loan, with fixed payments, or a revolving line of credit loan.  A borrower can be pre-approved for a home equity loan, enabling the borrower to purchase items when needed without waiting for loan approval or incurring additional loan origination fees.A closed-end loan might be used to consolidate debts; to replace high interest bills (resulting in a lower monthly payment); and to finance a vehicle purchase.  The interest rate on a home equity loan is usually lower than the rate on a credit card or a consumer loan.  A home equity revolving line of credit might be used for a child's educational expenses.  Payment of educational expenses could be remitted as needed.Interest paid on a home equity loan may be tax deductible.  Interest paid on a consumer loan is not tax deductible, in most cases.  Consult your tax advisor for details.Caution should be exercised.  Your home is your most valuable asset.  Use your equity wisely.  It's easy to use your equity…much like using a credit card.  When borrowing against the equity in your home, give careful consideration to your needs vs. your wants.

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Banking & Finance

Stephen English

2001-11-01 17:43:00

Question: I am near 70. My wife is 62. We have a son who is 40 and a daughter who is 36. Professional estimates have placed the value of our small business at around $1,000,000. We have tried for several years to find someone to buy it but always end up at a dead end. Our son is active in the business...our daughter is not. Our son wants to buy it but has little borrowing power on his own. We need advice on how to set up the sale and be fair to all parties. What should we do?

Answer:  Planning for the sale and successor management of closely held businesses (small businesses) can be a complex and emotion-laden process.  Typically, the owner has dedicated his life to the creation and growth of his business.  It is natural for him to want the business to continue after his death, both to ensure the financial security of his own family, and to provide a livelihood for loyal employees and their families.  Each case will have unique circumstances, but some common issues to consider are:· What is the owner's cost basis in the business?  His accountant can answer this question.  It will be important to determine how much income tax will be due if the business is sold before the death of the owner.  The creation of significant income tax liability may adversely affect the lifestyle of the owner and his spouse during their retirement years. If the sale of the business can be delayed until after the owner's death, then the heirs (spouse and children) will net more money because of the "step up in tax basis" rules now in effect.  · What is the corporate structure of the business?  If the business is a Sub-S Corporation, a C Corporation or a Limited Liability Company, a fair formula for future sale using industry standards can be created as part of the company's By-Laws.  In the years before the owner's death, the son can gradually assume additional responsibilities, receiving reasonable compensation.  A reasonable salary can also be paid to the owner as he gradually eases out of the day-to-day operation of the business.  The owner can maintain ultimate control, and can determine whether "new" management is adequate.· Does the business owner also own the building in which the business operates?  He may be able to lease the building back to the business, to provide guaranteed income for himself and his spouse.    · Is life insurance an option?  Life insurance on the owner's life should be considered as a way to provide the son with the ability to buy the business after the owner's death.  Whether or not it is a viable option is a function of the owner's health and the cost of the premiums.  Proceeds of life insurance owned by the son on the life of the father have no income tax consequences to the son, but can generate the cash necessary for the son to purchase the business.  If life insurance is not a viable option, then an installment sale contract with the son after the owner's death might be appropriate to provide the heirs with steady income for a period of time.· Does the son have the management ability to successfully run the business?  If the family has doubts, then a sale to a responsible "outsider" would be prudent in order to insure the financial stability of the owner and his spouse.  The income tax benefits of delaying the sale until after the owner's death may not play as important a role as described above when selling to an outsider.· Do the taxable estates of the owner and his spouse total over $2,000,000?  If not, the Federal Estate Tax, known as the "death tax", will be nominal or non-existent when utilizing basic estate planning techniques.  A typical strategy would be to place the business into tax-favored trusts created for the owner and his spouse.  At the death of the owner, the trustee would be responsible for selling the business, utilizing the formula contained in the company's By-Laws.  The trusts could provide specific authorization to sell the business to the son.  The trusts could further provide that when both parents are deceased, the assets would be divided equally by both children (or their respective heirs if either of the children should predecease either parent).Proper planning will insure that all members of this family are treated fairly.  The owner and his spouse will receive a steady income stream during their retirement years.  The daughter will inherit one-half of the assets remaining after the death of her parents.  The son will eventually own an ongoing business created by the efforts of his parents, while being paid fairly for the services rendered to the company in the interim period. 

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Banking & Finance

Newton Male

2001-11-01 14:40:00

Question: I am interested in the safety of investments. Which is safer…a CD at a bank or an annuity with an 'A' or higher rated life insurance company?

