Friday, March 02, 2007

Bank Services

What is a checking account?
It is a bank account that allows you to write a check. Usually this should be the first bank account you open for yourself when you are off to college or getting your first job. When a company you work for gives you a check, you can only deposit this check into an account that has your name on it. Some banks allow you to deposit a check into someone else’s account with your signature on the back of the check. This is called double endorsement and if account has some relationship with the bank, bank will permit you to deposit as long as amount of check is under $1000. Usually double endorsement is frowned upon by bank and you should avoid this and account holder should consult with a banker before you deposit into an account.

After check or cash is deposit into checking account you have the access to the fund. If cash is deposited, the money is available right away. If the check is deposited, usually it takes 3 business days to clear before it is available.

These days, most companies have what’s called direct deposit. Your pay check is directly deposited into your bank account using routing number and account number. Each company has its own form and instruction which are easy to follow. I use direct deposit since I do not manually have to deposit my pay check which saves me time. After pay check is deposited only you have the authority to tap in to your account. Companies do not have authority to your account unless you specifically authorized it.

How do you withdraw cash after money is deposited? There are several ways to withdraw the fund. First you can withdraw the money using ATM/debit card. You can go to any ATM machine and using your card and PIN number you can withdraw cash (usually up to $500 per day). Traditional way and second way of withdrawing money is filling out a withdrawal form and going to a teller. One must also have to have valid form of an ID. (Driver license, passport, etc.) You can withdraw any available balance using this method.

There are other transactions you can do using checking account. First and most important is writing a check. Although most retail stores do not accept checks, most bills you pay by mail only accept checks or money orders. Usually most monthly bills you pay are through checks although this is changing rapidly by On Line Banking. When you write a check always make sure you have enough cash on your account. Having not enough funds can cost you not only from your bank but also from company you are paying bills to. This is called bouncing a check and fee related to this is called insufficient fund fee.
Average cost of this error is around $30-$35 per transaction. You can avoid paying this fee if you have what is called over draft protection.

What is over draft protection? Over draft protection is actually another account that steps in when not enough money is in the checking account. It can be a savings account, credit card and even a line of credit. Many banks offer different way of setting up draft protection and you should inquire how and related fees associated with this feature.

Second transaction you can do is by using debit card. You can purchase products from participating retail store using debit card. This purchase is deducted from checking account automatically. Debit card is not a credit card and it should not be used as a credit card. Debit card is lot like, writing a check, therefore before using debit card make sure you have enough available balance on your checking account. Not having sufficient amount in the checking account can cost you dearly and it is same as bouncing a check.

ATM/debit card is not an account it self. It is like a door way to your checking account.
ATM/debit card is linked to your checking and savings account and any other accounts you may have requested. Knowing this if you ever lose an ATM/debit card you do not have to close checking, savings account. You will simply close ATM/debit card and request a new one to sent to you.

Third transaction you can do is using ATM machine and using teller. You can transfer funds from one account to another account. You can transfer funds from savings account to checking, pay credit card bills and even transfer to your other accounts you may have.

Forth transaction you can do is by using your personal computer. It’s called online banking and it is fast becoming preferred way of doing one’s banking. Why this feature is so popular is because it gives you two things.

First it saves you time by giving you access to your account information. You can get your monthly statements and account balances. You can do transfer from one account to another account without ever leaving your home. You can even pay bills online without ever using stamps. Paying bills can be set up so that monthly bills can be sent automatically to proper company each month. I have set up my online banking so that I no longer spend time paying my monthly bills. My rent, utility bills, credit card bills and all my recurring bills are paid on the date I have specified. Once you use online banking you will never go back. Online banking gives you total control of your finance.

Checking account gives you no interest or very little interest; therefore you should also have a savings account. Normally it is good idea to have 2 months of expenses on the checking account and most of the money in the savings account which will earn you interest. Checking account is also what you called cash account, that is, it’s completely liquid. You can take out any available balance as long as bank is open. When you are taking out large sum of money it is always smart and safe to get an official bank check.

