We used to empty our pockets at the end of the day, toss the change into a bowl or piggy bank. This loose change could quickly add up to a few hundred dollars that could then be used on groceries, entertainment or even placed in a retirement savings account.

The problem is that fewer and fewer of us actually use real money to buy things. Plastic has become the norm, and piggy banks are all but obsolete. Some banks have come up with an easy solution to this problem. It’s a great tool to use called “Keep The Change” accounts.

The first bank to offer this came up with an account that allows customers to create a virtual piggy bank. When a consumer uses their check card to make a purchase, the bank rounds the total purchase price of the item up to the nearest dollar. The difference is then transferred to their savings account. For the first three months, some banks even match your virtual change deposits.

If you have kids, an easy way to add to their education savings is through a “Upromise Account”. Membership is free and it will allow you to effortlessly squirrel away savings just by making regular consumer purchases. Retailers participating in the program agree to match a portion of the purchase price and contribute it to an education savings account. Currently more than 550 companies participate including McDonald’s, eBay, Barnes & Noble, JC Penney and Office Depot. After you buy from a participating merchant, you then receive 1- 25% (depending on the purchase) of the money. The money doesn’t come back to you, but rather into a 529 account reserved for your child’s education.

Merchants like the program because it provides cheap advertising and breeds customer loyalty, but what’s really important to consumers is this is essentially free money if you were going to make the purchase anyway.

by TheTruthAbout

A buck or two here and there may not seem like a big deal. But if you’re frequenting ATMs outside your bank’s network, the fees can add up quickly. Put that money back in your pocket by using ATMs in a surcharge-free network.

The proposed new consumer financial-products protections that the Obama administration is asking Congress to enact have caused banks and card companies to go on the offensive. For consumers, that could result in new unexpected fees on monthly bills.

These fees are becoming increasingly more important as revenue for banks and credit card companies since their interest income has diminished. Credit-card penalty fees are nearly 80% more than what they were five years ago.

Overdraft charges are becoming increasingly more lucrative too. The average bounced check fee rises every year.

As a consumer, your best defense is to determine what habits you can change so that you don’t fall prey to these fees. It’s worth your time to pick up the phone and ask for a pass on the fees. Many banks will waive fees when simply asked to do so.

Other things to pay attention to when handling your finances include overdraft fees. Chances are you will not be denied cash at the ATM if it’s going to overdraft your account, you’ll be charged a fee. Pay close attention to your account balances to ensure you avoid this mistake. Also, accept checks only from trusted sources. If a check deposited in your account bounces, you’re charged a fee.

Do not assume your checking accounts are fee free. Charges are starting to creep back into the system, experts warn. Consumers should not assume their checking accounts are fee-free. Look for checking accounts that do not have a monthly service charge, minimum balance requirement or limit on the number of transactions you can make.

Other fees possibly popping up include teller fees, or charging a fee if human interaction occurred when depositing or withdrawing money. Inquiry fees, or the phone version of teller fees. Make a call about your account, a question about a charge or to order a new book of checks and you could get hit with this service fee. Closing accounts fees also exist. Many banks will charge you a fee if you close an account within 90 days — and sometimes within six months — of opening it.

When it comes to credit cards, late fees and over-limit charges are already steep but could go higher. The new legislation will put caps on some of those fees and on how they’re charged against old and new balances. But until then, expect to see them grow. Annual fees may be making a come back as well. Make sure to read your mail if you get something from the bank, it’s usually because they’re making a change, find out what it is.

When it comes to ATMs, if you use an ATM that doesn’t belong to your bank  you could get hit twice, once by your bank and again by the ATM’s owner. Currency conversions are fees that are on an upswing too.

by Mike Licht, NotionsCapital.com

Banks have been on the edge of failing only to be propped up by the government or some government-sponsored sale to a stronger financial institution. Trillions of dollars are being thrown at these banks that made poor decisions, mistakes, and blunders. The U.S. government seems intent on saving those that should not be saved, and at our expense. More and more Americans are being forced into Bankruptcy because of the failed economy. The same should occur to companies in trouble.

