Basic Personal Finance: Know How Your Accounts Work Print
Thursday, 1st November 2007 (by J.D.)This article is about Basics, Real-Life
Sometimes it’s the easy stuff that catches us off guard. We spend so much time trying to get the big stuff right, that we forget about the basics. I’ve had a couple experiences lately that left me feeling a little silly for missing the obvious.
Hassles with the “no hassles” card
This past summer, I signed up for my first personal credit card in nearly a decade. I went over all the legal stuff carefully until I was sure I understood how the account worked. I used the card extensively during our trip to Europe.
When I received the first statement, I was shocked to see that I’d been dinged for an $8.24 finance charge. “How can this be?” I asked the customer service rep who took my call. “This is my first month. I’ve never carried a balance.” Turns out I’d failed to understand an important part of the card policies: when I withdrew money from ATMs in London and Dublin, I agreed to be charged interest from the moment the transactions occurred.
Oops.
I paid the bill in full and thought nothing of it. The next month, though, I was again surprised to see a finance charge of $3.26. I was baffled! A finance charge on a zero balance? Turns out that my card never did have a zero balance. Though I had paid my bill in full, I was also making new charges — the balance had never actually been zero. Somehow, through some twisted logic, Capital One didn’t see my payment in full as covering my cash advances. Fine.
Rather than continue to be dinged for a dollar or two each month, I simply stopped using the card. I paid off the balance and a little bit extra. I just received the latest statement, and it shows I have a $1.06 balance in my favor. Finally.
Hurry up and wait
Last week I encountered another situation where I failed to understand how one of my accounts worked. I hold my Roth IRA through Sharebuilder. Under normal circumstances, I make automated Tuesday afternoon trades for $4. On Friday, October 19th, however, Washington Mutual (WM) fell sharply. Because WM is a stock I’ve been keen to buy, I decided I was willing to pay the extra $12.95 to place a market order. (A “market order” is a stock trade that executes almost immediately.)
I logged into my Sharebuilder account, entered the information, and clicked OK. Nothing happened. I didn’t have sufficient funds in my account. I knew that my Sharebuilder balance wasn’t high enough to cover the trade, but for some reason I was under the impression that Sharebuilder could perform an instantaneous transfer from my primary bank account. (In retrospect, this seems foolish, but in the heat of the moment it made sense.)
The soonest the money could be available was Monday morning. Instead, I decided to simply make a scheduled Tuesday investment. Here’s where I made my second mistake. I scheduled a $1000 purchase of WM in my Roth IRA. But when I checked the account Tuesday morning, my planned purchase had vanished! Somehow I had forgotten to save my investment plan before exiting the system on Friday.
Disgruntled, I placed a market order for 35 shares of Washington Mutual. I also vowed to re-familiarize myself with the Sharebuilder interface. It’s not pleasant when your own stupidity keeps you from making the money moves you intend.

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November 1st, 2007 at 5:35 am
I’ve done the exact same thing with Sharebuilder in September. I entered some trades for Tuesday, (could swear that I) saved it, and left. I checked the next day and the trades were gone! I don’t like their new user interface compared to how it was a few years ago when I used Sharebuilder more regularly.
November 1st, 2007 at 5:35 am
I think the “no-hassle” part of the card naming is a reference to the points that users accrue. It’s a gimmick on their parts to apply the statement to the level of service provided.
It sucks that they start applying interest the moment cash is withdrawn, but that’s fairly common among credit card providers. Virtually every opportunity the credit card companies have, they take the chance to apply balance increases in their favor.
For me, this is just another example of why it is important to treat credit cards like a very powerful and potentially dangerous tool. Maybe they should come with a warning label like cigarettes: Use with caution: device may cause severe financial harm.
November 1st, 2007 at 6:09 am
Really… I’ve never had good luck with CapOne. My sibling had terrible luck due to a similar problem when it came to knowing the details of how his account worked. I think they strive to be obscure to make more money.
