News

7 Great No-Fee Checking Accounts for People With Low Balances

Saturday, September 1, 2018

Editorial Note: The editorial content on this page is not provided by any financial institution and has not been reviewed, approved or otherwise endorsed by any of these entities prior to publication.

Alexandria White

Recently, Bank of America announced monthly maintenance fees for its checking accounts unless you meet deposit or balance requirements. This can be worrisome for current or prospective account holders that have low balances and can’t meet the requirements to waive the fee.

Here’s a quick breakdown of the fees Bank of America is charging:

- Bank of America Core Checking® account: A $12 monthly maintenance fee applies, but can be waived if you have at least one qualifying direct deposit of $250 or more or maintain a minimum daily balance of $1,500 or more each statement. Bank of America also waives the fee for Preferred Rewards members and students under 24 enrolled in high school, college, university or a vocational program.
- Bank of America Interest Checking® account: Requires you to maintain a combined balance of $10,000 or more to waive the $25 monthly maintenance fee. Fees are also waived for Preferred Rewards members.

Since maintaining these requirements month-to-month may not be feasible for everyone, we’ve rounded up seven free checking accounts you can open with no monthly service fees and no minimum account balance.

Methodology

In this roundup, we used the Free Checking Finder on DepositAccounts.com, a subsidiary of LendingTree, which is also the parent company of MagnifyMoney.

Using the search tool, we set a checking account balance range of $0 to $10,000, said we’d use a debit card 25 times a month, use an ATM from another bank eight times a month and would not overdraw the account. From there, we chose accounts that are available nationwide, as well as satisfy several requirements in order to make them worthwhile for people who have low account balances:

Minimum opening amount of $0-$25: This amount is ideal for people who don’t have a lot of money available to open an account.
No minimum daily balance requirement: The objective of this post is for you to use your checking account without pesky fees that some accounts charge if your balance drops below a certain amount. The accounts listed below don’t require a minimum balance.
$0 monthly service fees: All accounts below have no monthly service fees.
$0 third-party ATM fee: Using an ATM not in your bank’s network can result in fees from two directions: one from your bank and one from the ATM operator (aka third-party ATM fees). Many of these accounts have low or no ATM fees, and some will also refund third-party ATM fees (see below for details).

Great free checking accounts for low balances

You can open any of the following accounts for as little as a $25 minimum deposit. All of these free checking accounts have no monthly service fees and can be a good option for you if you often have a low balance in your account. You can avoid overdraft fees by not opting into overdraft protection — in that case, if you use your debit card for a transaction or ATM withdrawal that exceeds the balance of your account, the bank will deny the transaction. If you do opt into overdraft protection, you may be charged a fee, so we’ve listed the overdraft fees for each account.

Bay State Savings Bank

Bank Name	Account Name	Minimum Deposit to Open	Third-Party ATM Fee Refund	Overdraft Fee
Bay State Savings Bank	Kasasa Cash	$0	Unlimited	$35

The Kasasa Cash checking account requires a $10 minimum deposit to open. This account is always free, meaning there are no requirements for you to meet in order to maintain the free checking account. However, there are requirements if you want to earn 2.01% APY and unlimited nationwide refunds on ATM withdrawals: Enroll in electronic statements and online banking, as well make 12 PIN-based debit card transactions per month. If you don’t qualify, Bay State Savings Bank will charge you $0.75 per ATM transaction (plus you’ll pay the fee the ATM operator charges) and you will earn 0.05% APY on balances in your account. Bay State Savings Bank uses the SUM ATM network, a surcharge-free ATM system with thousands of locations in the U.S. Learn more about opening an account online.

LEARN MORE

on Bay State Savings Bank’s secure website

Evansville Teachers Federal Credit Union

Bank Name	Account Name	Minimum Deposit to Open	Third-Party ATM Fee Refund	Overdraft Fee
Evansville Teachers Federal Credit Union	Vertical Checking	$25	Up to $15/month	$27

Since Evansville Teachers Federal Credit Union is a credit union, you need to become a member in order to open an account. Anyone can join with a one-time $5 donation to Mater Dei Friends & Alumni Association when you fill out the application. This free checking account requires a $25 minimum deposit to open.

When you make up to 10 withdrawals at any ATM per month, ETFCU charges no fee, but withdrawals over 10 have a $2 fee. In addition, the ATM operator may charge a fee, but ETFCU has an up-to-$15-a-month third-party ATM fee reimbursement that you can qualify for by making at least 15 debit card purchases, one direct deposit, and one online or mobile banking login each month. You also need to opt to receive e-statements to qualify for the fee reimbursement. This credit union uses the Alliance One ATM network, which has more than 5,000 surcharge-free ATMs in 42 states. You can apply for an account online.

LEARN MORE

on Evansville Teachers Federal Credit Union’s secure website

Radius Bank

Bank Name	Account Name	Minimum Deposit to Open	Third-Party ATM Fee Refund	Overdraft Fee
Radius Bank	Radius Hybrid	$10	Unlimited	$25, then $5 per day after 5 days

Radius Bank offers the Radius Hybrid checking account, which requires a small minimum deposit of $10 to open your account. Once you open an account, there is no minimum daily balance requirement. In addition to the starting deposit of $10, the requirements of this account are to enroll in online banking, receive e-statements, and choose to receive a debit card. A standout feature is the ATM fee refunds. Radius does not charge customers for using other banks’ ATMs, and it provides unlimited third-party ATM fee rebates at the end of each statement cycle. You can open a Radius Hybrid checking account online.

LEARN MORE

on Radius Bank’s secure website

Alliant Credit Union

Bank Name	Account Name	Minimum Deposit to Open	Third-Party ATM Fee Refund	Overdraft Fee
Alliant Credit Union	Free Checking or High-Rate Checking	$0	Up to $20/month	$25

Alliant Credit Union has two free checking accounts that are available to everyone: Free Checking and High-Rate Checking. If you don’t qualify for free membership, you can donate $10 to Foster Care to Success during the application process. These checking accounts offer up to $20 a month in third-party ATM fee rebates, and unlike other free checking accounts on this list, you have access to over 80,000 surcharge-free ATMs. Also, Alliant has a mobile app you can use to manage your account. Learn more here about opening a checking account at Alliant Credit Union.

LEARN MORE

on Alliant Credit Union’s secure website

State Department FCU

Bank Name	Account Name	Minimum Deposit to Open	Third-Party ATM Fee Refund	Overdraft Fee
State Department FCU	Basic Checking	$1 in a savings account	None	$30

Anyone can join the State Department FCU by joining the American Consumer Council when opening an account. SDFCU does not charge a fee for you joining the ACC when you apply. Also, when you open a Basic Checking account you have to open a savings account with a minimum $1 deposit, and you must maintain a minimum $1 balance in the account. Unfortunately, there are no third-party ATM fee refunds, but you have access to over 29,000 ATMs through the CO-OP Shared ATM Network.

This account also offers rewards through its Flexpoints program, which is a noteworthy feature for checking accounts these days. You can earn one Flexpoint for every $2 you spend with your debit card and 5 Flexpoints by paying a bill through bill pay. But be careful — there is a $5 monthly fee if you don’t pay a minimum of one bill every two months. You can redeem Flexpoints for travel, select events, merchandise, gift cards, or a charitable donation. You can both join the credit union and open your accounts through an online application.

LEARN MORE

on State Department Federal Credit Union’s secure website

XCEL Federal Credit Union

Bank Name	Account Name	Minimum Deposit to Open	Third-Party ATM Fee Refund	Overdraft Fee
XCEL Federal Credit Union	Kasasa Cash	$0	Up to $20/month	$30

Since XCEL is a credit union, you need to join in order to open an account. Anyone can join with a one-time $5 membership fee to the American Consumer Council. Noteworthy features include the $0 minimum deposit and minimal account requirements, including enrollment in e-statements and 12 debit card transactions per month. And, by meeting those requirements, you can earn up to $7.50 back at the end of the month. You also can receive a decent refund on third-party ATM fees — up to $20 per month. Like State Department FCU, XCEL uses the CO-OP Shared ATM Network. You may apply for your credit union membership and the checking account online.

LEARN MORE

on Xcel Federal Credit Union’s secure website

Atlantic Stewardship Bank

Bank Name	Account Name	Minimum Deposit to Open	Third-Party ATM Fee Refund	Overdraft Fee
Atlantic Stewardship Bank	Cash Back Checking	$1	Unlimited	$35

Atlantic Stewardship Bank has a great offering in their Cash Back Checking account. Not only is the minimum deposit $1, but you can receive unlimited third-party ATM fee refunds as long as you qualify by making 12 debit card transactions each cycle and enrolling in online banking and e-statements. If you met those requirements, you may also earn rewards: 0.50% cash back on debit card purchases. You can apply for this account online.

LEARN MORE

on Atlantic Stewardship Bank’s secure website

Advertiser Disclosure: The card offers that appear on this site are from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all card companies or all card offers available in the marketplace.

Alexandria White |

Alexandria White is a writer at MagnifyMoney. You can email Alexandria at alexandria@magnifymoney.com

TAGS: ATM fee, BANK OF AMERICA, Checking account, credit unions, free checking account

Featured Accounts AD

* Sponsors listed are Member FDIC or NCUA insured.