How did we get here?

American banks issued sub-prime mortgages for many years, these are often one hundred percent mortgages at extremely high interest rates that are sold to people with low credit scores and sometimes even no source of income. The banking industry justified this by thinking that the constantly rising house prices would allow consumers to re-mortgage their house at a profit whenever they fell behind with their payments. In the summer of 2004 the American housing market started to crash and consumers began defaulting on their sub-prime mortgages, banks were forced to write off billions of dollars of debt. 

Why is worldwide lending cut?

The American banks put the money from sub-prime mortgages into investments which plummeted in value when the sub-prime mortgage crisis hit, worldwide banks also had money in those investments and were left making a huge loss. US and England banks were the worst hit and are now left fighting to survive. They tightened their lending habits to help recuperate the loss of the bad investments. Mortgages and loans are the worst affected as they are the biggest individual financial risks for banks and lenders.

Why are companies going under?

Credit is harder to get, savings are at risk as the stock market crashes and market based savings (including ISAs and pensions) are affected. The lower rate of inflation also affects savings accounts that follow the rate of interest. People are becoming more conscious of their spending and companies that aren’t competitive in their own markets are going under when consumers switch to cheaper brands. Consumers are broadening their definition of a ‘luxury item’ and markets that previously enjoyed super-profit are now suffering a huge depression, these include luxury furniture, automotive and high-end clothing.

Who isn’t going under?

Companies selling consumables and supplies continue to thrive as long as they stay competitive in their own markets. This includes industries such as gas & chemical suppliers, supermarkets and office supplies retailers. Companies in competitive markets that have previously enjoyed over-inflated profit margins, such as high-end clothing, will need to adjust their expectations for consumer spending in order to survive. 

During the 1990s, the U.S. stock market’s ability to predict the economy was believed to trump all other forecasts. Representing the collective wisdom of millions of investors, it was seen as a near-perfect crystal ball.

After the dot-com bubble — where shares of online travel agent Priceline.com soared to a higher value than those of all major U.S. airlines combined — the market didn’t seem much of an oracle. And more recently, stocks’ wild swings appear more muddle than message. During the ’90s, the Dow Jones Industrial Average rose or fell by 2% or more on 91 trading days. In the past year alone, there have been 80 such swings.

But in the midst of the worst economic downturn in at least a generation, a recovery in stocks would be an especially good sign.

Stocks are more than just a measure of investor expectations; they’re a measure of confidence. At a time when much of what ails the economy is a crisis of confidence, when both households and businesses are so unsure of the future that they’ve cut spending down to the bare bones, rising stocks would be an important signal that the tide had turned. What’s more, rising stocks can, in themselves, also be an important confidence booster.

The traditional view of stocks as an indicator of where the economy is going rests with the idea that investors are relentless in trying to gauge firms’ profitability. “To the extent that business profitability tells you something about the economy, the stock market can provide a signal,” said Columbia Business School economist Frederic Mishkin.

During nearly all 11 economic downturns since World War II, the Dow industrials have hit their recession low and begun climbing in the six months before the economy began to recover. (The big exception was the 2001 recession, where a scandal-wracked stock market didn’t hit its low until nearly a year after the recovery began.) Investors are typically anxious to get into stocks ahead of the economic recovery because when stocks rally out of recessions, the gains are large.

Now, of course, many investors are just plain anxious. Since cresting in October 2007, the Dow has been halved, closing Friday at 7062.93. Current stock values no longer seem to reflect long-term profitability, Federal Reserve Chairman Ben Bernanke told the House Financial Services Committee last week, but rather “investor attitudes about risk and uncertainty, which right now are at very high levels.”

Much of that is related to uncertainty about banks. Investors still don’t know precisely which banks will fail or, alternatively, be taken over by the government or placed in the hands of its creditors — any of which would wipe out shareholders. As a result, bank shares no longer reflect investors’ expectations of future profits so much as bets on whether this or that bank will survive. That has made bank shares fluctuate widely, as investors struggle to figure out just what the government’s approach to banks will be, and whether that approach will work. And because financial firms are at the root of the credit crisis, when they shake, the rest of the market reacts.