November 1st, 2007 at 6:16 am
I had the same thing happen to me with my National City Cash Builder Card a few years ago. What I was able to do when I talked to the customer service rep. was to put a stop on the finance charges then the next month when I again paid my balance in full, it was finally paid in full. The person also told me that you can do this as soon as you withdrawl cash from an ATM as well, you just have to remember to call. They were great with the whole thing. I’m not sure if all card companies are like this, but if you get in this situation it’s always worth a shot.
November 1st, 2007 at 7:32 am
Great Article. Thank you for sharing:)
November 1st, 2007 at 7:49 am
JD, I’m sorry to hear you were flummoxed by your credit card; I imagine it was a frustrating setback. However, I am curious to understand your thought process when you were abroad that led you to use your credit card for a cash advance instead of a debit card as you normally would at an ATM back in the States. Credit cards only stay free for purchases, and I wouldn’t fault Capital One for operating the same as any other credit card I’ve ever heard of. And don’t forget to shred those forsaken access checks!
November 1st, 2007 at 7:57 am
Corey, I was actually making a conscious choice. I used both. I wanted to compare fees on the debit card and the credit card. It’s true that the Capital One card doesn’t charge as many fees, but it doesn’t mean anything from the cash advance perspective since they begin charging interest immediately upon withdrawal. Now I know for the future that my best choice is my credit union’s debit card for foreign ATMs, but my credit card for actual purchases.
November 1st, 2007 at 8:19 am
Makes sense. So it sounds like you can write-off your fees and interest charges that were expenses in a research experiment you were conducting for your blogging business. (Just kidding!) Best of luck, Corey
November 1st, 2007 at 8:43 am
Yeah, when those kinds of surprise charges show up, I usually make enough noise about canceling the card that the charges are removed “just this once”. I don’t know if it’s because I ask directly for the charges to be removed, or they can tell that my credit is good enough that I can take my business elsewhere.
November 1st, 2007 at 8:46 am
Good pick on WaMu. US bank stocks are tumbling due to the credit mess, and they’re going start getting gobbled up by Canadian, European and Asian investors (ie premium on the buyout).
November 1st, 2007 at 10:20 am
JD:
I got dinged the same way with my WaMu credit card. It was really annoying and complicated to figure out.
When I finally did figure it out, I canceled the card - there are too many cards out there that don’t trick me into fees like that.
Thanks.
Rob
November 1st, 2007 at 10:28 am
I paid off my credit card & this is an example why I will Never use it again! Yes I have an emergency fund set in place now. They are in the business to make $ and boy do they ever! How many people working full-time have the time or inclination to scrutinize their accounts to uncover fees? The credit card companies know that. I wish I could be in the business of issuing people credit cards! Look at the high interest rate they can get away with that others can’t who lend money? (Mortgage loans, CD’s etc.) And all those fees, late charges, etc. It’s enough to take away my peace of mind, so yes, I will never carry a outstanding credit card balance again.
November 1st, 2007 at 10:43 am
Thanks for sharing your experiences. It’s reassuring to see other people making mistakes - it means I don’t beat myself up about my mistakes quite so much!
Kx
November 1st, 2007 at 10:51 am
Interesting tidbit about having a credit owed on your card. I’ve deliberatley done this in the past for a few cards that upset me. I’d pay yhe balance due plus one penny. This was for someplace that really annoyed me. My intent was to never use that card again. They would mail me a statement for months with messages saying things like “You are carrying a balance - no payment needed!”. They’d also remind me that I could take care of this “problem” by charging something. eventually they would offer to cut me a check for the balance - although the last time I did this, after about 6 months the company simply zeroed out the balance, saying they wouldn’t cut a check for amounts beneath some minimum - makes me think I wasn’t the only one doing this. Even if I lost the penny, it was worth it to me. Once they stopped playing the game, I simply closed the account and never patronised them again.
