TIME

Why Bad Bank Service Means You Could Pay More

We want more attention, they want more money

In the wake of the financial crisis, the Feds put the kibosh on a whole slew of bank tactics pertaining to overdraft fees, interchange fees (which they charge merchants when you use a debit card and which stores say get passed along in the form of higher prices) and credit card interest rate hikes. To cope, banks closed branches, invested in technology so they could replace costly branches and tellers with computers, and started trying to coax their more affluent customers into shifting their borrowing and investing activities from other institutions.

At the time, these actions made sense. Banking industry trade publications and white papers were full of buzzword-y terms like the “360-degree customer view,” which encouraged banks to think of a checking account as the financial services equivalent of the $1.99 chicken breasts at the supermarket: A loss leader that could reel in customers who would then stick around and buy more profitable items (like, say, a home equity loan or brokerage account). And banks poured money into their online offerings, mobile apps and upgraded ATMs that — the thinking went — could deliver customer service at the fraction of the cost of a teller depositing money or checking a balance for a customer.

But it didn’t turn out like that, according to a new study from consulting firm Capgemini and banking trade association Efma. The World Retail Banking Report shows that positive customer experiences fell among North American bank customers. “Return on investments in the front- office and digital channels are struggling to keep up with evolving customer expectations,” the report says.

The advancements in technology just built up people’s expectations — especially for tech-savvy younger customers. “Across all regions, Gen Y customers registered lower customer experience levels than customers of other ages, reflecting the high expectations Gen Ys have of banks’ digital capabilities,” the report says. The fact that young adults are less satisfied than customers in other age brackets shows that banks aren’t keeping up with the technological times, and less than half of American Gen Y bank customers say they plan to stay with their current bank over the next six months.

And yet, customers’ embrace and expectation of digital banking didn’t put the kind of corresponding dent in branch usage banks were seeking. In fact, the number of people using bank branches in North America actually went up — hardly the kind of digital revolution banks were seeking. Seems we’d still rather deal with a human being for most kinds of banking activities because we don’t think the digital service is up to snuff. “Customers still perceived the branch to be offering better service than what could be found on the digital channels,” the report says.

Banks’ cost-cutting moves in the service arena did some serious damage to customer satisfaction, dampening customers’ inclination to deepen their relationship with their banks or recommend the institutions to others, another key component of banks’ post-reform moneymaking strategy. “Alarmingly for the banks, there was a significant increase in the percentage of customers who were unlikely to buy additional products or refer someone to their banks,” the report says. In North America, that figure jumped by more than 20 percentage points in just a year.

The report blames this on growing competition to banks from other products and services like Apple Pay, LendingTree and Starbucks’ prepaid payment platform.

What could this mean for customers? If you said, “more fees,” you just might be on the right track. According to research company Moebs $ervices, financial institutions have collectively lost roughly $5 billion a year in overdraft fee revenue alone (although, if this sounds like a lot, keep in mind that they still made roughly $32 billion off these fees in the year that ended September 30, 2014, compared to around $37 billion just before the new laws kicked in.)

Moebs also says bank and credit union net operating income as a percentage of assets fell by nearly 7% last year from the year prior, driven by a drop in revenue from fees. “Financial institutions need to assess why fee revenue is falling and develop additional sources of fee revenue to get net operating Income back on track,” Moebs economist and CEO Michael Moebs wrote earlier this month.

And that technology we’ve grown to depend on might be the way to accomplish this. One recent study finds that a quarter of bank customers say they’d pay $3 a month just to use their bank’s mobile app, a figure that goes up to about a third for customers under the age of 35.

“Customers are willing to pay for services such as credit monitoring, person-to-person transactions, personal couponing, identity theft protection, and related other services,” a recent banking trade publication article notes, saying that if banks get on the ball, they could more than make up their losses from that declining overdraft revenue — probably not what all those already-frustrated customers wanted to hear.