Last month, when Treasury Secretary Timothy Geithner offered a plan to deal with banks that investors found slim on details, the Dow industrials tumbled 4.6% in its worst day so far this year. It was an example, said Barclays Capital economist Ethan Harris, of how the stock market is becoming a barometer of how effectively policy makers are dealing with the credit crisis. Because policy is central to a recovery in the economy, a thumbs up from the stock market would be a very good sign.

A recovery in stocks could also be an important confidence builder at a time when low confidence levels are sapping the economy. “The stock market, for the average American, is the simplest way to think about the economy,” Mr. Harris said. “If you see the stock market going up, you have more faith in a recovery.”

Further declines, on the other hand, could endanger the economy even more. As an academic, Christina Romer, the chair of President Barack Obama’s Council of Economic Advisers, argued that the stock-market collapse that began in October 1929 led uncertain consumers to sharply cut back on spending, helping to precipitate the Great Depression.

Indeed, movements in share prices tend to lead changes in consumer confidence. The conventional view has been that this happens because rising stock values make stock owners feel wealthier, or at least less poor, giving them a rosier view of the future. And at a time when many portfolios have been decimated, the effect of rising stocks on shareholders’ confidence levels could be profound.

John Bollinger, head of Manhattan Beach, Calif., investment manager Bollinger Capital, says that in the office building he shares with about 50 other businesses, much of the elevator talk has been dedicated to shrinking retirement funds. “If people’s 401(k)s started going up instead of down, the collective sigh of relief in this building would be huge,” he said.

Even for families who don’t have any skin in the stock market — that’s about half of the country — stocks matter. A 1999 paper by Federal Reserve economist Maria Ward Otoo found that changes in stock prices affected the confidence of households surveyed for the University of Michigan’s consumer-sentiment index whether or not they owned stocks. She concluded that consumers use the stock market as an indicator of where their wages are headed.

The stock market also influences corporate behavior. In a speech last month, former Fed Chairman Alan Greenspan related how in the late 1950s he found that changes in stock prices led to changes in companies’ machinery orders. He recently updated the analysis and found that the relationship between stocks and corporate spending on equipment continues to hold.

“A recovery of the equity market driven largely by a receding of fear may well be a seminal turning point of the current crisis,” he said. “The key issue, of course, is when.”

In August 1982, during what so far ranks as the deepest downturn since the Great Depression, Mr. Greenspan’s “when” came, as the Fed interest-rate cuts signaled its fight against inflation was over. Stocks rallied, and then they kept on rallying, even as bad economic news continued to pile up and some economists carped that the advance didn’t make sense. That November, the recession ended.

Source: The Wall Street Journal - by Justin Lahart

WASHINGTON (Reuters) – The Treasury on Tuesday unveiled a revamped financial rescue plan to cleanse $500 billion in spoiled assets from banks’ books and support $1 trillion in new lending through an expanded Federal Reserve program.

The renamed “Financial Stability Plan,” rolled out by Treasury Secretary Timothy Geithner at the Treasury, will also devote $50 billion in federal rescue funds to try to stem home foreclosures and soften the crushing impact of the deep housing crisis now afflicting the entire economy.

The Treasury said a public-private investment fund will be established, seeded with government money, to leverage private capital so that so-called toxic assets can be sponged out of the faltering banking system. The hope is that that will enable banks to resume lending.

The public-private investment fund would start at $500 billion but could expand to up to $1 trillion in financing capacity, Geithner said in a speech.

After Geithner’s announcement, stock prices fell further and the dollar extended losses while prices for U.S. Treasury debt securities extended gains.

James Ellman, President of Seacliff Capital in San Francisco, said: “Investors want clarity, simplicity, and resolution. This plan is seen as convoluted, obfuscating, and clouded.”

Geithner acknowledged deep skepticism has developed over the fairness and efficiency of a $700-billion bank bailout program approved by Congress in October. He said leaders of some financial institutions that have received money had squandered the good faith that is needed to make the bank rescue effective.

