How Does It Work?

All of us are aware of the fact that banks and customers share a mutual relationship with one another. Just the way we need banks so does the bank need us.

But the problem is even if we think that our banks are looking out for us, they are not as transparent as we think them to be – we all remember those infamous words regarding the ACA health care law when we were told we could keep our doctor and we know how that turned out – that is not being transparent. Banks do not have a golden record here either.

In fact, there are numerous aspects of banking that is neither much known nor advertised and most customers are not aware of these banking secrets. Not even the NSA knows these secrets and they are supposedly everywhere right?

You will not always get the rate that is advertised

You might be feel that banks are offering a stellar rate but the truth is that not all customers get the rate that has been advertised. In fact, only a small percentage of customers are offered a low rate and the others are offered a higher rate of interest so that they can compensate for the low rate that was offered to certain other customers.

Banks make more money the more you swipe your card

Did you know every time you swipe your credit or debit card the bank is making money by charging the merchant some fees? There are promotional credit cards which will require you to spend a certain amount of money within a particular time frame so that you are eligible for a financial reward. You do not want to get a card like this. Why deal with it? Just stick with a debit card and watch the impulse buying.

Another aspect of using your credit card is that banks know for sure if the amount is around $1,000 or more you may not be able to pay off that purchase at that time. The result is that you will end up accruing some interest which in turn is a way for the bank to make more money.

This is another reason you want to pay in cash for most items. A car or a home is an exception (but if you buy a car with cash that is the way to go) but you certainly do not want to borrow money to pay for a flat screen, furniture, or some appliance unless it is an emergency. But this is not an ideal way to do things. You do not want to be paying more for items and you will be paying more if you do not pay in cash and buy the item you want outright.

If you cannot buy that item outright then wait until you can.

A closed checking account can be a salient and clever way for your bank to make some extra money

When you close a checking account you might feel that it is over. But that is not the case. It may so happen that you forget to switch over your auto-pay transactions. The result is that the closed account is charged anyway. The result is not at all pleasant because there are instances where customers end up paying heavy penalties, fees, and some of the cases are even turned over to collection agencies.

Banks have a tendency to make deposits last which many customers may not be aware of

For example, if you ever schedule a few payments (or one large payment) to go out on the same day you expect some money to come into your account to cover this expenditure your bank may do something that is slightly unethical. The bank will actually issue those payments before the money is deposited into your account. The result is you end up using the overdraft feature of the bank which in turn allows your bank to charge you overdraft fees.

Banks make money by selling insurance

When banks try to sell insurance to customers in lieu of some credit you take from them, it is actually a way to extract more money out of you. This is because if you go through the fine print of those insurance policies you will realize that it will not cover all the debt that you owe. Something you need to think about!

Lastly, we should consider what Bill Gates (who has had some positive discussions with Trump in 2017 but this is another subject) once said, “Banking is necessary; banks are not.”

You are faced with a Hobson’s choice: Whether to pay off your mortgage or invest that money instead. A double-edged sword that works both ways. However, it’s truly a tricky problem to handle and to make a decision quickly becomes difficult and perhaps treacherous.

Benefits of Paying Off Your Mortgage Early

When you start making regular payments on your mortgage, you stand to save money – probably to the tune of thousands of dollars by way of interest costs. You also buy mental peace as you get to be the real owner of your home without any further liabilities. You are now confident that there’s a secure place for you to live in and won’t have to hit the streets if you suddenly find yourself unemployed which happened a lot for years because of the Barney Frank and Alan Greenspan recession which was continued by Obamanomics.

Moreover, you also reduce your living costs because in many cases, mortgage payments are the largest monthly expense post deduction of taxes. Without the liability of a mortgage payment, you save more, can work less, or take up that dream job you couldn’t afford but always wanted because of the lower pay. You also bid adieu to PMI or private mortgage insurance by accelerating the process of paying off your principal amount.

Your home equity reaches a point where PMI is no longer required. This helps you save money long before you pay off your mortgage and enhances chances of accelerating the principal pay-down while you continue to make the same payment on a month to month basis.

Then there is the added advantage of asset protection also. Many states have their own laws protecting home equity should there be a lawsuit or any other legal procedure.

Homestead rules provide substantial protection to home equity. Retirees sometimes use their home equity as a strategy for estate planning to protect their assets for a surviving spouse should one member use up all resources available due to an illness or by way of prolonged nursing care. In sum, there are numerous situations where home equity represents a more secured asset having its own special legal privileges as compared with other investments.

A home with a clear and free title is greatly significant for those on the verge of retirement. When you retire with a fixed income from your pension, social security, and fixed annuity, it can truly work to your benefit if you pay off all outstanding debt rather than investing your money in investments that fluctuate.

This enables you to substantially reduce your financial variables and reliably match forecasted income to expenses.

After retiring, moreover, the mortgage payment may require shifting funds from accounts that have been tax deferred when those funds would have been better off if left to grow on their own. Finally, should your taxable income get reduced after retirement, it may reduce the benefit of the tax deduction on the mortgage interest and tilt the equation in favor of the payoff.