MONEY Banking

Homeless Man Discovers Long-Lost Bank Account

John Helinski, a victim of identity theft, was homeless and living on the streets of Tampa when a police officer helped him recover his ID—and a long-lost Bank of America account. He's not homeless anymore.

MONEY Kids and Money

The Best Way to Bank Your Kid’s Savings

150403_FF_KidBankAcct
YinYang—Getty Images

After the piggy bank fills up, here's how to launch your child on the path of saving and investing.

When I told my 7-year-old that her wallet was getting full and it was time to open a bank account, her eyes widened. She wanted to know if she would be allowed to carry her own ATM card.

Um, no.

When transitioning from a piggy bank to handling a debit card linked to an active account, financial experts say it is best to start with a trip to a bank, but which one and when? Here are some steps to get started:

1. Bank of Mom and Dad

Don’t be in a rush to move away from the bookshelf bank, says financial literacy expert Susan Beacham. There are lessons to be learned from physical contact with money.

Sticking with a piggy can be especially effective if you teach your kids to divide their money into categories. Beacham’s Money Savvy Pig has four slots: save, spend, donate, invest.

When you cannot stuff one more dime into the slots, it is time to crack it open and seek your next teachable moment.

2. Neighborhood Convenience

Many adults bank online, but kids still benefit from visiting a branch, says Elizabeth Odders-White, an associate dean at the Wisconsin School of Business in Madison.

Do not worry about the interest, Beacham says. “A young child who gets a penny more than they put in thinks it’s magical. You’re not trying to grow their money as much as grow their habits.”

Your second consideration should be fees. Your best bet may be where you bank, where fees would be determined by your overall balance and you could link accounts.

Another option is a community bank, particularly a credit union, which are among the last bastions of free checking accounts.

“The difference between credit unions and banks is that credit unions are not-for-profit and owned by depositors,” says Mike Schenk, a vice president of the Credit Union National Association.

At either type of institution, you could open a joint account, which would be best for older kids because it allows them to have access to funds through an ATM or online, says Nessa Feddis, a senior vice president at the American Bankers Association.

Or you could open a custodial account, for which you would typically need to supply a birth certificate and the child’s Social Security number. Taxes on interest earned would be the child’s responsibility, but likely would not add up to much on a small account. A minor account must be transferred by age 18 to the child’s full control.

3. Big Money

If your child earns taxable income, the money should go into a Roth individual retirement account, experts say. There is usually no minimum age and many brokerage firms have low or no minimums to start an account. You can pick a mix of low-cost ETFs, and let it ride.

Putting away $1,000 at age 15 would turn into nearly $30,000 by age 65, at a moderate growth rate, according to Bankrate.com’s retirement calculator.

Not all kids can bear to part with their earnings, but there are workarounds. One tactic: a parent or grandparent supplies all or part of the funds that go into the Roth, akin to a corporate matching program.

The other is to work with your child to understand long-term and short-term cash needs. That is what certified financial planner Marguerita Cheng of Blue Ocean Global Wealth in Potomac, Maryland, did with her daughter, who is now in her first year of college.

While mom and dad pay for basic things like tuition, the teen decided to pool several thousand dollars from her summer lifeguard earnings, money from her on-campus job and gifts from her grandparents to fund several educational trips.

“She would make money investing, but it’s only appropriate if you have a longer time horizon,” says Cheng. “It’s not even about the money, it’s the pride she gets from paying for it herself.”

TIME Japan

Taiwan to Join China-Led Regional Bank, Japan Says Not Now

Chinese President Xi Jinping, center, with guests of the Asian Infrastructure Investment Bank in Beijing, Oct. 24, 2014
Takaki Yajima—AP Chinese President Xi Jinping, center, with guests of the Asian Infrastructure Investment Bank in Beijing on Oct. 24, 2014

Japan has no plan as of now to join the China-led Asian Infrastructure Investment Bank, while Taiwan will apply for membership

(TOKYO) — Japan has no plan as of now to join the China-led Asian Infrastructure Investment Bank, its government spokesman said Tuesday, while Taiwan announced it would apply for membership, joining dozens of countries in signing up to an initiative opposed by Washington.