Another thing I like to mention is what is known as Federal Deposit Insurance Corporation (FDIC). It is an independent agency of the federal government that regulates over 5000 banks in the US today. If bank fails the FDIC will reimburse up to $100,000 on checking and savings account. Although it is hard to find a bank that is not FDIC member bank you may want to make sure your bank is a member.

When you apply for a checking account that does not mean you automatically get an approval. Banks usually has a check system that may decline you, if you owe another bank some money. Usually you may owe some back charges that can prevent you from opening a checking account. If that happens, you must clear this from that bank.

What is Savings Account?
Savings account is a bank account that allows you to earn interest. This is also an account that you should open when you open a checking account since they come hand to hand. Savings Account is an account you should have, to save money and Checking account is to pay your expenses. People sometimes open savings account to do daily transaction and sometimes it maybe be good idea if you only have few transaction per month. Beware however since some banks charge a fee if you do more than certain amount of transaction.

One of the most important to aspect of savings account is Rate. Rate is how much bank is willing to pay each month/year. This is represent by both APR and APY. APR is rate based on each month. APY is rate based on year. Rate can change daily it may be wise to check on your savings account once in while. Interest on savings account is usually paid in monthly basis on average balance.

Many banks also have something called Money market account. It used to be that this account offered higher interest rate than that of regular saving account. It is not true today. Many bank today offer savings account that is based on deposit amount. Usually if you have higher deposit you get higher rate. So what is the difference between money market account and savings account? There are very little difference if not any at all.

What is CD (certified deposit)?
CD is a bank account that is also known as timed demand deposit. It usually offers you higher rate than savings account but in return you must not withdraw the money within specified time. CD is great if you know you are not using the fund the any time soon. CD terms vary. It can be little as 3 months or it can be much as 3 years or more. After maturity date you have ten days to act known as grace period. You can simply not do anything and CD will renew with similar term (however it may renew at old rate/new rate which ever is lower). It is always wiser to visit your bank to renew so you can renegotiate for better rate. You have some option in interest you get on your CD. You can select to have your interest, deposit into checking/savings account, deposit back into CD (Capitalized at maturity) or you can even ask bank to send you a check. You can take the money out anytime however if you take the money out before your maturity date there will be a penalty. If you predict that interest rate will be lower coming month it may be wiser to lock in a rate at a longer term. If you think otherwise, you may just invest on shorter term so you can renegotiate at better term later. Some people just reinvest on CD when it matures year after year. It may not be a best thing to do since rate of return is really not so great compared to other investment. If its money you really do not need anytime soon you may want to invest on something else.

What is a Credit Card?
Credit card is a revolving line of credit usually used to pay goods from participating retail store. It is unsecured loan which means there is no collaterals only your promise that you will pay back. End of each cycle you must pay back at least minimum payment to the lender otherwise you will incur penalty. Average cost of penalty at this time of writing is about $35. Even if you owe $5, at the end of the cycle, if you do not pay on time, you would owe additional $35, so it is important to payback at least minimum amount each month. (You can set your checking account pay minimum amount each month automatically using online banking.) Another effect of not paying on time is hurting your credit rating. Each time you do not pay your bills on time it could hurt your credit rating, so be sure to pay on time. Credit rating can make a big difference in your future life when you need a mortgage, or get a loan of any kind.

So why do we get a credit card? First it’s very convenient. You can easily purchase any item without carrying large amount of cash. It’s also safer to use than cash since if you lose a card you can easily get a replacement (unlike cash). You are only liable for $50 if someone else uses a stolen card or makes unauthorized transaction. You can also dispute a charge if your item is not what you ordered, giving you some control over what you purchased online. Credit card is simply best way to purchase an item Online.

Credit card can have another benefit. Some cards have rewards such as cash back. Some have travel miles as rewards. Continental cards and American airlines has credit card that charge you annual fee for special credit card that can earn you miles for each dollar you spent. If you travel a lot, it can really pay off. If you don’t travel that much pick a credit card that has no annual fee.

Sometimes ease of use can get you into trouble. You need to keep track of how much you spent so that you do not get into unnecessary debt. Instead of carrying a balance each month it is good idea to pay off full amount each month. Credit card usually charge high interest on balance each month. Interest is variable, that is interest can change when prime interest change. Credit card usually charge 9.99% APY to 19.99% APY (as of this writing.) So pay off that balance each month!

