Home Improvements That Pay For Themselves
October 11, 2011 by staff
Home Improvements That Pay For Themselves, The four largest U.S. banks are encouraging their most creditworthy customers to take on more debt, mailing credit card balance transfer offers with fares as low as zero percent, even as we add the rates for other services.
Bank of America Corp., the largest U.S. bank by assets, is offering customers a fee claim rate of zero percent transactions through June 2012. Customers who receive promotions with balance transfer checks, to deposit the checks to be used as a short-term loan rather than pay the balance from one to another financial institution. There is a flat rate of 10 percent and 4 percent, whichever is greater, by transfer, according to the revised terms by Bloomberg News. JPMorgan Chase & Co., Citigroup Inc. and Wells Fargo & Co. are sending similar promotions.
The deals come as banks add fees for checking accounts to offset the loss of federal revenues on charges of coup debit cards. The rates may be a good deal for customers who just can comply with the terms, since the average rate for an unsecured personal loan is 13.96 percent, said Greg McBride, senior financialanlyst at Bankrate.com, which provides consumer data rate.
“It’s an inexpensive way to use other people’s money,” said McBride.
Some clients of JPMorgan, the second largest lender, to receive these offers can write a balance transfer to control themselves as much as 5000 and for a loan at zero percent for up to 15 billing cycles. Citigroup, the third largest, is offering some customers from 0.99 percent on balance transfers through February 2013. Existing customers can deposit balance transfer checks in their bank accounts to use as cash, according to the revised terms by Bloomberg News.
There is a fee of 5 percent and 3 percent, whichever is greater, for each transaction, in accordance with the terms of Citigroup. Wells Fargo is extending similar offers rates from zero percent to 6.9 percent, according to spokeswoman Lisa Westermann, who declined to give details on grounds of ownership.
Customers should avoid transfers unless they are confident they can meet all minimum monthly payments and pay the balance in full before the promotional rate expires, said Travis Plunkett, legislative director for the Consumer Federation of America, which consumer advocates.
The Bank of America offers jumps to 22.99 percent at end of period exchange claim in June, Citigroup and promoting changes to 14.99 percent on unpaid balances in February 2013.
“It seems like they’re giving away the farm”, with bids, said Ben Woolsey, director of marketing and market research for CreditCards.com. “In the small percentage of people who do not pay on time, make a killing.”
Investors who have a sufficient credit line and 20,000 to write a balance transfer zero percent verification of cash and invested the funds in the medium to long term U.S. government bond mutual funds in the last three months could have won more than four, 000, after accounting for the transfer costs in advance of 4 percent, according to the average yield bond funds at Morningstar Inc. The Vanguard Long-Term Treasury Fund returned 22.33 percent for the three months to October 7 for a possible gain and nearly 3,500 after fees, for example.
The balance transfer rates are competitive with a line of home-equity credit and reducing paperwork, said McBride of Bankrate.com, a unit of Bankrate Inc. The average rate on a home and 30,000 equity line credit was 5.42 percent as of October 5, according to Bankrate.
“Ease of use is really the key selling point,” said McBride. Banks are probably only make offers to customers with credit scores most important, he said.
Capital One Financial Corp. has been sending the balance transfer checks with initial rates of some of its “most reliable”, existing customers and customers can deposit money into their bank accounts or used for other purposes, said spokeswoman Pam Girardo.
Bank of America balance transfer offers are usually sent to customers with better credit history, said Betty Riess, a spokeswoman. She declined to specify the average size of credit lines.
Banks have been sending more balance transfer-mailings to prospects, in addition to existing customers, said Woolsey of CreditCards.com. In the six months to August, about 71 percent of credit card offers to potential new customers came with initial rates of transfers, compared with 66 percent of shipments in the same period last year, according Mintel Comperemedia, which tracks marketing trends.
Customers with significant financial assets may be able to find better rates of use of margin loans against their portfolios, said Cathy Jameson, CEO of Silvercrest Asset Management Group, a New York-based investment adviser and the family office whose clients often have to 5 million or more in investable assets.
Jameson customers can access bank loans in their portfolios for as little as 1 percent and loans used to pay for home improvements, he said.
“There are definitely cheaper money at all, assuming that people have access to it,” said Jameson.
A customer pays about 50 basis points of margin loans to buy “playground equipment”, which then leases, said Jeffrey Thomasson, executive director of Oxford Financial Group Ltd., an investment advisor and family office based in Caramel, Indiana, and oversees more than 16 billion. He declined to say what the customer buys for confidentiality reasons. A basis point is 0.01 percentage point.
Confidence on the cards
Margin trading is regulated by the Federal Reserve, the Regulatory Authority Financial Industry and Markets, and many brokerage firms have margin requirements that are stricter than what regulators require. The loans are usually provided by securities firms and investors use financial assets such as stocks and bonds as collateral.
Consumers have increased their reliance on credit cards to pay for staples like food, said Silvio Tavares, senior vice president of global information and theanlysis of First Data Corp., a payment processor which tracks trends among payment types. Consumers spent 6.8 percent more on their credit cards in stores of food and beverages in August compared to last year, he said.
“There are small but important indicators that there may be an unsustainable rise in credit card debt,” said Plunkett of the Consumer Federation.
Banks are trying to replace lost income taxes. About 45 percent of the accounts of U.S. customers “Checks are free, compared with 65 percent last year, with an average monthly rate in non-interest bearing account and 4.37 per month, according to a study published in September by Bankrate.
Bank of America next year plans to start charging some users of debit cards for a monthly fee of 5 and make purchases with their cards. Wells Fargo plans to test one three monthly debit card usage rate among certain customers starting Oct. 14. JPMorgan began testing a monthly fee and 3 for certain customers with debit cards in two states in February.
Citigroup plans to raise the monthly basic checking accounts and August 10 and that customers can be avoided by maintaining balance and a minimum of 1,500 combined in checking and savings accounts or making certain transactions.
From October 1, banks can receive no more than 21 cents per transaction plus 5 basis points on the purchase price for debit card transactions, according to a rule issued by the Federal Reserve in June.
The loss of income
This rule will cost the industry and 6.6 billion in lost revenue per year and comes on top of one and 5.6 billion in annual losses of the rules that took effect last year that prohibits companies automatically enroll customers in overdraft protection programs, said Beth Robertson, research director of payments by Javelin Strategy & Research, a market research firm.
“It’s driving banks to try to move more customers to use credit more regularly,” said Robertson of the cover-fee debit. “It’s more profitable for them.”
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