Banking

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What should I look for when choosing a bank?

Choosing a bank is a lot like choosing a significant other: you’d better have some chemistry, because you could be in for a long relationship. Here’s what to look for:

Stability.
Choose a reputable, FDIC-insured financial institution. The FDIC (Federal Deposit Insurance Corporation) backs your money up to $250,000 per insured bank.

Common ground.
Find a bank that specializes in the services you’re looking for. Own a small business? Find a bank known for small business help. Need a home loan? Choose a bank with mortgage experience. Want more personalized service? Choose a smaller, community bank.

Honesty.
Every bank has different fees. Make sure your bank is up front about the fees they charge for common services.

What are you getting out of it?
Look for higher interest rates for money that you deposit, lower interest rates on credit cards and loans.

Convenience.
Are ATM locations and bank hours more important to you or is mobile banking? Make sure your bank will be there when you need it.

Strong relationships.
Friendly customer service, online resources and personal relationships go a long way. Schedule a talk with a banker, get your questions answered and make sure it’s a good fit. After all, it’s your money.

How do I put a stop to banking fees?

Ask your bank about its fees and how to avoid them. Look for free checking and savings accounts. Sign up for automatic direct deposit of your paycheck and maintain a minimum balance in your account. Use only your bank’s ATMs. Also, sign up for overdraft protection, which turns your savings into a safety net for your checking.

What's the difference between a minimum balance and minimum daily balance?

A minimum balance usually requires that you keep a specified minimum amount in your account at ALL times or you will be assessed a fee. A minimum DAILY balance is more common, where you need to have a specified amount in the account by the END of the business day, even if the balance falls below that minimum during the day.

Borrowing

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I'm ready to buy my first home. Where do I start?

Getting a home loan isn’t a sprint, it’s a marathon. That’s why you need a trusted partner to walk you through the complex home-buying process. Talk with your prospective bank before you start looking for a home. An experienced lender will help you determine your budget based on your income, savings, existing financial obligations and financial history. Your bank will also review your available lending options, including new programs that offer additional flexibility based on your income. Learn more.

What is a pre-approval letter and how do I get one?

Many lenders offer a “pre-approval” that gives you a conditional commitment in writing for a loan amount. This determines in advance the amount you qualify for and at what interest rate. To get pre-approved, you need to provide documents to your lender, like recent tax filings, proof of employment and your credit history. Pre-approval can often be given within a few days and may last for up to 3 months while you house hunt.

What paperwork do I need when applying for a mortgage?

  • Take a deep, cleansing breath… there’s a lot to prepare

  • Pay stubs, employer contact information and W-2 or 1099 tax forms (usually for the past 2 years) to verify employment

  • If self-employed, profit/loss information may be needed

  • Tax returns (usually your most recent two filings)

  • Your credit score and credit history will be verified

  • Complete bank statements showing deposits and debits

  • Proof of other income, including: pension, social security and disability payments, dividend earnings, bonuses, and child support or alimony payments

  • Proof of financial obligations, such as loans and credit cards, as well as any security accounts you may hold, like stocks, bonds and life insurance

  • Your completed and signed home purchase agreement and a copy of the earnest money deposit check, which is often provided with the initial home offer

What is a Home Equity Line of Credit (HELOC)?

Get ready for some light math: Your appraised home value (e.g. $500,000) minus the balance owed (e.g. $400,000) equals your home equity ($100,000). A HELOC allows you to borrow money when you need it using the equity in your home. A HELOC can be used in a similar way as a credit card – you pay interest on the loan and as you repay, that credit becomes available again. HELOCs are often used to finance home improvements, pay off higher interest debts, or as a rainy-day fund. Learn more.

What is student loan forgiveness?

Ready for some good news? According the U.S. Department of Education, you may qualify to receive student loan forgiveness under the Public Service Loan Forgiveness Program if you are employed by a government or nonprofit organization. The program forgives Direct Loan balances if you’ve made at least 120 qualifying monthly payments while working full-time for a qualifying employer.

