HOW TO SAVE AND MANAGE MONEY

No matter how old or young you are, there are some basic things you can do to better manage and protect your money.

Comparison Shop for Financial Services

Just as you would do for any major purchase, look at what is being offered by your bank and a few competitors, then try to find the best deal to meet your needs. For instance, with a mortgage, credit card or other loan, you may be able to negotiate the interest rate and other terms. This can save hundreds or thousands of dollars over several years.

Start by comparing the Annual Percentage Rate (APR) on a loan or credit card. The APR is the cost of credit expressed as a yearly rate, including interest and certain fees. "Many people looking for a loan only focus on the dollars they'd pay each month instead of the APR and, because of that, they don't realize how much the loan will cost and they could pay too much," said Rae-Ann Miller, special advisor on consumer issues in the FDIC's research division. For example, she said, payday loans (unsecured loans that borrowers promise to repay out of their next paycheck or regular income payment) and car-title loans (secured by the borrower's car) "may be quick and easy sources of cash, but they also have an APR as high as 300 to 400 percent."

Also, for a mortgage, consider a fixed-rate loan even if adjustable-rate mortgages (ARMs) carry a lower initial interest rate or lower monthly payments at the start. "If you are thinking about an ARM, before you commit to one, make sure you know how much the monthly payments could go up and be comfortable with those higher payments," cautioned Janet Kincaid, Chief of the FDIC's Consumer Response Center. "Don't let a low teaser rate lure you in; you may be surprised later."

When you consider opening checking and savings accounts, compare the Annual Percentage Yield (APY) offered by several financial institutions. The APY expresses the annual interest rate you will earn on a deposit account, depending on the frequency of compounding. However, keep in mind that fees — such as those for ATM withdrawals, account maintenance and checks returned because of insufficient funds — aren't factored into the APY. Fees can make a big difference in how much you actually earn from money you have on deposit.

Keep Banking Costs Down

With planning, you can sidestep some of the more costly fees and penalties. For example:

With credit cards, try to pay the card balance in full each month to avoid interest charges. If you can't pay in full every month, send in as much as possible to keep interest costs to a minimum. "Think twice before accepting an offer from your credit card issuer to skip a payment," said Luke W. Reynolds, Chief of the FDIC's Community Affairs Outreach Section. "It's likely that interest will still be charged, so you'll actually be paying more in interest because you'll carry a higher balance on your card for a longer period of time."
In addition, pay your credit card bill on time. One reason is to avoid late fees. Another is that late payments can damage your credit record. If repeated, they could even trigger interest rate increases on your credit cards and loans.
With your checking account, avoid fees for insufficient funds and bounced checks. "Record every deposit and withdrawal in your checkbook — especially remember your debit card purchases and ATM withdrawals," said Reynolds. "It is important to know how much money you have in your account so you won't overdraw your balance."
Your bank may offer various "overdraft protection" services for your checking account, but be aware that these come with their own costs. Reynolds added that one of the least expensive options could be to ask your bank to cover insufficient funds by automatically transferring money from your savings account.
At the ATM, limit or avoid "surcharges" (access fees) by using your own bank's machines or those owned by institutions that don't charge fees to non-customers. If you definitely need cash when you're out of town or otherwise not near an ATM owned by your bank, consider getting cash back when you use a debit card to make a purchase at a supermarket or another merchant.
Don't be afraid to ask for a break. Bounce a check or send in a late payment for the first time ever? Think the fees for your mortgage application are a bit steep? Depending on the circumstances, your bank might be willing to reduce or waive a fee or penalty, especially if you've been a good customer and don't have a history as a "repeat offender."

Understand Your FDIC Insurance Coverage so You can be Fully Protected if Your Bank Fails

If you (or your family) have $100,000 or less in all of your deposit accounts at the same insured bank, you don't need to worry about your insurance coverage. Your deposits are fully protected under federal law because the basic insurance coverage is $100,000 per depositor per insured institution.

You also may qualify for more than $100,000 in coverage at one insured bank. For example, the money you have in your individually owned accounts (not including your retirement accounts) is insured up to $100,000 separately from your share of any joint accounts at the same bank. Deposits designated to pass to named beneficiaries upon the death of the owner, such as in payable-on-death accounts, also can be insured for more than $100,000 under certain circumstances. And, some retirement accounts (notably Individual Retirement Accounts) are insured up to $250,000.

Simplify your Financial Life

Have your pay and benefit checks deposited directly into your bank account. Arrange to automatically pay for recurring expenses, such as a mortgage loan, insurance premium or utility bill. Banking and bill paying online or by phone also can be good options.

These and other ideas can help you save time, reduce stress, eliminate clutter, lower the fees you pay, and maybe help you earn a little extra on your savings and investments.

Source: Federal Deposit Insurance Corporation/Consumer News Spring 2008