As featured in The Wall Street Journal, Money Magazine, and more!

October 2008


If you are interested in opening a new brokerage account, you will now have more time to qualify for TradeKing’s $50 new account bonus. The promotion was originally slated to end this week, but the brokerage has decided to extend the $50 bonus through November.

In order to qualify, open a new account at TradeKing using a link within this post, fund the account with $2,500 within 30 days (you can leave your money in the default money market fund if you’re not ready to delve into stocks), and trade at least once within 180 days. Trades are relatively inexpensive at $4.95 each. There are only a few discount brokerages that offer trades at lower prices.

When you visit TradeKing’s application, make sure you see this icon in the top right of the screen. This is how you can verify whether you are offered the $50 bonus.

SmartMoney rated TradeKing the best brokerage in customer satisfaction this year.

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It must be a sign of the times. This year I’ve seen at least one commercial advertising a retailer’s layaway plan. These have been out of style for at least as long as I’ve been an adult consumer. The theory is that rather than paying up front for a large item, a Christmas gift for example, with cash, you can offer the store a deposit and the store will hold the item for you.

Every week, you can continue making payments until the item is paid in full; at this point, you can take the purchase home. There may be a small fee to participate in a layaway program, but the store does not charge interest. As Kimberly Palmer from US News & World Report notes, if your layaway purchase is a holiday present for your children, having the store hold the gift while you make your payments would make it more difficult for the intended recipients to discover their hidden present.

Layaway seems to be a reasonable solution for making large purchases without credit cards. The fees are low and customers won’t get trapped into debt. In a retail environment when supplies of the most popular items can’t match demand, it’s an advantage to have the ability to reserve your purchase ahead of time while you pay over time.

Not every retailer thinks this is a profitable plan. Wal-Mart and a few other stores refuse to participate in layaway programs. If you plan on shopping at K-Mart, TJ-Maxx, or Marshall’s, layaway programs will be available.

Layaway Programs Come Back Into Style, Kimberly Palmer, US News & World Report, October 28, 2008

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The Federal Reserve Board responded to the economy yesterday by lowering the target for the federal funds rate to 1% and the discount rate to 1.25%.

The first number is the rate usually in the news. The federal funds rate is the interest rate that banks charge to lend their balances to one another. If one bank wants to loan $30m to another bank, the two companies can negotiate the rate and the lending back and charge the borrowing back the rate agreed upon. By lowering the federal funds rate target, the Fed is saying they’d like to see this interest rate around 1%. The true lending interest rate is controlled by the market, guided by the Fed.

When banks borrow money from the Federal Reserve, the discount rate serves as the interest rate for the loan.

The federal funds target rate hasn’t been as low as 1% since June 29, 2004, having reached that level over a year before on June 25, 2003. A low target rate, and the ensuing availability of easy credit, possibly contributed to today’s credit crisis. But today’s low target rate will have a different effect, according to the policy makers. They believe low rates will increase liquidity between banks and encourage more — but sensible — consumer lending.

It might not be enough. Here’s the important part of the Federal Reserve’s statement yesterday:

Recent policy actions, including today’s rate reduction, coordinated interest rate cuts by central banks, extraordinary liquidity measures, and official steps to strengthen financial systems, should help over time to improve credit conditions and promote a return to moderate economic growth. Nevertheless, downside risks to growth remain. The Committee will monitor economic and financial developments carefully and will act as needed to promote sustainable economic growth and price stability.

“Downside risks” and “will act as needed” probably signal more rate cuts to come in the future. But there isn’t much further you can go from here. The Federal Reserve could cut the target rate to 0%, but that would be a first, I believe. If banks still aren’t lending to each other at that point, the only other option is simply printing money.

Inflation would increase, making it more difficult to afford the same living standards unless inflation is accompanied by growth in salaries. The current jobs market doesn’t make salary growth seem likely.

So what does this mean for me?