Recommended by

This Cash Back Number May Surprise You

Best Travel Credit Cards With No Annual Fee

Getting Approved For 1 Of These Credit Cards Means You Have Excellent Credit

2 Credit Cards Charging 0% Interest until 2019

Advertiser Disclosure Comments

Advertiser Disclosure

News

How to Prepare Yourself for the Next Recession

Tuesday, September 18, 2018

Shen Lu

This month marks the 10th anniversary of Lehman Brothers’ bankruptcy, a collapse synonymous with the 2008 financial crisis. The U.S. emerged from the Great Recession in 2009, entering what may be one of the country’s longest periods of economic expansion.

But if all good things must end, it’s natural to wonder when to expect the next downturn and how to prepare. There’s chatter that a recession is on the horizon, and while no one knows exactly when, some economists think the U.S. economy could enter a downturn in 2020. The Federal Reserve also signals that gross domestic product — the value of all goods and services produced across the economy — will slump in 2020. Echoing fellow economists, Tendayi Kapfidze, chief economist at LendingTree, MagnifyMoney’s parent company, said he expected the economy to slow the second half of 2019.

“This does not mean it will go into recession though,” he noted, “although the risks are higher when underlying growth is slower.”

When the economy takes a turn for the worse, it could put your financial goals, as well as your job, in jeopardy. It’s time to take a look at your overall financial picture — investment, savings and debt — to make sure you will be in a strong position to ride out any potential economic storms.

MagnifyMoney surveyed nearly a dozen certified financial planners to help you prepare for the next recession, financially and mentally. They shared four pieces of advice to reduce risks.

Take a look at your 401(k)

When it comes to preparation, the No.1 rule is to not let a looming recession dictate your financial decisions. In other words, don’t try to time the market. However, you can prepare for a recession by having good investing habits — having a strategy and sticking with it.

“The best thing people can do now is just verify that that their portfolio is appropriate for them,” said Angela Dorsey, a certified financial planner based in Torrance, Calif. “If it’s too risky, you should make changes now and not wait for the recession.”

Do nothing if you have the right investment mix

Over the past few years, many people have aggressively invested in equities as the stock market has been on a roll. Now, it’s time to ask yourself: “How would I feel if the market goes down 20% in a year?”

Be honest with yourself: if you think you can tolerate the potential loss, have an investment strategy and the discipline to stick to your plan when the market goes down, stay on course. Do so especially if you are young, when time is on your side and you can afford to have a stock-heavy portfolio.

“You just stick with your 401(k) contributions, stick with your portfolio,” Dorsey said, using an example of a 30-year-old investor. “Because she’s young and she’s got all these years right out of the recession and be prepared for the next bull market.”

That said, Dorsey recommended you rebalance your portfolio if it strays from your strategic allocation — a balanced mix of stocks, bonds and other securities — no matter how old you are and which economic cycle you are in.

Basically, your portfolio should be appropriate for your risk tolerance. If your plan is to have 70% of your investment in stocks and 30% in bonds, but the market has gone up, a greater percentage of your overall wealth may now be in stocks. What you should do now is verify that allocation and make sure your portfolio is still balanced 70-30.

Reallocate your assets if you are worried

However, if you are nervous about an economic downturn and think some loss in your retirement savings will keep you up at night, or you may act emotionally, the time to rebalance your assets is now.

“When you’re not emotional about it, when it’s not free falling like it did in 2008 or in 2001, 2002, you can make some adjustments,” said Scott Bishop, a certified financial planner in Houston, Texas. “Because you can see if there’s some flaws in your portfolio that might be subject to market risk by lack of diversification.”

You need a strategy in your portfolio that keeps you invested but may reduce the risk.

1. Balance more assets toward fixed-income securities
Depending on your risk tolerance and whether you have other sources of income, when you’re gearing toward a more conservative portfolio, you need to bulk up on less risky, fixed-income instruments. Fixed-income securities include bonds, money market accounts and CDs within or outside of your retirement plans.

This holds especially true for those approaching retirement but still holding an aggressive portfolio — you don’t want the money you need in retirement to take a hit right before you retire. If you have a bigger portion of your portfolio in bonds, fixed income or cash, you could pull money from that fixed-income piece during a recession.

“The last thing you want is to have a major part of your portfolio in the stock market, and when it goes down, it takes a big hit,” Dorsey said.

2. Invest in an earlier target-date fund
Another strategy to protect your savings from a huge loss: moving your core savings — the money already invested — into a target-date fund that’s earlier than your expected retirement date. If you are young but it’s bothering you to see your $10,000 401(k) savings turn into $1,000, this method can also apply to you.

The investment mix in a target-date fund will change over time, transitioning into more conservative assets as you get closer to retirement. The sooner the date of the fund, the more conservative the allocation is.

Let’s say you are going to retire in 2040, but you are already concerned about the market. Take your invested 401(k) money and maybe put it in a more conservative allocation — a 2025 or 2030 target-date fund.

“That allocation protects you more against the downside,” Bishop said. “If the S&P 500 goes down by 20%, maybe you’d be down by 10% or 12%, something very recoverable but also not so low-interest that if the market goes up for another year, you’re not going to completely miss out.”

3. Invest new monthly contributions aggressively
Whether you manually allocate your assets or move a lump-sum principal to a target-date fund, keep contributing to your 401(k) but invest the new money aggressively in stocks, so that in the long run you will build the equity back up in your contributions.

“If the market does go down, would you like to have your new money buy cheaper stocks?” Bishop said. “Unless their plan balance is already huge given their age, like they already have $1 million, it’s OK to have a level of volatility.”

Don’t act on fear

One common pattern that financial planners have seen is that people take action because of emotion.

“When they are emotional, they tend to buy on greed when the market’s going high and sell on fear when the market’s going down,” Bishop said. “If you’re buying high and selling low, you’re doing exactly the opposite of what you need to do to make money in the market.”

A recession is completely normal. With your retirement savings, you’ll need to keep a long-term perspective, because another bull market will arrive.

The bottom line: Do not panic when the next recession hits or allow your emotions to get in the way. Take a deep breath and start preparing for it now by looking at your asset allocation and rebalance your investments if needed.

“Don’t sell,” Dorsey said. “Selling is the worst thing you can do.”

Reduce your credit card debt

As a recession looms, one way to protect yourself is to pay down your high-interest debt. This is to make sure that you will have enough liquidity when a recession hits.

“That’s the best risk management tool,” said Dennis Nolte, a certified financial planner in Winter Park, Fla. “With interest rates going up, anybody that’s got revolving debt realizes that their interest rates on their debt are going up. If you get a 20% credit card, start paying that down, first and foremost.”

Build your emergency fund

Another way to strengthen your foundation is to be sure your emergency fund is cash-flush.

For those who don’t have an emergency fund, it’s the perfect time to start saving three to six months of your spending in an emergency account — you don’t want to be forced to pull money out of the stock market during a correction for any unexpected event, such as a job loss.

Some people prefer to save their emergency funds in a plain vanilla savings account with a brick-and-mortar bank. As the Federal Reserve continues to raise interest rates, interest rates of online savings accounts, money market accounts and short-term CDs have swung up, as have short-term Treasury bond yields. If you stash a portion of your rainy day cash in one of these shorter-than-one-year guaranteed-income accounts, or buy short-term Treasury bonds, you can have something liquid but also will get a reasonable return.

If you’re young, more adventurous and financially-secure, Nolte suggested you invest part of your emergency money in a Roth IRA, rather than shovelling every penny of your emergency fund in a plain savings account for an emergency that may never happen. You can take your contributions out anytime without any tax penalties, leaving the interest in the account.

Set aside cash for short-term needs

If you have money invested in the market for short-term goals, be it getting your roof repaired or buying a car or a house in the next few years, it’s time to take those funds out. That money needs to be set aside in an interest-bearing account, so it won’t be influenced by the market.

“[This] should be the case anyway, but over the last few years people have gotten a little too ambitious and say, ‘Oh gosh, I want to buy a house in five years so let’s be super aggressive and put it all in stock so it can grow.’” Dorsey said. “They can grow but they can also go down.”

The bottom line

No one likes a recession, but all economic cycles have their peaks and their troughs. Avoid letting a recession dictate your financial goals and decisions. Don’t make drastic changes to your stock portfolio based on fear. You can prepare for the recession now by revisiting your 401(k) portfolio and making sure you have a balanced mix appropriate for your own risk tolerance. When the next downturn occurs, remember that another expansion will eventually arrive. As for reducing debt, establishing an emergency fund and setting aside cash for short-term needs, these are good financial habits to have even when the economy is humming along.

Shen Lu |

Shen Lu is a writer at MagnifyMoney. You can email Shen Lu at shenlu@magnifymoney.com

TAGS:

Personal Loans AD

LendingTree
Disclaimer

5.99% To 35.99% APR
Details
SoFi
Advertiser Disclosure

6.99% To 14.87% APR
Details
Marcus by Goldman Sachs®
Advertiser Disclosure

6.99% To 24.99% APR
Details
LightStream
Advertiser Disclosure

3.09% To 14.24% APR
Details

Recommended by

This Cash Back Number May Surprise You

Best Travel Credit Cards With No Annual Fee

Getting Approved For 1 Of These Credit Cards Means You Have Excellent Credit

2 Credit Cards Charging 0% Interest until 2019

Advertiser Disclosure Comments

Advertiser Disclosure

News

Survey: Vast Majority of Multilevel Marketing Participants Earn Less Than 70 Cents an Hour

Monday, September 17, 2018

Brittney Laryea

Take a look at your Facebook or Instagram feed and you’ll easily find at least one friend or family member constantly posting about the makeup, oils, supplements and even sex toys they sell to make some extra cash working from home. Most of these products and systems are provided through direct sales companies that use a sales model called multilevel marketing (MLM).

