About Internet Banking

What You Should Know About Internet Banking

Banking Consumers' Options

• You can go to a traditional "brick and mortar" institution that has a building and personal service representatives, but doesn't offer Internet banking services.
• Or you can bank at a "brick and click" financial institution that has a physical structure, and also offers Internet banking services.
• Or you can choose a "virtual" bank or financial institution that has no public building and exists only online.

Internet banking, and other types of online banking, offer advantages such as speed and convenience. But since the Internet is a public network, it presents some privacy and security issues. Knowing the "Do's and Don'ts" of Internet banking can help make your online banking experience more productive, safe and enjoyable.

Two Different Types of Online Banking

Internet banking is usually conducted through a personal computer (PC) that connects to a banking Web site via the Internet. For example, a consumer at home accesses a financial institution's Web site via a modem and phone line or other telecommunications connection, and an Internet service provider such as America Online, Microsoft's MSN Network, Earthlink, Juno or AT&T WorldNet.

Internet banking also can be conducted via wireless technology through both Personal Digital Assistants (PDAs) or cellular phones.

Electronic banking is conducted by using Automatic Teller Machines (ATMs), telephones (not via the Internet) or debit cards. Debit cards look like a credit card. But unlike a credit card, using a debit card removes funds from your bank account immediately.

What Internet Banking Offers — Services and Advantages

As a consumer, you can use Internet banking to:

• Access account information, review bills, pay bills, transfer funds, apply for credit or trade securities.
• You can find out if a check has cleared or when a bill is due.
• You can apply for mortgages, shop for the best loan rates and compare insurance policies and prices.
• And you can do all of these things anytime you want to — day or night.

Some people like to tie banking functions into personal financial software such as Intuit's Quicken or Microsoft's Money. This can make record-keeping and tax preparation quicker and easier. Many consumers also like the idea of not waiting in line to do their banking, and paying their bills without shuffling papers and buying stamps.

Protecting Your Privacy

You need to be concerned about privacy and security. Consider this: When you bank via the Internet, your personal and financial information may be shared with others without your knowledge.

A financial institution may want to share information about you to help market products specific to your needs and interests. For example, it might share information about your average checking account balance with an affiliate selling life insurance or securities.

Financial institutions have policies about what information they collect, how they use this information and with whom they will share it. Financial institutions are required to provide customers with a copy of their privacy policy. Reviewing this policy can tell you what information your financial institution keeps about you, and what information, if any, it shares with its affiliates or others.

You have the right to tell your financial institution not to share your personal information with others without your consent. You should be given a choice to "opt out," allowing you to limit sharing of your personal information.

* Do check for an "opt out" option.


How "Cookies" Could Affect Your Privacy

Internet technology allows financial institutions and other websites to track your browsing habits while at their site. This may be done using a small file stored on your PC called a "cookie." Tracking your browsing gives financial institutions information about your apparent interests and preferences. It helps them to potentially market goods and services to you based on these interests and preferences.

* Do check your financial institution's Web site privacy statement. Determine if the website uses cookies or otherwise tracks your browsing habits. If this tracking practice concerns you, your PC's Web browser may offer useful options.

A Web browser is a program on your PC that enables you to browse Web sites over the Internet (Internet Explorer and Netscape are two examples of browsers). Check the Preferences or Tools areas of your browser to look for cookies. Your browser may offer the option to notify you before a cookie is created, identifying who is attempting to place the cookie and giving you the option to accept or reject it. Your browser also may offer you the option to reject all cookies, or to accept all cookies.

Just be aware that some Web sites are designed to function properly only when their cookies are accepted. Blocking cookies may prevent normal access to certain Web sites or to some of their online options. If this happens, you can easily begin accepting cookies again.

* Do check your browser's options for accepting or rejecting cookies.

Security Tips — How to Protect Your Personal Information

Since the Internet is a public network, it's important to safeguard your banking information, credit card numbers, Social Security number and other personal information.

Some consumers have had credit card numbers and Social Security numbers stolen and used fraudulently. Of course, this can happen even if you don't bank online. By taking reasonable steps to protect your personal information, you can reduce the chances that it may be stolen.

* Do ask your financial institution about its security practices. How does it safeguard your information during transmission and on their Web site?

Web sites use Uniform Resource Locators (URL) as a kind of Internet street address. You can tell your browser which Web site you want to go to with the URL. When a URL begins with http plus an "s", it identifies the site as "secure," meaning that it encrypts or scrambles transmitted information. This prevents others from seeing your information when it travels over the Internet.