Answer:  Asking the question,  which is safer:(1)  a CD at a bank, or (2)  an annuity with an 'A' or higher rated life insurance company is like asking which is safer, a concrete storm shelter or a steel storm shelter.  A certificate or annuity provides certain assurances.  As you no doubt know, money in a certificate of deposit at an insured bank is protected by the Federal Deposit Insurance Corporation up to $100,000 per depositor.  You should check with your bank if your certificate of deposit exceeds $100,000 in order to make certain your funds are insured or to learn ways to provide additional safety in the event the certificate exceeds $100,000.  In recent years, banks have been permitted a new method for providing safety for it's depositors on large deposits.  These methods are through letters of credit issued by the Federal Home Loan Bank or surety bonds issued by insurance companies in the business of providing insurance to banks.  Placing money in an annuity with a life insurance company which has an 'A' or higher rating provides a great deal of safety also.  Insurance companies reinsure in order to spread the risk and are closely regulated by the insurance commissioner of each state in the United States. Probably an overshadowing question would be, "What do you want the money to do for you?"  Annuities are designed to be the scientific and methodical distribution and liquidation of money over the life of an annuitant.  While in many respects it has a few things in common with a certificate of deposit, it is usually used for other reasons than the goals of the owner purchasing a certificate of deposit.  Both the CD and life insurance annuity have advantages in certain areas over each other, and it would be best to discuss the pros and cons of each with a reputable banker or licensed insurance agent. 

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Banking & Finance

Newton Male

2001-10-01 17:43:00

Question:  I recently purchased a new car with the help of a car loan.  My loan had low interest and allowed me to borrow exactly what I needed.  I was curious about how I ended up with such a great deal.  What's the typical rate of interest on a car loan?  What's the typical amount borrowed on a new car loan?

Answer:  Your loan allowed you to borrow exactly what you needed.  All too often, too much of the purchase price is financed.  Just because you financed what you needed does not mean you necessarily got the best deal.  Occasionally, that vehicle will depreciate faster than the loan is repaid, therefore, creating "inequity".How much a bank finances depends on several factors, such as:Make, model and year of vehicle;Term of loan;Borrower's credit and capacity to repay;Borrower's net worth.Interest rates on vehicle loans in today's market could range from  7.0% to 12.0%, and sometimes more.  Repayment terms range from one - two years to as much as six years.  However, a typical loan term is four years.  The rate of interest can depend on many factors, such as those listed above.  Cost of funds and competition are major factors in pricing car loans.  Whether or not a bank has money to lend also influences how aggressively they price loans and seek new business.Many customers would like to borrow as much as they can on a new car loan.  Especially when economic conditions warrant, people elect to leave savings in the stock market, for instance, as opposed to applying a large down payment to the purchase price.  Typically, however, a lending institution will finance a certain percentage of the purchase price of a new vehicle, for instance, 80% or 90%.Once again, the required down payment may depend on the customer's credit rating and overall financial condition.

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Banking & Finance

Newton Male

2001-09-01 11:37:00

Question:  I am 52.  I will have been employed by the same employer in the aircraft industry for 30 years this coming September.  While I do not have any interest in just sitting around, I would like to retire at that time, then start a business out of a hobby I have had for a good many years.  My wife has been a homemaker for the most part.  The kids are gone and doing well.  She is anxious to be a part of this endeavor.  What are the things we need to do in order to get bank financing for our project?

Answer:  You are contemplating a start up business from a hobby that you have had for many years.  This is done thousands of times each year in the United States and the chances for success are far above average.  The fact that your wife is anxious to be part of the endeavor increases the odds for success.  We will assume that you have accumulated some savings over your thirty-year employment in the aircraft industry and have a modest amount set aside in an employee savings plan which can be used as equity in your new business.  Or, perhaps you have some equity in your home that could be used for the same purpose.You have asked ,"What are the things we need to do in order to get bank financing for our project?"  Bankers and other financial institutions often use  the "Six Cs of Credit"  when determining credit worthiness.   The six Cs are as follows: 1. Character2. Capacity3. Collateral4. Credit5. Capital6. ConditionsCharacter is that quality in a person that creates a reputation for moral strength.  This lender asks himself, "Would this borrower pay back the money if I lose the promissory note?"Capacity indicates whether or not the borrower (business) will have sufficient cash flow from profits to repay the debt.   The best indication of capacity is by projections authored by the borrower or the borrower's accountant. Collateral could be the equity in your employee savings plan, your home, and other assets such as stocks, bonds, automobiles, real estate, life insurance, annuities and other investments.  Any lender will require a current financial statement less than a year old to ascertain what can be used as collateral.  In many instances, the items being acquired with the loan proceeds can be used as collateral.  Most lenders require no collateral if the borrower is a long-time customer and the amount borrowed is less than 10% of his or her net worth.  One's net worth is the difference between assets and liabilities.  Some of the best financial statements I have seen were done on a piece of tablet paper on which the borrower listed what he or she owned and owed with the difference being net worth.  Of course, some borrowers use an accountant for this purpose.Credit is the borrower's standing with a recognized credit bureau and with prior lenders.  This information will be obtained by the lender.Capital is the margin or the contribution injected by the borrower into the business.  Capital is comparable to the down payment in real estate and consumer loans.  Conditions are reviewed by the lender when deciding whether or not to make the loan.  For instance, no lender would want to make a loan on a service station if there is already one on every corner.The best advice I can give to a prospective borrower is to be prepared to address the "Six Cs of Credit" with the lender.  The best preparation is to prepare the above described financial statement, gather the last three years' federal income tax returns, and then make an appointment with the lender.  Last but not least, remember that the lender will make money by granting the loan and should be anxious to aid and assist you in your new business.  Perhaps Confidence in yourself and your new business should be added as the "Seventh C of Credit". 

