Compound interest can be a double-edged sword. If you’re saving money, it can be a blessing. But if you borrowed money from a lender, then you’ll probably learn to hate it pretty quickly. We’ll tell you all about compound interest in this latest episode of 2 Minute Finance.
Archive for August, 2011
All About Compound Interest: Friend or Foe?
Tuesday, August 30th, 2011The Downside to Anti-Price Gouging Laws During Disasters
Friday, August 26th, 2011With Hurricane Irene nipping at the heals of our nation’s capital, the Big Apple, and all along the eastern seaboard, people are lining up for storm supplies and gasoline in order to sustain themselves until the storm passes.
Gas Price Gouging. Courtesy of lifeontheedge on Flickr.
But another seemingly insidious problem often rears it’s ugly head during these storms, price gouging. These are unscrupulous businesses that try to take advantage of a disaster or emergency situation by raising prices of goods to obscene levels. They know that ordinary citizens don’t have the time, desire or ability to shop around for a better deal, so they’ll double the price of gasoline or triple the price of canned goods, for example.
It happened during some of the biggest storms on record, including Hurricane Andrew and Hurricane Katrina. And it might happen again with Hurricane Irene. But many states are hoping that their anti-price gouging laws will have a chilling effect on any efforts to rip-off consumers.
At last count (as of 2008), 31 states have anti-price gouging laws in effect (PDF), but it remains to be a mostly east coast phenomenon. California, Hawaii and Oregon are the only west coast states with such laws on the books.
While the intentions of these laws are always honorable, there are some very possible situations that the laws don’t address. For example, what would prevent a business from just shutting down during the storm instead of selling their goods? Or what would prevent a large home-improvement chain store from moving valuable plywood and generators in a multi-state disaster from a store in a state with anti-price gouging laws to another state that doesn’t have such a law in place?
Although we would hope that the spirit of community and human nature would prod businesses into doing the right thing, this isn’t always the case. There may not be a solution, but these types of situations need to be analyzed and addressed at the very least.
As for Hurricane Irene, as of the time of this story (Friday, August 26, 2011 @ 2pm PST), no reports of price gouging have been reported in Connecticut, North Carolina and Maryland. (Maryland does not have an anti price-gouging law on the books). Let’s hope for the sake of those affected by the disaster that we continue to hear no reports of price gouging.
All About Auto Loans
Tuesday, August 23rd, 2011
Looking to take out an auto loan for your next car? Learn about the basic elements of an auto loan and the process of getting one.
5 Basic Elements of Any Loan
Friday, August 19th, 2011
Whether you’re borrowing money from a bank to buy a house, buy a new a car or just charging purchases to your credit card, your loan has five basic elements that you should understand. We’ll break down these elements and what they mean in two minutes.
Wells Fargo Announces New $3 Fee to Use Debit Card
Wednesday, August 17th, 2011Wells Fargo announced that it would start charging a $3 monthly fee for some customers to use their debit card.
Customers in Georgia, New Mexico, Nevada, Oregon, and Washington were notified by mail and can expect to be a part of this test starting October 14. The monthly fee will be charged anytime the card is used to make a purchase, whether you press ‘credit’ or ‘debit’ on the PIN padapplies if a purchase is made with the debit card each month. The fee will not be charged if a customer uses their debit card solely at a Wells Fargo ATM or in-branch.
Wells Fargo joins Chase bank in this fee grab, which started testing a $5 monthly debit card fee in Wisconsin a while back. It’s all in anticipation of the reduction in the debit card swipe fee that banks earn from businesses when a customer uses their debit card. (Not to be confused with this new fee that banks will charge customers to use their debit card)
2 Minute Finance has covered this topic extensively (here and here) about what the swipe fee battle is and what it could mean for you. These changes are in addition to the elimination of debit card reward programs that most banks are already putting into effect.
It’s yet another shameless fee grab for banks. If they can’t make the money by charging businesses, they’ll gladly charge customers instead. ‘Gotta shake the money loose from somewhere,’ as their mantra seems to be as of late. While it’s understandable that banks need to make money, it’s questionable whether or not these fees are in the best interest of customers and if they’re reasonable based on the service provided.