Chief Cabinet Secretary Yoshihide Suga told reporters that Japan, the world’s No. 3 economy, is still seeking answers about how the regional financing institution would be governed. “As of today, Japan will not join AIIB and a clear explanation has not been received from China,” Suga said.

The U.S. has found itself isolated in its resistance to the bank, with more than 40 countries including major allies in Asia and Europe moving to join.

Washington maintains that the Beijing-based regional bank should work in partnership with existing institutions such as the Asian Development Bank, which by convention is headed by a Japanese official, and the U.S.-dominated World Bank and International Monetary Fund. It contends the bank might extend credit without adequate environmental, labor and social safeguards.

Beijing set a March 31 deadline for founding members to express interest in joining the AIIB. Taiwan’s Finance Ministry issued a notice Tuesday saying it was applying to join, following earlier comments by leaders in favor of the idea.

China claims Taiwan, a self-governing island, as part of its territory and has vowed to respond to any formal independence declaration with force, but the two sides have extensive economic and trade ties. It is unclear whether China would accept Taiwan’s membership in the regional bank, though its leaders have said it is open to all countries.

In Tokyo, Suga did not say Japan would never consider joining the bank. Recently, Finance Minister Taro Aso indicated it was a possibility, but backpedalled on the issue. Japanese media reports Tuesday said the ruling Liberal Democratic Party was still considering its stance.

Prime Minister Shinzo Abe told party leaders, “There is no need to participate hastily,” Kyodo News Service reported. He indicated Japan was siding with its powerful ally the U.S. on the issue, adding that “The United States now knows that Japan is trustworthy.”

Suga denied reports Japan was seeking more time to decide on the issue.

“We want to ensure there is clear governance,” he said. “We want to make sure no other lenders would be damaged.”

MONEY Banking

Google Wants You to Use Gmail to Pay Your Bills

Google is working on a service, code-named Pony Express, that would let you receive and pay bills from your inbox.

MONEY Banks

The Government Will Publish Your Banking Nightmare Story

The Consumer Financial Protection Bureau will start including the tales behind your banking complaints on its website.

MONEY Banking

The Hidden Risks of Paying Your Bills Automatically

open wallet
Alamy

It's convenient to put your regular bills on autopilot. Just don't ignore them entirely or you might find yourself short on cash.

Autopaying bills is a no-brainer. You are never late with a payment, and you do not have to spend all that time going through stacks of bills, filling out checks, and then stuffing and stamping envelopes.

But Brent Cumberford learned the hard way that automatic bill paying is not as simple as setting it up and walking away.

Last year, his natural gas was turned off because expected automated payments were not made, a canceled subscription kept getting paid and another canceled service automatically renewed itself.

Cumberford, 32, who runs the personal finance site Vosa.com and splits his time between San Diego and Calgary, resolved the natural gas situation without figuring out what exactly went wrong (the bank and the utility blamed each other) and got the automatic renewal credited back. But he is still dealing with the subscription.

“The lesson I learned was that it’s important to still track automated payments,” Cumberford says.

About 61% of Americans have set at least one bill to pay automatically, says Eric Leiserson, a senior research analyst for financial technology services company Fiserv.

The main reason consumers use autopay is to make sure bills are paid on time. That is vital to their credit scores when it comes to debts like car loans, credit card balances, and mortgages, but most other on-time payments are not recorded.

A recent study by credit reporting firm Experian, however, suggests that including positive utility payment histories, which is not commonly done, could help elevate the credit scores of millions of Americans. The report also says people with thin credit histories would benefit from having a richer record of payments made.

As much as automation can be a positive, there are plenty of catches to be watch out for:

1. Changing accounts

If you decide to pay from a different account, be sure all the changes are in place. Marketing consultant Peter Brooks, 56, of Vallejo, Calif., says it was a big hassle to re-enter all the payment information after he changed checking accounts.