First credit card may be when you are off to college. It is always good idea to have emergency fund to pay for the food and books. Many financial institution offer student credit card that has limited credit (limit to $500) that can help you built credit.

When you apply for a credit card that does not mean you are automatically approved. Credit decision can take up to 30days.

Thursday, February 09, 2006

Which Smartphone is best?

I know they are many smart phones out there, and new smart phones are scheduled to come out, so it is sometimes very confusing to choose a phone that is right for you.

First let's ask the question why buy a smart phone and who buy them? Someone who uses PDA, cell phone, emailing and web surfing will want a device that does all this and more. These days, everyone seemed to use PDAs and cell phones including professionals and teenagers. In fact, everyone these days are in search of a perfect phone that does it all.

I bought my first pda back around 7 years ago and it was palm IV. I loved it. However it did not have internet access and it was not a phone. I had to carry it because i had all my contacts plus my appointments. When Blackberry came out, I got that because I wanted to get my email anywhere. It was however not a cell phone. When T-mobile came out with sidekick, I had to get that because it had everything. First it was a phone, had internet access and was great email device. It sucked as a appointment device, and as a cell phone, however.
After using it for 6 month I went back to carrying regular cell phone and PDA.
I tried Sidekick 2 and I kinda like it but still it was not fully there.
Next I tried Blackberry phone 7105t. Good email phone, not a good phone, not a good web browser.

My friend had Treo 650 so I had opportunity to play with that phone for a while. First Browser was one of the best. I did not think it was fast enough to do real surfing but that was limitation of band width not the software. Phone was not too uncomfortable which meant it was the best feeling out there. Email and appointment program was the good, however I preferred Pocket pc interface only because I was used to it. All my contact was in myToshiba pocket pc and I did not want to change just yet.

I heard about Q from Motorola and wanted to get this phone that was until I learned that Treo 700w had something that I could not live without. A new 3G EVDO radio in Treo 700w allows DSL-like speed on Verizon’s network. Finally I could surf the web comfortably, use the phone comfortably, and use outlook for appointments and emails. Only drawback was that I had to pay 79.99 for the verizon service which was $20 more per month than I was paying. I decided it was worth it.

Q from Motorola which is suppose to come out end of next month, I believe will do well initially, however once people realize that Treo 700w has DSL connection for web, they will select TREO 700w. I know I did.

Tuesday, January 24, 2006

Cable vs. DSL

I had a Verizon DSL since they first offered the service in my area, back5 years ago. I was one of those guys who had to have the fastest and the latest. So when I got my DSL, I was truly thrilled. I was paying $39.95 a month with small mystery fee of $1.22. Total cost was $41.17. After many years of service, I decided to give Time Warner Cable a try. Main reason of course was because I just had to have the meanest and fastest internet access.

Next 3 weeks I had both DSL and Cable installed on my home office. I wanted to make sure I was getting what I wanted so I did many tests. I wanted to make sure one I kept was faster and more reliable. During 5 years of service of DSL, many times I had to reboot my DSL modem. Sometimes load time was getting slower and slower as day progress, and it was getting frustrating. During these 3 weeks, I found Time Warner Cable to be noticeably faster.

I have been warned by many people, and read many articles, that if many people around you have cable, internet access will be slower. DSL however does not matter. Fortunately for me, this was not the case.

I also wanted to point out that my transition period was very smooth. Installation service man came out and I was up and running within ½ an hour. He were friendly and professional. After working with both DSL and Cable for 3 weeks, my choice was clear. Time Warner cable.

When I called to cancel Verizon DSL, I was told by service representative that they were willing to give me faster access if I stayed with them. When I told them I have already installed Cable, they told me that I should be able to switch back to DSL without penalty fee. Now here is something that made me pissed. I have been their loyal customer for 5 years. Not once did they offer me this until I decided to go with Time Warner. I told them I am sticking with Cable for NOW.
I guess I just did not want to haggle with the Verizon customer representative.

Wednesday, January 11, 2006

Which online Broker is best?

