8 fake bargains to avoid
May 25, 2010 · Tagged with Banking and Budgeting
3. Checking Accounts That Pay Interest
Interest-bearing checking accounts at traditional brick-and-mortar banks often pay only 0.13 percent interest but require high minimums to avoid a monthly maintenance fee. On, for instance, a deposit of $3,400 — the average minimum required to avoid monthly fees, according to Bankrate.com data — that amounts to just $4.42 in annual interest.
Better Deal: In this low-interest environment, forget about getting any interest from your checking account, advises Richard Barrington, an analyst with MoneyRates.com. Instead, look for a no-fee checking account — and “be sure to check the minimum balance requirement,” Barrington says. “These minimums have been rising, so make sure it’s a minimum balance you can realistically maintain.”
Meanwhile, if you have extra cash, shop around for banks and credit unions that offer good deals. Mike Moebs, an economist whose firm surveys bank fees says there are a few banks and credit unions that combine checking and money-market deposit accounts into one, offering a high rate on balances over $2,500.
4. Overdraft Protection
Many banks used to offer it automatically when you opened an account, making it sound like a valuable safeguard. After all, if you bounced a check or tried to withdraw more cash from the ATM than you had in your account, you wouldn’t suffer any embarrassment when the bank refused to process a transaction.
But consumer advocates long argued that overdraft protection was just a way for banks to earn money at your expense, charging $20 to $35 per overdraft — a substantial penalty, considering the typical transaction prompting the overdraft fee is $20. That’s why the government has ordered new rules to take effect this summer that will require banks to get your approval before enrolling you in overdraft protection.
Better Deal: If you want back-up protection without the overdraft fees, consider setting up a savings account linked to your checking account so funds can be transferred in case of an overdraft. There may still be a fee to transfer funds between accounts, but it’s typically lower — only $10.
Meanwhile, keep a careful tab on your bank account balance: If you opt out of overdraft protection and then make an ATM or debit-card transaction that exceeds your balance, your transaction could be denied.
5. Extended-Warranty Protection
Don’t buy additional warranty coverage for electronics and major appliances. For one thing, some repairs are already covered by the standard manufacturer warranty. And Consumer Reports’ researchers have found that products seldom break within the extended-warranty window — and that when electronics and appliances do break, average repair costs are about as much as an extended warranty.
Better Deal: Check the fine print on your existing Visa, MasterCard or American Express. Many of these cards, particularly if they are platinum or gold, will extend the warranty for a year. “It’s one of the greatest freebies from credit card companies ever,” says Edgar Dworsky, a consumer lawyer and founder of the Consumer World Web site. The warranty protection varies, so review the policies on your existing cards before you make a purchase — then use the one offering the best warranty protection.