Also, most browsers and Web pages display a small icon of a locked padlock or a key to show that the site is encrypting your information during transmission. Your browser may also notify you when you are entering a "secure" Web site.

* Do make sure your transmissions are encrypted before doing any online transactions or sending personal information.

Is E-mail Safe?

E-mail is usually not secure. It's not a good idea to send personal information such as your Social Security number, personal identification number (PIN) or account numbers via e-mail, unless you know it is encrypted.

• Don't send personal information by ordinary e-mail.
• Do change any passwords or PINs you receive via e-mail that are not encrypted.

Other Security Tips

Do

• Do make sure you are on the right Web site. Imposters have created Web sites with similar names to trick unsuspecting consumers into revealing personal information.
• Do make sure that the financial institution is properly insured. It should be insured by the Federal Deposit Insurance Corporation (FDIC). FDIC coverage only applies to deposit products such as savings accounts, checking accounts and Certificates of Deposit (CDs). The coverage does not apply to transactions involving mutual funds, stocks, bonds and annuities.
• Do be "password smart." When possible, use a mix of letters and numbers for added safety. Change your password regularly. Keep your password or PIN to yourself. Avoid easy-to-guess passwords like first names, birthdays, anniversaries or Social Security numbers.
• Do check bank, debit and credit card statements thoroughly every month. Keep good records. Save information about banking transactions. Check this information for agreement with account statements, debit card bills, and credit card bills. Look for any errors or discrepancies.
• Do report errors, problems or complaints promptly.
• Do keep virus protection software up-to-date. Back-up key files regularly.
• Do exit the banking site immediately after completing your banking.

Don'ts

• Don't have other browser windows open at the same time you are banking online.
• Don't disclose personal information such as credit card and Social Security numbers unless you know whom you are dealing with, why they want this information and how they plan to use it.
• Don't download files sent by strangers or click on hyperlinks from people or sites you don't know. Sometimes doing this can infect your computer with viruses that can damage hardware or software.

Consumer Regulations that Protect You

There are federal regulations that protect consumers against unauthorized transactions, including Internet bank transactions as well as those conducted via an Automated Teller Machine (ATM) or using a debit card.

The Electronic Funds Transfer Act, or Regulation E, says a consumer's liability for an unauthorized transaction is determined by how soon the financial institution is notified. A consumer could be liable for the entire amount unless the unauthorized transaction is reported within 60 days of receipt of the financial institution's statement detailing the unauthorized transaction. The sooner the unauthorized transaction is reported, the less the level of liability; therefore, it's important to report unauthorized transactions immediately to limit loss. It's also important to remember that it might take time while the unauthorized transaction is being investigated for money deducted from your account to be credited back to it.

The Truth-in-Lending Act, or Regulation Z, governs illegal credit card use. While bank transactions conducted over the Internet are governed by Regulation E, credit card purchases over the Internet are governed by Regulation Z. When making purchases via the Internet, it's smart to use a credit card. That's because if a credit card is stolen or used by an unauthorized party, liability should be no more than $50 if proper notice is given to the credit card vendor. The vendor can be telephoned, but it's best to follow up the call with a letter stating that the transaction was made by an unauthorized user, and detailing the account number and the dollar amount of the unauthorized transaction. Consumers do not have to pay the disputed amount during investigation.

All financial institutions are also subject to Regulation P covering privacy and the Interagency Guidelines for Safeguarding Consumer Information.

All federally-insured financial institutions are subject to federal regulations concerning the distribution of personal information. These institutions must comply with established guidelines for safeguarding this information. They are also subject to onsite examinations to ensure compliance with consumer laws and regulations.

How to File a Complaint

It's best to contact a customer service representative or senior manager at your financial institution and discuss the problem first. The problem may simply be a misunderstanding.

But if you are still not satisfied, you can file a written complaint containing the following information:

• Your name, address, and daytime telephone number, and the name and address of the financial institution involved in your complaint or inquiry.
• Your account number, type of account, the names of the people you talked to and a description of the problem.
• Describe exactly what happened and the dates involved. Include copies of any letters or other documents that may help to investigate the complaint; however, don't send originals. Sign and date your letter.

You may write directly to the financial institution with which you experienced the problem, or to the authority that regulates that institution. If you don't know the right regulatory authority, call the institution and ask.

Payment System Cash Management Operations

Payment System Cash Management Operations

1.
Q: It is often that members of the public come into possession of banknotes that are unfit or even no longer valid as legal tender. What can they do?

A: If a member of the public receives banknotes that are unfit or no longer valid, these notes should be collected first until a reasonable amount is accumulated, before taking them to Bank Indonesia for exchange with new currency at the same face value.

