But a bank failure is a scary thing - especially if it’s your bank. However, here are a few things that should give you comfort.

• The vast majority of US banks are going to be fine. According to the FDIC website (Failed Bank List) only about 44 banks have failed since October 2000. That’s approximately 0.61% of the nations 7,200 banks. Those are pretty good odds.
• When banks do fail, most are insured. The FDIC insures deposits in several “ownership categories,” which means you may actually be insured beyond the $100,000 limit you hear about. For example, single accounts in your name are covered up to $100,000 per bank. Joint accounts are a separate category and also get their own $100,000 of coverage per person per bank. This means that a joint account held by you and your spouse is insured up to $200,000. Retirement accounts (IRS, SEP, etc.) are covered up to $250,000. Check out the FDIC’s tool to help you determine if your account is fully insured.
• Even if your bank fails, your account isn’t going to disappear. For example, in the case of Washington Mutual, the bank was sold to JPMorgan Chase. JPMorgan has already informed Washington Mutual customers to continue banking as usual. Within a few weeks customers will get new debit or credit cards, checks, etc. In the meantime however, your account number stays the same, your checks will still be honored and you will hardly know your bank failed at all.
• Although mutual funds are not covered by FDIC insurance does not mean you would lose the money you have in mutual funds that you bought through the bank if that bank failed. Mutual fund assets are not part of the bank’s assets - they’re held in separate accounts - so they don’t even come into play when calculating the bank’s assets and liabilities.
• Money-market accounts are considered bank deposits and are therefore insured by the FDIC. However, money-market funds are not considered deposits and are therefore not insured. Money-market funds fall in the mutual fund category and would be treated as such.

So although the recent news of bank collapses has occupied our thoughts lately, the chances of your own bank failing is actually very small. If it happens though, hopefully you’ll now be a little more prepared for what’s to come and can avoid panicking.

But today’s press announcements and market reactions brings up a few interesting observations about investing:

1. Sometimes market activity has nothing to do with performance. Countrywide could be just fine, but at the very hint of bankruptcy, investors take their money and run. It’s a knee-jerk reaction that has more to do with emotions and fear than actual performance. This is one aspect of investing that you just can’t plan for.

2. Sometimes investors know more than the company. I throw this one out there with a cautionary warning. At times, a few savvy investors can spot the warning signs early enough to bail right before a stock tumbles. The key is to watch those investors Perhaps Countrywide isn’t going to file for bankruptcy, but chances are that the investors believe the story is not only possible, but plausible.

3. Sometimes companies lie. I know, it’s hard to believe but Countrywide could be lying through their teeth. I’m not saying they are, but they could be. This is when you break out the spreadsheets and financial statements, pour over the figures, and crunch some numbers in the form of ratio analysis. You need to try and determine on your own if Countrywide could file for bankruptcy soon. What is the debt to equity ratio? Does it have enough cash on hand to pay interest this year? These are the types of questions you should be asking yourself before you jump ship yourself. Who knows, if you’ve done your homework Countrywide could be the perfect stock to BUY right now!

However, many of eBay’s top executives used their keynote speeches during the recent eBay Live! conference to announce new PayPal security initiatives, including a service for eBay sellers that will alert them to potentially risky buyers. PayPal has, admittedly, done a vigilant job of trying to prevent online theft and identity theft. One of my favorite new features is PayPal’s new Security Key. The key is similar to corporate products from companies like RSA but is targeted at helping consumers prevent fraud. The key generates a unique six-digit security code about every 30 seconds. You enter that code when you log in to your PayPal or eBay account with your regular user name and password. Then the code expires – so no one else can use it.

Feeling comfortable within the digital world, but not content to simply help you pay for your winning bids, PayPal has begun to spread its wings. With an admirable 143 million user accounts, PayPal still pales in comparison to the likes of Visa or Mastercard who have over than a billion accounts. So, to compete among the “big boys,” PayPal is becoming more like a bank.