MagnifyMoney was curious about the return on investment for multilevel marketing participants and how their involvement affects their personal network of family and friends. We surveyed 1,049 multilevel marketing participants involved with at least one company over the past five years. Our conclusions show that most participants could earn significantly more money in exchange for a lot less time and money invested if they were employed in a minimum wage job.

Key takeaways

Most participants make less than 70 cents per hour in sales – before deducting expenses.
Fewer than half of participants made $500 in in the last five years.
Men report earning significantly more sales than women.
Married men and people who got money from friends and family to participate are the most likely to lie about how much they’re earning, fight with close friends and family, and even lose friendships than other groups.

What is multilevel marketing?

Multilevel marketing, or network marketing, describes a business strategy used by some direct sales companies. The sellers, called participants, earn commission or profit directly from the items they sell to their network. In addition, the strategy rewards participants who recruit new sales members to the company by giving the recruiter a commision from their recruit’s orders. In turn, the recruit can theoretically recruit another person and that third person in the recruitment chain can recruit a fourth, and so on.

Commissions from the last person recruited go to everyone up the recruitment chain. Recruits are often expected to purchase “starter kits” or inventory to start selling products, which also earn the recruiters (and the recruiters’ recruiter) commission. Thus, multilevel marketing as a business strategy incentivizes participants to grow a sales network underneath them, also called a downline.

MLMs often target stay-at-home mothers and others who may be interested in earning income in their downtime. But success in multi level marketing can be costly. Participants are encouraged to spend money to attend conferences and training seminars, invest in marketing materials and host events with the hope of selling products. All of the expenses are out of pocket and non-reimbursable by the company providing the products.

Multilevel marketing companies are swamped with controversy because the strategy lends itself to the proliferation of pyramid schemes.

The findings are concerning

The MagnifyMoney survey of 1,049 American multilevel marketing participants revealed many other concerning findings about the financial side of involving oneself — directly or indirectly — with multilevel marketing companies.

As far as side-gigs go, the earnings are minuscule

It’s hard work making money in multilevel marketing. Overall, 20% of participants never made a sale (18.3% if you exclude people who signed up just for discounts) and nearly 60% of participants reported earning less than $500 over the past five years.

Using median results, MLM participants worked 14 months out of the past five years for 33 hours per month. Overall, participants earned a median of $18.18 per month, translating to $0.67 an hour, before deducting business expenses. Meanwhile, workers in the service sector — the lowest-paid of all major occupations in the U.S. — earn an median $10.53 hourly compensation.

If flexibility is a priority for people looking for extra income, MLM participants should know they may earn more money working as an independent contractor in the gig economy. For example, the Economic Policy Institute reports Uber drivers earn an average $11.77 an hour, after vehicle expenses and fees are considered.

The gender wage gap is ever-present among MLM participants, as men earned a median $35 a month, while women earned a median $14. According to the Direct Selling Association, women made up about 73.5% of membership in direct selling companies in 2017.

Some lie about their earnings

If you ask an MLM participant how their business is going, you may not get a straight answer, especially if the participant is a married man, or if you already gave them some money for the business.

A little more than 22% of all MLM participants admit they have lied to friends and family about the money they earned or their total investment in their MLM business — granted, the relationship dynamic between seller and customer may encourage participants to lie about their income and investment to make sales and win over recruits. The focus of direct selling is selling your product to your network of family, friends and acquaintances. As a subset, multilevel marketing takes that a step further, as participants also try to recruit new participants from their personal network.

Based on the responses, married men and those who already received money from friends and family were more likely to lie. In response to the MagnifyMoney survey, 36.5% of married men and 35.2% of those who borrowed money from their families and friends admit to lying to friends or family about how much they spent or earned to participate.

In addition, 42.7% of married men say they’ve fought with close family and friends about how much time or money they’ve invested, as did 42% of MLM participants who got money from loved ones to cover some or all of their participation costs.

Some go into debt

The financial burden of success in multilevel marketing may encourage participants to rack up debt to attend conferences and training or pay for marketing materials and other expenses related to involvement.

Nearly one in three (31.6%) of MLM participants said they used a credit card to finance their involvement in the business, and nearly one in 10 (9.1%) participants report taking out a personal loan. Of those who used a credit card, 15.4% say they haven’t finished paying off their MLM-related debt. Of those who haven’t paid off their credit card debt, 63% report earning less than $500 from their MLM business. Separately, nearly half (49%) of those who haven’t finished paying off their credit card debt spent between $100 and $500 on their MLM involvement, overall.

About one-fifth of participants said they borrowed money from friends and family members. The borrowing may have had a negative impact on their relationships as nearly a third (30.9%) of participants who did persuade a friend or family member to give them money said they ended up losing a friendship, and more than two-fifths (40.2%) said they fought with close family and friends over the time or money invested.

Going into debt to participate in an MLM

Borrowing to participate in an MLM isn’t advised, based on our findings of a poor return on investment. But if you do, it’s important to understand your financing options.

If you are among those who may consider participating in a multilevel marketing company and need to borrow to cover your business expenses, you may want to consider using a personal loan as an alternative to financing with a high-interest credit card or risking your relationship with friends and family members by asking them for money.

A personal loan is a fixed-rate installment loan, as opposed to a revolving debt like a credit card, so it may help limit the amount of debt you get yourself into. Generally speaking, personal loans charge lower interest rates than credit cards to borrowers who are able to qualify for the best terms, so they may be a less-expensive borrowing option for those with good credit scores. As of this writing, borrowers may qualify for personal loans with rates as low as 5.99%, whereas the average interest rate charged on credit cards is 15% APR, according to Federal Reserve data.

If you do opt for using a credit card, you should consider applying for a credit card with an introductory 0% APR period, during which new purchases will not accrue interest. You just have to make sure you pay off the balance before the end of the intro period, otherwise you’ll have to pay interest on the remaining debt at the regular purchase APR — maybe even deferred interest on the amounts you paid during the 0% APR intro period.

If you already spent money on a high-interest credit card and want to save interest while paying it off, you could apply for a balance-transfer credit card with an intro 0% APR — or you could consolidate your debt with a low-interest personal loan.

Before deciding to borrow, you should always compare rates on personal loan offers from multiple lenders to ensure you get the best terms available to you. You can compare your top rate offers from multiple lenders in minutes with our parent company, LendingTree.

Brittney Laryea |

Brittney Laryea is a writer at MagnifyMoney. You can email Brittney at brittney@magnifymoney.com

TAGS: DEBT, direct sales, entrepreneurs, multilevel marketing, Small Business

Personal Loans AD

LendingTree
Disclaimer

5.99% To 35.99% APR
Details
SoFi
Advertiser Disclosure

6.99% To 14.87% APR
Details
Marcus by Goldman Sachs®
Advertiser Disclosure

6.99% To 24.99% APR
Details
LightStream
Advertiser Disclosure

3.09% To 14.24% APR
Details

Recommended by

This Cash Back Number May Surprise You

Best Travel Credit Cards With No Annual Fee

Getting Approved For 1 Of These Credit Cards Means You Have Excellent Credit

2 Credit Cards Charging 0% Interest until 2019

Advertiser Disclosure Comments

Advertiser Disclosure

News

Top U.S. Student Loan Officer Resigns, Slams Trump Administration

Monday, August 27, 2018

Miranda Marquit

The U.S. student loan ombudsman, the top government official in charge of protecting student borrowers from predatory practices by lenders and loan servicers, announced that Monday he was resigning his post in protest at the end of this week.

Seth Frotman’s resignation letter, obtained by the Associated Press and National Public Radio, offered scathing words about what he said was a shift by the Consumer Financial Protection Bureau (CFPB) under current head Mick Mulvaney — and the Trump administration more broadly — to protect major financial interests over the needs of consumers.

“Unfortunately, under your leadership, the Bureau has abandoned the very consumers it is tasked by Congress with protecting,” Frotman’s letter read. “Instead, you have used the Bureau to serve the wishes of the most powerful financial companies in America.”

Consumer advocates reacted with dismay to the news, while continuing to take the White House to task for what they see as the erosion of student loan and other consumer protections since early 2017, when President Donald J. Trump took office.

What does the student loan ombudsman do?

As the student loan ombudsman, Frotman served as an advocate for student borrowers in their complaints against student loan servicers.

When dealing with servicers, the ombudsman can help borrowers get the information they need, as well as help them get relief when they’ve been wronged.

Frotman’s resignation comes after the decision to close the Office for Students and Young Consumers, the only federal government office specifically tasked with protecting student borrowers.

“Assistant Director Frotman has been a champion of the 44 million Americans who owe student debt,” Christopher Peterson, the director of financial services at the Consumer Federal of America, said in a press release. “His work at the CFPB has curbed industry abuse and reclaimed hundreds of millions of dollars for student loan borrowers.”

Since its inception, the CFPB has overseen the return of about $750 million to student borrowers who suffered from unfair practices by student loan servicers and taken other actions to protect consumers.

“The CFPB has power to protect consumers through enforcement actions like fines and lawsuits,” said Jay Fleischman, a student loan lawyer and consumer advocate. “Since the Trump administration took over, and more specifically, since Mick Mulvaney has been in charge of the CFPB, actions like the Navient lawsuit have pretty much ground to a halt, leaving consumers exposed to abuses by servicers.”

Not everyone has been happy with the CFPB, however. Efforts to reduce the power of the CFPB have been underway since it was formed, and Mulvaney, a former Republican congressman representing South Carolina, has been one of its biggest detractors.