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Banking & Finance

Newton Male

2001-09-01 10:54:00

Question:  We recently updated our computer system at home. We now have two of them connected on a LAN. The kids use one and we use the other. We also changed our Internet access to a much faster speed. We would like to investigate on-line banking. How does it work? Can you do everything on-line? Is it secure? Are there any other advantages other than the obvious?

Answer:  Internet banking can vary in sophistication from one institution to another.  The preponderance of banks do not have a fully active on-line banking system; they simply have a web-site.  However, the number of active systems is growing every day. You have asked how does it work.  The customer applies through their financial institution, either directly through the internet, in person, or by mail.   At that point, the financial institution will allow access.  The customer will have a log-on name or number and password that will enable them to gain entry into their accounts and obtain information. You went on to ask if you can do everything on-line.  With some institutions, it would be possible to do everything on-line, except services where a physical banking presence is required, i.e. safe deposit boxes. There are numerous banks that have no buildings (brick and mortar) because they do all of their business by computer.  These banks, where there is no customer personal access, are called virtual banks. In some cases, certain on-line lending capabilities are limited.  Some financial institutions, with just a web-site service, offer loan applications but do not offer the ability to view customer accounts or perform transactions.  For example, certain commercial loans vary so much in collateral. loan officer involvement is generally required.  On-line banking is secure.  The ability of the user to determine if they are on a secure site is the appearance of an "s" after "http" in the web address.   Internet banking sites are monitored by the respective regulators.  In addition, many financial institutions hire individuals to attempt to infiltrate their systems on a regular basis.  On-line sites are behind very secure firewalls.  Another security feature is the inability to perform transactions except between the accounts of the customer. This prohibits someone from transferring funds from an account unless they are an owner of the account.Convenience is the primary benefit of on-line banking.  The customer is not restricted by hours or location, and on-line banking is inexpensive.  I am surprised by the number of e-mail inquires received in the middle of the night.  People can truly do their banking 24-hours a day!  On-line banking now permits an individual in the wilderness to carry on their banking business.  This was impossible 50 years ago.  Now with the ability to access the internet through a cellular phone, a computer is no longer required!Institutions offering full service on-line banking can include the ability to view accounts and monthly statements, print statements, conduct transactions, search for account items, transfer funds, make loan payments, acquire loan balances, pay bills, issue stop payments, apply for savings bonds and use the financial calculator.  The financial calculator allows the customer to estimate loan payments, as well as calculate retirement and college education needs. Your new home computer system will open up an entirely new financial world for you and your children.

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Banking & Finance

Richard Ciemny

1969-12-31 18:00:00

: Is there a checklist where one can find the things that need to be done prior to and during the opening of a business? 

