Last week, Chase sent me a notice about their “new and improved” checking accounts. The enhancement? My free checking account is no longer free. That may be improved for them, but not for me. I will be closing that account shortly because it was primarily a pass-through account for freelancing income, which I have little of.

Now, there’s word that Bank of America is testing four new checking options that will make it difficult to avoid a fee unless you have the most basic account with direct deposit, paperless statements, and no teller visits. I actually don’t have a problem with that particular account, because we already do all of that. Other than the no teller visits rule, it’s not a big change from their current basic account, which we have. We might visit a teller once a year to cash in collected change, but we can also cash in change for free at Coinstar if we opt for a gift card rather than cash.

Customers “Want” a Fee
The part of the Bank of America story that makes me stabby is their claim that they’re doing this not to recoup the revenue they’ll no longer receive once interchange fees are capped, but so that we can “compensate them” for the cost of checking accounts. And, this is the best pat, one of their spokespeople says, “Many of our customers choose to have a monthly fee. They like that predictability.”

I have never met one person who liked paying a bank fee. Customers don’t “choose” to have a monthly fee. They either aren’t in a position to receive direct deposits or can’t maintain a high minimum balance, so they’re forced into a fee-based account.

Banks Make Plenty of Money Despite Free Checking
In fact, free checking accounts still make the banks money. They do this in three ways:

1. Bounced check fees. Those fees aren’t going anywhere and banks rake in lots of dough for those, especially since they charge the person who bounced the check AND the person who received the bounced check.

2. Interbank loans. They take our deposits and use them to make overnight interbank loans. The interest is small, but when you’re moving millions of dollars, it adds up.

3. Customer retention. Free checking accounts are basically a loss leader. Consumers are more likely to choose other financial services from the bank where they hold a checking account. This includes mortgages, car loans, credit cards, savings accounts, CDs, money markets, and in some cases, investment accounts. The bank might lose 50 cents a month on a free checking account, but they’re certainly making up for that with other products.

Look, I understand that banks are in the business of making money. I don’t begrudge them that. I’m not even get angry with them for wanting to make more money – that’s the nature of business and their duty to shareholders. The part that angers me is their insistence that customers “want” those fees. No, we don’t. In some cases, we accept them because we have no other option, but no consumer wants them. Banks should just admit they need to make up for the lost money from other fees somewhere and not try to convince the public that they’re doing this for us.

It’s the beginning of the year, which means the IRS is busy sending out all sorts of tax changes and alerts. Let’s break them down.

Deadline Extension
First, let’s start with a bit of good news: Your taxes aren’t due until April 18. That’s because there’s a little known holiday in Washington, DC that will be observed on April 15, and April 16 and 17 fall on the weekend. Taxes can’t be due on holidays or weekends, so you get an extra weekend!

Of course, if you’re getting a refund, there’s no reason to wait to prepare your taxes. The software makes it so easy, that you might as well get it down early. If you discover you owe, you can wait until the last minute to send your payment, but at least you’ll have the paperwork monkey off your back.

Filing Delay
Along with the extension comes a delay for tax filers who itemize, claim the Higher Education Tuition and Fees deduction, or claim the Educator Expense deduction (teachers). That’s because Congress changed the tax laws at the last minute and the IRS needs extra time to reprogram their computers. But, you can still file around mid-February. I often find that some of my documents don’t drift in until the end of the first week of February anyway, so the delay shouldn’t be a huge burden for most people.

Updated Withholding Calculator
If you were planning to update your withholding because you received a raise, received a pay cut, or had a life change, you’re going to have to wait a little longer to use the calculator at IRS.gov. It also has to be updated to reflect the new tax rates and laws. You can use it to get a rough estimate now, because this year’s brackets and deductions haven’t changed that much from last year, but check back in February to make sure your withholding is correct.

Updated Income Tax Brackets
This year’s income tax brackets have been released. The lowest rate increased the income threshold by $500 and the rest are equally small. The standard deduction only increased $200, which is to be expected given our current economic situation/low inflation.

Brackets courtesy of FiveCentNickel.

