Financial Beat

By Yvonne Chilik Wollenberg

BANKS

Canceled checks may become extinct

You may not get your paper checks back with your monthly statement anymore if Congress passes a proposed bill. Under the Check Clearing for the 21st Century Act, which is under consideration in the House Financial Services Committee, banks could toss out your original checks and send you copies instead. It also would let banks send you nothing at all with your monthly statement except a list of the checks you've written. While many banks no longer send out canceled checks routinely, customers are still able to request a paper check when necessary. Under the new measure, however, customers would be able to get only a copy, either on paper or electronically, if their bank so chooses.

The proposed bill also would allow banks 10 days—instead of one, under the current law— to correct a mistake such as deducting a check twice.

SAVINGS

Prepaid college plans may cost you more

Until recently, prepaid savings plans looked good because they let you prepay college tuition at current rates and invested the money to keep pace with future increases. But stock losses and rising tuition are forcing some of the 18 states that run the plans to raise their prices.

Money magazine reports that Ohio's CollegeAdvantage 529 Savings Plan raised its price three times this year. Tennessee's BEST plan threatened to halt contributions until annual tuition increases were capped at 7.5 percent. A premium is likely at Illinois' prepaid program, and Kentucky has just raised prices. For more information on all prepaid plans, visit www.savingforcollege.com .

PENSIONS

Confused by arcane terms? Check here

A new guide put out by the General Accounting Office includes questions and answers about the types of pension plans that private employers may sponsor, the benefits these plans provide, and the basic requirements that govern how these plans are administered. It explains, for instance, the difference between a defined contribution and a defined benefit plan, and sorts out the characteristics of Employee Stock Ownership Plans, 401(k) plans, cash balance plans, and hybrid arrangements.

For a copy of Answers to Key Questions About Private Pension Plans, visit the GAO's Web site at www.gao.gov , and look up GAO-02-745SP.

E-CHECKS

Is a virtual deal better?

Internet banks offer better value for checking accounts than their brick-and-mortar counterparts, says a survey by Bankrate.com, an online financial information service. The average yield on interest-paying checking accounts is 1.51 percent, nearly triple the 0.57 percent offered by traditional banks. Online banks also tend to require lower minimum balances to avoid account services fees. But—as with traditional banks—Internet banks are raising fees that could gobble up the interest you would earn.

The survey studied more than 1,200 checking account plans offered by 350 institutions in the 35 largest US metropolitan markets and 27 Internet banks.

Checking account fees and interest

Traditional banks

Internet banks

General costs and fees

Average ATM surcharge for noncustomers

$1.49

$1.38

Average fee for using another bank’s ATM

1.42

1.25*

Average bounced check fee

25.58

24.96

Percentage of free checking accounts

10%

20%

Noninterest checking accounts

Average minimum to open

$74.28

$104.17

Average minimum to avoid fees

357.43

191.67

Average monthly service fee

6.18

3.88

Interest-paying checking accounts

Average minimum to open

$727.62

$952.56

Average minimum to avoid fees

2,593.14

1,307.69

Average monthly service fee

10.59

8.24

Average yield

0.57%

1.51%

*Only five Internet banks charged this fee, and the average was $1.25.
More than 80 percent of online banks do not charge a fee.

Source: Bankrate.com

STOCKS

Do you know growth from value?

Most investors know they should own both growth and value stocks, but many have little idea what the terms really mean, says an investor survey sponsored by American Century Investments. Only about 16 percent of those polled were able to correctly answer at least seven of 10 questions about the investing strategies.

Fifty-one percent correctly identified a growth stock as a share in a company showing better than average profit and earnings gains. But nearly a quarter wrongly said a growth stock offers a guaranteed rate of growth tied to the consumer price index. And 2 percent said it is stock in a company that sells organically grown products.

Some 49 percent correctly identified a value stock as one with a low price-to-book ratio. But 14 percent said it's a share of a fast-growing company that sells high-value, low-cost products. Another 8 percent said a value stock is a share in a company that specializes in valuable goods, such as jewelry.

SHOPPING

Look at these ratings before you buy

If you worry that e-tailers won't protect your privacy, check out Consumer Reports online merchant rating system. ConsumerReports.org and Consumer WebWatch, a research project organized by Consumers Union, rank online shopping sites on their credibility, usability, and content. The credibility score shows how well a site protects shoppers' privacy and security and its customer service policies. The usability score rates how easy it is to browse and order. The content score grades the range and number of products offered at the site.

Web site security has improved over the past few years, and most e-merchants now provide a secure environment for credit-card transactions, says Consumer Reports.

TAXES

At least one item will get simpler

You might have one less tax form to fill out when you file your 2002 federal income taxes. Most taxpayers won't have to file a separate form if they have interest or dividend income of $1,500 or less. (The threshold had been $400 since 1974.) But taxpayers with bank or other financial accounts in a foreign country, or those involved in foreign trust transactions, will still have to file Schedule B no matter how little interest or dividends they received.

STOCKS

Are brokers' ratings broken?

Three-quarters of brokerage firms urged investors to buy or hold shares in failing companies, says a study by Weiss Ratings, an investment ratings firm. Among 62 brokerage firms that covered companies filing for Chapter 11 bankruptcy protection between May 1 and Aug. 31, 46 issued a buy or hold rating even as the companies filed for bankruptcy, and 34 failed to issue a single sell rating on any of the failing companies. On the other hand, 14 firms issued only sell ratings for the bankrupt companies. They are:

Amsterdams Effectenkant

Dexia Securities

Argus Research

F. van Lanschot Bankiers

Bank Insinger de Beaufort

Fortis Bank

Bayerische Landesbank

Guzman & Company

BB&T Capital Markets

HSBC

Burns, Gustus & Co.

Johnson Rice & Co.

Davenport & Co.

SEB AG

MUTUAL FUNDS

New measuring sticks

The Lipper Leader mutual fund rating system has introduced three new grades. The free service now rates funds on total returns, how well they minimize taxable distributions, and their expense ratios compared to their peers. The new criteria supplement two existing measures that rank funds by how well they avoid losses and how consistently they deliver high performance while minimizing risks. You can check funds' ratings at www.lipperleaders.com .

 

Yvonne Wollenberg. Financial Beat. Medical Economics 2002;22:11.