2.
Q: Why should the unfit or demonetised banknotes be collected first?

A: That is merely a matter of efficiency. If one has to travel to a BI office to redeem only one banknote of only modest face value that is unfit or no longer valid, that inevitably costs something. Obviously, it is not worth the effort if the cost of exchanging is more than the face value of the rupiah to be redeemed.

3.
Q: For convenience’s sake, isn’t it possible to redeem banknotes that are unfit or no longer valid as legal tender at the nearest bank?

A: If possible, go straight to BI. True, members of the public can visit a nearby bank to redeem unfit or demonetised banknotes, but then the bank will have to exchange these notes again at BI.

4.
Q: Why is it that rupiah banknotes seem to deteriorate so easily?

A: In reality, rupiah banknotes would not wear or tear easily if the public would handle the money they receive in the proper manner. As we all know, earning money is hard, so why don't we handle each bit of rupiah we receive as something of value, for example by not folding or crumpling so that the banknote does not become shabby and dull. Let’s take proper care of every piece of the rupiah currency we have worked so hard to earn. If all members of the public would care for and look after the rupiah currency, the banknotes would not deteriorate quickly

5.
Q: What are the criteria for damaged currency that may be redeemed at BI?

A: If a member of the public receives rupiah damaged to the extent that less than half (= 50%) remains intact, for example, only a quarter of a banknote, BI cannot provide a replacement. However, if more than half (= 50%) of a damaged note is intact or it still has a serial number, BI will exchange it for a new banknote of equivalent face value.

6.
Q: Now, if a member of the public receives counterfeit money, can that also be exchanged at BI?

A: Absolutely not. Why? If BI accepts counterfeit money for exchange from the public, that would be tantamount to legalising the crime of counterfeiting. Imagine then if counterfeiters printed as many forged banknotes as they could and then turned them in to BI. This would obviously have a disruptive effect on the economy, particularly in regard to the targeted money supply. The impact of this would be to drive up inflation. For this reason, counterfeit money will not be replaced by BI. Counterfeit money handed in by the public will be passed on to the police for investigation and subsequent action.

7.
Q: Can you explain why BI has made banknotes in designs and colours that are similar? For example, the Rp 100,000 note issued in 2004 and the Rp 10,000 note issued in 2005, when seen at a glance and especially in the dark, appear to share the same design and colour. If not examined closely, one can be mistaken for the other.

A: True, when seen at a glance, some colours appear similar. However, BI always disseminates information to the public in advance of launching a new banknote or coin. If the Rp 10,000 and Rp 100,000 denominations are examined carefully, the differences in design and colour will become obvious. It should be added that each plan for issuance of a new denomination, no matter what the face value, passes through a long and selective process

Pay-ins Withdrawals of the Bank

Payment System - Pay-ins Withdrawals of the Bank

1.
Q: When cash is deposited at Bank Indonesia, how are differences in the cash count resolved?

A: When cash is counted for deposit at BI and there is a discrepancy in the count, BI usually asks the bank to perform a joint count. At least four factors are involved when a discrepancy arises. For example, the number of banknotes or coins could be less or more. Discrepancies can also arise because of inclusion of a different denomination or from damaged banknotes or coins that cannot be redeemed and discovery of counterfeit money.

2.
Q: If a bank never deposits cash at BI, can the column for that bank’s cash deposits be left blank?

A: Of course.

3.
Q: BI recently conducted a trial run of its new cash deposit system. In the future, will there still be a division into BI operating areas? And will banks be able to handle cash management for other regions under the proposed plan for cash centres?

A: This will still be possible if a bank serves other branch offices in other areas.

4.
Q: Will the establishment of Focus Groups (FGs) be driven by BI or will the FGs be established by the banks themselves?

A: There are several underlying considerations in the establishment of the FGs. However, the main factor is the character of the individual banks in the local area.

5.
Q: In regard to cash clearing, will the costs be borne by the FGs? And what about the delivery mechanism and requests for physical checks, such as for counterfeit money or discrepancies in the cash count?

A: Clearing charges will be specified in the By-Laws, as required by law. Nevertheless, the charges can also be determined under a joint arrangement by the banks involved. The draft By-Laws state that cash will pass through an overall check before proceeding with detailed examination. After the count is completed, an official record will be drawn up of the transfer, including any issues of discrepancy.

6.
Q: If a bank has a long position and offers cash to members in the FG but no member expresses interest, what should happen next?

A: If no member in the FG is interested, the offer can be passed on to members of other FGs, as cash transactions among different FGs are supported. However, if no other bank takes up the offer, BI may accept the cash deposit under certain conditions, such as during major holiday periods.