The moves by the Federal Reserve don’t affect interest rates on consumer loans. Rates on long-term mortgages will not change dramatically due to changes in the federal funds rate or the discount rate. Adjustable rate mortgages might see a decrease in interest rates. Many ARMs are tied to a different rate entirely, the LIBOR. The LIBOR has been slowly decreasing, as well.

Savers are in for bad news. Interest rates offered by banks for savings account usually follow the movements of the federal funds target rate, but some banks may follow the LIBOR movements. A number of banks have decreased their interest rates recently, and I expect that to continue.

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The Financial Services Roundtable and the Consumer Federation of America asked the Department of the Treasury today for a piece of the Emergency Economic Stabilization Act money, the bailout money, to help banks and card issuers reduce the credit card balances for borrowers who don’t qualify for other government assistance like repayment plans.

So far, the Treasury spent $125 billion of the bailout money to buy stock in banks and bank holding companies:

  • Citibank: $25 billion
  • JP Morgan Chase: $25 billion
  • Wells Fargo: $25 billion
  • Bank of America and Merrill Lynch: $25 billion
  • Goldman Sachs: $10 billion
  • Morgan Stanley: $10 billion
  • Bank of New York Mellon: $3 billion
  • State Street: $2 billion

Should the government also provide money to credit card issuers to forgive debt for consumers who don’t have the means to pay? If so, the most likely recipients will be Discover and Capital One, as well as Citibank, Bank of America, and JP Morgan Chase, who have already received a portion of the bailout.

Update: According to more recent news reports, the groups did not ask for a piece of the bailout money; they petitioned the Treasury to allow the banks to forgive a portion of the debt. In return, the banks would be allowed to write down their losses over a long period of time.

Groups seek credit card debt forgiveness, Associated Press, October 29, 2008
Treasury makes first bailout payment, Associated Press, October 29, 2008

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Earn a $75 Bonus for Opening a Bank of America Checking Account

by Luke Landes

If you own a credit card from Bank of America, the bank is offering you a $75 bonus for opening a checking account with a minimum deposit of $25 before November 30. The bonus is available for Bank of America’s “MyAccess” checking account. To qualify for the bonus, visit Bank of America’s website, select the ... Continue reading this article…

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Cleaning Carpets Again and Daily Links

by Luke Landes

Four months ago, I purchased a Hoover SteamVac and used the device to clean the carpets in my apartment. I was impressed then. In order to prepare for some company this coming weekend, I cleaned the carpets again this past weekend. The results were just as great. I have a cat, and even though you ... Continue reading this article…

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How Five Banks Post Your Deposits and Withdrawals: Do They Trap You Into Overdraft Fees?

by Luke Landes

Update: Bank of America settled a lawsuit for $410 million concerning this issue below. In his documentary film Overdrawn!, Karney Hatch mentions that banks often post your deposits and withdrawals to your bank account in such a way that they maximize the possibility of overdrafts. Even if you believe you have a large enough balance ... Continue reading this article…

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$25 E*TRADE Bonus Ends Today

by Luke Landes

Note: As of October 28, this deal is no longer available. This is just a quick reminder that the promotion for the $25 bonus offered by E*TRADE Bank ends today. In order to qualify for the $25, you must open your account by today and fund the account with at least $5,000 by Monday, November ... Continue reading this article…

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How to Avoid Overdraft Fees, and Quicken Premier 2009 Giveaway

by Luke Landes

The giveaway to receive one of two free copies of Quicken Premier 2009 has ended. As I mentioned earlier today, overdraft fees (also known as NSF fees, insufficient funds fees, etc.) are basically interest paid for the privilege of using a bank’s money for a short period of time, a loan. There are ways to ... Continue reading this article…

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Overdrawn!: A Documentary About Bank Fees, Screening Tonight

by Luke Landes

If you are in the area of the University of California, Berkeley, stop by Mulford Hall tonight to see a screening of Overdrawn!, a documentary film by Karney Hatch. In the film, Karney takes a hard look at practices by big banks, primarily overdraft fees. The documentary follows the writer/director as he talks to bankers, ... Continue reading this article…

