Don't let bank play duck-and-run with annuity questions

Dear Bruce: My elderly mother purchased a Treasury-linked annuity through her bank. When I looked at her annuity data page, I noticed that they were paying her 2.8 percent when the Treasury rate at issue was 3.68 percent. I called the company that issued the annuity, and the gentleman with whom I spoke did not know why my mother was not receiving the 3.68 percent and referred me to the agent who sold my mother the annuity. I called and asked him, and he said he would find out and get back to me. He hasn’t, and now he’s ducking my calls. We’re talking about $50,000 here. Is there a chance that the agent is pocketing the difference? What should my mother do? The bank manager says that the investment department is separate from her department. – R.R., via e-mail

Dear R.R.: I cannot answer why there is a differential, but I can tell you how to handle this because this is bologna. The likelihood is that your mother purchased this annuity because of the relationship she had with the bank. Whether it’s part of “their” department has no relevancy. In particular, if in your mother’s statements there were advertisements for such annuities or other financial products, you tell the bank manager that you immediately want to speak with their compliance officer. This business of “it’s not my department” is a great way to duck, but the Securities & Exchange Commission and your local banking commission – or if it’s a national bank, the Federal Reserve – will have an entirely different view. I don’t have any problem with banks selling other investment products, but then when the person who does the selling either miss-sells, oversells, etc., they love to play duck-and-run. Don’t let them get away with it. If they give you additional avoidance on this, please get back to me and I will personally contact you (if you provide a phone number) and show you how to make their lives appropriately miserable.

Dear Bruce: What do rich people do with their cash reserves? I sold some property used to build a new school, receiving more than the $100,000 that the banks insure. I don’t want to make less than 1 percent on my money, but I also do not want to risk my money on stocks and bonds, as I lost a ton of cash these past three years. What should I do? – W.C., Las Vegas, Nev.

Dear W.C.: I’m not sure how to define rich, but a lot of people are unhappy with getting less than 1 percent on their money. At least for now, money has very little value. As soon as you said, “I don’t want to risk my money,” you limited yourself to a very tiny return. You didn’t give your age, but if you’re not retired or a senior citizen, I still believe that a portion of that money should be in good, solid stocks. Over the next five to 10 years, people who do this are going to be very happy with their decision. Obviously, 20/20 hindsight is a wonderful thing.

Dear Bruce: My wife and I have a number of credit cards that have been collected over the years. Now we primarily use only two of them. What would happen to our credit rating if we suddenly cancelled all of the others, which range from one to 10 years of association? I’ve heard that if you cancel the card before its second year, it is worse for your credit rating than keeping it. Is there a guideline? – G.W., via e-mail

Dear G.W.: As long as you’re not paying any type of fee for the cards and you’re not looking for credit elsewhere, what’s the difference? The only danger in keeping them is if you do apply for credit, they’re liable to determine that you have too much credit available and deny you. I don’t know of any reason why you would be penalized for canceling them. I’m wondering why you have so many to begin with. Keep them or cancel them. As long as there is no cost to you, I don’t think it matters.

Dear Bruce: I have a question concerning my escrow account with my mortgage company. They increased my escrow payment from $104.16 to $152.90. This was due to increases in the value of both the land prices and the increases of the value of homes in the state of Nevada. Can I take over the escrow account and manage it myself, or is there a law that says I have to use the mortgage company? I have a Veterans Administration loan, and I feel that I could manage it better myself. The taxes are due quarterly. – R.H., Las Vegas, Nev.

Dear R.H.: Nobody is making any money on mortgage escrow accounts in today’s world. The money is worth too little, while the expenses to maintain the account and pay the bills continually increase. The only reason the escrow payment is increased is that the bank estimates that more money will be needed for taxes and insurance. There is no law that says you have to use the mortgage company escrow, but equally there is no law that says they have to loan you money. Part of the condition of them loaning you money is that you pay into an escrow account on a monthly basis so there are ample funds to meet your obligations. If there is no escrow account and you fail to pay, the lender will have to reach into his pocket because they cannot afford to have the property foreclosed upon by some portion of government. The fact that your loan is VA-guaranteed has no bearing on this. Perhaps you could manage it better yourself, but you’re not going to have the opportunity in most cases. Personally, I would rather make the payment once a month and let someone else be responsible for paying the insurance and tax bills on time.