2. Being short of funds when bills are paid

Not having enough money in the bank is a main reason not to automate bill paying. If you have a bill set up to pay automatically and you lack money to pay it, this could affect your credit history as much as forgetting to mail in the check. Being on time 99% of the time does not help you much, but missing one payment could hurt your credit score for years.

3. Continued withdrawals even if you stop using the service

Monthly recurring charges for services can keep occurring even if you asked for them to stop. A gym membership or subscription set to be paid automatically every month could lag a request to cancel. So it is vital to keep an eye out to see if withdrawals persist after you have canceled a service, experts say.

4. Inadvertently disengaging the automated payments by making one manually

Bob Girolamo, 41, of Chicago, who runs the startup data and statistics organizer Sorc’d, learned that the hard way. He says he made a manual payment for his health insurance that disengaged the autopay. He did not notice the missed payments until he received the cancellation notice.

5. Errant payments

Monitoring transactions is key to fixing errors. Greg McBride, chief financial analyst for Bankrate.com, says putting payment dates in an online calendar is one way to stay on top of what payments should be going out. “With 24-7 online and mobile account access, keeping tabs on your account is easier than ever,” he says. “Taking a matter of seconds each day is all it takes.”

MONEY investing strategy

Most Americans Fail This Simple 3-Question Financial Quiz. Can You Pass It?

piggy bank with question marks on it
Peter Dazeley—Getty Images

These questions stump most Americans with college degrees.

Following are three questions. If you’ve been around the financial block a few times, you’ll probably find all of them easy to answer. Most Americans didn’t get them right, though, reflecting poor financial literacy. That’s a shame — because, unsurprisingly, the more you know about financial matters and money management, the better you can do at saving and investing, and the more comfortable your retirement will probably be.

Here are the questions — see if you know the answers.

  1. Suppose you had $100 in a savings account and the interest rate was 2% per year. After five years, how much do you think you would have in the account if you left the money to grow? (A) More than $102. (B) Exactly $102. (C) Less than $102.
  2. Imagine that the interest rate on your savings account was 1% per year and inflation was 2% per year. After one year, how much would you be able to buy with the money in this account? (A) More than today. (B) Exactly the same. (C) Less than today.
  3. Please tell me whether this statement is true or false: Buying a single company’s stock usually provides a safer return than a stock mutual fund.

Did you get them all right? In case you’re not sure, the answers are, respectively, A, C, and False.

Surprising numbers

The questions originated about a decade ago, with Wharton business school professor and executive director of the Pension Research Council Olivia Mitchell, and George Washington School of Business professor and academic director of the Global Financial Literacy Excellence Center Annamaria Lusardi. In a quest to learn more about wealth inequality, they’ve been asking Americans and others these questions for years, while studying how the results correlate with factors such as retirement savings. The questions are designed to shed light on whether various populations “have the fundamental knowledge of finance needed to function as effective economic decision makers.”

They first surveyed Americans aged 50 and older and found that only half of them answered the first two questions correctly. Only a third got all three right. As they asked the same questions of the broader American population and people outside the U.S., too, the results were generally similar: “[W]e found widespread financial illiteracy even in relatively rich countries with well-developed financial markets such as Germany, the Netherlands, Switzerland, Sweden, Japan, Italy, France, Australia and New Zealand. Performance was markedly worse in Russia and Romania.”

If you think that better-educated folks would do well on the quiz, you’d be wrong. They do better, but even among Americans with college degrees, the majority (55.7%) didn’t get all three questions right (versus 81% for those with high school degrees). What Mitchell and Lusardi found was that those most likely to do well on the quiz were those who are affluent. They attribute a full third of America’s wealth inequality to “the financial-knowledge gap separating the well-to-do and the less so.”

