2009's top foreclosure cities

CNNMoney.com is reporting today that foreclosures in 2009 were tied more to the economy than banking failures and bad mortgages. So, the foreclosures are spreading to cities previously unaffected. Top of the list? A surprising choice: Boise, Idaho. There are a few large cities on the list, but for the most part, it's smaller cities spread across the country, with several in the South.

You can read the full story below - keeping in mind that one person's crisis is another person's opportunity.

http://money.cnn.com/galleries/2010/real_estate/1001/gallery.New_foreclosure_hot_spots/index.html

Don't exceed FDIC limits

One day each week, we answer a question from a reader. We'd love to have your questions. Please post in the comments section.

QUESTION: I am in my 70s and have significant savings of $625,000. I have it all at one bank. Is that dangerous? Should I spread that out? What if the bank fails?

ANSWER from Dan Danford: Dangerous probably isn't the right word. It's not prudent to exceed the FDIC limits because, if the bank fails, you are at risk for losing any amounts over the limit. So, most advisors would recommend that you split this money among several different insured banks. A good advisor could help you do this within one insured brokerage account. We have a number of clients who own multiple FDIC-insured CDs within the same account.

The bigger question, and the one you didn't ask, is whether having significant amounts in bank deposits makes any sense at all. I know what you are gong to say; you are too old to take any risks with your money. My answer to that question is that the biggest risk facing retired folks today is that they'll outlive their savings. Inflation is a continuing force, and bank deposits don't keep pace with inflation. Simply, a new car's worth of money today won't buy a new car ten years from now, even with the banker's interest added in. Or, at least, it never has in the past.

Unless you have health issues I don't know about, you could easily live another fifteen to twenty years. The investment approach you are using leaves you exposed to the biggest risk of all. And the FDIC won't help you with this one.

Overdraft fees only a problem for a few

By Dan Danford

Overdraft protection is a convenience that keeps us from being embarrassed when we make a mistake in our checkbook. Most of us wouldn't mind paying a fee when that happens occasionally. There are a group of customers who are chronic overdrafters (new word?), and they spend a fortune on overdraft fees. For them, opting out could be an answer, but I doubt they will do it. That would mean they'd have to stop spending when their account is empty, and most will reject that sudden and violent stop! Of course, what really happens with these chronic overdrafters is that the charges just keep adding to their balance until it become an uncollectible debt.

For most of us, the overdraft charges aren't a burden because we don't incur them. This is another case of government intervention because of an irresponsible few people. Everyone should consider the right approach for their family, but it's a non-event for most of us.

Here's a column from The Houston Chronicle that explains it all, and what some options are for those who are thinking of opting out of overdraft protection.

http://www.chron.com/disp/story.mpl/business/buggs/6651156.html

Evaluate more than rates with CDs

By Dan Danford

We received an e-mail this week from an out-of-state client who was disappointed with our quoted CD rates. He found a better rate at his local bank, and questioned why our rates weren't better. It's a great question - and one that deserved a thoughtful, thorough response. I am printing my response below to help everyone understand CD rates and how they factor into investment decisions.

Letter to the client:

I'm not surprised you found a better rate through a local bank. This issue - extremely low rates - is the toughest we face today. Even locally, there are days where one bank beats another. We aren't big users of bank CDs, but the challenge extends to bonds, bond funds, and money markets. It's another ramification of the recession and government's steps to fix it.

Banks that make FDIC-protected CD's available through (brokerage company) are trying to attract new "outside" deposits because their own local markets aren't soaking up the supply. Often, there are regional differences (as you've noted) and there will be times when either group outperforms the other. So, yes, you might do some better occasionally by "moving that money around" to the higher location.

These are some related issues we think about, though: Are bank CDs a good place for retirement money? CDs offer safety and stability that's appealing to clients. Yet, they only shine as investments during brief (often tumultuous) moments. The upsides are offset by a lack of liquidity and low returns. What looks like a good rate today may look dismal later as we wait for maturity.

How much "extra" can you make by shopping CDs? Is it worth the added effort? Everyone wants to get higher rates, but the actual dollars involved often aren't much. A half-percent difference in a $100,000 CD amounts to just $500 a year. I'm not knocking $500, but value also depends on safety, convenience, and other options. There may be better, easier, ways to earn that $500. And they may not be apparent right now, but one danger of locking in a CD is that it's not readily available if something better comes along.

I completely understand your points and I'm glad to help you move some more money down there if you want. My guess is that the rates you earn on the CD portion of your retirement portfolio will have modest impact on your future financial success. But, I want you to be comfortable with the money wherever it is. Whatever part that is up here, Jason and I will watch daily, and we will try to craft some lemonade from today's lemons. We'll not know how we did until we look back on these days several years from now. But, no one will give it as much attention or concern as me!

Credit unions versus banks

On Mondays, we answer questions on the blog from readers. If you have a financial question, post it in the comments section or e-mail robynsekula@sbcglobal.net.

QUESTION: I would like to use a credit union for my banking needs. Is there any reason not to do so?

ANSWER: No real difference in terms of safety or basic services. Where you'll find a difference, if any, is the range of services. Unless you're working with a huge credit union, you're not likely to see the depth and breadth of service that you'll find at Bank of America. However, basic services will look and feel very close, and industry safeguards are very similar.

Credit unions enjoy one huge advantage over banks. Taxes. As non-profit entities (originally started to offer financial services to employees of s single company), credit unions don't pay taxes because they don't earn profits. That means they can operate on lower spreads (interest they earn minus interest they pay). Theoretically, at least, that translates into higher interest for depositors and lower rates for borrowers.

Those non-profit distinctions have fallen over the years as credit unions have grown to include folks who don't share an employer or industry. And some of the credit union have grown to incredible size, rivaling many local or regional banks. That has increased the services they offer, but, also, the overhead and salaries they must cover. Clearly, there's less and less difference between credit unions and banks. That's probably good for consumers, although many bankers don't like it much.

Like all else financial, shop around before making a decision. But if you find a credit union that meets your needs, don't hesitate to use them.

Separate or together, doesn't matter, just agree

On Mondays in this space we answer a financial question from a reader. Post your questions in the comments and we'll answer them here next Monday.

QUESTION: My fiancé and I are getting married in October. However, we don’t agree on one point: checking accounts. I say we should have one. He says we need separate accounts so we can each have some freedom. What do you think works best?

ANSWER FROM DAN DANFORD: Every couple is different. In my house, we keep separate checkbooks on the same checking account. It's harder to reconcile each month, but it allows a certain freedom that suits us both. Most families have a designated finance person (gender doesn't seem to matter), and that person divvies up the money and pays the monthly bills. Obviously, someone's got to do it and it's not a high-glamour job.

My only concern with this question is that it seems to indicate a bit of financial friction already. Finances are at the root of many troubled marriages, so I'd try to resolve as much as possible before the nuptials. I doubt there is a specific right or wrong on the issue of checkbooks, but it's important to find a solution that fits your relationship. Money equals power, and no one wants to lack power in a relationship. You need to negotiate a solution that meets everyone's needs. For the sake of your marriage, do it before the wedding.