For the past year, PayPal has tested a virtual debit card enabling users to make purchases with PayPal on Web sites that do not offer it as a payment option. The service, which PayPal plans to launch broadly before the holiday shopping season, provides a one-time MasterCard number for a given purchase. The money is then debited from the user’s PayPal account.

Also like a bank, PayPal has long doled out interest on balances left in PayPal accounts. The rate, often more than 4%, is typically higher than that offered by brick-and-mortar banks. It also offers actual plastic credit cards, through a partnership with GE Consumer Finance (GE), for which it gives buyers 1% back on transactions. In addition, PayPal allows users to wire money through eBay’s Skype online phone service. There also are plans to give users the ability to view receipts for past transactions online, says Thompson.

So the question is, how much do you trust PayPal? Do you trust it enough to use it as your main banking account? Or have the security issues of the past tainted its image so much that it will never become the great online bank it wants to be?

It was an interesting question because I had always taken my credit history for granted. For as long as I can remember I have received credit card offers in the mail… from banks and lending institutions just waiting to give me credit. And my first credit card - a student credit card with a limit of $500 - was my first step at establishing credit.

But for many recent immigrants, and even young college students or college grads have the same question… how do I start building credit. The obvious answer is “open a credit account or take out a loan,” however if you have no credit history to begin with, this is almost impossible. It’s a catch-22 scenario that many people run into. You need to get credit to build credit, but you need to have a credit history in order to get credit in the first place…

One solution to this “credit paradox” is to apply for a secured credit card.

Secured credit cards work just like normal credit cards but require a deposit - usually between $99 and $500 - to protect against you skipping town without paying the bill. Most cards come with an annual fee for the “convenience,” but the fees are getting lower and are a small price to pay.

It’s important, however, to recognize that many institutions have taken advantage of people in the position of needing a secured credit card and have charged them outrageous fees. In fact, the Federal Trade Commission has issued warnings about deceptive ads ands scams for companies offering

ANYONE CAN QUALIFY FOR A MAJOR CREDIT CARD!

BAD CREDIT? NO CREDIT? NO PROBLEM!

There are a few things that you can do to establish good credit and avoid being scammed.

1. Shop Around: Look for a card that doesn’t charge an application fee. Although most cards charge an annual fee, the cards and their terms vary dramatically. Be sure to read the fine print. Some people have gotten secured cards and found their entire limit consumed with fees before they ever used the card. One place to start shopping is the list of secured credit cards at Bankrate.com.

2. Be Aware: As mentioned above, there are some institutions that treat their customers like cattle. Be aware of the bogus fees such as “insurance polices” or “convenience fees.” You should only be paying a reasonable annual fee.

3. Report Your Good Credit Activities: The entire purpose of obtaining a secured credit card is to build credit. You don’t need to purchase a lot, but make a few small purchases on your new credit card and pay your balance in full and on time. Secured cards carry a higher interest rate than most, so be sure to make small purchases that you can afford to pay off on time. But be sure to ask the credit card issuer to flag your good behavior to the credit bureaus as a secured card. If your good behavior isn’t reported, it defeats the purpose of the card.

4. Be Patient: You might not want to hear this one, but it is going to take time to build up that credit score. After about a year of making on-time payments, your credit card issuer will most likely want to keep you as a customer and should be willing to give you an unsecured credit card. Just ask. But if they refuse, try applying to a different lender or even the bank where your personal accounts are held. With a clean credit history, most banks would jump at the chance to get your business.

Secured credit cards can be a credit lifesaver… as long as you’re smart when shopping for one and use it wisely. And hopefully by starting with a secured card you can develop good credit card habits that you can use later with an unsecured card.

If you couldn’t guess from the title to this post, I finally received my free iPod Nano from Key Bank!

I initially wrote about the promotion here, and months later wrote about my frustrations at having never received the iPod. After several phone calls and letters, I still had nothing to show for my $50 tied up in a checking account at Key Bank.