Remember, you don’t pay the same amount of tax on the whole salary if you’re in the higher tax brackets. You only pay the higher rate for the amount above the lower threshold. So, if you earn $70,000, you don’t pay 25% on all of that, while someone who makes $68,000 only pays 15%. You both pay 15% on the amount up to $69,000, then you would pay 25% of the remaining $1000.

When I said last week that my husband and I were getting a refund because his four months without taxable income pushed us into a lower tax bracket, I was actually saying that we had less taxable income, therefore all of it is in the same tax bracket, which saved us a tiny bit on our taxes. Not earning money for four months was the big saver, but it also put a dent in our financial goals!

So, Congress has passed the tax deal and Obama has signed it. In case you weren’t paying attention to all the whining and cajoling that’s been going on for the last month, here’s what you need to do know about the “tax cut” as it’s being called.

Your Tax Bracket Won’t Change
The Bush-era tax cuts have been extended for another two years, which means your tax bracket won’t change, regardless of your income. Of course, if you receive a raise that pushes you into a new tax bracket, that will still happen. However, you don’t need to adjust your withholding or massively adjust your budget if you haven’t received a year-end raise.

Your Social Security Taxes Will Go Down
This is actually a significant change that could put real money back in your pocket. The current social security tax of 6.2% (the employee’s share) has been reduced by 2%. If you earn less than $106,000, you can expect to get an extra $20 per $1000 salary. So, if you make $50,000, you should receive $1,000 over the course of the year, or about $41 per paycheck if you get paid twice a month. You may not see the change in your first paycheck because it usually takes employers a few weeks to implement payroll changes, but it must all be straightened out by the end of the first quarter of 2011. The Making Work Pay credit is going away, however, so your total pay increase for the year will be $600 more than last year, or roughly $25 per pay period.

If your individual salary is more than $106,000, then you’ll receive an extra $2120 this year. Once you exceed that level, social security taxes will stop being withheld as usual. You’ll receive the full increase over last year because you didn’t qualify for the Making Work Pay credit.

If you earn less than $20,000 (or $40,000 for a family), then you will actually receive less money this year. That’s because the Making Work Pay credit is going away, and it was worth more to you than the social security tax reduction.

Unemployment Insurance Will Continue
If you’re unemployed and have not yet received a full 99 weeks of benefits (or reached the cap for your state if it’s lower than 99 weeks), then the tax deal extends your eligibility for another year. However, if you’ve reached the 99 week cap, you will not qualify for additional benefits.

The Estate Tax Is Reinstated
2010 was unique in that there was no estate tax, even for the very, very wealthy like George Steinbrenner. Starting in 2011, the estate tax will be reinstated at 35% for estates valued at more than $10 million. If the tax deal hadn’t been negotiated, the tax rate would have been 55% of estates valued at more than $1 million. While the lower rate would have significantly impacted many families, it’s estimated that the new limit will result in taxes for just 6,600 families. If you’re among those 6,600, speak to your financial advisor about strategies to
reduce your estate over time. Having a trust will not shield those assets from the estate tax. It will shield them from the probate process, which can be costly and time-consuming.

For most people, the new deal will result in more money in your pocket, and more money for your heirs when you die. However, this deal is only good for two years, so you can expect more wrangling in 2012. If Congress holds true to form, they won’t do a thing until after the election. It’s just too juicy a campaign issue, so you may want to make plans to avoid your televisions for most of 2012.

This morning, several news sources reported that economists have final declared the end date of the recession – June, 2009. You may be thinking – huh? It’s simple – the formal definition of recession is defined as a certain period of negative growth. When that ends, the recession ends, even if your personal situation doesn’t greatly improve.

This was the longest recession since WWII, lasting from December, 2007 to June, 2009.  So, we can safely say that it did start during George Bush’s presidency, and Obama’s economic stimulus really didn’t do much to end it, because his economic stimulus plan wasn’t fully rolling before it ended.

Now that we’ve gotten the politics out of the way, let’s dive into what it means for you.

You Can Feel a Difference
For many people, the end is starting to feel more real, but only now, not a year ago. As late as last Christmas, I had a friend who asked her parents for grocery store gift cards and borrowed money from them to buy her children a couple of gifts. Now she has a job. As she said, they’ve gone from “we can’t pay the bills” to “we can’t pay the bills right now, but we can soon.”

