Finance Without Borders

PBS FRONTLINE has released a new documentary, The Card Game, that takes an interesting though none-too-cheery look at banking fees – specifically credit, debit, payday loan and overdraft fees. The film is one hour in length and can be viewed free online here.

For financial buffs, the documentary is an intriguing look into the unsavory practices of the industry, however, it doesn’t offer much in the way of practical advice for consumers, instead portraying the banking world as a bleak, hopeless landscape where everyone is roundly cheated and defrauded. Those of us who have been around the personal finance blogosphere know a little better.

With respect to FRONTLINE’s work, here are four criticisms I have on how the film could have done more to educate about banking and personal finance.

Read more…

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Banking, News Checking and Money Market Accounts, Credit Cards

As I wrote in my last post, one of the things that impresses me the most about good financial service providers is how they go out of their way to communicate with their users. When I lived in Chicago, I enjoyed many a free financial seminar at the local ING Direct café. Now, even though I’m living abroad in China, I’ve been following along with the webinars that Lending Club has started offering.

The first webinar that Lending Club put out was called “Beat the Average,” and it was led by Scott Langmack, a lending club investor who has managed to consistently beat Lending Club’s average return of 9.66%. You can watch the webinar here after filling out a registration form (enter bogus information if you wish to protect your privacy).

As he explains in the presentation, Scott has literally made so many loans through Lending Club that he has been able to track the loans’ performances and improve his lending strategy in the process. In particular, he promotes an emphasis on diversification (spreading one’s investment across multiple loans) and favoring borrower job stability (investing in people who have been employed at the same job for a long time or work in stable sectors like government).

The most important point I took away from the whole webinar was the statement that unlike the stock market, it is reasonably possible for individual investors to beat the average return on Lending Club. While researching a stock investment requires countless hours just to match the knowledge held by the major investment houses, all Lending Club investors mostly need to know is how to judge the dependability of a borrower based on the page or two of information provided. As someone who, like most people, is still a bit intimidated by the complicated global nature of investing, I found this fact very encouraging.

Lending Club’s second webinar, “Credit and Collections,” details their strategy for collecting from borrowers who become late on their loan repayments. There isn’t really much investment information contained in the presentation, but for those who are interested in the nitty gritty of Lending Club’s operations, it’s worth a watch.

There are two additional webinars scheduled for the near future. You may register for them at the links below:

Unveiling the New Statistics Section

October 22, 2009, 4:00 – 4:45 (Pacific Time)

Higher Returns Through Diversification with Scott Langmack

October 29, 2009, 4:00 – 5:00 p.m. (Pacific Time)

Even if you can’t attend the presentations during their live broadcasts, if you register, you will be sent a link to the recording after they run.

I currently have only a paltry $50 invested in Lending Club as I am putting the rest of my savings toward a Roth IRA. Lending Club offers IRAs as well, but their high annual fee means they make sense only for those with larger portfolios. Outside of an IRA, Lending Club income is subject to taxes.

If you are interested investing or borrowing with Lending Club, you can apply here.

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Investing peer-to-peer lending

Every bank account can be said to have a financial cost – either the fees paid from the use of the account or the opportunity cost from not putting the money somewhere with a higher return.

However, I believe that different bank accounts also have different emotional costs – specifically the worry that should something go wrong, you will have to pay for it in dollars, either as a fee or some other loss.

For online banking (which I use exclusively), I feel that the design and information present in a bank’s website is the biggest determiner of the emotional costs of banking. Though my online money market account with Capital One is a good overall product, the cluttered, humorless feel of their website keeps a small worry in the back of my mind that a minor slipup on my part could see me slapped with a fee.

By comparison, the fun, streamlined feel of the ING Direct website is much more calming to me. Though the actual terms of my accounts with them don’t differ much from Capital One, I feel that I worry much less about something going wrong there than I do with Capital One. There’s isn’t much rational reason for this – ING’s website just seems to convey the sense that they’re not trying to trick me into making a mistake for the sake of hitting me with a fee.

Though I don’t have accounts with them, I’ve also been impressed by some parts of both Ally Bank and Schwab Banking’s websites. Ally Bank’s very fun-looking, web 2.0 homepage goes out of the way to point out that they have “no sneaky disclaimers,” and their individual product pages make most of the terms fairly clear. Over at Schwab, I was impressed to see that the FAQs for their online checking account have a “What’s the catch?” item that lays out the terms quite well. Though not a banking service, the peer-to-peer lending service Lending Club also offer a very low stress user experience.

What I’d really like to see from a bank, however, is a prominent list of “All possible account fees.” It’s rarely obvious from the documentation included with these accounts what happens if you make a transfer for more than the balance of an account or commit some other minor snafu. Having a list of every possible fee one could receive – as well as the situations that will never result in a fee – would contribute enormously to dispelling the emotional cost of an account and contributing to peace of mind.

I hope some banking decision maker somewhere is reading this, because I’ll be first in line to endorse whichever bank adds this kind of feature to an already solid banking product.

Does anyone else out there in personal finance land feel this way as well?

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Banking, Lifestyle Checking and Money Market Accounts, Financial Psychology, Savings Accounts