The go-to advice from most personal finance experts would be to close your bank account at Wells Fargo and move to a credit union instead. Unfortunately, if the current trend continues, this fee might be the new norm in the entire banking industry.
We’ll continue to monitor the situation for any other changes and to see if Wells Fargo makes this change permanent and rolls it out nationwide.
Credit is Cheap, Why Aren’t You Borrowing Money?
Tuesday, August 16th, 2011Last week, the Federal Reserve announced that it would be keeping interest rates low for another two years. Under ordinary circumstances, people like you and I would be jumping for joy. Credit card interest rates would stay low, loan interest rates would stay low and borrowing would probably increase. In fact, the federal government hopes we’d be lining up for miles to borrow money and reinvigorate this economy given their move. But wait a second, why would that probably not be the case this time around?
Sad Child & Family (Courtesy Ed Yourdon on Flickr)
Well, take a look at this New York Times article published on Sunday. The Consumer Sentiment Index, the measure of how we feel about the economy, is lower now than it was during the depths of the recession in early 2009. Frankly, as American, we’re still worried about the near-term outlook of our economy.
But it’s not just hard and fast figures that can point us to the whole story. We also have to take a look at the anecdotal evidence. Americans are in a more precarious money position today. More of us are living paycheck to paycheck. Many of us were financially burned in the recession (whether through credit cards or housing) and cut back on our spending and borrowing. And most importantly, we’re more conscious now of what behavior got us into the financial mess in the first place.
So, excuse us Federal Reserve, as we’re not going to run out and borrow money like flies attracted to the bug-zapping light. We’re consciously deciding to step back and say, “I’m going to live within my means.” And for that, we all deserve a nice slice of pie and a gold star.
How do you feel about borrowing money? Take our poll:
Handling a Down Market and the Occasional Emergency – “2 in 2″ for 8/12/2011
Friday, August 12th, 2011
2 Minute Finance rounds up the two most interesting finance stories of late and breaks them down in two minutes or less. In this episode: Handling a Down Market and the Occasional Emergency.
Should You Fix It? A Personal Auto Repair Tale…
Tuesday, August 2nd, 2011A grinding noise is the second most worrying thing to hear coming from under the hood of your car. It’s bested only by a loud explosion or seeing flames shooting from the front of your car.
But a worn-out transmission is exactly what I’ve been dealing with in my 10-year old sedan these past few weeks. Whether it’s on the freeway or around town, there’s a constant grinding noise when the transmission is in second gear.
Obviously not me. But that’s a nice $50,000+ car I’d like to own. (Courtesy markcartwright on Flickr)
While I’m trying to nail down a time to take my car into the shop for service, the good folks over at the Financial Edge blog at Investopedia put together a great checklist to follow on when to “Fix It or Trash It?”
Their advice in my situation? “As long as your old car is reasonably fuel-efficient and the repairs are less than 25% of the value of the car, and as long as the mechanic feels it is otherwise sound, it is worth repairing rather than buying a new car.”
Well, I’m golden for only one of those three points.
Strike one: my car is worth about $3,000 while the potential cost of my repair is approximately $2,000. (Repair = 66% of the value)
Strike two: this car averages 15 mpg in the city, 20 mpg on the highway and 18 mpg combined. Eek! Did I mention it takes blindingly expensive premium 91-grade fuel?
Strike…well…ball one: the mechanic believes this ole’ clunker could run to the moon and back if I would just fix the transmission. (Easy enough for him to say, right? He’s not the one paying for it!)
And! Major point here…the car is fully paid for.
The latter statement is very important. I would actually make the argument that not only should people take into consideration the cost of the repair, but also the cost and burden of a new car payment. Of course I’d love to be riding around in a nice new car. But the reality is, I would much rather be making payments on a $2,000 repair (if I had to) than on a $20,000 new car or a $10,000 used car.
I’ll be sure to keep you up-to-date on what happens, but in the mean time, here’s to hoping that my car can survive this open-heart surgery and live to see another few years of life.
Be sure to check out the entire article over at the Financial Edge blog on Investopedia on whether to fix or trash other items, such as household appliances, clothes and computers and electronics.