Credit Traps Snag ConsumersWritten by Gerri Detweiler
Nearly 20 years ago I worked for a small consumer advocacy organization in Washington, DC. Each week we received sacks full of mail from consumers across Country requesting our list of credit cards with low interest rates and no annual fees. If you wanted a low interest rate on a credit card back then, you often had to apply to a bank in Arkansas where interest rates were capped by state law.Those were good old days. Now, interest rates range from zero percent to a high 39 percent. It's tougher to find (and keep) a good credit card than ever before. That's because there are many new traps that can snag unsuspecting consumers. At top of list is "universal default clause" which allows issuers to monitor you credit report and raise your rate if you are late on any bill that appears on your credit report. One major issuer, for example, will hike a 0 percent rate to 24.99 percent if you slip up! In fact, true "fixed rates" are rare. Many consumers don't realize that a "fixed" credit card rate isn't same as, say, a fixed-rate mortgage. In most states, card issuers can raise interest rate on a fixed-rate credit card with just fifteen days' written notice. The new rate can typically apply to existing balances as well as new purchases. Fees are also on rise. Take late fees, for example, twenty years ago a late fee on a credit card was still fairly unusual, and typically wasn't charged unless you were 15 days late with a payment. Now you often must get your payment to issuer by a certain hour in morning or you'll be charged a late fee of as much as $39. Go over limit and you'll not only pay more interest, but a steep over limit fee as well. Foreign travelers are often charged a "currency conversion charge" of 1 - 2 percent of amount of their purchase. As result of a class action lawsuit, Visa and MasterCard were ordered to provide refunds of those fees in certain circumstances. The problem wasn't that fees were illegal, but it was determined they weren't properly disclosed. The case is being appealed.
| | Exchange Traded Funds: 7 Reasons They Beat Most Mutual FundsWritten by David A. Twibell
There’s been a lot of recent talk in financial press about exchange traded funds, or ETFs. Some of you may already be familiar with them, but my guess is for most individual investors, term “exchange traded fund” is just another bunch of financial gibberish – vaguely familiar but completely meaningless. Well, to artlessly coin a phrase from movie Braveheart, “we’ll ‘ave to remedy that then, won’t we.” In financial-speak, ETFs are hybrid investment vehicles that combine trading flexibility of individual stocks with diversification benefits of mutual funds. ETFs possess characteristics that make them particularly suited for investors who want a low-cost way to obtain broad exposure to specific sectors of financial markets. That’s mouthful, but what it really means is that ETFs are like mutual funds, only better. And they are better for several reasons. First, ETFs are cheaper than mutual funds. ETFs have extremely low annual expenses, often less than 20 basis points (0.2%). Contrast this with actively managed mutual funds whose disclosed expenses average over 135 basis points (1.35%) – and this doesn’t even include additional 2% to 5% in loads, 12(b)-1 marketing fees, transactions costs, and soft dollar expenses mutual funds charge you but never disclose (except in teeny-weenie small print nobody ever reads). Second, ETFs have a lower turnover than most mutual funds. Because ETFs are passively managed and consist of a fairly static basket of stocks, they generally have little or no portfolio turnover. Contrast this with many actively managed mutual funds that can turn their portfolio over several times during course of a year – incurring transaction fees on each purchase and sale. Third, ETFs are more tax-efficient than mutual funds. Unlike actively managed mutual funds, which annually spin off taxable short-term gains and distributions to shareholders, ETFs ordinarily only generate taxable capital gains when you sell them. Moreover, due to their unique legal structure, ETFs are also more tax-efficient than their passively managed index mutual fund counterparts.
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