However, after I called to have them reverse my 1099-misc that they had sent me for the value of the iPod, they got down to the bottom of my little mystery in no time! It’s funny how motivated they were when it came to avoiding some paperwork.

The tax department found out that the iPod had never reached my previous address, so it was delivered instead to the Key Bank branch where I opened my account - in Utah. After a phone call to that branch they confirmed that they did, in fact, have my iPod sitting there ready to be picked up. The problem, of course, was that I am now living in California, and wouldn’t be able to pick it up. The employee offered to mail the iPod, but couldn’t spring for insurance, so I had my sister, a local college student, pick it up for me and mail it this week.

So, the question now is: was it worth it? Were the months of frustration and numerous phone calls worth the free iPod?

Maybe it’s because I’m an Apple fanboy, or perhaps because I’m a sucker for free stuff… but I thought the promotion was worth it - for me at least. As for Key Bank, they are going to lose my business in about a month, when the terms of the promotion end and I can pull out my $50 from my checking account. If I was this frustrated at their handling of my free iPod, I can’t imagine how frustrating it would be when dealing with significant amounts of my own money.

I’ll pass on Key Bank, but I thank them graciously for my free iPod!

Personally, I think they have a certain “cool” factor to them, but in reality I would never use them. I hate carrying change in my pockets. But in Europe, for example, they’re used to carrying $1, $2, or even $5 coins with them - and even the guys carry a “change purse” for all of that change. Americans, however, are moving in the opposite direction. We don’t even carry cash anymore because everything can be bought with plastic.

Another thing to consider is the confusion that the new coins might cause. Reader Richard recently commented:

Merchants hated the $2 bills because they were odd; the registers were not setup for a stack of them; and checkout clerks too often accidentally accepted them as fives and made change accordingly.

Similarly, the customer learned to hate the $1 coin because it had the same instant look and feel as a quarter, and was often accidentally handed to checkout clerks as a quarter. Clerks readily accepted them as quarters. Customers had to be on their toes. The “mistakes” were good for clerks, but bad for customers. The same will be true with this new quarter-sized , quarter-shaped $1 coin.

So what do you think? Are the $1 coins a good idea, or just another waste of taxpayers’ money?

The face of each coin will feature an image of a former President and the years of his term of office. The reverse of the coin shows an image of the Statue of Liberty and the inscriptions “The United States of America” and “$1.” Personally, I think that coins are very cool collectibles. As a kid I used to collect coins (what kid doesn’t?) and even inherited a fairly large collection from my grandfather when he passed away. However, I also think that the idea of a $1 coin is a waste of the government’s time and money to produce. With the use of cash on the decline as it is, spending money designing and minting new coins seems like a waste of taxdollars to me. Unless they decided to put my face on a coin…

So about 2 weeks ago I applied online at KeyBank.com for their free online checking account. However, there are a few “hoops” when it comes to the free iPod offer:

1. You have to sign up before Sept. 16th (so hurry!)
2. You have to sign up for either direct deposit or their KeyBank credit card (I opted for the credit card)
3. You need to keep your account open for 180 days to avoid the cancellation fee
4. To open the account a minimum $50 deposit is required (a simple bank transfer took care of this)
5. You’ll receive a 1099-INT for the value of the iPod

But this week I received my credit card (actually issued through CitiBank) as well as confirmation of my account opening. So now it’s just a waiting game (up to 60 days) until I get that shiny new iPod!

If you can jump through the hoops that this offer requires and can part with $50 for 6 months than I encourage you to sign up. If the hoops are too much for you then I’ll keep you up-to-date as to the progress of my own experiment.

Emigrant has had a pretty sad start to their “new and improved” user interface. I encountered server issues today, and that was AFTER my account had been locked on me. Currently, the site is displaying a “due to high volume this page is unavailable” message on their home page. I understand that there are bugs to be smoothed out, but it’s as if they weren’t the least bit prepared for anything.

