Category: Financial

So I screwed up big time. What was supposed to be transferring money from my Fidelity account to my HSBC account ended up being reversed. What was worse was the fact that the amount of money being transferred to my HSBC account was a bit over what my balance there was. I didn’t notice this problem until Quicken told me I had $4,000 more in my Fidelity account.

So I went to Fidelity and indeed it noted that I had made a transfer from HSBC to Fidelity. I was like oh shit. I call Fidelity and they were pretty awesome. They told me since I didn’t have enough balance in my HSBC account to cover the transfer, I should wait a day or 2 and my transfer would bounce and at which point everything should be back to normal. I asked if there were any associated fees due to this mistake and he said Fidelity doesn’t charge these types of fees. Wow! I couldn’t believe what I heard.

So I log onto my HSBC account and I noticed a $33 “NSF FEE FOR UNPOSTED DEBIT …” had already been charged to my account. NSF stands for “Non Sufficient Funds”. I was like oh crap. There goes half my interest I accrued this year. I actually started thinking if this would be tax deductible as it was a direct hit to my interest.

Anyway, I gave HSBC a call, not really hoping for much. After going through their automated answering machine, I finally got to an operator (took about 2 minutes). I told him my situation and pointed out the fee and asked if there was anything I could do to reverse it. He said since this was an online account, he would have to transfer me to the online department. Due to high call volumes, he would also not be able to introduce me to the other service rep. I said that was okay.

About 30 seconds later, the online department rep answers and I tell him the same story. He said the fee was due to insufficient funds. I asked if there was any way to reverse it and he said it was non-negotiable. I explained to him my situation about how it was a mistake and I’ve already called Fidelity and they’ve already fixed the mistake on their end and will be depositing the correct amount to HSBC in the next day or 2. I also pointed out that the $33 fee seemed a bit extreme.

He paused for moment and then mentioned as a “one-time courtesy”, he’ll reverse the fee and advised me to be careful of what my balance is next time I make a payment. I thanked him over and over and then we parted ways.

Another aspect I think that helps when I negotiate with customer service representatives is that about 90% of those who I speak to always call me maam. I’m guessing their system doesn’t tell them what gender I am. I never bother correcting them because I think customer service reps tend to be nicer to women, but that could just be me.

So the other day, I was making a electronic transfer from Fidelity to my HSBC Direct savings account and that got me thinking, what exactly goes on behind the scene of a electronic transfer. They go by many names including wiring money, electronic fund transfer, direct deposit, etc. How exactly does a EFT work? I mean metaphorically, it’s like bank A is sending money to bank B, but this being electronic and all digital, there is no real money being transferred.

Back in the days, when bank A sends money to bank B, little cars delivers sacks of money from bank A to bank B.

But nowadays, everything is digital and I would assume no actual money (paper bills, rare metals, etc) are actually being transferred between banks, making it more safe and secure. There are movies showing those armored trucks delivery big loads of cash, but I believe that is just transferring money from the branches into the main bank, or vice versa. Like when I write a Bank of America check and the payee deposits it into his Washington Mutual account, all they do is notify Bank of America and they transfer the money over. I think these days, they don’t even send the check back, but just make a scan.

But how exactly is money electronically transferred.

Within the same branch or even the same bank, it’d be easy. Bank of America oversees the entire transaction and the deduct money from account X and deposits that same amount into account Y. But to deduct money from account X in Bank of America and deposit that amount into account Y in Washington Mutual, it just seems to be changing the balance, however, it doesn’t appear to be as simple as it sounds.

What really happens as I imagined would be Bank of America takes money out of account X and puts it into their own. At the end of the day, thousands or millions of transactions occur between the 2 banks and only the difference is transferred. Afterwards, Washington Mutual will deposit the amount from the transfer into account Y.

It appears to be something quick and simple, but there needs to be some overseeing agency to make sure that Bank of America does indeed deduct that amount from their balance and Washington Mutual only increases that amount from their balance. If not, what is to say, that Bank of America “claims” to have transfer money to them, but not in fact deducted their own balance. The way I see this working is that each bank has an account with lets say the Federal Reserve, and they are basically making transfers of funds within the same bank (Federal Reserve). I can see that working, since the accounts have to be checked and balanced.