This is consistent with other research, such as that of University of Massachusetts graduate student Joosuk Sebastian Chae, whose research has found that those with higher-than-average wealth accumulation exhibit advanced financial literacy levels.

The importance of financial literacy

This is all important stuff, because those who don’t understand basic financial concepts, such as how money grows, how inflation affects us, and how diversification can reduce risk, are likely to make suboptimal financial decisions throughout their lives, ending up with poorer results as they approach and enter retirement. Consider the inflation issue, for example: If you don’t appreciate how inflation shrinks the value of money over time, you might be thinking that your expected income stream in retirement, from Social Security and/or a pension, will be enough to live on. Factoring in inflation, though, you might understand that your expected $30,000 per year could have the purchasing power of only $14,000 in 25 years.

Mitchell and Lusardi note that financial knowledge is correlated with better results: “Our analysis of financial knowledge and investor performance showed that more knowledgeable individuals invest in more sophisticated assets, suggesting that they can expect to earn higher returns on their retirement savings accounts.” Thus, better financial literacy can help people avoid credit card debt, take advantage of refinancing opportunities, optimize Social Security benefits, avoid predatory lenders, avoid financial scams and those pushing poor investments, and plan and save for retirement.

Even if you got all three questions correct, you can probably improve your financial condition and ultimate performance by continuing to learn. Many of the most successful investors are known to be voracious readers, eager to keep learning even more.

MONEY Banking

The Easiest Way to Reduce the Bank Fees You Pay

Where to find free checking
James Worrell—Getty Images

Shift your money over from a big bank to a credit union

Looking to avoid those annoying—and expensive—monthly fees on your checking account? You might want to take your funds to a credit union.

A survey released Thursday by Bankrate.com found that 72% of America’s largest credit unions still offer standalone free checking accounts. And another 26% waive fees if customers meet certain requirements, like accepting e-statements or opting for direct deposit.

Credit unions look ever more attractive compared to the nations biggest retail banks—only 38% of which now offer free checking, down from 65% five years ago.

Even when credit unions do levy checking fees, those charges are typically between $2 and $3, about half of what traditional banks will deduct.

Prone to overdrawing your checking account? You’d do better at a credit union on that count, too. The average overdraft fee at unions is $26.78; the average for banks: $32.74.

In spite of the potential savings, however, a credit union isn’t right for everyone. Find out if you could benefit from becoming a member by checking our guide. And find a credit union that offers free checking with this list compiled by Bankrate.com.

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TIME celebrities

Actress Emma Thompson, Husband Mull Withholding Taxes After HSBC Scandal

Actress Emma Thompson arrives for the British Independent Film Awards at Old Billingsgate Market in central London, Sunday, Dec. 7, 2014.
Joel Ryan—Invision/AP Actress Emma Thompson arrives for the British Independent Film Awards at Old Billingsgate Market in central London, Sunday, Dec. 7, 2014.

Thompson's husband Greg Wise said the couple are "not paying a penny more until those evil bastards go to prison"

Two-time Academy Award–winning actress Emma Thompson may refuse to pay taxes until those implicated in the HSBC tax evasion scandal go to prison, according her husband Greg Wise.

“I am disgusted with [the HM Revenue and Customs]. I am disgusted with HSBC. And I’m not paying a penny more until those evil bastards go to prison,” Wise told the Evening Standard in an interview this week.

And Wise made it clear that Thompson was fully supportive of the proposed boycott. “Em’s on board. She agrees. We’re going to get a load of us together. A movement,” he added.

The acting couple’s disgust stems from a decision by the U.K. customs department to not prosecute anyone after leaks detailed misconduct in HSBC’s Swiss subsidiary, including helping chief executive Stuart Gulliver shelter over $7 million in a Swiss account away from the taxman’s gaze.

Thompson is an iconic British actress who won two Best Actress Oscars, first in 1992 for her role in the movie Howard’s End, and in 1995 for Sense and Sensibility. She has been nominated for three other Academy Awards.

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