I did contact customer shortly after returning home from the office and only had a wait time of about 6 minutes. The representative was friendly and reset my account so I could log in again. Of course, once I got in I was immediately met with a notice that said, “we can not process your request at this time”. It’s just a tad bit frustrating, to say the least.

And shortly after, I received this follow-up comment:

Well, in all fairness, I was finally able to access the account and I think everything should be okay now. Emigrant Direct did post a customer service number while the site was down, but I still think they may have alienated many customers. In this day and age there is not much patience to go around, especially when talking about the Internet and the desire for convenience and efficiency.

I’ve been with ED for over 2 years now and this was the only issue I’ve ever had.

Those comments got me thinking about the online banking industry as a whole, and I realized that I never really considered the biggest risk that industry has: failing technology. If wellsfargo.com goes down for some reason, I can always walk down to the local branch or use a local ATM for my immediate banking needs. Although many of the online-only banks do offer an ATM card for deposits and withdrawals at local ATMS, many carry surcharges and fees for access.

The biggest risk these online-only banks have is that all of their eggs are in one basket - a very large and complicated basket called the Internet. Without a brick-and-mortar business to back these online-only banks, they must be extra careful to backup databases, servers, etc. as well as create some sort of backup system. There’s no reason why Emigrant Direct’s website should have been down that long. If they were updating the site then they should have thoroughly tested it before going live - and even then they should have gone online with a parallel system in place just in case something failed.

With so many customers who need online access to their accounts they should have invested enough time and money into creating contingency plans. I know if I were a customer of Emigrant Direct I would seriously consider leaving. As Sark mentioned above, this was the first time this has happened, but that’s enough to cause me to worry every time I login. Is it going to work this time? With my luck the site would go down that one day I needed my money right away. I need my bank - of all places - to be safe, reliable, and there for me.

This post isn’t meant to deter you from opening an account with an online-only bank, but it should force you to think about the potential risks that come from doing business online. I’m going to hang on to my HSBC account, but I will be looking closely at their ability to handle any online problems.

No Credit Credit Cards Choose the best offer to establish your credit history.

1. Debit Card = Cash: at least, that’s how some stores see it. Since a debit card is linked directly to your checking account, many vendors treat it the same way they would cash or a check - which isn’t a big deal when checking out - but it is a big deal when making returns. What happens when you purchased something for cash at a store? Oftentimes they only offer store credit in exchange for the defective item instead of your cash back. With a credit card, however, the return is processed using the same card you used to purchase the item.
2. Disputed Purchases: with identity theft on the rise, it is more important than ever to be sure you and your credit are protected. ATM and debit cards, since they are linked directly to checking accounts, aren’t covered under the Fair Credit Billing Act like credit cards are. This law gives you the right to withhold payment on poor-quality or damaged merchandise purchased with a credit card. You don’t get that guarantee with your debit card. In fact, since the money is immediately withdrawn from your checking account, you will be out of cash and stuck discputing any charges with the merchant yourself.

   There is hope though. There are a few federal protections that you have with a debit card. Under the Electronic Fund Transfer Act you have the right to dispute any error on your bank statement, and you have some protections if your debit card is lost or stolen. Bankrate.com reports that your liability is capped at $50 if you notify your bank within two days of finding out your debit card is missing. Wait more than two days and you could lose as much as $500. If you discover an unauthorized charge on a bank statement, you may be on the hook for as much as $500, provided you contact your bank within 60 days.

My advice is to pay for everyday purchases such as groceries, morning hot chocolates, and gas with your debit card. But make sure you have enough money in that account. As I mentioned before, your debit card is connected directly to your checking account - so if there’s not enough funds in that account you could be looking at some steep fees (unless you have some sort of overdraft protection which I would always recommend). But, if you’re going out this weekend to pick up the new Blu-Ray player take your credit card instead. It could save your butt if that player turns out to be a dud.