7.
Q: If an FG member bank is suddenly hit by large-scale cash withdrawals and other FG members are short, what should be done?

A: If a bank has a long or a short position, this information should be circulated and deliberated within the FG. However, if this fails to provide a solution, it is possible to exchange with another FG. This necessitates coordination from the FG coordinator. If the bank’s needs are still not met, only then should it contact the nearest BI office.

8.
Q: What happens when a bank frequently accumulates a long position? What action will BI take?

A: If a bank does consistently record a long position, BI will examine the nature of bank cash positions within each area. The information thus gathered will form the basis for establishing an FG. If any bank does run up an overall long position, it could provide a cash holding function and in the long term be encouraged to establish itself as a cash centre.

9.
Q: When cash unfit for circulation is discovered upon collection from another FG member, can it be returned?

A: That cash should preferably be accepted. In any event, it can later be deposited at BI.

10.
Q: If there is any failure to deliver on commitments or event of default, how will this be resolved?

A: This will be specified in the By-Laws. In principle, sanctions must apply to any irregularity or violation, but what form these sanctions will take is still under deliberation.

Payment System Counterfeited Money

Payment System Counterfeited Money

1.
Q: Can you explain how one can tell that rupiah banknotes are genuine?

A: It’s easy and simple. Members of the public can distinguish the security features of the rupiah just as explained in the public service ads broadcast by Bank Indonesia on television and published in the print media. These ads are designed around the 3-D jingle, i.e., Dilihat (See), Diraba (Feel) and Diterawang (Hold up to the light). See means that any cash one receives should be inspected to see whether it is counterfeit or genuine. If the authenticity is still in doubt after a visual check, try feeling for texture. Genuine banknotes will feel different to counterfeit ones. What is the difference? When gently rubbed, the paper can be distinguished by quality. The banknote surface will have a slightly rough texture. Then, when held up to the light, genuine notes will display security features: a watermark and a security thread or ribbon.If further assurance is needed to distinguish genuine from counterfeit, the note can be examined using a simple device such as an ultraviolet (UV) light. A note illuminated with UV will very clearly show up the security features, such as a glowing image and serial numbers. These are not found perfectly on counterfeited notes. Alternatively, one can use a magnifying glass or loupe, which will also help in clearly identifying the security features on genuine notes.

2.
Q: Is it true that each genuine rupiah note has a number of security features?

A: First, it should be understood that not all rupiah banknotes have the same number of security features. The larger the denomination, the more security features are used. Nevertheless, the security features incorporated into each denomination are generally similar. Only the design is different.

3.
Q: Where do we find the security features on genuine rupiah banknotes and what are the designs like?

A: One way of distinguishing genuine rupiah currency is by the material used. That means that anyone can immediately tell the difference between the material used to make genuine rupiah banknotes, which feels different to counterfeited notes. The banknote paper is a special kind, not like the paper widely available to the public. Members of the public can also discern by quality of printing. Genuine rupiah banknotes are printed to a visibly excellent quality standard. On the other hand, counterfeit money can be easily distinguished by printing quality, with notes sometimes having a dull, inferior appearance. In essence, counterfeit money is marked by poor quality printing. Other security features providing a standard for the public are the design and dimensions of banknotes. At a glance, counterfeited notes do look similar in quality of design. However, if examined closely, important differences will appear. The design quality in counterfeited notes is very low. Likewise, physical dimensions are frequently not the same as for genuine rupiah banknotes

4.
Q: If one discovers rupiah currency of doubtful authenticity, what should be done?

A: If any member of the public comes into possession of rupiah currency seriously doubted for its authenticity, despite having used the simple 3-D process, confirmation can be obtained by visiting the nearest commercial bank or a Bank Indonesia representative office, which can be found in many urban centres. How? It is easy. Upon arriving at a BI office, just fill in a form for clarification of rupiah authenticity, attaching the rupiah banknotes of doubtful authenticity as evidence. BI will respond within 14 working days after receiving the clarification form.

5.
Q: Will BI provide refund for counterfeit money discovered by the public?

A: BI will not provide any refund for counterfeit money. Accordingly, BI constantly appeals to the public to understand properly how to distinguish authentic rupiah currency in order not to suffer losses. Any counterfeit notes taken to BI will be handed over to the police for further action. Counterfeiting is categorised as a very serious crime because of its potential to threaten a nation’s economic stability.