But I’m curious if anything tangible is actually transferred. Are money in forms of coins and dollar bills at the end of the month moved between banks. Bills and coins are just tender, and I don’t see why electronic numbers can’t completely replace them. If the banks deposit all their bills to the Federal Reserve, then it’s essentially the same.

Ungsunghero then brings up a good point. What about international transfers. How does money actually flow between countries? If I decided to transfer $100,000 to my Swiss account, what really happens? The transfer may take a few days, but how does the money leave the USA and enter Switzerland? Do we ship them bags of bills? gold? Is there any overseeing agency like the Federal Reserves that monitor international transactions?

Just something that’s been bouncing in my head.

Man charged for spending misplaced money –

LA VISTA, Neb. – A La Vista man was charged with felony theft after he spent $80,000 his bank deposited by mistake in his account.

George J. Costa, 45, is charged with theft of lost or mislaid property. It is a crime to take money that’s been “delivered under a mistake.”

More than $106,000 was deposited into Costa’s account between August 2006 and February after a Pinnacle Bank employee mixed up account numbers, according to the Nebraska State Patrol.

The bank was able to recover $26,000 from Costa’s account after the mistake was recovered.

“‘Finder’s keepers’ and ‘possession is nine-tenths of the law’ aren’t legal principles,” said Sarpy County Attorney Lee Polikov.

Costa’s lawyer, James Martin Davis, said Costa is willing to work out repayment in civil court but shouldn’t be charged criminally.

“If somebody sticks money in your pocket and you spend it, you can’t be convicted of theft,” he said.

I read this article and was shocked about how the law treats this situation and have been chatting with Ungsunghero about it and both of us agree that to charge this man with felony is way too extreme, considering the fact that he played no part in the money getting mistakenly deposited into his account.

There’s 3 parties involved here:

• Depositor – party who is depositing the money
• Bank – party that is transferring the money from Depositor to account specified
• Receiver – party that receives the money

Depositor has been making deposits at a bank stating it should be deposited in account X. Bank takes the money and deposits in account Y. Account holder of Y (the Receiver) finds an unexpected semi-large sum of money and like someone who thought he won the Lotto, goes off on a spending spree.

As you can see, the bank is totally at fault here, though the receiver could have from his conscience contacted the bank to clarify the origin of the money, but if he/she doesn’t, is it truly a crime, or even worse, a felony?

If I had accidentally deposited money into the wrong account (say via a wire transfer), I’m pretty much SOL (sh*t outta luck). I can request a stop transfer immediately, but if the money has already reached the other side, who knows how much trouble I’d need to go through and there’s probably a high chance I won’t see a penny of it back. However, if the bank mistakenly deposits the money into someone else’s account, they’re off the hook?

Purely looking at this, the bank’s at complete fault. The mistake was committed by a clerk, and the clerk represents the bank. Given that there was a semi-large sum of money being deposited/transferred, you’d think they’d have at least another clerk to verify the transaction just in case clerk #1 made a mistake. To err is human, right? Even I have to read everything I fill out on a rebate form multiple times to make sure I don’t forget anything. Finally, given the fact that there’s a 6 months between the 1st mistake was committed and when it was finally realized, it becomes even more of the bank’s fault.

If someone drops off a bag of money on my lawn every month and doesn’t come and take it back for 6 months, even if it’s mislaid property, I think it’s perfectly understandable if I’d start using that money. Now you come and say you want the money back or you’ll be throwing me in jail, that’s ridiculous. At this point, you can only blame the guy driving around dumping the bag of money onto the wrong lawn.

Ungsunghero and I discussed this further and we contemplated what would’ve happened if the Receiver called in and question if there was a mistake, and if the bank clerk said there was no problem and that transaction looks fine, would he be off the hook. Similarly, if I called DOT (or DMV in California), and asked if it was okay for me to make U-turns on regular streets they said that was legal, if a cop pulls me over and gives me a ticket for making an invalid U-turn when according to whoever I spoke to was legal, I’d be damned if I can’t use what DOT told me to fight off the ticket.

Ungsunghero brought up a good point that it might depend on how high I go. If I had gotten to a clerk, it might not mean as much if I had actually been propagated to the manager/head of the department.