“The spectacle of huge amounts of taxpayer money being provided to the same institutions that helped cause the crisis, with limited transparency and oversight, added to public distrust,” Geithner said.

The revamped approach to the government’s financial rescue war chest would use $100 billion to cover risks the Fed would take in expanding a $200 billion program supporting consumer and small business lending to a $1 trillion program that also supports an array of mortgage-related assets.

Markets appeared caught off balance by some of the measures that Geithner offered.

“Just a day ago, they were talking about good bank and bad bank. Now they come up with something completely new,” said Robert Brusca, chief economist for Fact and Opinion Economics in New York. “I’m not sure how this public/private thing will work.”

President Barack Obama told a news conference on Monday that cleaning up banks’ balance sheets was a priority and didn’t rule out the possibility that it will take more money than the $700 billion Congress already has approved to complete the job.

“We don’t know yet whether we’re going to need additional money or how much additional money we’ll need until we see how successful we are at restoring a level of confidence in the marketplace,” Obama said.

Source: Yahoo!News - By Glenn Somerville

LONDON/NEW YORK (Reuters) – Barack Obama prepared to take office on Tuesday with bank shares tumbling, Japanese consumer sentiment slumping and the car sector teetering, and the new U.S. president has vowed to act quickly on stimulating the economy.

The first African-American to become U.S. president will take his oath against a backdrop of a deep economic downturn, a trillion dollar federal deficit and fears of more bank losses.

His aides will go to work immediately after Obama takes the oath of office at noon EST, armed with the authority to spend the second half of the $700 billion Troubled Asset Relief Program (TARP) and a proposed stimulus package of $550 billion in spending and $275 billion in tax cuts.

“It’s very uplifting (Obama’s inauguration) but I’m not sure it’s sufficient. I don’t really see this influencing medium-term investment decisions,” said Marc Chandler, head of global currency strategy at Brown Brothers Harriman.

“There still is a danger that we are doing too little rather than too much,” he said.

Obama takes office riding a wave: A CBS News/New York Times poll showed 79 percent of Americans are optimistic about the next four years. At the same time, George W. Bush leaves the White House as one of the most unpopular presidents in history, with his approval rating at 22 percent.

The Dow fell more than 1.5 percent in early trading, extending its losses for the year to about 7 percent. 

Shares in major U.S. banks were down double digits after State Street Corp, the world’s biggest institutional asset manager, posted rising unrealized losses in its commercial paper program and investment portfolio.

State Street stock plummeted 50 percent while Citigroup , Bank of America , JPMorgan Chase & Co  and Wells Fargo  were all down.

Europe’s banking index fell to a 14-year low on fears that lenders will need more state help to raise capital as recession bites and bad debts rise. Shares in Lloyds and Barclays fell particularly sharply.

On Monday, Britain threw its troubled banks a second multibillion-pound lifeline in three months and gave its central bank approval to pump cash into the ailing economy because interest rates were close to zero.

“After yesterday’s carnage, the smoke is still hanging over the market,” says Justin Urquhart Stewart, director at Seven Investment Management. 

Concerns about the British banking sector pushed the British pound below $1.39 for the first time since June 2001.

The Bank of Canada cut its benchmark interest rate 50 basis points to a 50-year low of 1 percent, the latest effort by the world’s leading economies to combat recession.

European shares fell despite a better-than-expected ZEW analyst and investor sentiment index in Germany. The monthly poll of economic sentiment by the ZEW economic think tank rose to -31.0 from -45.2 in December.

“This is mostly an expression of hope. The (ZEW) indicator is still clearly in negative territory. Nothing is changing in terms of the 2009 recession,” said Gerd Hassel, economist at BHF-Bank.

Japan reported consumer confidence plunging to a record low last month in yet another sign of deepening recession.

CAR CRISIS

Except for banking, no sector has been harder hit than carmakers by the worst financial crisis in 80 years.

Italy’s Fiat took a 35 percent stake in Chrysler, launching a venture designed to secure the beleaguered U.S. carmaker’s future.

The deal aims to give the Italian carmaker the scale it needs to survive and let Chrysler expand its product portfolio to include small, less-polluting cars.