Not much has changed for my husband and I, but my company did finally give raises earlier this year, so at least there’s been some progress.

Unemployment Is Still High
Many people wonder why unemployment is still high when the recession is over. Remember, unemployment is a lagging indicator. In the last recession, employment didn’t recover until 19 months after the end. So, we have at least another four months until we expect to see recovery. However, this recession was longer and deeper, so I think it will be longer. There are a couple of reasons why high unemployment lasts so much longer:

1. Unemployment only counts people looking for jobs. If you give up, you stop being counted. Many people gave up last year, and then returned to the job market this year, which caused the rate to actually go up despite an improving job market.

2. Employers don’t instantly start hiring when demand for their product increases. Instead they push their current employees harder and only hire when they’ve maxed our productivity. That can take a while.

Spending Won’t Reach Its Former Heights – For Now
Families won’t be able to use their homes like ATMs for a long time. I’m sure we’ll get there, but it will be at least ten years before banks become that reckless again. I also think that this recession has shaken the American consumer deeply. The current generation will remember the pain and be more careful with their spending. I’m not saying we won’t buy fancy phones, cars, and TVs. We will. But we may also be more careful with those purchases and save more money toward them. We may also decide to forgo other purchases.

Here’s an example: I’ve been thinking of buying an artificial Christmas tree. I wanted to buy it this year, but we’re buying a new TV/TV stand this year. A tree will cost around $600-$700, so I may put that off until next year. We can go another year without one. We’ve already done it for six years.

The Housing Market Will Still Suffer
The housing market is going to continue to suffer for a while. Although prices have stabilized or improved in some places, the end of the home buyer tax credit deflated demand. Most people who could afford to get into a home already did. Those that are left are biding their time or bidding lower. On top of that, there are still many more homes that have already been foreclosed, but not yet marketed, or that are waiting to be foreclosed. So, I don’t expect to see the housing market fully recover for at least seven years. If you don’t have to sell right now, don’t.

Even though economists say the recession is officially over, in fact they say a double-dip is unlikely, only you can decide if your personal recession is over. That’s what really matters.

Finally, the US consumer is close to winning one. The US Senate has just passed an amendment that would give consumers free access to their credit scores under certain circumstances, such as denial of a loan or a job due to your credit score. (This is currently the law for credit reports.) If passed by the House, it would go into law as part of the Wall Street reform package. As happy as I am about this progress, it doesn’t go far enough.

Why Should We Pay for Credit Scores?
Frankly, I don’t believe consumers should pay for access to credit reports or credit scores. Lenders already pay for the data, which they use to make business decisions. Meanwhile, consumers are also required to pay for credit scores and additional credit reports, even though they’re based on OUR DATA, and influence our financial lives. In some cases, they also affect our job prospects.

Free Credit Reports All the Time
I realize that this would put those “free credit report” sites out of business, but as far as I’m concerned, consumers should have free access to their credit reports all the time, not just once a year as the government requires. Can you imagine a bank only allowing access to your account statement once a year? Credit reports aren’t that different, given the frequency with which they can change.

Free Credit Scores All the Time
Credit scores are almost more important than credit reports this time. When we were applying for mortgages, the lenders pulled our credit reports and scores. Yes, they looked at the reports, but the most important factor in preapproval was our credit scores. The rest of the report didn’t come into play until we entered escrow and the full mortgage application process.

Credit Scores Should Be Included with Annual Credit Reports
When I log into annualcreditreport.com to download my report for a specific bureau, the FICO score for that report should also be displayed. Not the Vantage Score or whatever other fake scores the credit bureaus are trying to profit off of. The FICO score is the only score that matters, and that’s the one I want.

The free scores for denials of credit or employment are a good start. That’s where the free credit report system started. But it doesn’t go far enough. If you agree, write your Senators and your Representative and ask them to take it to the next step. They know what I’m saying is true, but until voter anger outweighs credit bureau lobbying money, it’s not going to happen. And that, folks, makes me a little bit stabby.

I understand that states are strapped for cash, but I’ve heard two recent proposals from California and New York governors that strike me as going too far. It’s one thing to try to close the gap by increasing the sales tax, but another thing entirely to drive us into a total nanny state. These attempts to get more money out of taxpayers and non-taxpayers alike make me stabby.

