Business and Finance

Archive for January 25th, 2012

Let me take you on a short (I promise!) guided tour of the history of the banking industry. I promise that this short tour will be worth your time, since at the end of the it you could save hundreds of dollars a year in overdraft fees.

Banking in Old Europe

The lending and borrowing of money has been in practice for at least a few millennia – probably ever since money was invented. However, banking really started taking its present form in the old coffeehouses of London, England a few hundred years ago. People would meet there to lend each other money.

Soon, official banks were formed. The basic principle was simple: an average citizen would deposit his money into the bank and the bank would keep it safe for that person – and even pay them a bit of interest t boot. Not a bad deal, and better than keeping one’s money under the straw mattress at home.

Modern Banking

Fast forward to the 1970′s in North America. Competition in the personal banking space became fiercer than ever. At that time, marketing and advertising started to play a more powerful role in how banks made decisions The marketing departments started thinking of a ton of new banking products that they could use to lure customers away from other banks and through their own doors.

Over the next few decades, this type of thinking spawned a whole slew of new banking products and services, including for example: the ATM machine, the debit card, free checking and overdraft protection programs.

The Coming of Overdraft Protection

Most of these inventions offer bank customers greater convenience and even a better quality of life than before they came along. The possible exception among them is overdraft protection, which has proven to be more of a mixed bag for customers.

You see, overdraft protection delivers exactly on what its name promises: it does indeed protect people from having their debit card transactions, checks, and credit card transactions from being rejected due to insufficient funds. However, it does NOT protect people from paying super-high bank fees. In fact, it excels at doing this!

For, as you know, every time your bank covers your overdraft for you they charge you a hefty fee for doing so. In fact, this large fee repays the bank for the potential “loss” of the micro-loan they extended to you (to cover the negative balance) hundreds of times over in most cases. It is for this reason that many people believe that overdraft protection programs do not really benefit the customer at all.

The Big Switch to No-Overdraft Fees Banks

Back to our mini history of banking: nowadays, there is a big shift away from overdraft protection. Even the U.S. Congress is trying to step in on behalf of the average bank customer to try to get banks to relax their strict overdraft fee policies. But, bottom line is that the only way to really avoid overdraft fees altogether is to switch to a no-overdraft fee bank.

3 Ways to Switch

1. Ask a friend for their recommendation of a no-overdraft fee bank that they like and use. (This is easy to do but may be embarrassing for some people).

2. Check your Sunday paper for an ad for this type of bank. (Newspaper ads can show a lot of detail about the offering).

3. Do an online search for a no-overdraft bank. (This option is great because it is easy to find a lot of banks in one place and then compare them).

No matter how you decide to switch, just do it soon. The faster you switch, the faster you will become a part of the latest wave of banking history as you become the customer of a no-overdraft fee bank.

Every major U.S. credit card company with the exception of one charges a two to three percent foreign transaction fee when you use your credit card abroad. Until recently, many credit card companies did not clearly disclose these fees in their terms and conditions. Consequently, many people received a notice of a class action lawsuit settlement in regards to these fees earlier this year. Now that the lawsuit has been settled, credit card companies are required to clearly state foreign and international transaction charges on credit card applications. Here, we will look at ways to minimize and avoid these fees.

First, if you do not know how much your current credit card company charges for international transactions, contact customer service to find out. The vast majority will inform you that this fee is three percent. With the US dollar sagging, paying an extra three percent on every purchase can really hurt the wallet. Fortunately, there are a few ways to avoid these charges.

If you have cash available, using a debit card eliminates this fee. Most banks do not tack on a transaction fee for ATM withdrawals. Plus, the foreign currency rate you’ll get from your bank is often significantly better than what you would get at a foreign currency exchange booth. Again, exchange rates and potential fees vary from bank to bank, so it is important to call ahead.

While ATM withdrawals are generally free of foreign transaction charges, using your debit card as a credit card comes with some risks. First, a credit card provides much better fraud protection than a debit card. If, for example, an unscrupulous merchant overcharged or fraudulently used your credit card, you can easily contest the charges and get a refund. If, on the other hand, you debit card was fraudulently used, you will not only be faced with a depleted bank account, but it often takes a great deal longer to get your money returned. For this reason, using a debit card to make purchases abroad can prove risky.

Ultimately, the only way to pay no international transaction fees is to use a credit card doesn’t charge these fees. By using a no fee credit card, you get the security a credit card provides without the annoying added expenses.