Separately, France said it may pump up to 6 billion euros ($7.79 billion) into the country’s ailing car industry. Prime Minister Francois Fillon warned that automakers would have to safeguard jobs in return.

“There is an emergency. We need a massive response on the automobile sector’s financing,” Fillon said.

German Chancellor Angela Merkel, however, said the aid threatened to distort competition and was not a long-term solution to the struggling sector’s problems.

EU Industry Commissioner Guenter Veheugen said the EU must watch efforts to rescue U.S. carmakers to ensure they do not disadvantage European manufacturers.

Source : Yahoo!News - By Guy Dresser and Daniel Trotta

(Reporting by Reuters bureaus worldwide; Editing by Brian Moss)

London’s stock market, however, was spooked by fears that the latest government move was a step toward full nationalization of one or more banks. Fears focused on the Royal Bank of Scotland, which disclosed that it is likely to report a record full year loss — its shares were down 66 percent by afternoon.

“There is a great deal of uncertainty. There seems to be some concern doing the rounds that the group will be totally nationalized sometime in the near future,” said Keith Bowman, analyst at Hargreaves LansdownStockbrokers.

RBS said its losses for the full year could be as much as 28 billion pounds ($41.3 billion), which would be the biggest loss ever by a British corporation.

Prime Minister Gordon Brown said on Monday that the government has increased its stake in RBS to almost 70 percent, but declined to say whether he believed the bank will eventually be fully nationalized.

Announcing a new banking rescue package, Brown said the government would offer to insure banks against default on toxic loans in exchange for legally binding commitments to make credit more freely available to British businesses and home buyers.

Both Treasury chief Alistair Darling and Brown acknowledged that October’s pledge of 37 billion pounds (about $55 billion) to bail out Britain’s banks hadn’t done enough to encourage them to resume normal lending volume.

“Good businesses must have access to credit, jobs should not be lost needlessly,” Brown told reporters at his Downing Street office. He said stimulating lending is vital to spark Britain’s economy and to limit job losses as Britain tackles a recession prompted by the global downturn.

Britain’s Treasury said the government will offer to insure banks against losses on about 90 percent of specific toxic loans. The plan would require banks to identify their riskiest assets which, for a fee, could be insured with government backing.

It’s hoped the offer will reduce anxiety in the banking sector about the value of past investments, boosting their confidence to offer new loans.

Neither Brown nor Darling could say how much the plan will cost taxpayers, as details won’t be agreed until banks start participating.

Opposition Liberal Democrat lawmaker Vince Cable said some financial experts claimed British taxpayers face losses of up to 40 billion pounds ($58 billion)

Brown said the “investments will be held for no longer than is necessary to ensure stability,” but could not specify how long the government expects to operate the program.

“Governments across the world are having to do all sorts of things that they might not wanted to have done a few years ago,” Darling told reporters.

Some critics called the latest rescue plan a gamble, coming only three months after October’s bailout.

“We still think that the government may eventually have to set state-decreed targets for the banks to lend, perhaps via further nationalization,” Vicky Redwood, an economist at Capital Economics Ltd., said in a statement.

Brown’s plan also includes efforts to boost mortgage lending and will see 50 billion pounds (about $74 billion) set-aside to create a special fund for the Bank of England to buy high quality loans and other assets directly from banks.

Bank shares were broadly lower on the news, with Lloyds Group off 34 percent, HSBC down nearly 13 percent and Barclays down 8 percent.

The European Commission said Monday that the bank-rescue programs, along with falling tax revenue, would push Britain further into debt.

It predicted that Britain’s deficit — the difference between annual spending and revenue — will rise from 2.8 percent of gross domestic product in the financial year that ended in April 2008 to 5.7 percent in the current financial year. The Commission predicted Britain’s deficit would reach 9.5 percent in 2009-2010.

Overall debt will likely soar to nearly 72 percent of gross domestic product by fiscal year 2010-2011, way above the government target of 40 percent or less, the EU executive said.

Source : Yahoo!Finance - By DAVID STRINGER, Associated Press Writer