California: Catch Speeders on Red Light Cameras
Governor Schwarzenegger’s proposal is to reconfigure red light cameras to catch speeders, too. For those going 1-15 miles an hour over the limit, the fine would be $225. For those going more than 15 miles an hour over the limit, the fine would be $325. Now I appreciate the goal of reducing speeding, but I have a problem with the fine kicking it at 1 mile an hour over the limit. Speedometers are not that exact. AAA even offers speedometer testing because they can be off! My car was routinely five miles per hour off until I got a new timing belt. I don’t think it’s fair to penalize people for speeding if they don’t even realize they’re speeding! Rules like this should start at least 5 miles per hour over the limit. It’s what most cops do, and the cameras should be the same.

New York: Taxes on Non-Diet Sodas
Today Governor Patterson announced a proposal to add another $1 tax to cigarettes and a 15 percent tax on non-diet sodas.  He says the second one is necessary to combat obesity. I don’t necessarily have a problem with taxing cigarettes because states do often bear the burden of smoking-related health costs once smokers enter the Medicare system. There is no such thing as safe smoking.

You can’t put non-diet sodas in the same category. Millions of people drink an occasional soda without getting fat. Should I have to pay extra for my one soda a month because I don’t like the taste of diet soda? Are we going to put a 15% tax on candy bars and fast food, too? What about potato chips? Pizza? Doughnuts? Sugary coffee-beverages? Heck, let’s just tax everything that isn’t a vegetable. The root of the problem is the way people in our country eat, not a specific food item, so taxing one food item will have no effect on obesity. Those people will just eat or drink something else to get their sugar fix.

States need to learn to balance their budgets without introducing poorly-considered fees in the name of the public good. Is a soda tax really going to close New York’s budget hole? How about those red light cameras? I doubt it.

If you live in California or New York and disagree with these proposals, make your voice heard. It’s the only thing that will stop the stupidity. Or suggest your own stupid tax. Here’s one: let’s reconfigure the red light cameras to catch people texting or talking on the phone while driving. I’m sure the Governor will love that one until he gets the bill for his wife’s tickets.

Just when I thought we were finally making progress on that whole TARP debacle. Another bank paid back the money, and taxpayers were informed that we really hadn’t lost all the much money on the bailouts. I thought “Yay, we finally catch a break.”

Enter Congress, stage left. The audience heaves a great sigh. I get stabby again.

TARP Redistribution Is Not a Good Plan
Call me cynical, but I wonder how much of this plan is designed to shore up Democrats running for re-election in 2011. And I say that as a Democrat and a supporter of Barack Obama.

I don’t disagree that Main Street is ailing. I don’t disagree that small businesses are suffering. I don’t disagree that we need to create jobs.

I do disagree that redistributing excess or repaid TARP funds are the way to do that. Mostly because I never supported TARP in the first place. The only portion of the stimulus I supported was infrastructure improvements, which creates jobs, which enlarges the tax base. Even with the TARP redistribution only includes a puny portion for infrastructure.

Small businesses do need help. They need it in the form of the small business loans that banks still aren’t issuing. I don’t know how the government can force banks to start lending again, but loans are what businesses need. Loans and customers. Customers will come when they have jobs, but the businesses need the loans so they can hire people in order to produce the things that the customers will want. It’s a vicious cycle, and none of the current initiatives will fix it.

Let’s Pay Down the Debt
My first thought was that we should pay back the loans that the TARP money came from, but it turns out the money came from Treasury Bills. Those have a fixed maturity date, so we can’t just repay them now. We can, however, pay other debts. So why don’t we do that? No, it won’t affect Main Street, but it will be good for the economy and good for our grandchildren, who will be stuck paying the bill for our sins through their higher taxes.

So, rather than borrowing more money to pay this year’s interest on our debt, why don’t we use the TARP money? The interest on our debt is $383 billion. The TARP money is just over two years’ of interest. That’s $700 billion less that we have to borrow to cover our debt. The debt is currently $12 trillion. Not borrowing $700 billion wouldn’t make a huge dent, but it’s still 5%. I think many people would be happy to reduce their debt by 5% without doing anything.