I have been using Charles Schwab since 1996. I have been happy with their service to some degrees. I also have Ameritrade for more than 6 years. I have been fairly active trader since I began trading online and I noticed some difference in these two online brokers. First let’s talk about commission. Unless you are power trader at Charles Schwab you will be paying $12.95 per trade for first 1000 shares. If you were trading 2000 shares you would be paying them $25.90 per trade. What makes a power trade? You need to trade at least 30 trades per quarter. Most people really do not trade that much so if you are thinking about trading once a while Ameritrade is way to go. Ameritrade charge $10.99 per transaction. You could trade unlimited amount of shares and it would be $10.99.

So why would someone trade with Charles Schwab? If you trade more than 30 per quarter you are entitled to get a discount. That is $9.99 per transaction with unlimited amount of shares. Difference in price is really not great so if you already have an account with either of them, it would make no sense to switch unless you consistently trade more than 1000 shares on each transaction.

What really matters to me is execution time. I have consistently traded same stock with both Schwab account and Ameritrade account at the same time. I have found that Ameritrade to be faster almost every time. It could be their software, I do not know.
When I spoke to Schwab representative about this they introduce me to StreetSmart Pro software. Unfortunately, results were same. Ameritrade execution time was still faster.

I found that software in both Ameritrade and Schwab to be very good. They are easy to understand and they are very user friendly. One thing however I like to point out to people in Schwab is that on StreetSmart Pro, on My positions section, instead of Position in Dollar value, I would have prefer to have position in amount of shares. It would make my trading simpler since I would know how much shares I have in hand to trade.

Here are some of the things I like about Schwab. First, Schwab seemed to have better customer service. When I call them with problem, I usually get through to them within 5 min. Ameritrade is slightly slower in my experience. Second, I like Schwab end of year statement to be better. I usually do not have to order consolidated statement from them. Ameritrade, I usually pay $20 for year end consolidated statement to do my taxes.

This year I am going to open Etrade account so I could have the benefit of their software. From What I saw from my friends account and from their website I found their software to be very good. Anyone interested I would post the result.

Tuesday, January 10, 2006

Saving for college

One of the life’s biggest financial challenges is saving for college, yet many of us have different way of preparing for children’s education. Some ignore it or postpone it. We procrastinate losing valuable time that can be used to build our children’s future.
Some of us rely on rich relatives, thinking they will help them in our children’s need. Some of us put money aside each month on our savings account hoping it would be enough for their children. Some of us just hope that their children will be smart enough to get scholarship. Some of us understand the need for good education, plan a strategy and start the program as soon as possible.

Each year cost of college is glowing. Consider this. For a baby that is born today, the average cost for four years of college will be over 150,000 for a public university and more than 300,000 for a private university for just one child. Putting some money aside on saving account will be like drop on a very big bucket. What one should do is maximize the savings by using savings option below.

Here are some Education Savings options.
Traditional IRA and or Roth IRA
529 College savings plans
Supplement your college savings with Upromise.

Briefly, I like to point out characteristics of Traditional IRA:
Tax deductible
Tax deferred
You have control over assets
It can be used for higher education as well as for one’s retirement.
Maximum contribution in “tax year 2004” is $4000 for tax payer under 50years old and $4500 for tax payer over 50 years old.

Roth IRA is basically same as traditional IRA except fund is after tax which means you are funding with money you already paid taxes on. Money however grows tax free which can saves you significant over the period of your life.

Characteristics of 529 college plans are:
Significant Tax Advantages
Control over assets
No age or income limit
Favorable gift and estate tax treatment
Accelerated gift tax treatment
Flexible beneficiary Designation
Money can be withdrawn for 529 plan account at any time. However, if it is not used for qualified education expenses, investment earnings are subject to ordinary income taxes plus 10% federal tax as well as state income tax.

Characteristics of Upromise:
It’s free so there are no excuses not to have this in place.
Every time you purchase from participating companies, including grocery products, restaurants, gas stations and online retailers you get back small portion to your Upromise account.
Upromise can be link to your 529 College plan account so it can be used to invest.
Did I mention it’s free! Join free at

This information is provided to help however one should really use this as a guide and do more research on materials that was supplied here.