Although I don’t agree in the “finders keepers” way of doing things, being charged criminally for doing finders keepers is just wrong. The money was not registered to any specific person and it was being deposited into this man’s account. Isn’t there some sort of 30 day or 60 day limit for lost (or mislaid) property? If I found an item and took it to the Police Lost and Found, if no one comes and claims it in 30 or 60 days, it’s mine right?

What should happen is that they get the remaining amount back, force him to sell off or auction off any item he bought with the money, and the bank should be responsible for the rest, as it was clearly their mistake.

I just wanted to spend some time talking about Roth IRA since 2006’s last contribution date is coming up. You’ve probably heard of terms like 401K and IRA and then there’s traditional vs Roth and all being retirement accounts, and you’re thinking what is correct for you, what’s the difference, and so on.

To put into simple terms, 401K replaces pensions, and is a retirement investment account provided to you through your employer. You decide to put x% of your salary into this account each paycheck and so on. The 401K account I have also restricts me to what I can invest in to a limited set of funds and stocks, but I’m not sure if that is the same for every employer. When you changed jobs, I believe you stop contributing to your old 401K account and you create a new 401K account with your new employer. You do have the option to consolidate your old 401K account into your new one.

IRA on the other hand is a personal investment account, where you get to put in money whenever you want. It has no relationship with your employer. The deadline to invest for any particular year is the deadline to file your taxes. For the year 2006, the last day you can contribute to an IRA account is on April 17th, 2007.

The biggest difference between 401K and IRA besides 401K is tied to an employer and IRA isn’t, is the contribution limit. These limits change from year to year, but for 2006, 401K’s limit was at $15,000 and IRA’s limit was at $4,000. With IRA, you can decide after the fact if you want to contribute to it depending on your tax situation. With 401K, you have to consistently contribute and have to prepare beforehand on what you want to do.

Tax implications wise, there really isn’t much difference between 401K and IRA. What the difference lies is if it’s a Traditional or Roth. A traditional 401K or traditional IRA is where you contribute money (pre-taxed) and when you do take the money out, the full amount (original contribution + gain) will then be fully taxed. On the other hand, a Roth 401K or Roth IRA is fully taxed now, but when you take the money out, it will not get taxed again and neither will your gain.

Derek’s suggestion is to contribute to both Traditional and Roth retirement accounts because who knows what it’ll be like when you retire. Most people contribute into a Traditional account because they’re assuming when they retire, they won’t have a high income, so money they take out will be in the lower tax bracket. However, who knows what the tax situation will be like 40 years from now. If you have both Traditional and Roth accounts, you can withdraw accordingly. Take money out from the Traditional accounts if the tax is low. Take money out from the Roth accounts if the tax is high.

Anyway, after I got my tax refund this year, I decided I wanted to start my Roth IRA account. Another thing I researched on was penalty for early withdrawal. For Traditional accounts, since it’s only taxed when you withdraw, there are a bunch of fees and penalties for withdrawing early. However, with Roth accounts, you’ve already paid the tax, is there any early withdrawal penalty. Here’s a good example from The Motley Fool:

Jim, age 30, made a Roth IRA contribution of $2,000 in 1998. In 2005, Jim’s Roth IRA has a balance of $3,500. Jim decides to close his Roth IRA in a non-qualified distribution that year. Since the distribution is non-qualified, Jim will owe taxes on his Roth earnings of $1,500, and will pay tax on this amount at his marginal tax rate. In addition, since the distribution took place before Jim reached age 59 1/2, and since Jim did not meet any of the exceptions, Jim will also be assessed a 10% early withdrawal penalty on the earnings. If we assume that Jim is in the 28% marginal tax bracket, he will pay $420 in tax on the earnings, and will pay a penalty in the amount of $150 on the early distribution. This is a very steep price to pay.

In other words, I can withdraw early on the amount that I contributed without paying any fees/penalties. However if I early withdraw any of my earnings/gains, those will be taxed at my current tax bracket + an additional 10% early withdrawal penalty. I’m thinking, who the heck won’t invest in an Roth account then, especially Roth IRA since you don’t have to make a decision until April for the previous year. Another way to put this is that you’ll always have access to your principal, penalty free, which in most people’s case is all they’ll need. As long as you keep your earnings and gains inside your Roth account, there won’t be any penalty.