Back to Kasasa…Where does this fit into reality?

Since we launched Kasasa at First National Bank on May 9, 2011, we’ve had a great response from the community. Many of our existing clients are giving it a try and finding out this product is fantastic. We’re also seeing a good number of new faces coming through the doors at all of our branches to see what the buzz is all about.

I’ve also had a good number of friends, colleagues, and acquaintances say something like this in response to Kasasa: “Kasasa, yes, I’m still trying to figure that one out…”
Kasasa (i.e. rewards deposit accounts) does seem to fly in the face of everything a bank normally holds dear: we pay a modest rate of interest, don’t get too crazy with promotions and gimmicks, and don’t do anything that will make people wonder whether or not we really know how to take care of their money. In contrast, Kasasa pays a rate of interest most people would jump to have right now on a certificate of deposit, and we’re willing to pay it on a checking account. Kasasa is a word that sounds crazy and maybe a little gimmicky. And with the rates and the name, people may be wondering if we really know what we’re doing at First National.

The reality of the situation is that banking is changing. We are a small business, and we have to adapt to challenges just like any organization; lately it seems like we see a new challenge every time we turn around. For example, we are VERY heavily regulated, and the rules aren’t going to be loosening any time soon. Competition is also fierce as non-banks are starting to offer products we’ve offered for years. And, technology is changing the way everyone conducts business—including banking. We have more accounts and customers than we’ve ever had before at First National, but we have fewer and fewer people coming into our branches on a regular basis. As online banking, direct deposit, and smartphones become more and more prevalent, we are realizing we have to adapt in order to be successful and provide a relevant service you value.

Circling back to the original question, the reasons we offer Kasasa center around the ways we’re trying to adapt to our environment. If a customer meets three behavioral criteria on a regular basis he or she is rewarded with the high rate of interest and/or other rewards. These criteria are:

1) Debit cards – We earn money—interchange—whenever someone swipes a debit or check card. In addition, it costs us more money to process a paper check than it does to handle electronic transactions. If a client swipes her card a certain number of times (10) in a qualification cycle, then she meets this criterion.

2) estatements – It costs us money every time we generate and mail paper statements. It costs a LOT of money over time. Some estimates are that it costs more than $2/Statement mailed. In order to qualify for the account rewards, a client has to agree to receive statements electronically. The great thing is that this not only cuts costs, but also provides a couple significant benefits to our clients. First, estatements are environmentally friendly because they can be viewed online without having to be printed. Second, instead of having to wait on your statement in the mail, our estatements are accessible immediately after being generated through our online banking. In addition, the online banking site provides instant access to old statements so in essence you have an archive of statements at your fingertips.

3) The final qualification is to have one direct deposit or one automatic ACH (electronic) debit in a qualification period. One of our main goals in offering these new accounts is to develop clients who use us as their primary bank. We’d love to be the primary bank for all of our clients. Clients who have direct deposit or set up automatic ACH debits are more likely to use the account as their primary account. We’re trying to encourage that relationship.

Ultimately, in order for us to be a successful bank we need to adapt. Adapting in this case means embracing technology (debit cards/estatements/electronic transactions), cutting costs (estatements/debit cards), and growing relationships with clients so they use us as their primary bank (Direct deposit/ACH debits). This is a mutually beneficial development because we’re accomplishing our goals by offering superior products and meeting the financial needs of our local communities.
Hopefully, this helps a few of our Kasasa skeptics understand both the benefits and the reasoning behind the products we’ve introduced. It is possible for both sides to benefit in a situation like this.

I’d welcome your comments and feedback on any of this, and if you have questions about Kasasa and rewards accounts, feel free to respond.

Member FDIC Equal Housing Lender

In Case You Hadn’t Noticed … your credit card terms are changing

As if there weren’t enough to keep track of in the world of personal finances, new rules regulating consumer credit cards took effect this past month.  The good news: these changes are beneficial to you, the consumer. 