“It turns up being a joke, and that’s what the CFPB really has been, in a sick, sad kind of way,” Mulvaney told the Credit Union Times in 2014.

Texas congressman Jeb Hensarling, the Republican chairman of the House Financial Services committee, wrote a February 2017 op-ed in The Wall Street Journal, in which he called the CFPB unconstitutional: “The CFPB has eroded freedom, trampled due process and killed jobs. It must go.”

How you can protect yourself as a consumer

Despite the disdain some policymakers have for the CFPB, consumer advocates like Peterson and Fleischman insist that the agency had done a lot of good, putting the needs of citizens ahead of the concerns of the financial industry.

“The [Trump] administration has seized control of an independent consumer watchdog and is strangling one of the only agencies in Washington dedicated to looking out for the rights of ordinary Americans,” Peterson continued in the press release.

So, what can you do if you’re unsure of the protections available to you?

Fleischman said that it’s still possible to file complaints with various government agencies, including the Department of Education and the CFPB. However, he conceded that with the contraction of offices designed to protect students, such a move might be inadequate.

“In addition to filing a complaint, consider sitting down with an attorney,” he said. “Many consumer advocate attorneys work on a contingency basis, so it won’t cost you anything to consult one.”

Fleischman recommended visiting the website for the National Association of Consumer Advocates for information on your rights and how to find a student loan lawyer that might be able to help you.

It’s also possible to influence future policy, and protect the CFPB and the office of ombudsman, by being politically active. Pay attention to higher education bills in Congress, and contact state and federal representatives with your concerns.

And, of course, vote for legislators that will implement policies designed to protect consumers (and encourage your friends to do the same).

“The student loan ombudsman has always been tremendously helpful,” said Fleischman, adding that as the government gives up its role in consumer protection, it’s up to private attorneys and consumer advocates to take on a heavier burden. “That’s what we’re here for. We’re the protectors. And now we’re some of the only ones left.”

This post originally appeared on StudentLoanHero.com, a subsidiary of LendingTree.

Miranda Marquit |

Miranda Marquit is a writer at MagnifyMoney. You can email Miranda here

TAGS:

Personal Loans AD

LendingTree
Disclaimer

5.99% To 35.99% APR
Details
SoFi
Advertiser Disclosure

6.99% To 14.87% APR
Details
Marcus by Goldman Sachs®
Advertiser Disclosure

6.99% To 24.99% APR
Details
LightStream
Advertiser Disclosure

3.09% To 14.24% APR
Details

Recommended by

This Cash Back Number May Surprise You

Best Travel Credit Cards With No Annual Fee

Getting Approved For 1 Of These Credit Cards Means You Have Excellent Credit

2 Credit Cards Charging 0% Interest until 2019

Advertiser Disclosure Comments

Advertiser Disclosure

News

What You Need to Know About IRS Ruling on 401(k) Match for Student Loan Repayments

Monday, August 27, 2018

Shen Lu

For millions of people in this country saddled with student loan debt, saving for retirement or paying down debt is an either-or decision. A new IRS ruling may help employees faced with such a dilemma accomplish both goals in the future.

What the ruling means

The IRS issued a private ruling on Aug. 17 to allow an unnamed company to implement a new type of benefit for student loan borrowers within its 401(k) plan. This company submitted a ruling proposal last year in order to help its employees tackle education debt.

Under the current plan, if a worker contributes at least 2% of their income to a company-sponsored retirement account, the employer will make a 5% match contribution.

The company proposed to amend the plan by allowing workers to opt into a student loan repayment program. As long as employees can prove that they are paying at least 2% toward student loan debt, the company will make a 401(k) contribution equal to 5% of their salary to their retirement plan, even though they don’t actively contribute to their 401(k).

Why it matters

Concerns have grown among employers in recent years that workers are not saving for retirement because of student loan debt. Many have looked into ways to include student repayment in their benefit offerings to not only incentivize employees to pay off debt while saving for retirement, but also to recruit and retain talent, according to Chatrane Birbal, director of government affairs at the Society for Human Resource Management (SHRM).

However, companies have a technical barrier to overcome in order to do so. Under the “contingent benefit” provision in the 401(k) tax code, employers generally cannot make benefits contingent on an employee making retirement contributions, with the exception of an employer-matching contribution, which is free money to employees.

“So you can’t say, ‘If you don’t defer at least 3%, you don’t get to sign up for health insurance or long-term disability,’” said Christine Roberts, a Santa Barbara, Calif.-based attorney practicing employment benefits law. “The exception to the contingent benefit rule is the free match. You have to defer to get the free match money.”

Jeffrey Holdvogt, partner of Chicago-based law firm McDermott Will & Emery LLP, said it’s possible this employer filed a private letter ruling because there was some uncertainty over the ability to provide a retirement plan contribution that is directly contingent on an employee making student loan repayments.

But the IRS ruling cleared the company’s concern, stating that the proposed plan was a permitted contingent benefit.

“So basically what they said was, ‘You can treat the match that is based on the student loan repayment the same as a regular match, and it doesn’t violate the contingent benefit rule,’” Roberts said.

What it means for student loan borrowers

The IRS ruling is beneficial for employees in this company who have little or no ability to shunt money over to their 401(k) because of heavy student loan debt.

“They’re not losing free employer money just because they have to repay their student loans,” Roberts said.

Will other companies follow?

Only 4% of American companies surveyed by SHRM indicate they offer student loan payment benefits, according to Birbal.

Although the specific ruling is limited to one company, oftentimes other employers look at these kinds of private letter rulings made public by the IRS as informal guidance on similar issues, Holdvogt said

Experts believe this particular ruling is likely to spur more interest and confidence in pushing forward with similar student repayment benefit programs among other employers.

But because of the limited applicability of this specific ruling, Roberts said she doesn’t expect this practice to pick up widely just yet.

“The environment we’re in right now is that to be certain, employers would all have to get their own private letter ruling,” Roberts said. “If they have a very high-risk tolerance, they would copycat this, but they maybe would only match 50% or 100%. And if they’re cautious, but they can’t afford a private letter ruling, they wait for wider guidance.”

While it’s unclear whether and when the IRS will issue broader guidance for all employers on this matter, there is a lot of hope that such benefits will become the norm because of growing interest in this issue from employers and legislators, experts said.

“The fact that the IRS issued this private letter ruling, I think, makes it more likely that the IRS comes out with more guidance of general applicability,” Holdvogt added.

This article originally appeared on Student Loan Hero, another LendingTree-owned site.

Shen Lu |

Shen Lu is a writer at MagnifyMoney. You can email Shen Lu at shenlu@magnifymoney.com

TAGS:

Personal Loans AD

LendingTree
Disclaimer

5.99% To 35.99% APR
Details
SoFi
Advertiser Disclosure

6.99% To 14.87% APR
Details
Marcus by Goldman Sachs®
Advertiser Disclosure

6.99% To 24.99% APR
Details
LightStream
Advertiser Disclosure

3.09% To 14.24% APR
Details

Recommended by

This Cash Back Number May Surprise You

Best Travel Credit Cards With No Annual Fee

Getting Approved For 1 Of These Credit Cards Means You Have Excellent Credit

2 Credit Cards Charging 0% Interest until 2019

Advertiser Disclosure Comments

Advertiser Disclosure

News

What Are Tariffs Anyway?

Friday, August 24, 2018

Shen Lu

By now, you’ve probably heard that President Donald Trump wants to up the ante in his trade war with China by unleashing a new round of tariffs. And maybe you remember his metals tariffs that hit the European Union earlier this summer, and now he’s threatening to double metals tariffs for Turkey. But perhaps what you’ve really been wondering all along is: What is a tariff, anyway?

Let us fill you in on some important context before you dive back into the latest trade tension escalations.

Tariffs: Defined

A tariff is a tax that the federal government levies on imported products. It’s often charged as a percentage of the value of a product that a U.S. buyer pays a foreign exporter.

For instance, the general tariff rate on an imported dishwasher is 2.4%. If a foreign exporter sets the price at $500, an American importer would have to pay an additional $12 tariffs on the machine, which makes the dishwasher’s total import price $512.

In the U.S., tariffs are collected at 328 ports of entry, which are controlled by Customs and Border Protection (CBP).

In order to get the foreign goods cleared through customs, U.S. importers have to pay the duties, which they are likely to pass on to consumers later.

The money paid on imported goods flows into the Department of the Treasury. Customs duties make up a small fraction of the federal government’s revenue.

How much are the tariffs?

The United States is one of the world’s largest importers. In 2017, the U.S. imported goods worth $2.4 trillion from other countries. China, Canada and Mexico are America’s top three trading partners.

U.S. tariffs are on the low end among countries in the world. Most foreign goods enter the U.S. duty-free, such as industrial goods and raw material like oil. In 2016, according to The World Bank, the average applied U.S. tariff across all products was 1.7%. In comparison, China placed an average 3.5% tariffs on imported items, and Canada’s applied tariff rate was 1.6%.

Only 30% of the total U.S. imports in 2017 were subject to tariffs, and the average duty applied to those items was less than 5%, according to the Pew Research Center.

The U.S. International Trade Commission listed U.S. tariffs on everything from orange marmalade (3.5%) to dishes (6.5%) in its detailed Harmonized Tariff Schedule.

How are tariff rates decided?

Countries apply different rates of tariffs on different types of products imported from different countries. Some countries have high tariffs on imports, while others are low-tariff countries.