What are debt-consolidation loans?

Debt-consolidation loans allow you to group debt from various lenders into one, lower-interest loan. This can include medical bills, student loans or credit cards. When considering a debt-consolidation loan, carefully look at the payment term and the interest rate to ensure that you’ll be saving in the long-term.

Budgeting

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How do I create a budget?

Your budget is your roadmap to reaching your financial goals. Online programs and apps like Mint.com make it easy to keep track of your spending and credit cards, set budgets, and keep your finances organized. Here are a few steps:

Define your income:
First, note your take-home pay. This is the basis for your budget.

Track your spending:
Track every dollar you spend for one month to find out where your money is going - you might be surprised. Make adjustments in your spending – and your lifestyle – accordingly.

Define spending and priorities:
Set aside money for housing and utilities (around 35 percent), savings (10 percent), and allocate the rest (45 percent) to things like food, clothing, vacations and entertainment.

Automatically contribute to savings:
A good rule of thumb is to set aside 10 percent of your earnings toward a general savings account (short-term), or an IRA or 401(k) (long-term).

Pay with cash:
Paying with a credit card can make it easy to overspend. Try to pay with cash after withdrawing a fixed amount each month. This helps you make better spending decisions and stay within your budget.

Pay down expensive debt:
Apply as much money as you can toward your most expensive debt. While it may be tempting to pay off smaller balances at lower interest rates, erasing debt with higher interest rates saves more money.

How much should be in my emergency fund?

Everyone needs a safety net in case of a job loss, unexpected illness or surprise bills. Aim for setting aside 3-6 months of living expenses in an emergency fund that you can access without penalty, like an interest-bearing savings account.

What are some ways to save money?

First, create a monthly budget to help you keep track of your finances. Once you have a good understanding of what you’re spending on each month, see where you can cut back. Cut back on discretionary spending or automatically deduct money from each paycheck to put into your savings account or retirement.

Credit

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What is a credit score?

Your credit score is a three-digit number used by lenders to help assess your financial history. Three major credit bureaus, Equifax, Experian and TransUnion, provide a score ranging from 300 to 850 that evaluates your likelihood to pay back debt. The higher the number, the better your “creditworthiness.” A high credit score means better access to loans, credit cards, and lower interest rates on major purchases, like cars and homes.

What impacts my credit score?

Your credit score is determined by your financial history. It takes into account your credit card debt, loans, late payments and other information, such as bankruptcies and foreclosures.

An easy comprehensive way to check your credit history is through your credit report. This report details your credit history, including timeliness of payments, new lines of credit opened, etc. Your credit report generally doesn’t include your credit score but you can request a free credit report every year at AnnualCreditReport.com and other sites. Beware of scams – don’t pay to see your credit report! Use your credit report to check for any errors or inconsistencies.

How do I start building credit or increasing my credit score?

One of the best ways to build credit is by establishing a line of credit and paying off your balances on time. Having a solid track record of borrowing and paying off debt shows lenders that you are likely to do it again. Apply for a credit card that fits your needs, pay off those balances and watch your credit score grow.

What should I look for in a credit card?

Credit cards build credit and give you increased financial flexibility, but not all credit cards are created equal. Here are some tips, according to the American Bankers Association (ABA):

Annual Percentage Rate (APR):
This interest rate is applied to your balance to calculate the interest you owe. The lower the APR, the better. Pay off your credit card each month before the due date to avoid interest charges. Paying only the minimum due may result in accumulated interest that will take longer to pay off.

Annual Percentage Yield (APY):
This is the interest rate if you carry a balance over a full year. The APY will be higher than your APR because of compounding interest.

Perks and rewards:
If you’re going to spend, you might as well earn while you’re at it. Many credit cards offer perks and rewards just for spending, including travel benefits, gift cards and cash back. Find a reward card here.

Credit limit:
Your credit limit is the limit that you can spend on your credit card. Your credit limit may increase over time as you establish good credit habits and your income grows.