Am I crazy for thinking this way? Am I not seeing something? I just don’t see how spending more money on tax credits is better than paying down debt that will saddle all of us with higher taxes down the road. We can’t just keep kicking this can down the road. It’s time to pick it up and put it in the trash.

As you may have heard on the news, the Federal Reserve released new rules restricting overdraft fees yesterday. Unfortunately, the rules aren’t quite as comprehensive as we would probably like. Congress is considering even stronger regulations, but there’s no telling when or if they will be passed. Here’s what you need to know about the current rules.

When Do the Overdraft Fee Rules Apply?
As with all Federal Reserve rules, there’s a lengthy waiting period for the new rules. They don’t take effect until July 1, so you can be sure the banks will be doing everything they can to maximize their overdraft fees in the meantime. Be extra vigilant and take steps to avoid overdraft protection in the first place.

Which Overdraft Fees Are Restricted?
Under the new rules, overdraft fees will still be fully permitted as an opt-out program for bounced checks and online bill pay. Overdraft fees will be made opt-in for ATM withdrawals and one-time debit card transactions/purchases.

What Does Opt-In Mean?
Currently, most banks automatically enroll their customers in overdraft protection. They claim it’s for your “convenience” so your purchases aren’t denied. Most customers say they’d prefer to have their purchases denied rather than pay an exorbitant fee so they can buy a pack of gum.

Under the new rules, all banks will have to ask their customers if they want overdraft protection for ATM and debit card transactions by July 1, 2010. If you don’t say yes, then they have to disenroll you from the protection. But watch your bank communications carefully – I’m sure they’ll try something squirrelly to get you to opt-in without you realizing what they’re doing.

What Should You Do?
Overdraft protection is a personal choice. My choice is not to have it – I’d rather manage my money myself. If you feel the same way, call your bank right now and ask to opt-out of all overdraft protection programs. Your payment will bounce or your purchase will be denied if you go over the limit, but it’s probably still cheaper than the overdraft fee. If they call or write to ask you if you want to opt-in to overdraft protection, say no and then also ask to opt-out of all other overdraft protection programs.

How Did This Problem Get So Bad?
In a word, profit. The banks rake in billions in overdraft fees every year, so they opted-in all their customers without their knowledge. In addition, they sort all of your deposits and payments in a manner that maximizes the bank’s potential for fees through bounced checks and overdrafts. As the economy slid and their other profit lines declined, they ramped up the fees.

Last month they attempted to head off the new rules by reducing their fees slightly, but it didn’t work. You’ve no doubt seen or experienced all the credit card shenanigans the banks have pulled ahead of the new credit card rules. Be just as vigilant when it comes to your bank accounts because the banks are not on your side.

On the first anniversary of the “official” start of the financial crisis (even though it was creeping up on us well before then), several articles have argued that the crisis resulted in a “new frugality” that has permanently altered the spending behavior and attitudes of an entire generation, similar to what happened after the Great Depression. I call BS.

This Recession and a Great Depression Are Not the Same
So far the recession has lasted a year to a year and a half. That’s longer than most, but nowhere near as long as the dual recessions that made up the Great Depression. It’s also true that the impact on people’s wallets will be felt for longer, but I doubt we’ll see the same wreckage we saw in the Depression.

No Food Shortages
Remember, the Depression was also accompanied by a drought (the famous Dust Bowl) that saw many, many crops fail. Although we still have droughts, our farmers have learned the lesson and don’t farm that way anymore, so we’re not looking at the food shortages that caused people to stretch groceries and stand in bread lines.

Cheaper Products
During the 1930s, some products were imported, but most were built right here. They also cost a LOT more to replace. Even with the recession, a family in need of new socks can find cheap options rather than learn to darn a sock. I don’t think people will take to knitting (which would be expensive) to repair cheap items. In addition, our stuff is no longer designed to last a long time, like it was 80-100 years ago. This weekend our DVD player broke. It would cost as much to fix it (if we could even find a repairman) as it would to replace it. Regardless of how the economy fares, we will still be faced with products that aren’t designed to be fixed.