November 1st, 2007 at 11:14 am
Here’s one that just got me. I’ve used a Bank of America credit card for years, mainly for convenience, but I’ve always paid the balance in full every month. The due date on a recent bill fell on a Sunday. I make my payments online, but I was busy and didn’t find time to make the payment until Friday evening. The BoA website indicated that since it was past 3pm EST, the payment would be made on Monday. No sweat, I thought. I would just go to a BoA branch on Saturday and make the payment on time in person. After I made the payment, the receipt showed Monday’s date rather than Saturday’s! I spoke to the branch manager and he explained that payments are only accepted on business days, so whenever a payment date falls on a weekend, be sure to get it in by 3pm Friday. This is really sly and cheap, since it effectively knocks off 2 days from the grace period when the due date falls on a Sunday. The manager informed me that BoA will usually wave one late payment fee per year. After I got my bill, I called up BoA, explained that I was going on 4 years without a late payment, and got the crazy $40 late fee removed. $40.. wow, I didn’t realize how much they take from you when you’re late…
November 1st, 2007 at 11:14 am
Thanks for the good laugh Dave! Score a point for you!
November 1st, 2007 at 4:55 pm
@JD next time call the credit card company and ask them to remove those straggling charges. Anything under $5 or $10 is fair game for you to say: “Hey stop this!”. I did this just last month and Chase dropped a remaining $3 or $4 charge after I had sent in a payment that should have brought the card down to zero from a ~$1500 balance.
If the company can’t understand that those $5 charges aren’t worth losing you as a customer, then you should cancel the card.
The 5 minutes on the phone was worth the time since I was at home and could do other things.
November 1st, 2007 at 6:07 pm
I have to call Wachovia tomorrow and find out why they apparently charged us twice for our checks. It’s $18, so it’s worth checking up on.
November 2nd, 2007 at 3:19 am
Star Money Articles for the Week of October 29…
Here are some recent interesting posts from the MoneyBlogNetwork and beyond: No Credit Needed suggests keeping things simple. Get Rich Slowly advises to know how your accounts work. Consumerism Commentary says NYC transportation costs are going up. All…
November 2nd, 2007 at 6:42 am
Not to come off as a TOTAL Dave Ramsey zealot; but this is obviously why he says “if you play with snakes you WILL get bitten”.
You got duped by your credit card and it is because that’s what they do! And you were trying to be careful!
We aren’t lawyers, we can’t read all these contracts - it’s better to just not deal with them and not rationalize the ‘debt is a tool’ lie. (OK It’s not a lie but you know what I mean)
November 2nd, 2007 at 8:14 am
It sounds like your credit card was using the evil way to calculate interest. I forget what it’s called, but they calculate interest on your average balance over the last TWO months instead of the last one month. The fine print will say something about a two-month cycle or 60-day cycle or something.
My most flummoxing experiences had to do with my mortgage. First, my mortgage company started charging me some huge amount for some kind of required wind damage insurance. I felt sure that wind damage was one of the things that was covered by my homeowners insurance (which I did read through the first year). In the end, I think my homeowners insurance company called my mortgage company and convinced them of this.
The second thing happens when you have an escrow account. This is where the mortgage company collects money in advance so that when your insurance bill and tax bill come due, they can pay it out of this fund.
They don’t actually know how much your taxes or insurance are going to be, so they have to guess. You can imagine that if they are allowed to guess whatever they want, they will guess a huge number and have free use of lots of your money for a long time. So the law says (at least where I am) that they a) have to assume it will cost the same this year as last year (even though of course it will cost more), and b) they are allowed to pad the account by a certain amount (which for me has turned out to be not enough usually to make up the difference).
So let’s say that in year 1 your taxes are $2400 and your insurance is $1200 for a total of $3600. So for year 2, they pull out $300 per month, plus $20 per month for the cushion.