Fees:
Fees include cash advance charges, late and returned payment penalties, or even annual credit card fees. Be sure to check card fees before applying.

Should a personal loan be used to pay off a credit card balance?

Pay down your existing credit card balance before taking out a personal loan. Paying more than the minimum due each month, making a balance transfer to a lower-rate card, and working with your credit card issuer on a lower interest rate can help pay off your balance faster. If you do take out a personal loan, carefully examine the terms and interest rate and be sure you can handle the payments.

Savings

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What is compound interest?

Compound interest is a critical part of saving. When you set aside funds in a savings account, you collect interest, and the money you earn from that interest also earns interest. This snowballs over time into a larger amount. So, as a general rule, the earlier you start saving in an interest-bearing account, the more you make over time. So start saving now. Even a little bit can grow into a lot.

What is a Certificate of Deposit (CD)?

CDs are a low-risk way to earn a higher interest rate than a savings or checking account. Offered by banks, you can put funds into a CD for a specified length of time at a pre-determined interest rate. You are guaranteed those funds back, plus the interest earnings. There are several types of CDs, with terms as short as 1 month, so talk with your bank to determine the best option for you. Learn more about CDs.

What is a Money Market Account (MMA)?

A Money Market Account generally offers a higher interest rate on your funds than a typical savings account, but with greater minimum deposit and balance requirements.

What are liquid assets?

Liquid assets include cash (like a savings account) and things like stocks and bonds that can easily be converted to cash. Usually accounts that are easily accessible have lower interest rates, but offer the flexibility to withdraw funds quickly without penalty. Ideally, when building an emergency savings fund to cover unexpected expenses, you should put your money into liquid accounts.

How much should be in my emergency fund?

Everyone needs a safety net in case of a job loss, unexpected illness or surprise bills. Aim for setting aside 3-6 months of living expenses in an emergency fund that you can access without penalty, like an interest-bearing savings account.

Retirement

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When should I start saving for retirement?

Retirement may seem like a long time away, but it’s important that you start saving now. This is a long-term commitment and the earlier you start, the better. A rule of thumb is that you may need at least 70 percent of your pre-retirement income to maintain your standard of living when you’re retired. So start here.

What are my options when saving for retirement?

  • 401(k) plan:
    Find out if your employer offers a 401(k) plan and take advantage of it. Automatic deductions help you set aside funds that are invested pre-tax. Some employees even match contributions.

  • Pension plan:
    In a pension plan, employers set aside funds for investment that go towards a worker’s retirement. Find out how your pension plan works, especially if you plan to change jobs or have a spouse.

  • Individual retirement account (IRA):
    An IRA allows you to invest pre-tax income for retirement. You can put up to $5,500 a year into either a traditional IRA or a Roth IRA. The type you choose determines the tax treatment of your contributions and withdrawals. Learn more about IRAs.

What is a 401(k) employer match program?

Your employer may offer a program that matches 401(k) contributions up to a specified amount, which allows you to save even more. The earlier you start, the more you benefit from compound interest over time. Plans have different requirements and benefits, so be sure to talk to your employer.

Should I focus on paying off my existing debt or contributing to my retirement?

Generally, it’s better to pay down debt with the highest interest rates, like credit cards. Other debt, like student loans and mortgages, often have tax-deductible interest and lower interest rates. With these lower rates, it may make sense for you to start saving in addition to making your monthly payments.

What is compound interest, and how does it impact my retirement?

Compound interest is a critical part of saving. When you set aside funds in a savings account, you collect interest, and the money you earn from that interest also earns interest. This snowballs over time into a larger amount. So, as a general rule, the earlier you start saving in an interest-bearing account, like a 401(k) or IRA, the more you make over time. So start saving now. Even a little bit can grow into a lot.

Is it better to start saving a little money now, or more money later?

Because of compound interest, it’s best to start saving now, no matter what the amount. You’ll thank your younger self when you’re drinking an umbrella drink on Kaimana Beach at 65.