Shaky Ground

Losing confidence in our banks.

IndyMac, Fannie Mae, Freddie Mac. Most people recognize these names as colossal financial institutions who, along with national mortgage lenders, have been in the news recently as they teeter on the edge of demise while the lifeline of a government bailout looms overhead. Banks, along with various other financiallyfocused industries, are struggling to advance during this nation’s difficult economy. The home foreclosure and mortgage crisis, alongside increasing credit card debt and energy costs, is strangling the financial sector, and consumers are concerned as the clouds of uncertainty continue to expand. Mortgage lenders are disappearing overnight while major banking centers are closing or restructuring. Overall, financial predictions continue to be negative with the end nowhere in sight. It’s no wonder that consumers are losing confidence in U.S. banks and wondering whether the most secure place for their money is in a mason jar orunder the mattress.

So, how safe is your money? Jim Rendon of SmartMoney.com wrote an interesting article entitled, “10 Things Your Bank Won’t Tell You.” In summary, the article stated that with the economy slowing down and big losses looming in the mortgage market, banks are looking for reliable revenue streams. Hence, punitive fees such as those for overdrawing your account or using a competitor’s ATM are increasing. The average ATM service charge doubled between 1998 and 2007, and overdraft fees brought in $17.5 billion in revenue in 2006, up from $10.3 billion in 2004, according to the Center for Responsible Lending. The article mentioned a married mother of three who said she often pays upwards of $100 a month in overdraft fees to Chase, since, like most banks, it changes the order of purchases so that large debts get paid first–increasing the likelihood of incurring fees on smaller purchases. JP Morgan Chase stated it does this because big payments such as a mortgage generally are more important to consumers.Instead of paying several smaller checks and charging overdraft fees for the one larger one, the bank purposefully runs the larger checks through first, collecting their fees on the more numerous smaller ones.

What about investing? Most banks will tell you the safest place to put your money is in money market accounts, certificates of deposit (CDs) and IRAs. But they don’t always yield the best returns. For example, depending upon what type of CD you acquire, the interest rate could yield anywhere from 2 percent to 4 percent in today’s market. If we look at the inflation rate, the percentage of increase in the price of goods and services as of June 2008, it was 5.02 percent. That means it’s actually costing you money in these accounts. In fact, according to CNNMoney.com, the Labor Department reported that soaring costs for gasoline and food pushed inflation at the wholesale level up by a bigger-than-expected 1.8 percent in June 2008 alone, leaving inflation rising over the past year at the fastest pace in more than a quarter-century, while the economy is showing slow growth and slumping dollar values. Therefore, while it is costing more and more money to live as time passes, the money in your CD may be yielding less and less

Where does the solution lie? First, let’s be personally responsible. In my best-selling book “Creating Success From The Inside Out” (www. createthesuccess.com) I talk about not living beyond your means. I’ve seen too many professionals buy too much car, and pull out the credit cards for impulse sales (think plasma TV’s!), and even for the grocery store! If this describes you, you can begin to break the power of the cards by paying even $10 more every month over your minimum. In my book, I show you how this simple step will cut YEARS off your payments and interest charges.

The second solution is investing in tangiblebased assets. For example, the Celerity Plan IRA guarantees a minimum 12% annual return on your investment (www.celerityplan.com) through socially-conscious investing, as opposed to investing in regular mutual funds and stocks with commission incentives for financial advisors. Celerity Plan advisors receive no commissions; instead, they are compensated based off of performance. If you’re going to continue investing through your bank, ask all the right questions, read the fine print, and be cautious. In fact, that’s always a good idea for all of your cash—and credit—accounts. -By Ephren Taylor

-By Gerrick Lewis