Smaller Job Losses
Yes, we have high unemployment, but it’s still half the level of the Great Depression and it appears to be slowing. We will likely continue to see lags for the next few years, but unless we have a serious double-dip, I don’t think we’ll get to 25%.

We’re Not Heading into Rationing
This is something I considered this weekend, which I think most commentators ignore. World War II is credited with ending the Great Depression. However, the scope of the war was so great that the US government was quickly forced to start a rationing program for many household goods, including food.

There was essentially a 15-year period where a generation had to learn to do without or make do with less. That indeed does have a lasting impression and will form the behavior of a generation. I don’t think the current recession will last long enough to make a real change in American consumer behavior.

It’s Not All Bad News
I do hope that some of the changes will be lasting, partially because they were already the trend and partially because it will only take a few years to make something into a habit.

Increases in the Savings Rate
I hope that people will continue to see the value in saving money after the recession is over. Because it looks likely that it will take a few years for the jobs market to completely recover and credit will be tighter for a while, people will have a few years to turn saving money into a habit. Hopefully it will stick.

Interest in Sustainability/Anti-Consumerism
Sustainability, simplicity, and reduced consumerism were buzzwords before the recession, so I think they’ll continue to be popular after the economy recovers. Hopefully that will encourage people to make better choices, but at the same time we’ll still have products that are designed to be disposable. We’d have to make major global production changes to return to the era of repairing rather than fixing.

Delayed Gratification
Parents are learning to say “no.” Again, this was happening before the recession. Parents were realizing that molly-coddling kids and giving them everything they want is bad for them in the long-run. The recession intensified that trend and I hope it sticks. Our instant gratification society is part of what got us into this mess and fixing it will help us avoid getting there again.

Has the recession permanently changed your attitudes and behavior? Do you think the changes in attitude will last or do you already see people itching to spend? What one societal change will stick?

There has been a lot of talk about the anniversary of the financial collapse this week. Most of it has focused on either the reporters who covered the story or the financial systems that were in trouble. I’m going to get a little more personal and talk about how my life has changed in the last 12 months.

We Paid Off Debt
Shortly after the beginning of the global meltdown, we completed the last of our planned debt reduction. We’d been working on it for months, and the changed financial system didn’t deter us from our path.

We Bought a House
We took advantage of low interest rates, the foreclosure boom, and the first-time homebuyer tax credit to buy our first house. It took us six months of looking to finally have an offer accepted, but we also managed to amass 20% down and make a good deal on a foreclosure in great condition.

We Kept Our Jobs
This is key – we were able to do all of this because we kept our jobs. My husband received a raise a few days after the crash, but other than that, our income has remained flat. We’re not complaining (too much) about that, because we’re happy both of our employers have survived without cutbacks in salary or benefits. We know we’re much better off than most people in that regard. We have friends who haven’t worked in months, but we also have friends who are independent contractors and are busier than ever.

I Didn’t Lose Our Retirement Completely
I kept investing in my 401K at the same level as before the crash, so I eked out a 0.8% gain over the last 12 months. Of course, the bulk of that gain is from my contributions, but the stock market rally has improved my balance slightly in the last 3-4 months. I had a fairly aggressive portfolio because I’m young(ish) and have a long timeline. That means my balance crashed more than the S&P 500, but also received more benefit from the rally.

We Have Some Savings
Even after putting 20% down on a house, we still have a cash reserve as an emergency fund. It continues to grow, despite the higher mortgage, insurance, and property taxes, because the mortgage deductions and first-time homebuyer credit significantly reduced our tax burden. Rather than file an amended return for 2008, or wait until next year, we simply adjusted our withholding so that we won’t be withholding Federal taxes through the end of the year. We’ll still get a small refund in March when we file our taxes, but we’ll get most of the money through the rest of the year, just as we start buying furniture. We actually would have lost some of the credit if we filed an amended return for 2008 due to our taxable windfall income. This year that’s not a “problem.”

All told, I think we did pretty well for the biggest financial disaster since the Great Depression. We’re grateful that we haven’t suffered the way some of our friends have. How about you? Where do you stand a year later? It’s time to finally open those 401K statements and take stock of your current situation so you can move ahead to the future.

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