The 1-2-3 Money Plan Part 4

1. Be guarded. Think twice about divulging personal information.

2. Buy a crosscut shredder. Shred mail and doc.u.ments containing personal information.

3. Opt out. Stop credit card solicitations by going online to OptOutPrescreen.com.

These three steps are easy and relatively inexpensive, especially compared to some of the pricey ident.i.ty-theft products and services out there.

1. Be Guarded.

This might seem like obvious advice, but it's by far the most important. The most dangerous type of ident.i.ty theft is when a thief opens a new credit account in your name. When this happens, it's often because a thief has your Social Security number. So, don't give out your number unless there's a good reason. For example, it seems every doctor's office wants you to fill out a bunch of paperwork, which often includes your Social Security number-it seems, as a matter of routine. I usually just leave it blank or provide the last four digits of my number. I've never had a problem. If you try that and the doctor's office insists on getting the full number, at least get a good explanation as to why.

Less obvious might be safeguarding your information by using fewer personal checks. Think about it. A check has your name, address, and bank routing number. That's everything a thief would need to empty your account. Instead, pay by credit card and electronic payments. And if you must write a check that you will mail, avoid putting it in your mailbox for pickup. A thief might pluck it out of your box before the postal worker does.

2. Buy a Crosscut Shredder.

You should be able to find a good shredder for less than $50. The finer the confetti it makes, the better. Avoid ribbon shredders that cut into long strips. Those pieces can be rea.s.sembled by a thief.

Regularly shred all credit card offers, so a thief doesn't pick an application out of your trash and steal your ident.i.ty. Shred doc.u.ments that list both your name and account number, especially your Social Security number.

3. Opt Out.

Stop many unsolicited credit offers by visiting www.OptOutPrescreen.com or calling 1-888-5-OPTOUT. This will help prevent a thief from stealing a credit card application from your mailbox and signing up for a card. You can opt out for five years online or permanently by mail using a form available at the Web site.

While you're at it, opt out of junk mail at www.dmachoice.org. You must renew after five years. And stop unwanted catalogs at www.catalogchoice.org. You'll reduce paper waste and save a few trees, while reducing unnecessary spending temptations.

And post your telephone number on the National Do-Not-Call Registry run by the Federal Trade Commission. Sign up online at www.donotcall.gov or call 1-888-382-1222.

For more ways to reduce junk mail, see "Fact Sheet 4: Reducing Junk Mail at the Privacy Rights Clearinghouse," at www.privacyrights.org.

What about Fraud Alerts and Credit Freezes?

Many people try to safeguard their credit files as an ident.i.ty-theft prevention measure, hoping to thwart thieves attempting to open new credit accounts in their name. Two of the main tools are fraud alerts and credit freezes.

In short, fraud alerts are a waste of time. Credit freezes are great if you think you might be at risk for ident.i.ty theft.

Fraud Alerts.

Fraud alerts are red flags in your credit file. They are notations that suggest a creditor should double-check the ident.i.ty of the person applying for credit.

You can place fraud alerts on your credit reports for free by contacting a credit bureau. Ideally, you should only need to contact one of the three. It is supposed to forward the request to the other bureaus. However, evidence shows that this doesn't happen all the time. So, if you're going to place fraud alerts on your credit files, contact all three bureaus: * TransUnion: 1-800-680-7289 * Equifax: 1-800-525-6285 * Experian: 1-888-397-3742 Use your cell phone number as the fraud-alert contact number. That way, if you're applying for credit, the creditor can call to confirm your ident.i.ty quickly, no matter where you are.

However, there are problems with fraud alerts. First, alerts expire every 90 days. So, you need to continually renew fraud-alert requests. This is essentially what the heavily advertised LifeLock and similar services do for you.

Second, creditors are not required to double-check ident.i.ty just because there's a fraud alert on file. It's merely a suggestion. So, your effort might be wasted.