Within the World Trade Organization (WTO) system, members agree to not charge tariffs on imports above certain levels, which are set forth by the WTO in detailed schedules.

Countries can also negotiate tariffs on imports and exports through bilateral or regional agreements, such as the North American Free Trade Act (being renegotiated now), as long as the rates are within the WTO tariff limits.

The U.S. has free-trade agreements (FTA) with 20 countries. FTAs reduce trade barriers, eliminating tariffs charged on products traded between partners. This year, the U.S. has upset some of its trading partners, such as Canada and Mexico, by applying steep tariffs on steel (25%) and aluminum (10%), which we will discuss in a second.

“Once you get into a trade war, it seems like the trade war supersedes any previous agreements you might have,” said Mark Perry, an economics policy scholar at the American Enterprise Institute and professor of finance and business economics at the University of Michigan-Flint.

Trump’s trade war tariffs

To protect certain domestic industries, the U.S. — as well as other countries — sometimes impose additional tariffs, or penalty tariffs, on foreign imports if it determines there is unfairness in trade or some damage to the U.S. economy.

“That’s what you’re talking about when you’re talking about steel and aluminum tariffs that Trump put on,” said Gary Hufbauer, economist and nonresident senior fellow at the Peterson Institute for International Economics (PIIE). “His view, which many disagree with, including me, is that imported steel and aluminum threatens the national security of the United States, so we put on extra tariffs on those.” PIIE is a nonprofit, nonpartisan economics research institution in Washington, D.C.

Imposition of harsh tariffs is both an economic tool and a foreign policy tool. But Trump is wielding it mostly as a foreign policy tool to punish other countries, including U.S. allies, citing national security concerns, which is unusual, said experts who also question the economic benefits.

Penalty tariffs are often much higher than the single-digit regular tariffs. Trump has slapped tariffs of up to 25% on foreign imports so far. Countries hit with Trump’s tariffs include China, Canada, E.U. nations, South Korea, Brazil, Argentina, Turkey and Australia.

Before Trump came into office, about 4% of U.S. imports were covered by penalty tariffs, PIIE researchers estimated in a 2017 study. This figure could increase to 7.4% if the Trump administration were to follow through on the tariff barriers announced during Trump’s first 100 days in the office. That was before Trump threatened to slap new tariffs on billions worth of Chinese imports.

A backlash could hurt American companies who export overseas. Targeted countries often retaliate against U.S. exports, hurting certain domestic industries as foreign demands drop. Companies that heavily relied on exports may slash staff, which could have an impact on the labor market, Perry said.

How much of the tariff gets passed on to consumers?

Duties are incorporated into the retail prices of products, differentiating from your local and state sales taxes. How much duty consumers have to pay on each item depends a lot on the product and on the country from which the product comes into the U.S.

On average, consumers have to bear about half to two-thirds of the tariffs on imported products, according to economists. The rest is absorbed by U.S. companies and/or foreign exporters.

Stiff tariffs on raw materials make it more costly for American manufacturers to produce products, which in general ultimately translate to higher prices on consumer products sold at retail stores.

“The prices would go up for consumers both for the imported goods and then also for the protected goods from the protected industry or protected manufacturer in the U.S. who now is able to raise prices because of less competition,” Perry said.

Sometimes the entire cost of penalty duties gets passed on to consumers. This is because the U.S. imports many types of specialized machinery that have to be approved by some government agencies, for instance, medical equipment, and there may be only one supplier who makes that product. Due to a lack of alternative import sources, the exporter isn’t likely to make a concession, so the U.S. importer is responsible for the full tariff amount and passes it on to consumers, Hufbauer explained.

For lower-end products where a lot of foreign suppliers compete with one another to sell to America, the consumer impact is next to zero. Take T-shirts as an example.

“If you put a tariff on T-shirts from one country, if they want to continue to export in competition with all the other countries, they will have to absorb the tariffs, meaning they will have to cut their prices by the amount of apparel,” Hufbauer said.

Tariffs: A brief history

With all of this chaos caused by tariffs, you may be wondering how President Trump is able to single-handedly wield such a powerful tool. Congress has delegated much of the decision-making power to the president, but there are signs the chambers may want to take it back. Sen. Mike Lee of Utah introduced a bill last year that would require congressional approval for certain trade actions.

But trade upheaval is nothing new here. Tariffs have a long history in the U.S., back to the beginning of the country in the 1700s. Because the country was saddled with debt from the Revolutionary War and had no federal income tax until 1913, customs duties were a major source of revenue for the federal government until the end of the Civil War.

Tariffs were a testy issue in the 19th century, too. The Republican Party, which had close ties to industrial firms, put harsh tariffs on imports to protect U.S.industries, reducing competition from counterparts from Great Britain and France, Hufbauer said.

The state of economic isolation continued through the dawn of the Great Depression. When the infamous Smoot-Hawley Tariff Act was enacted in the 1930s, world trade almost came to a standstill, which further damaged the already-troubled U.S. economy.

“That was kind of the last straw maybe that really turned it from a recession into a depression,” Perry said.

Since World War II, the U.S. has more or less moved in the direction of open trade, until now — tariffs are coming back as Trump further implements his protectionist trade agenda.

Shen Lu |

Shen Lu is a writer at MagnifyMoney. You can email Shen Lu at shenlu@magnifymoney.com

TAGS: tariffs

Personal Loans AD

LendingTree
Disclaimer

5.99% To 35.99% APR
Details
SoFi
Advertiser Disclosure

6.99% To 14.87% APR
Details
Marcus by Goldman Sachs®
Advertiser Disclosure

6.99% To 24.99% APR
Details
LightStream
Advertiser Disclosure

3.09% To 14.24% APR
Details

Recommended by

This Cash Back Number May Surprise You

Best Travel Credit Cards With No Annual Fee

Getting Approved For 1 Of These Credit Cards Means You Have Excellent Credit

2 Credit Cards Charging 0% Interest until 2019

Advertiser Disclosure Comments

Advertiser Disclosure

News

How Much Does the Average American Have in Savings?

Thursday, August 23, 2018

Chris Horymski

The average American household has $175,510 worth of savings in bank accounts and retirement savings accounts as of June 2018.
The median American household currently holds about $11,700 across these same types of accounts.
The top 1% of households (as measured by income) have an average of $2,495,930 in these various saving accounts. The bottom 20% have an average of $8,720.
Roughly 83% of savings are in located in retirement accounts like IRAs and workplace-sponsored retirement savings plans like 401(k)s.
Millennials, who have just started their savings journey, have currently socked away an average of $24,820. Gen Xers have $125,560 in retirement savings. Baby boomers and those born before 1946 have an average of $274,910.
29% of households have less than $1,000 in savings.

You often read or hear stories about how Americans aren’t saving enough for college, for retirement, for a rainy day — for anything, really. But how much do they currently have in their bank, credit union or online brokerage?

MagnifyMoney used data from the Federal Reserve and the Federal Deposit Insurance Corp. (FDIC) to estimate the average and median household balances in various types of banking and retirement savings accounts. 2016 household data from the Fed’s Survey of Consumer Finances was adjusted to 2018 levels by using June, 2018 market values and fund flows.

Of course, these are very broad numbers, and very few of the 126 million U.S. households will be average. As of 2016, about 78% of households had at least one of the following: a savings account, a retirement savings account, a money market deposit account or certificates of deposit.

Average account balances

As of June 2018, among all households (including those with no account):

The average American household savings account balance is $16,420
The average American household has $5,170 in certificates of deposits (CDs)
The average American household has $9,370 in money market deposit accounts
The average American household has $9,750 in checking accounts
The average American household has $144,560 in one or more retirement savings accounts, including individual retirement accounts (IRAs), 401(k)s and other types of retirement accounts

Note that all households won’t necessarily own each type of savings account. For example, only about 7% of households currently have savings in some type of CD, meaning that the 93% without one will necessarily drive down the average.

Here are the average balances among savers, regardless of the kinds of savings vehicles they use. The averages below only exclude the 22% of households without any of these savings accounts. Households that have some savings vehicles but not necessarily all of the savings vehicles below were factored into each average.

Across all “saver” households:

The average savings account balance is $22,469
The average money market deposit account balance is $12,823
The average amount held in one or more CDs is $7,074
The average balance of all retirement accounts is $197,849
The average checking account balance is $7,680

When you look at the average balances of those who own the particular account, the averages are even higher:

51% of American households have a savings account, and the average balance among them is $32,130
18% have money market deposit accounts, and the average balance is $74,470
7% have one or more CDs and hold a total average $79,240
52% have one or more retirement accounts, and the total average balance is $277,670
83% have checking accounts and the average balance is $11,260

Median account balances

Median balances are considerably lower than the averages. For example, the median savings account balance is $4,830, significantly lower than the $32,130 average American savings account balance. Fifty percent of households have more than $4,830 in those types of accounts, while 50% have less. (The median figures below only include households that have that type of account.)

The median American household savings account balance is $4,830
The median American household money market deposit account balance is $12,600
The median American household amount in one or more CDs is $21,000
The median retirement account size in American households is $72,840
The median American household checking account balance is $2,330

Demographics and savings

Who are the above-average saving households? Wealthier households comprise most of them, but less-well heeled households can have healthy levels of savings as well. When you look at households who have saved more than the national average of $175,410, 59 percent of them are top income earners– those households in the top 20 percent of annual income. But 41 percent of above average savers are in the bottom 80% of income.
Millennial households have saved an average of less than $25,000, Gen Xers have about $125,000 saved, while baby boomers have saved nearly $275,000.
Regardless of income or age, 29% of households have less than $1,000 saved.