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All New ING Direct $25 Bonus Links Available

by Luke Landes

As of today, ING Direct is offering a 2.75 percent APY on the online bank’s Orange Savings Account. They are also offering $25 account opening bonuses to new customers with an initial deposit of $250 to qualify. This bonus is based on a customer referral; existing customers receive a $10 bonus for referring a new customer ... Continue reading this article…

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When Your Company Stops Matching Your 401(k) Contribution

by Luke Landes

Yesterday, GM announced that it would be suspending the company’s matching contributions into its employees’ 401(k) retirement plans starting November 1 and lasting until financial conditions improve. For people like me who make their living working for a corporation, the 401(k) match is practically expected. One way to look at the company match, if dollar ... Continue reading this article…

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Economy in Shambles, Times are Tough: Oh Really?

by Luke Landes

Yesterday, the Dow Jones Industrial Average lost 514 points, making October 22 yet another day among the top ten worst days on Wall Street. But it’s the credit crunch that we’re feeling on Main Street. Until the banks start lending to each other again, it’s difficult for small businesses and individuals to find loans necessary ... Continue reading this article…

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Rich People are More Likely to Cheat on Income Tax Returns

by Luke Landes

According to a new study by Joel Slemrod, a professor at the University of Michigan’s business school, and Andrew Johns, an IRS researcher, the more you earn, the more likely you are to cheat on your taxes. The study compiled data from tax returns from 2001, audits, and unpublished data from the Internal Revenue Service. ... Continue reading this article…

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FNBO Direct Lowers Online Savings Account Interest Rate to 3.25% APY

by Luke Landes

Only yesterday, HSBC Direct lowered the interest rate offered on the bank’s online savings account from 3.25 percent to 3.0 percent APY. Today, following suit, FNBO Direct lowered its rate from 3.5 percent to 3.25 percent. These drops are now expected with the Federal Reserve lowering interest rates and the London interbank offered rate (Libor) decreasing. It’s increasingly hard ... Continue reading this article…

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5 Days Left to Earn $25 Bonus at E*TRADE (Exclusive)

by Luke Landes

Note: As of October 28, this deal is no longer available. E*TRADE Bank is currently offering a $25 bonus for opening a new savings account, but the promotion is ending soon. If you’re interested in earning this easy money, there are a few dates you should know: Monday, October 27, 2008 is the deadline for ... Continue reading this article…

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HSBC Direct Lowers Interest Rate to 3.0% APY

by Luke Landes

HSBC Direct lowered the interst rate offered on its online savings account to an annual yield of 3.0 percent today, almost two years after the bank offered a leading 6.0 percent APY. Here’s their latest corporate communication, sent to all account holders: Since I last wrote to you in mid September we have seen much change in ... Continue reading this article…

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Use Your Linens ‘n Things Gift Cards Now

by Luke Landes

If you have any Linens ‘n Things gift cards sitting in a drawer or collecting dust on top of an old desk in your loft, use it now while you still can. The store is going out of business nationally and will be closing its doors at all locations. From the signs I’ve seen, hoisted ... Continue reading this article…

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Ben Bernanke Agrees With Congress: Second Economic Stimulus Package Would Help

by Luke Landes

Back in June, Senator Barack Obama called for a second economic stimulus package. The idea has been tossed around Congress, but a stimulus package in which the government sends checks directly to taxpayers has not passed yet. Even following the bailout of the financial industry, the government is not yet satisfied with the economy. Today ... Continue reading this article…

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Emotions and Money: When to Keep Them Separated

by Luke Landes

Human beings aren’t logical, and it doesn’t take a scientist from Vulcan to prove that fact. A corollary to this statement is that human beings do not make logical decisions when it comes to their personal finances. Consider some things that could happen if people thought about the financial consequences of every choice: People would ... Continue reading this article…

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