Alerts were meant to be used by victims of ident.i.ty theft. However, because consumers can place free 90-day alerts on their credit files, many people implemented fraud alerts as a preventative measure-again, some through services such as LifeLock. As a result, fraud alerts became useless because many creditors ignored the warnings. It's like the fabled boy who cried wolf. So, often, the alert didn't really signify a potential ident.i.ty theft. After a while, creditors started ignoring the warning.

Third, you might have a ha.s.sle getting on-the-spot credit, not only for credit card applications, but also for signing up for a wireless phone plan, for example. If the creditor pays attention to the fraud alert, it will contact you before approving the application.

Credit Freezes.

A credit security freeze is far more restrictive than a fraud alert. If you place a freeze on your reports, no creditor can access your credit file until you "thaw" it-provide permission by supplying a personal identification number that unlocks the reports. Unlike an alert, freezes don't expire every 90 days. Most freezes are permanent until you lift them, whereas others are good for seven years. For state-specific information on security freezes, go online to FinancialPrivacyNow.org.

The distinction between fraud alerts and credit security freezes is the difference between a burglar alarm and an impenetrable door lock. One tells you to worry about a thief; the other never allows the thief in.

But, there are ha.s.sles. Most people have to pay a fee every time they freeze their credit and again when they thaw it. A typical fee is $10 per credit bureau, or $30 to place a freeze with all three bureaus.

And, your credit is locked down tight. So, you won't get on-the-spot credit until you thaw it. That also means a potential employer might not be able to run a credit check until you thaw your credit, at least with the bureau that it uses. This delay problem seems to be getting better, however. In late 2008, the credit bureaus were lifting freezes in about 15 minutes, instead of the three business days called for in many state statutes.

If I had a reason to believe my personal information was compromised, I would use a credit freeze. Or if it helps you sleep at night, go for it. Otherwise, I wouldn't bother. Again, a fraud alert is pretty useless. Don't bother. And definitely don't pay any company to place fraud alerts for you.

Banking.

Not that many years ago, you would choose a bank from the few available in your town or city. You visited the bank and filled out paperwork to open new checking and savings accounts. To become a member of a consumer-friendly credit union, you had to work for an employer affiliated with that credit union.

Today, things are far different. For one, the choices are so much broader. You can choose among hundreds of banks across the country. You can open an account by filling out forms on the Internet and electronically transferring money into the account, which isn't as difficult as it sounds.

As for credit unions, most people nowadays qualify for at least one.

No matter what accounts you investigate, keep one main criterion in mind: No fees! Or as few as possible. You shouldn't have to pay a bank to hold your money. The implied deal is this: They get use of your money. In return, you get use of a bank account and some meager amount of interest. Obviously, a fee for bouncing a check is reasonable. But so many others just aren't.

Here's a generalization that will draw criticism, but it's true most of the time: The huge national banking behemoths are probably not the right bank for you, or any consumer. The fees are likely to be numerous and expensive, and the service is likely to be lousy. And as we saw with all the bank failures and bailouts during the financial crisis of 2008 and 2009, big banks are certainly no safer.

Get the Bank Accounts You Need, 1-2-3.

1. Get a no-fee checking account.

2. Set up at least one high-interest online bank account.

3. Join a credit union.

1. Get a No-Fee Checking Account.

Checking accounts are probably your most important account. A checking account is your command center, where all the action is. Money is coming in and going out every week. It's also where you can get ripped off with a plethora of bank fees. So, it's important to get a suitable account that's not going to cost you money.

When the first priority is to limit fees, make sure you get a free checking account, which means no monthly charge and no minimum balance, unless you're certain you can regularly meet that minimum balance requirement. You should also have unlimited check writing and free use of your debit card, whether you use a PIN code or sign a sales slip. You can even find accounts that don't charge ATM fees for using the wrong bank's teller machine. Others will rebate a certain dollar amount each month for using "foreign" ATMs.