When savings is viewed through certain demographic prisms, like age, income and education, the average and median savings account balances start making more sense. For instance, it won’t surprise anyone that households with higher incomes save more than those of more modest means.

So although the average American household has saved roughly $175,000 in various types of savings accounts, only the top 10%-20% of earners will likely have savings levels approaching or exceeding that amount. Indeed, and as the chart shows, the bottom 40% of American households are more likely than not to have any savings whatsoever. Conversely, the top 10% of the population by income is likely to have many times the national household savings average.

Similarly, millennials will have saved less than boomers, as the latter has had a 35-year head start, among other factors. Currently, the average boomer has roughly 11 times the amount saved as the average millennial.

How much does the average American have in savings for retirement?

Of course, many American households store much of their savings in retirement accounts, like 401(k) plans from their employers and IRAs, both of which are tax-advantaged accounts that can hold not only “liquid” savings but also investments like financial securities and, in some cases, other types of assets like real estate. Fifty-two percent of households have some sort of retirement account, according to a 2016 survey by the Federal Reserve.

Among all households (including those with no account), the average retirement savings account balance as of June 2018 is $144,556.

But among households with an account (about 52% of all households):

American households with a retirement account (accounts like employer-sponsored 401(k) plans and IRAs) have an average of $277,670 in such accounts.
The median household balance as of June 2018 is $72,840 among those with retirement accounts.

For those households with retirement accounts, here’s how retirement savings break out among the different generations:

Millennials have saved an average of $34,030
Gen Xers have an average of $165,860 in retirement savings.
Baby boomers and those born before 1946 have an average of $380,100 in retirement accounts.

Recent trends in deposit accounts

Here’s a closer look at how customers of banks and credit unions are allocating their deposits:

CDs are losing shares to traditional and money market accounts

The amount of savings in FDIC-insured banks have grown by nearly $4 trillion since the recession.

But that growth isn’t going into CDs. There’s nearly $1 trillion less in CDs in 2018 than 10 years ago, while the amount of savings in both traditional and money market deposit accounts has increased by more than $2 trillion in each category.

CD yields

As you may suspect, the primary culprit behind declining CD deposits are the accounts’ low yields. As illustrated in the chart below, the popularity of CDs has waned as banks paid relatively little interest for all CDs, even those with longer maturities. For much of the past decade, the average yield for locking up savings in 1-year CD barely exceeded the average yield on a money market account, which is more liquid than a CD.

Longer-term CDs haven’t been yielding much more, until recently. Although the Federal Reserve began its most recent series of short-term rate hikes in early 2017, CD yields only started to climb from rock bottom in spring 2018.

Credit unions: A smaller pool with slightly better yields

While savings have also increased in the much smaller credit union universe, CD deposits have remained steady.

While there are multiple explanations for the steady share of CDs at credit unions, such as the institutions’ not-for-profit status (members are the shareholders), one obvious reason is the competitive rates they offer customers relative to banks. According to the National Credit Union Administration (NCUA) quarterly survey, credit unions offer consistently higher rates on savings than commercial banks.

Fortunately, savers (or would-be savers) are not consigned to improving-but-still-meager average savings yields. The best yields for savings accounts, CDs and money market accounts well exceed the average APY by at least one percentage point and often more.

Chris Horymski |

Chris Horymski is a writer at MagnifyMoney. You can email Chris at chris.horymski@magnifymoney.com

TAGS: american savings, average balance, deposit accounts

Featured Accounts AD

* Sponsors listed are Member FDIC or NCUA insured.

Recommended by

This Cash Back Number May Surprise You

Best Travel Credit Cards With No Annual Fee

Getting Approved For 1 Of These Credit Cards Means You Have Excellent Credit

2 Credit Cards Charging 0% Interest until 2019

Advertiser Disclosure Comments

Advertiser Disclosure

News

How Payday Lenders Get Around Interest Rate Regulations

Wednesday, August 22, 2018

Shen Lu

Although an increasing number of states has passed laws to protect consumers by capping interest rates on payday loans, lenders have found creative ways to get around those regulations and issue loans with sky-high rates.

“We see payday lenders utilizing schemes just to get out from as many kinds of restrictions as they can,” said Diane Standaert, director of state policy at the Center for Responsible Lending, a nonprofit, nonpartisan organization focused on consumer lending.

Here are three common strategies lenders use to exploit loopholes:

1. They’ve pivoted toward high-cost installment loans instead

One way lenders bypass federal regulations is by offering installment loans instead of the usual, lump-sum payday loans. Unlike traditional payday loans, which borrowers have to repay in full on their next paydays, an installment loan gives borrowers a fixed payment schedule that enables them to repay their debt over time.

Many small-dollar, installment loans come in the form of personal loans. Personal loans are generally perceived as less risky because the borrower knows exactly what their monthly payment is and the rates are fixed, meaning they never change. But just because it’s called an installment loan doesn’t mean it’s any cheaper than a regular payday loan.

A 2016 CFPB study found the average amount of these “payday installment loans” is $1,291 and their APRs range from a staggering 197% to 369%. Installment loan terms vary from a few weeks to several years.

Alex Horowitz, researcher for the consumer finance project at The Pew Charitable Trusts, pointed out that the transition from single-payment loans to multi-payment loans is driven in part by regulatory scrutiny, but also by consumer preference because borrowers want more time to repay. What’s good for borrowers is even better for lenders — and they can make very high profits from these loans.

“There are extreme examples on the market where a $300 or $500 loan can last for 18 months, which is far too long,” Horowitz said. “And if a borrower has it out for even half that time, they would repay several times what was borrowed.”

Although some states have cracked down on payday loans, they are far more lenient with high-cost installment loans. In Delaware, for example, lenders can issue borrowers only five payday loans per year. After that, Horowitz said lenders could switch to offering less-than-60-day installment loans, which aren’t subject to the same annual limit.

California bars lenders from issuing payday loans of $300 or more with terms of less than one month. And lenders’ costs for the loan are limited to $45 per pay period. But lenders can issue installment loans of more than $2,500 in California — without interest rate caps.

Standaert said more than half the loans in the California short-term lending market carry interest rates in excess of 100%, and many California lenders make loans of more than $2,500.

RISE, an online lender that provides consumers with short-term installment loans and lines of credit, offers California loans between $2,600 and $5,000. As of August 17, 2018, a $2,600 loan with a 16-month term has a whopping 224.35% APR.

Standaert said over the last two to three years, payday lenders have been making a push all over the country to try to legalize the longer-term payday loan. So far, 10 states have rejected such proposals.

2. Lenders operate as loan brokers

In Ohio and Texas lenders bypass state interest rate caps by acting as credit service organizations instead of direct lenders. A CSO basically refers borrowers to loans from third-party lenders. And that lender can tack on a sky-high CSO fee to your loan.

“That credit service organization is really not providing any value,” said Christopher Peterson, director of financial services and senior fellow at the Consumer Federation of America. “What’s really happening is that businesses exploit a loophole to generate effectively very high-interest rates; they are just doing it through a cocktail of broker fees and interest rates together.”

Take Ohio, for example. In 2008, the state passed the Short Term Loan Act, which caps the maximum short-term loan amount at $500 and the APR at 28%. But lenders can simply become licensed CSOs, which enables them to charge an additional fee to make up for the lost interest revenue.

In Ohio, RISE currently charges a CSO fee of $917.56 on a $1,000 loan — resulting in an effective APR of 299%. And LendUp, another online lender, charges a CSO fee of between $20 and $25 per $100 to borrowers in Ohio. But Ohio lawmakers have made efforts to close this loophole: In July 2018, Gov. John Kasich signed a bipartisan bill into law to restrict short-term loans.

Under current Ohio state law, CSOs are barred from selling, providing or brokering any loan that is less than $5,000 with an APR higher than 28% — or a loan with a term shorter than a year. The law increases the maximum short-term loan amount to $1,000 from $500, but limits loan terms to 12 months and caps the cost of the loan to 60% of the original principal.

The new rules will go into effect in May 2019. Horowitz said the act will provide lower-cost direct lending to Ohio borrowers, whose cost will be three to four times lower than the state’s current CSO rate. Standaert said that although the new law is an improvement on the current market, it still leaves borrowers exposed to high-cost direct loans because it legalizes a number of charges, including monthly maintenance, loan origination and check collection fees. This can send APRs through the roof, even with the CSO loophole is closed.

More than 3,000 CSOs operate in Texas, which is why it’s called the “Wild West” of payday lending. According to Texas Faith for Fair Lending, a grassroots consumer advocacy group, more than 98% of registered CSOs in this state are payday and auto title lenders.

3. Lenders issue lines of credit instead

Some states have a payday lending statute in place that sets interest rate caps but not for other types of loans, such as a line of credit.

A line of credit works like a credit card, only at a much higher price point. The lender allows you to borrow money up to your line’s limit and charges interest when you draw on the money. Once you repay the funds you borrower, that money is available for you to use again.

Horowitz said lenders in Rhode Island, Virginia and Kansas can charge more in fees and interest by issuing lines of credit instead of payday lending statutes. CashNetUSA, a major online payday lender, charges a 15% transaction fee in Virginia and Kansas when you draw on your credit line on top of the 299% APR, which makes the effective APR much higher.