Since the stock and real estate markets fluctuate, it’s more secure to invest in your home, knowing with certainty what your ultimate ROI is likely to be. You stand to get the imputed rental value of a living space as also the instant return of interest expense that has been eliminated.

The sureness of this particular return is a salient benefit for investors who may be disappointed with the unreliable returns from the financial markets. Last but not least, when you pay off your mortgage, it is a serious confidence boost that you did things right.

The Cons

On the flip side of the coin, however, even though the mortgage interest that you pay is deductible from your tax return, there are certain “caveats” to such deductions: The rules guiding deductions are somewhat complicated and you may receive a lower deduction than you thought of getting; in certain cases, your payments of mortgage interest merely replace the standard deduction and don’t provide for any real savings; even when you get a deduction, you’re still having to pay $1 to get 35 cents worth of tax breaks, which isn’t very lucrative; and the deduction’s effective value diminishes over time with the loan maturing and you end up a paying a lesser amount of interest with every payment.

Final Thoughts

You can invest in the market and pay off your home simultaneously. You can do both. It is not a zero-sum game. So perhaps you can breathe a little easier now. You do not have to pick and choose.

If you understand the stock market or have a prudent financial advisor (if there is such a thing – almost all of them missed the call on the tech bubble during the turn of this century) then invest some of your money (check out dollar cost averaging). You can have the best of both worlds but continue to make your monthly mortgage payments.

The amount you pay for your auto insurance premium varies by a few hundred dollars. This principally depends on the type of vehicle you own and who your insurer is. However, you can certainly increase you savings when paying your auto insurance in the following ways.

Before buying the car, study insurance costs:  Before you buy a used or new car, check out its insurance cost. The premium will be based on the vehicle’s price, costs of repair, its overall past safety record, and its likelihood of getting stolen. And if you live in San Francisco, that could be even higher since that city leads the country in property crimes and it seems the people there do not even care but this is another topic!

You may also get discounts from insurers for any special feature that the vehicle has to reduce the risk of injury or theft. Safety rankings for certain models may be checked using the rating tool for top safety picks of the IIHS or Insurance Institute for Highway Safety.

Look before you leap: That in other words means shop around. Premiums vary from insurer to insurer, so make a comparative study, getting at least four price quotes. Searching online is the best way to do it as you get all the quotes on a single Excel sheet and making a choice becomes easier and faster. Or else, call insurers directly or even the insurance department of your state which may give you some comparative premiums payable to the major auto insurers.

Prices, however, shouldn’t be your only deciding factor. Consult relatives and friends and take their advice, too. Working with an insurance agent or professional dealing in auto insurance will also get you the answers to all your questions.

Older cars can do with lesser coverage: Make sure to thoroughly review the total coverage you receive during the insurance renewal time to ensure that your insurance is in perfect sync with your specific and total requirements. For instance, if your vehicle’s worth is less than ten times the payable premium, turning the ignition (pun intended) for such coverage is not a sensible thing to do. In such cases, simply do away with comprehensive and/or collision coverage. The value of your vehicle is easily calculable online through various free sites such as Kelley, NADA, and TrueCar.

They will not count those nice rims on your car or the new paint job so these numbers may not be the full truth.

Higher deductibles lead to lower premiums: You pay a deductible before the insurance policy becomes officially operational. When you choose an enhanced deductible, you stand to lower costs significantly. However, if you select a higher deductible, be sure to keep enough cash aside to pay it out should a claim arise.

Reliable credit history: Anyone with a decent credit history gets many benefits, and this includes reduced insurance costs. The bulk of insurers uses your credit information to price their auto insurance premiums. Research, in fact, reveals that those who manage their personal credit levels effectively, also make fewer claims. To ensure that you get the deserved good credit, check your personal credit record regularly to be absolutely sure that all information contained therein is accurate.

If you are that rare cash payer and do not play the credit game, then do not worry about this aspect on saving money on auto insurance.

Let there be one insurer for your home and car: You could obtain a discount on the premium when you combine your home and auto insurance together or get more than one car insured with the same insurer. This multi-policy offer comes from many insurers for loyal customers and shopping around for such deals makes sense. Even if you buy from different insurers, these discounts may be available. So look around by all means.

You do not need to look around to see a movie when a Transformers movie is out though, they are all awesome!

Group insurance: Certain major insurers also offer premiums at reduced rates to drivers who take out insurance by way of a group plan, usually from their employers, business, professional, and alumni groups or any such associations. If you can get a group to take out a common insurance policy, you stand to gain yourself on this based on economies of scale.

Discounts pertaining to low mileage: Some insurers offer special premium discounts to vehicle owners whose total annual driving is less than the annual average miles driven per year. Such discounts for low mileage is also available for these types of drivers. So if you are one such carpooler, look around for these types of opportunities.

Look for other discounts: As a policyholder, you may also get special discounts when you have never been in any accidents (or an accident that was pinned on you) or have faced charges of moving violations for a specified period; drive less annually as compared to other average motorists, or have undergone a defensive driving course.

The critical aspect to remember, however, is that discounts are not the main key to your savings. Rather, the final net price is. That’s why any company offering fewer discounts may have a lower overall price still compared to its counterparts.