But let’s say the second year, taxes turned out to be $3000 and insurance turned out to be $1260 for a total of $4260. They should have been collecting $355 per month, not just $320. So you own them that extra $35 per month from last year, which you can pay all at once or over the next year. (Duh, over the next year).
In addition, they are now using higher numbers to decide how much to take for next year’s taxes. They will be collecting $355 per month for that, plus, say, $25 for the cushion. And when you add the extra $35 you owe them for last year, your new escrow payment is $415, which is much huger than the $320 charged the year before!
In the following years, the increase isn’t so crazy because although you still add money for the increase and you still add money to pay off what you owe from last year, you stop paying money for what you owed from the year before that. It took me quite a while to figure that out!
November 2nd, 2007 at 8:14 am
These little hidden charges you’ve encountered JD remind me of just one reason I will never have a credit card again.
Nevermind that having money means I don’t need to borrow money ;-).
November 2nd, 2007 at 4:02 pm
We have started overpaying our credit card by 5 or 10 dollars when we come home after vacations. That way it zeroes out the next month on the two month balence trick they play.
November 2nd, 2007 at 5:35 pm
Like Debbie, I was having similar problems and frustrations with the amount that was being withheld by my mortgage company in my escrow account as well. Here’s how I was able to solve it and this option might be available to her and others as well. I called them and asked if I could be nonescrowed! Their rule for that was after a year I could and it had been over a year, so that’s what I chose to do. So they sent me a check for the amount in the escrow fund and I put it in my savings account. Next I called the tax collector’s office re my property taxes to tell them to send the next bill to me and not to my mortgage company and they complied. I called my homeowner’s insurance company too and notified them to send me the bill, and they did. I divided the property taxes by 12 (months) and the homeowners and put that amount into a high-interest earning savings account and when they become due, twice a year, I pay them. So I’m collecting interest now, not the mortgage co. Just thought I would pass this info along to others you might not know about it. See if your mortgage company will allow you to be nonescrowed.
November 3rd, 2007 at 5:14 pm
You withdraw that $1.06 balance in their favor back off your card.
A while back, I carried a balance of $0.48 in Citibank’s (Canada) favor for three or four months, when finally I received a bill with a $0.00 balance. The statement showed a charge to my account in the amount of $0.48, with a description of “low balance write-off”, effectively stating “we’re going to rip off your $0.48 so that we don’t have to keep sending you a statement”.
November 4th, 2007 at 3:55 pm
“How many people working full-time have the time or inclination to scrutinize their accounts to uncover fees?”
I think it is a pretty good idea to scrutinize all your bills and statements, be it a credit card bill, a checking account statement, utility bill or a water bill. There could be fraud, there could be mistakes, somebody might’ve signed you up for something like this “rewards” thing mentioned recently. The credit card bill is only a couple of pages - how difficult it is to check it? I once got a water bill for $2000. I called the town and asked if they had thought I put a large fountain inside my living room and no, I don’t have a pool. Turned out, they read the wrong meter or something like it, it was off by a huge number.
“I make my payments online, but I was busy and didn’t find time to make the payment until Friday evening.”
I use automatic payment. This way I don’t need to worry about it or remember anything except for having enough money on my checking.
“We aren’t lawyers, we can’t read all these contracts - it’s better to just not deal with them and not rationalize the ‘debt is a tool’ lie. ”
It is not a lie. Plenty of rich people use it as a tool. So you’ll make this mistake once, you look at your bill and find it. You’d know not to do it again. Half a month interest on not-so-big cash advance is likely to be smaller than what you could get in cashbacks, not to mention that you can often get it waived “just this once” if you call. Of course, if you don’t know without reading a contract that you should pay your balances in full every month or you’ll pay high interest, you should avoid credit cards.
I’d never travel with the debit card to my main checking account - too risky. A credit card for where they take it plus a debit card to a separate account that only has a limited amount of money - no more than I need in cash for the trip. Except for trips to cash-only places — then it is just crisp new hundred dollar bills and watch my money belt/handbag as a hauk.
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