|
Always read the fine print
|
 |
December 9, 1997: 5:56 p.m. ET
When dealing with your bank, the devil is in the details
|
NEW YORK (CNNfn) - Rule No. 1 in shopping for the best banking deals is this -- Always read the fine print carefully.
You'll usually find the fine print at the very bottom of a bank ad, often written in typeface so small that you need reading glasses to absorb it.
Yet this is where the truth about a bank's offer usually comes out.
Often, the top of a bank's ad offers what appears to be a sensationally high savings rate, or an unbelievably low lending rate.
But if you check carefully, you'll probably find a little asterisk (*) referring you to an explanation down in a footnote.
It's probably a good idea to read the footnote before you read the rest of the ad.
That's because besides the usual disclaimers that banks must state by law -- such as "rates subject to change" and "fees may reduce earnings" -- there are a whole bunch of other red flags to watch out for.
The most common ones include:
- The rate applies only to the amount you transfer from another bank.
- To earn the rate shown, you must maintain combined balances of, say, $25,000 at the bank. Bankers call these "relationship packages."
- On loans, you must agree to have monthly payments automatically deducted from your checking account to get a low advertised rate. Otherwise, the rate will be 0.25 to 0.5 percentage points higher than advertised.
- A low-ball home-equity-loan rate is typically for an introductory period only. Depending on the maximum usury law in your state, the rate can legally sky to as high as 24 percent once the promotional period ends.
- You need to ante up more money to earn a savings rate advertised. For instance, a bank might offer a whopping 5.5 percent yield on a money-market account, but to earn that figure, you must deposit $20,000 to $50,000. Balances under $10,000 might pay less than 2 percent.
- The "balloon trick": To keep monthly payments low on home-equity loans, the bank says you'll only have to pay interest -- nothing on the principal -- for 10 years. Then, one enormous payment becomes due all at once for the entire principal you owe. In some cases, the total interest can be more than what you borrowed.
- This is just the bank's "introductory" rate, good for a few months. Example: You're tempted by an 8.9 percent credit-card rate, but later the rate adjusts upward to the banks' prime rate (currently 8.5 percent) plus maybe 8 percentage points, for a real rate of 16.5 percent. On a $3,000 card balance, that's a difference of $228 a year in interest.
- There's a special charge if you repay the loan too fast, or don't borrow enough to begin with. Banks make money only when you continue to have outstanding balances. They may waive fees when you open an account, but charge the fees back if, within the first 90 days, you repay more than 25 percent of the amount advanced. To qualify for a closing-costs waiver on certain loans, an initial $10,000 draw may be required and must remain outstanding for one year.
What's the best way to protect yourself against the sneaky fine print in bank ads?
Answer: Before you sign up for any type of bank account, always obtain and study a copy of the outfit's "Fee Disclosure" document. By law, these documents must spell out all of the nickel-and-dime charges to you in advance.
-- by Robert Heady for CNNfn Interactive
(Heady is publisher of Bank Rate Monitor and co-author of "The Complete Idiot's Guide to Managing Your Money." Readers with banking-related questions can e-mail him here. Heady will address questions of general interest in future columns, but regrets that the volume of mail he gets prohibits him from answering all e-mails received.)
|
|
|
|
|
|
Bank Rate Monitor
|
Note: Pages will open in a new browser window
External sites are not endorsed by CNNmoney
|
|
|
|
 |
|