Here are criteria you might judge a bank on, when it comes to checking accounts: * Online bill paying * Interest on balances * Overdraft protection * Unlimited check writing * Free linked accounts * 24-hour automated banking * Free or discounted check printing * Nonbank ATM fee rebates * E-mail alerts * Debit rewards card * Downloads to Quicken or Microsoft Money * Mobile banking services As of this writing, a new online tool can help. It's at FindABetterBank.com. There, you answer questions about which features of a checking account are important to you. The Web site suggests a bank for you. Bankrate.com, a generally good financial Web site, also has a tool for choosing a checking account.

Try not to fixate on getting an interest-bearing checking account, at least when interest rates are so low, as they have been for years. Even if a bank paid a healthy 2 percent on checking, that's only $30 in interest per year on an average balance of $1,500. Fees could quickly demolish any interest earnings. Besides, banks regularly change the interest rates they pay on accounts, so it shouldn't be your highest priority.

Rewards Checking.

If you're the type of person who must make the most interest you can, you can try a rewards checking account, which pays about 6 percent interest on balances up to $25,000 and offers free online bill paying and no ATM fees. But there are catches. The primary requirement is you have to make 10 debit-card purchases per month. Not only that, but you must also use your card as a credit card in which you sign for the purchase, instead of using a PIN code. You also have to create at least one direct deposit into the account and receive an electronic statement instead of a paper one.

How can banks afford to pay such a higher rate of interest? Banks clean up on merchant fees for signature-based debit-card transactions, so they share that with you in the form of a higher interest rate. Compare rewards checking accounts at HighYieldCheckingDeals.com and CheckingFinder.com.

Because checking accounts are so integral to your financial life, switching accounts can be a headache. That's especially true if you have a number of automatic deposits and bills paid directly from your checking account. To help, many banks are offering switch kits, which provide some hand-holding through the process of opening the new account and closing the old one.

Is it worth changing checking accounts? Look back at all the fees you paid over the past year. The size of that dollar figure will tell you.

Figure 2.1 shows averages for some of the most common checking-account fees.

FIGURE 2.1 Checking-account fees by the numbers $2: Most common ATM surcharge $28.95: Average bounced check fee $11.97: Average monthly service fee on interest-bearing accounts $3,461.84: Average balance needed to avoid fees on interest-bearing accounts Source: Bankrate.com survey 2008.

BANKING QUICK TIPS.

* Fee-free cash. If you can't find an in-network ATM, look for a nearby supermarket that will give you cash back on debit-card transactions. Buy something small that you would have bought anyway. Make the purchase using your debit card, enter the PIN code and get your cash fee-free.

* Cheap checks. Instead of ordering books of checks through your bank for $25, order them online for less than $10. See Walmartchecks.com, Checksinthemail.com, CheckWorks.com, and Checksunlimited.com.

2. Set Up at Least One High-Interest Online Bank Account.

This is where you might want to keep your emergency fund, next-car fund, and other short-term savings. See Chapter 7, "How to Save Money," for strategic ways to use these accounts.

The idea is to earn a little interest while the money is parked for a relatively short time, for example, less than five years. That's as opposed to investing, where the goal is long-term growth of the money.

You might want to set up more than one savings account, each earmarked for a specific purpose. I have one for an emergency fund and one for home improvements, for example.

Good advice on savings is easy: Shop by rate as long as the bank is insured by the Federal Deposit Insurance Corp. (FDIC). However, you should determine whether it's an introductory rate that drops quickly after a certain number of months.

The highest rates are offered in money market accounts and online-only banks. Bankrate.com has a robust list. If you don't want to do research from scratch, go with EmigrantDirect.com, INGdirect.com, or HSBCdirect.com. These online-only banks regularly have among the highest savings rates in the country.

A minor drawback of these savings accounts is you must transfer money into and out of the accounts electronically, which isn't as scary as it sounds. It's basically providing a bank routing number, which is one of the groups of numbers on the bottom of your paper checks. The drawback is that it could take a couple of business days for the transfer of money to go through. In most scenarios where you'll be depositing and withdrawing money from a savings account, that shouldn't be a problem.