Dear Bruce: My husband and I are in our early 50s. I work part time and my husband collects a pension from a major city after 20 years of service. We also receive a monthly payout from a deferred compensation plan that he funded during service. That plan, after collecting for three years, has more in it than when we started collecting, so it has many more years of payouts. Our only debt is a $36,000 mortgage at 5.5 percent. We took out a 15-year mortgage for $95,000 in 2003 and have reduced it through prepaying ($1,700 a month) and a small inheritance. When we talk to friends or family about our situation, they all say we should have some debt or we will not have a good credit rating. Also, we will have a small tax refund because of the small of amount of interest we will have paid on the mortgage. We use a credit card that gives money back for 90 percent of our purchases, and that balance is paid in full every month. We look at prepaying the mortgage as a 5.5 percent savings account, which isn’t too shabby a return for a safe place. As far as the tax deduction of the mortgage interest is concerned, we have no other deductions, so we will probably have to do the short form next year. Are we doing the right thing? We estimate being finished with our mortgage in less than two years if we continue with the $1,700 a month prepay. This way, when costs start to go up in the future, we will have extra money. – M & C, Florida

Dear M & C: I don’t know where your friends get an idea that you have to have debt or you don’t have a good credit rating. There are lots of people out there with no debt who have credit ratings that are just fine. You have an interesting point of view when paying back the mortgage, while not usually a good idea, that this represents a 5.5 percent return. This is true. If you are unable to find a better return in an investment where your comfort level is matched, continue to do what you are doing. In general, it has to be observed that paying off a low interest mortgage early is ordinarily not a good plan, but given your concerns about safety, I’m not going to dissuade you from continuing. Let me totally disabuse you that you have to have debt to have good credit. You have to meet your obligations promptly to have good credit.

Dear Bruce: We have our retirement in place and some minimal investments in mutual funds. I would like to have a certain amount of money directly deposited from my paycheck into a savings account each pay period. Is there any account available that would gain interest, has no fee for a withdrawal and doesn’t require a minimum balance? – Reader, via e-mail

Dear Reader: Sometimes looking for the easiest possible way is not the smartest thing to do. If you are having it deposited directly into some account that you’re not riding herd on, and if a payment is missed, how are you going to know? Would it be too much trouble to have the money directly deposited into your checking account? Your statement would show the deposit each month and you could write a check for whatever savings vehicle you choose. It doesn’t seem to me that this would be an over-burdensome chore for you, and it would be worth the effort.

Dear Bruce: I’m 40 and went through a divorce about 12 years ago that left me with a great deal of debt. I paid it off with the help of a credit-counseling service. I earn $110,000 a year now. My second wife is a stay-at-home mom. I thought I would never get to buy a home, but suddenly I was approved for a $225,000 mortgage. We bought our first home for $263,000 with the appropriate down payment. I figured it wasn’t too smart to pay 8 percent on a first mortgage and 11 percent on a second, but I thought I could refinance. Now I am finding out that the reason that I had to pay these higher rates even in a falling market was that I was considered a substandard loan. Nobody wants to refinance me, even though my equity is over 20 percent. What can I do? – T.B., Santa Maria, Calif.

Dear T.B.: Unfortunately, your credit score, and thereby the interest rate that you will be offered, is influenced very materially by your past record. Although handled honorably, it nonetheless involved getting concessions from the creditors, and I am sure, paying it off well beyond the regular term. Given that circumstance, it will take some considerable time to get your credit rating back to where you will qualify for the lower interest rates. I would occasionally apply and just understand that credit ratings and bad information hang on for a long period of time. That having been said, congratulations on showing the moral stamina required in paying off your debts.

Bruce Williams is a national radio talk show host and syndicated columnist.