Smart ways to shop for short-term loans

There’s no getting around the fact that consumers rely on short-term installment loans to fill gaps in financing when they don’t have better alternatives. Although it’s a good sign that many states have capped rates on payday loans, it’s clear that payday loan alternatives can be just as expensive — if not more. It is crucial for consumers to be savvy about which types of loans they choose and compare several options to get the best deal available.

Start with your local credit union or community bank

Many community banks and credit unions offer small-dollar loans at much lower interest rates than you’ll get with a payday or payday installment loan.
For example, all federal credit union loans have an 18% interest cap, except for the Payday Alternative Loans, which are capped at 28%. In addition, these financial institutions are much better regulated than the high-cost lenders.

Shop around and compare

Ideally, you want to look for a fixed-rate loan with an APR of 36% or less. At LendingTree, the parent company of MagnifyMoney, you can shop and compare offers from multiple lenders at once. Fill out a short online form and you can be matched with offers from up to five personal loan lenders. If you’d rather shop by visiting lenders online directly, see if they offer a prequalification tool that will enable you to check your rate and determine if you can prequalify without requiring a hard credit pull.

Check out our review of the best personal loans for people with bad credit. And if you’re wary of taking out a personal loan, check out this guide to the best options when you need money quickly.

APR

5.99%
To
35.99%

Credit Req.

Minimum 500 FICO

Minimum Credit Score

Terms

24 to 60

months

Origination Fee

Varies

LEARN MORE

on LendingTree’s secure website

LendingTree is our parent company.... Read More

Shen Lu |

Shen Lu is a writer at MagnifyMoney. You can email Shen Lu at shenlu@magnifymoney.com

TAGS:

Personal Loans AD

LendingTree
Disclaimer

5.99% To 35.99% APR
Details
SoFi
Advertiser Disclosure

6.99% To 14.87% APR
Details
Marcus by Goldman Sachs®
Advertiser Disclosure

6.99% To 24.99% APR
Details
LightStream
Advertiser Disclosure

3.09% To 14.24% APR
Details

Recommended by

This Cash Back Number May Surprise You

Best Travel Credit Cards With No Annual Fee

Getting Approved For 1 Of These Credit Cards Means You Have Excellent Credit

2 Credit Cards Charging 0% Interest until 2019

Advertiser Disclosure Comments

Advertiser Disclosure

News

White House Considers Rollbacks to Service Member Protections in Auto Lending

Wednesday, August 22, 2018

Jenn Jones

The Trump administration is siding with lenders against the protections — or limitations, depending on your perspective — that service members have under the Military Lending Act (MLA), according to White House documents obtained by NPR and The New York Times. The lending industry has long chafed at the limits on APR, finance charges and insurance products they could sell to service members. A large point of contention is a common, but little understood, product offered to military and civilians alike known as GAP.

What is GAP?

In the automobile realm, GAP (guaranteed asset protection) refers to two products: GAP insurance and a GAP waiver. If your vehicle is totaled, both cover a “gap” between your auto insurance payout and what you owe on car.

This is because when a vehicle is totaled (whether by a car accident, by a huge storm or by a thief stealing it), your regular full-coverage auto insurance pays only a portion of what the car is worth at that time, not what you owe. After all is said and done, you could still owe thousands to your auto lender and have to continue to make payments on a car you can’t use, while you might need to get another car.

This is where GAP steps in — both types of GAP work to pay off the lender so you don’t have to. For this reason, it may be an understatement to say it’s valuable to consumers. For the same reason, it’s valuable to lenders because they’re more likely to get the entire loan paid off.

But here’s where the two products differ: A GAP waiver is usually financed into an auto loan and because it is financed, it falls under the MLA; in fact, the MLA rule only applies to a GAP waiver when it is included in an auto loan. The MLA does not apply to GAP insurance because the price of GAP insurance would never be included in a loan.

Because both products are called GAP and one can fall under MLA rules while the other one doesn’t, there’s a lot of confusion. Lenders and dealerships are also being called out because GAP waivers are more expensive (but offer more protection than GAP insurance) and many people only see the huge price difference.

Here’s a side-by-side chart:

	How much coverage?	Does it cover the auto insurance deductible?	When is it most useful?	What’s the price range?	Where can you get it?
GAP waiver	100% to 150% of the car’s actual cash value (ACV)	Yes, usually up to $1,000	When what you owe on the car loan is greater than what it’s worth	$299 to more than $1,200 for the whole loan	Your lender or the car dealership
GAP insurance	25% of the car’s actual cash value (ACV)	No	When what you owe on the car loan is equal to what it’s worth	Usually less than $100 for a year	Your current auto insurance company

How much coverage?

Does it cover the auto insurance deductible?

When is it most useful?

What’s the price range?

Where can you get it?

GAP waiver

100% to 150% of the car’s actual cash value (ACV)

Yes, usually up to $1,000

When what you owe on the car loan is greater than what it’s worth

$299 to more than $1,200 for the whole loan

Your lender or the car dealership

GAP insurance

25% of the car’s actual cash value (ACV)

When what you owe on the car loan is equal to what it’s worth

Usually less than $100 for a year

Your current auto insurance company

What are the current protections?

The Department of Defense (DoD) ruled in 2016 that the current MLA protection does not allow service members to include a GAP waiver as part of an auto loan if the total amount borrowed (including GAP) means that the whole loan is for more money than what the car is worth or if the Military Annual Percentage Rate (MAPR) is over 36%.

The reason for inventing the category of MAPR in 2006, and putting the limit on it, is not just to limit the APR, but to also limit the amount charged for any add-on products. MAPR is different from APR because it counts the price of the GAP waiver and similar products as a fee — this means that the price of GAP can radically increase the MAPR above 36%, thus making the contract count as illegal predatory lending. MAPR acts as a way to impose overall cost control without making hundreds of rules to limit and monitor every small aspect of lending.

The MLA rule in question, and subsequent DoD interpretations of it, appears to state that going into debt to prevent debt is a catch-22 and should just be avoided. But the rub comes from the fact the lending industry has long taken advantage of service members. In fact, the Consumer Financial Protection Bureau (CFPB) has secured more than $141 million in refunds and compensation for military service members since 2013 from lenders who violated MLA protections. Additionally, auto dealerships, where many people buy GAP, do not have the most stellar reputation of having reasonable prices.

The price range of GAP waivers can be dramatic. It is loosely based on how much you borrow, but dealerships and lenders sell it for anything from $299 to more than $1,200. If you don’t know that you can negotiate on the price or get it for cheap at another dealer or lender, you might be convinced to pay four times the amount.

Reasons for rolling back the protections

The lenders’ argument is that GAP would be most useful to protect both the consumer and the lender in an in-debt situation. Three credit union trade groups, the National Association of Federally-Insured Credit Unions, the Defense Credit Union Council and the Credit Union National Association, petitioned the DoD in early 2018, asking it to reconsider — that this protection, in financial reality, is a limitation that prevents the service member from getting protection.

The National Automobile Dealers Association (NADA) agrees. For all civilians, GAP (and products like GAP) are not considered fees on an auto loan, but separate products as all consumers can think about and voluntarily choose to purchase or finance as they wish.

What would the change mean?

There are two potential changes on the table. The first is for the MLA to not include GAP as a fee. This would mean service members could finance GAP in auto loans more easily, because the price for it would not be subject in the overall loan conforming to the MAPR 36% rule. The second change is that the Consumer Financial Protection Bureau (CFPB) would stop actively monitoring the loan market for predatory lending on active duty service members and their dependents.

Both are a bad idea, according to Tom Feltner, director of research at the Center for Responsible Lending, who said the fact the industry is pushing for new loopholes and new exemptions to the MLA is troubling.

“I think it is very concerning that they are shifting enforcement onto service members and their families,” Feltner said. “The supervisory process is fundamental,” and if monitoring stops, then “it is incumbent on the service members to report the violations themselves.”

What happens next?

As of Aug. 15, almost half of the U.S. Senate urged that the CFPB not weaken protections for military service members. The DoD conducts both the rulemaking and any additional guidance on the MLA in conjunction with appropriate organizations, including the CFPB and the Federal Trade Commission. Even if these two changes are shot down, Feltner said it looks like the CFPB will continue the rollback of consumer protections in general.

Whether or not these changes occur, servicemembers should educate themselves and always pay close attention to the fine print and costs when making any type of financial decision. And as is the case with all potential policy changes, you may want to contact your representatives in Congress to let them know your opinion on the matter.

Jenn Jones |

Jenn Jones is a writer at MagnifyMoney. You can email Jenn at jennifer@magnifymoney.com

TAGS: auto loans, Consumer Watchdog, gap insurance, Trump Administration

Personal Loans AD

LendingTree
Disclaimer

5.99% To 35.99% APR
Details
SoFi
Advertiser Disclosure

6.99% To 14.87% APR
Details
Marcus by Goldman Sachs®
Advertiser Disclosure

6.99% To 24.99% APR
Details
LightStream
Advertiser Disclosure

3.09% To 14.24% APR
Details

Recommended by

This Cash Back Number May Surprise You

Best Travel Credit Cards With No Annual Fee

Getting Approved For 1 Of These Credit Cards Means You Have Excellent Credit

2 Credit Cards Charging 0% Interest until 2019

Advertiser Disclosure Comments

Advertiser Disclosure

News

How Trump’s Proposed $200 Billion China Tariffs Could Affect You

Tuesday, August 21, 2018

Shen Lu

Americans may feel a sting in their daily lives from the next swath of tariffs that President Donald Trump threatens to slap on $200 billion worth of Chinese-made products.

