Banks giveth, but banks also taketh away

Looking for a safe place to stash my money recently, I debated whether I should choose the one-year CD that currently yields 4.2%, or the free airline ticket for opening up a new bank account. Or should I open an account at the bank that will make a $100 donation to charity in my name, or the one that gives me $250 for referring friends who also open up accounts?

My choices are numerous these days, as banks battle it out to get my money. USA Today reports on the trend of banks offering airline tickets, charitable donations and even cash to drum up business as they search for low-cost funding.

Finally, one area where we can get more for our money. Now that more non-traditional lenders are turning into bank-holding companies (American Express being the latest), there's more competition for the deposits they need to stay funded, so plan on seeing more banks offering you more perks if you just hand your money over to them. It also means they'll bid up the rates offered on CDs, jumbo CDs and other deposits. I'm hoping they bid it up to a 5% yield; a federal credit union did just that recently for a nine-month CD. And if a positive return sounds better to you than an airplane ticket, check out Bankrate for the highest CD yields, updated daily.

Of course, banks can't survive just by giving money away. Offering a $100 charitable donation can totally be made up by doubling interest rates on a customers' credit card. That recently happened to a good friend of mine -- he owes $3,000 on his Bank of America card and although he makes payments on time and over the minimum, he just found out his interest rate has nearly doubled to 22%. No reason....just because the bank is legally allowed to do so. Another USA Today story points out how more banks are boosting credit-card rates and fees to boost their own revenue.

One big reason behind the move is because plenty of them packaged credit-card debt into securities and sold them to investors, just like Wall Street investment banks did with mortgages. There's been more analyst reports predicting that deposit banks will experience their own financial storm if the credit-card securitization market collapses.

Banks to keep an eye on: Bank of America, Citigroup and Washington Mututal, which securitized more than half their card debt in 2007. Chances are likely they're not going to recoup all the debt owed them by cardholders -- the average household now owes nearly $11,000. These days, that amount is hard for anyone to pay off quickly, especially if it keeps ballooning from increased rates and fees. Just another reason to switch to an all-cash economy -- and bank with community banks and credit unions that stay on the straight and narrow.
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