The Federal Reserve is implementing these changes through the Truth in Lending Act, one of the more important regulations protecting consumers who borrow money.  The recent changes were approved in 2009 and were implemented in two different phases in February and August, 2010.  There are several notable changes, some of the most significant include:

Changes Implemented February 22, 2010:

• All credit card companies must include a box on your statement that discloses how long it will take you to pay your entire balance if you only make the minimum monthly payment.  The idea being that if a card company is forced to admit how long it will actually take, the gory details will motivate you to get it paid off quicker.  In addition, companies must also show the monthly payment required in order to pay the entire balance in three years.
• Your credit card company can’t raise your interest rate in the first year you have the card unless it was part of the original agreement you signed.  If they raise the rate after the first year they A) have to give you 45 days notice; B) may only charge the higher rate on new purchases; and C) must allow you to cancel the account if you don’t accept the changes.  Unfortunately, you are still responsible for the remaining card balance if you do decide to cancel.

Changes Implemented August 22, 2010:

• In most cases, you may only be assessed a $25 fee for late payments.  Before August 22, you may have been charged up to $39 for every late payment.  And, your fee can’t be more than your minimum monthly payment so keep track of this change because it may have significant benefits if you do happen to pay late on occasion.
• If your credit card company decides to increase your interest rate for any reason they must tell you why.  And if they increase the rate, they must also reevaluate your account in six months to see if you have earned the lower rate again.

There were other changes implemented on both these dates so if you want more information visit the Federal Reserve’s website and review their fact sheets:

                February 22

                August 22

And BEWARE, unscrupulous credit card companies are beginning to find ways around the new regulations by doing things like marketing business cards to consumers that are not subject to the new consumer protections.  As always, do your homework before getting a new card, and better yet, work with your local community banker to make sure you are getting a quality product that works for you.

 

When is the Right time to Refinance?

With home mortgage rates continuing to hover near historical lows, people frequently ask me when they should refinance their home loan.  Refinancing, if done at the right time and at the right rate, can save significant dollars over a period of time.  However, there are times when it doesn’t make financial sense.  Picking the right time takes a little foresight and maybe a bit of luck.  Even though I don’t think there is one common solution for every situation, there are several factors that can help provide some perspective.

First, it makes sense to think about how long you plan to stay in your home.  If you are in the home where you plan to spend the next twenty years raising a family, it makes more sense to refinance for a smaller drop in rate.  If you are in your first home and hope to move in two or three years, the rate drop will have to be more significant for it to benefit you. 

Second, consider the closing costs.  It typically costs $2,000-$3,000 to refinance your home loan.  A general rule of thumb is to think about refinancing when the rate improvement covers your closing costs in a year or two.  For a $150,000 mortgage at 6.50%, a ¼% drop in rate to 6.25% saves about $25/month in payment, $376 in interest cost in the first year, and approximately $8,830 over the life of a 30 year fixed rate mortgage.  It would take almost eight years for this refinance example to cover $3,000 in closing costs.  So at first glance, refinancing for a ¼% savings doesn’t make much sense because the most you will save over 30 years is about $5,830 after covering closing costs.  On the other hand, refinancing from 6.50% down to 5.50% is a much different scenario.  This 1% drop with everything else being equal will save about $96/month in payment, $1,501 in interest cost in the first year, and approximately $34,711 over the life of a 30 year fixed rate loan.  Closing costs will be recovered in the first two years and even if you happen to move in a few years, the savings are still significant.

If you have a larger loan, the savings could be even more drastic and so it may make sense to refinance if the rate drop is less than 1%.  If your loan is smaller, the savings will add up more slowly and you may want to see a drop of more than 1% before you refinance.

And finally, refinancing your home at a lower rate may enable you to pay your home off more quickly at a significant savings without more money coming out of your pocket.  For example, if you have a $150,000 mortgage at 6.50% and your monthly payment (principal and interest only) is $948, you could refinance your home loan at 5.50% and pay off your mortgage in 23 years instead of 30 for about a $10 increase in your monthly payment.  Not only would you pay off your loan seven years more quickly, but you would also save approximately $76,652 in total interest cost.  This is a huge potential savings and could help you save for retirement or pay off other debt much more quickly! 

Every situation is different and there are other factors to consider.  But, if you have a home loan and haven’t thought about refinancing, now is a great time to look at your options.  First National Bank has a great team of lenders who can discuss your situation and help you think about the implications of refinancing.  Don’t hesitate to call or stop by any of our branches in Bluffton, Pandora, and Findlay to see how much you can save.