ANSWER: As a matter of fact, there are several.  Over the next several issues, I will try and provide you with a list of items that need to be attended to.  Many of these things can also be found elsewhere, in places like the IRS's website at http://www.irs.gov/For the first part of this series, see the January '05 issue.  This issue we will cover business structures.When beginning a business, you must decide what form of business entity to establish. Your form of business determines which income tax return form you have to file.  The most common forms of business are the sole proprietorship, partnership, corporation, and S corporation.  A Limited Liability Company (LLC) is a relatively new business structure allowed by state statute.  Legal and tax considerations enter into selecting a business structure.A sole proprietorship is an unincorporated business that is owned by one individual. It is the simplest form of business organization to start and maintain.  The business has no existence apart from you, the owner. Its liabilities are your personal liabilities and you undertake the risks of the business for all assets owned, whether used in the business or personally owned.  You include the income and expenses of the business on your own tax return.A partnership is the relationship existing between two or more persons who join to carry on a trade or business. Each person contributes money, property, labor, or skill, and expects to share in the profits and losses of the business.A partnership must file an annual information return to report the income, deductions, gains, losses etc., from its operations, but it does not pay income tax.  Instead, it "passes through" any profits or losses to its partners.  Each partner includes his or her share of the partnership's income or loss on his or her tax return.Partners are not employees and should not be issued a Form W-2.  The partnership must furnish copies of  Schedule K-1 (Form 1065) to the partners by the date Form 1065 is required to be filed, including extensions.In forming a corporation, prospective shareholders transfer money, property, or both, for the corporation's capital stock.  A corporation generally takes the same deductions as a sole proprietorship to compute its taxable income.  A corporation can also take special deductions.The profit of a corporation is taxed to both the corporation and to the shareholders when the profit is distributed as dividends.  However, shareholders cannot deduct any loss of the corporation.An eligible domestic corporation can avoid double taxation (once to the shareholders and again to the corporation) by electing to be treated as an S corporation. Generally, an S corporation is exempt from federal income tax other than tax on certain capital gains and passive income.  On their tax returns, the S corporation's shareholders include their share of the corporation's separately stated items of income, deduction, loss, and credit, and their share of nonseparately stated income or loss.A Limited Liability Company (LLC) is a relatively new business structure allowed by state statute.LLCs are popular because, similar to a corporation, owners have limited personal liability for the debts and actions of the LLC.  Other features of LLCs are more like a partnership, providing management flexibility and the benefit of pass-through taxation.Owners of an LLC are called members.  Since most states do not restrict ownership, members may include individuals, corporations, other LLCs and foreign entities.  There is no maximum number of members. Most states also permit "single member" LLCs, those having only one owner.A few types of businesses generally cannot be LLCs, such as banks, insurance companies and nonprofit organizations.  Check your state's requirements and the federal tax regulations for further information.  There are special rules for foreign LLCs.Next time we will cover Employer Identification Numbers, whether or not you need one, and how to get one.

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Banking & Finance

Mark Kolarik

1969-12-31 18:00:00

Question: I am making this my year to take savings seriously. I have a very limited budget as is, but I do not want to use that as an excuse not to have savings. Can you give me some practical ideas on how I can start saving?

Answer: My tip would be to set up a direct deposit of a payroll check or government check. The payment is electronically deposited into your account. There is no delay or chance the deposit will be lost. Once the deposit is made, you can direct the deposit into any number of saving options. Most financial institutions offer savings accounts which typically pay the account holder a small amount of interest. Another option might be opening a certificate of deposit. When a certificate is opened, the account holder selects the term of the certificate (# of months) and the amount you wish to deposit into the certificate. A certificate pays a higher rate of interest, however you cannot cash in the certificate until the maturity date. If the certificate is cashed-in early, a penalty is charged. Finally, another option might be saving a small amount each month for a particular event. An example might be a Christmas Club savings account. Saving just $40 a month from January through November will result in a $440 Christmas Club balance. These funds can then be withdrawn (at no penalty), to pay for holiday expenses. Many people will set up accounts for Christmas in addition to a savings account, that way they are not tempted to spend savings on all of those tempting holiday sales!

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Banking & Finance

Stan Cowan

1969-12-31 18:00:00

: Who ever conceived of the idea for a credit union?  When did they first originate?

ANSWER: From their early origins, credit unions were unique depository institutions created, not for profit, but to serve members as credit cooperatives. The earliest financial cooperatives date back to the beginning of 19th century in England. However, in the mid-1800's Germany was the home of the first credit unions as we know them today: Democratically governed; Each member having one vote; Member-elected board of directors; and Volunteer based. These early German credit unions were organized by Herman Schulze-Delitzsch and Friedrich Raiffeisen. The crop failure and famine of 1846 caused Schulze-Delitzsch to organize a cooperatively-owned mill and bakery which sold bread to its members at substantial savings. Schulze-Delitzsch took this cooperative notion to address the needs of credit. In 1850, he organized the first cooperative credit society, known as the "people's bank." In 1900, the credit union concept crossed the Atlantic to Levis, Quebec, where Alphonse Desjardins organized La Caisse Populaire de Levis. A court reporter, Desjardins became aware of the outrageous interest being charged by loan sharks and organized the credit union to provide relief to the working class. In 1909, Desjardins helped a group of Franco-American Catholics in Manchester, New Hampshire organize St. Mary's Cooperative Credit Association--the first credit union in the United States. By 1925, 26 states had passed credit union legislation. By 1930, that number grew to 32 states with a total of 1,100 credit unions. In 1934, President Roosevelt signed the Federal Credit Union Act into law, authorizing the establishment of federally chartered credit unions in all states. The purpose of the federal law was "to make more available to people of small means credit for provident purposes through a national system of cooperative credit..."