Trump’s initial tariffs on $50 billion worth of Chinese imports steered clear of popular consumer products. But as he looks to put a 25% tax on an additional $200 billion of China-made imports, it’s almost inevitable that U.S. consumers would see price hikes on items as varied as fish, baseball gloves, vacuum cleaners, computers, luggage, tires, dog leashes, furniture, lamps and mattresses.

Last year, the U.S. imported $505 billion of goods from China, meaning this next round of tariffs would account for nearly 40% of Chinese imports.

Almost 23% of the targeted items on Trump’s $200 billion list are consumer products, according to an analysis conducted by the Peterson Institute for International Economics (PIIE), a nonprofit, nonpartisan economics research institution in Washington, D.C. For comparison, consumer products made up just 1% of the list of the initial $50 billion worth of made-in-China imports subject to added tariffs.

“I mean, when you get to $200 billion, you’re covering most everything,” said William Reinsch, Scholl Chair in international business at the Center for Strategic and International Studies, a bipartisan, nonprofit policy research organization based in Washington, D.C. Reinsch previously served as the president of the National Foreign Trade Council.

The new tariffs may take effect after public hearings are held, which end on Aug. 30. A hearing is scheduled from Aug. 20-23 at the U.S. International Trade Commission at 500 E Street SW, Washington D.C., beginning at 9:30 a.m.

Where would consumers be hit mostly?

Based on the import value in 2017, the PIIE analysts found the major consumer products targeted are:

furniture ($11 billion);
seats ($10 billion);
computers ($8 billion);
lamps, lighting and parts ($7 billion);
travel bags ($7 billion); and
agricultural and food products ($6 billion).

Affected household goods are:

cooking appliances ($3.8 billion);
vacuum cleaners ($1.8 billion); and
refrigerators ($1 billion).

To break down the list further:

Dozens of fish are on the hook for price increases. That includes tilapia, salmon, cod and trout. When you eat out, your restaurant bill may also go up if you order seafood like tuna, squid and octopus that come from China.

If you like to cook with typical Chinese food ingredients, you may find higher prices on lychees, sea urchins, garlic, bamboo shoots, dried mushrooms and monosodium glutamate (better known as MSG), which are on Trump’s list.

As you browse the aisles at your nearest big-box store, you may find household supplies with higher prices including toilet paper, facial tissue, paper towels and napkins, as well as dishes, plates and cups made of paper or paperboard.

Clothes and accessories made of leather or furskin, including belts, gloves and mittens may cost more. Also on Trump’s list: bed sheets, linens and towels.

And if you live in one of the more than 84 million U.S. households with a pet, take note: Prices of dog leashes, collars, muzzles, harnesses and dog and cat food may swing up, too.

You can check out the full list of more than 6,000 Chinese items subjected to tariffs here.

How would consumers be hurt?

Immediate impact

Some effects are immediate. On the one hand, tariffs would raise the prices of the made-in-China products that Americans buy in stores, but on the other, domestic producers may jack up the prices of their products, too.

“Usually what happens is that when the domestics discover that their competitions’ prices are going up, they’re tempted to raise their prices to take advantage of the situation,” Reinsch said. “They won’t raise it as high as the foreigners have to raise it, because after all, as long as they’re a little bit cheaper, they have an edge.”

In that sense, the consumer wouldn’t gain much if they switch from a Chinese product to the American-made version.

Reinsch estimated that consumers can see the effects rolling out between three and six months after the tariffs are imposed.

How much would prices go up?

It’s hard to predict whether American importers would ease the tariffs by paying themselves or pass part of or even the full cost onto their customers — it depends on the industry, alternative import sources and market conditions. As a result, consumers may not have to bear the full 25% tariff on every Chinese product, if it was to be imposed, experts say.

“Generally speaking, the more expensive the item, the more likely that the manufacturer or importer is to swallow a part of the tariff,” Reinsch said. “Otherwise, the cost will be pretty significant.”

Economists estimate that on average, about half of that unfavorable tax hike — 12.5% to 15%— would be passed on to customers, and the rest absorbed by the producer or manufacturer.

Shoppers who looked for washing machines this year may have already understood how tariffs affect consumer product prices. The price of imported washing machines shot up 16.4% three months after the Trump administration imposed 20%-50% tariffs in February, according to the American Enterprise Institute, a Washington, D.C.-based conservative think tank.

Indirect impact

Other effects are likely to emerge slowly, as 47% of the $200 billion tariff list comprises tens of billions of dollars of intermediate inputs — parts and components of final products — imported from China. Even though consumers don’t buy such things directly, they end up being incorporated or assembled into something else, and the additional costs will feed into the final products.

U.S. importers or producers may not be able to switch quickly to alternative suppliers in other countries, so American companies may have to pay the higher price for the parts and probably pass that cost onto consumers, said Gary Hufbauer, economist and nonresident senior fellow at the PIIE.

But even if American companies alter their supply chain and find a vendor that makes the same thing with comparable quality, the products probably won’t be as cheap as the Chinese parts used to be.

“If it was cheaper than the Chinese product, you would have found it a year ago, and you’d already be there,” Reinsch said. “So, it’s pretty certain that if plan A, which is China, suddenly becomes more expensive, it’s pretty certain that your plan B will also be more expensive — not as expensive as the tariffs but more than you were paying before.”

Either way, the consumers are going to lose, either from immediate price hikes or when the impact of the tariffs is sprinkled into the supply chain of a product that in part relies on Chinese components.

“[The tariffs] will all find their way finally to consumer prices,” Hufbauer said.

Take consumer technology products as an example.

A recent study by the Consumer Technology Association estimated that a 25% tariff on Chinese printed circuit assemblies and connected devices — an input into the production of a host of consumer technology products such as fitness activity trackers, wireless headphones, modems, routers, smartwatches and other Bluetooth-enabled devices — would lead to an average retail price hike of 6.2% on the final products.

Trade talks

In the lead-up to the new tariffs, the U.S. and China are scheduled to be back at the negotiating table in late August to ease trade tensions that have been built up in the past few months between the world’s two biggest economies. Experts interviewed by MagnifyMoney said the meeting would not likely affect the already-announced tariffs due to the tight negotiation window and a large number of issues dividing the two nations.

At best, the administration would delay the implementation of tariffs, and impose the tariffs in stages — perhaps at different rates for each stage, said Hufbauer.

In any case, it’s likely that over the time, individual Americans would feel the effect of higher tariffs when they check out at the country’s largest retailers.

Shen Lu |

Shen Lu is a writer at MagnifyMoney. You can email Shen Lu at shenlu@magnifymoney.com

TAGS: china, consumer prices, tariffs, trade war

Personal Loans AD

LendingTree
Disclaimer

5.99% To 35.99% APR
Details
SoFi
Advertiser Disclosure

6.99% To 14.87% APR
Details
Marcus by Goldman Sachs®
Advertiser Disclosure

6.99% To 24.99% APR
Details
LightStream
Advertiser Disclosure

3.09% To 14.24% APR
Details

Recommended by

This Cash Back Number May Surprise You

Best Travel Credit Cards With No Annual Fee

Getting Approved For 1 Of These Credit Cards Means You Have Excellent Credit

2 Credit Cards Charging 0% Interest until 2019

Advertiser Disclosure Comments

Credit Cards

Bank Accounts

Loans

Other Products

Free Guides

Calculators

7 Great No-Fee Checking Accounts for People With Low Balances

Methodology

Great free checking accounts for low balances

Bay State Savings Bank

Evansville Teachers Federal Credit Union

Radius Bank

Alliant Credit Union

State Department FCU

XCEL Federal Credit Union

Atlantic Stewardship Bank

Featured Accounts AD

Synchrony Bank 13 Month CD

Ally Bank High Yield 12-Month CD

HSBC Direct HSBC Direct Savings

Goldman Sachs Bank USA High-yield Online Savings Account

How to Prepare Yourself for the Next Recession

In this article we’ll cover:

Take a look at your 401(k)

Do nothing if you have the right investment mix

Reallocate your assets if you are worried

Don’t act on fear

Reduce your credit card debt

Build your emergency fund

Set aside cash for short-term needs

The bottom line

Personal Loans AD

LendingTree

SoFi

Marcus by Goldman Sachs®

LightStream

Survey: Vast Majority of Multilevel Marketing Participants Earn Less Than 70 Cents an Hour

Key takeaways

What is multilevel marketing?

The findings are concerning

As far as side-gigs go, the earnings are minuscule

Some lie about their earnings

Some go into debt

Going into debt to participate in an MLM

Personal Loans AD

LendingTree

SoFi

Marcus by Goldman Sachs®

LightStream

Top U.S. Student Loan Officer Resigns, Slams Trump Administration

What does the student loan ombudsman do?

How you can protect yourself as a consumer

Personal Loans AD

LendingTree

SoFi

Marcus by Goldman Sachs®

LightStream

What You Need to Know About IRS Ruling on 401(k) Match for Student Loan Repayments

What the ruling means

Why it matters

What it means for student loan borrowers

Will other companies follow?

Personal Loans AD

LendingTree

SoFi

Marcus by Goldman Sachs®

LightStream

What Are Tariffs Anyway?

Tariffs: Defined

How much are the tariffs?

How are tariff rates decided?

Trump’s trade war tariffs

How much of the tariff gets passed on to consumers?

Tariffs: A brief history

Personal Loans AD

LendingTree

SoFi

Marcus by Goldman Sachs®

LightStream

How Much Does the Average American Have in Savings?

5.99%
To
35.99%