6.
Q: What steps does BI take to combat counterfeiting and to keep counterfeit money out of circulation?

A: To combat counterfeiting, BI takes a two-fold approach. The first approach is preventive. For example, BI disseminates information on security features through direct contact with the public in its public education programme on authenticity of the rupiah. BI is also active in communicating messages and information through public service advertising in national and local print media and electronic media, such as on television stations. Second are law enforcement actions against counterfeiters, including networks circulating counterfeit money. BI cooperates with other law enforcement agencies such as the police, the Anti-Counterfeiting Coordination Agency (Botasupal) and the attorney-general’s office. Needless to say, active cooperation from the public will be of great value to BI and law enforcement agencies in their efforts to combat counterfeiting crimes.

Payment System Card-Based Payment Instrument

Payment System Card-Based Payment Instrument

1.
Q: Can you explain the underlying reasoning in Bank Indonesia’s decision to raise the credit card repayment minimum to 10% of the total balance outstanding? Speaking frankly, the new rule puts an extra financial burden on credit cardholders.

A: At BI, we considered the issue at great length before issuing the ruling. One fundamental reason for raising the minimum payment was precisely to protect consumers from falling into a debt trap. Of course, you will respond with another question: why would that be? Doesn’t it create an added burden? Credit cardholders need to understand properly that the prevailing interest rates on card purchases for goods are now in the range of 2.25%-3.5% per month. For cash advances, even higher rates are charged at 2.7%-6% per month. If credit card interest is calculated for a full year, the rates vary from 28.8%-42% for goods purchases. For cash advances, the annual rates are as high as 33%-72%. Added to this, cash advances are charged high administration fees. Now, try to compare this with rates on time deposit rates, currently in the range of 7%-9%. The size of the spread is painfully obvious.Imagine if you paid a minimum of only 3% of the outstanding balance every month. As the months go by, the interest on the card balance would quickly soar. Why is this? The remaining balance would be subject to very high interest charges, and the concern is that you would no longer be able to pay your credit card bills. This is the background to why BI adopted a policy of raising the minimum card repayment to 10%.

2.
Q: I see. Could you explain which parties are actually involved in credit card transactions?

A: There are several parties that become involved in a transaction made by credit card. Obviously, there is you, the credit cardholder. When the credit card is used, there is a merchant, such as a supermarket, hospital, hotel, restaurant, bookshop or other seller, that will process your card transaction. Then there is the credit card issuer, for example, a bank or non-bank financial institution. Indonesia now has 20 credit card issuers, of which 18 are banks and 2 are non-bank financial institutions. Now in addition to the three parties normally known to the public, there is another party involved in the credit card transaction. This is the Financial Acquirer (FA). The FA is the party that advances payment on the transaction conducted by the credit cardholder. Together with the merchant, the FA is responsible for checking the validity of sales drafts. The FA also provides authorisation terminals, receives and processes each transaction and provides training and supervision for merchants. In addition, there is yet another party known as the Technical Acquirer, who provides the equipment for processing transactions (authorisation terminals). Finally, there is the principal, well known to the public. The principal is a bank or non-bank financial institution with sole rights to a credit card brand name, such as Visa, MasterCard, JCB, Diners, American Express, BCA Card and others.

3.
Q: Could you explain again the difference between a principal and credit card issuer?

A: The principal is a bank or non-bank financial institution with exclusive rights to a brand for card-based payment activities. Principals are divided into two categories. General principals hold brand rights that may be used by the Principal itself or by other card issuers. Examples of this are Visa and MasterCard. Use of the brand is not only available to the Visa and MasterCard principals, but also other issuers of Visa and MasterCard products, such as banks. In addition to General Principals, there are Special Principals, whose brand rights may only be used by the Principals themselves and cannot be shared with other issuers. In this case, the Principal acts both as Issuer and/or Acquirer.

4.
Q: In view of the many different parties involved in processing what appears to be a simple credit card transaction, there must be many different types of equipment involved. Could you explain what equipment is used?

A: When you use your credit card, a sales draft will be issued stating the card number, name of cardholder, card validity, name of merchant, amount of transaction and authorisation code and bearing your signature. It is important to check the sales draft carefully for the number of items purchased and purchase amount. The sales draft should not be immediately discarded, but retained as evidence in case of any difference between the credit card billing statement and the amount you spent. One device commonly used is electronic data capture (EDC). When a merchant sweeps a card through this machine, it will read the card information and then receive an authorisation code before issuing the sales draft. To print the obverse side of the credit card on the sales draft, an imprinter is also needed, but with advancements in EDC devices, imprinters are now rarely used. Sweeping the card will generate a point-of-sales transaction in which the machine receives an authorisation code that appears on a computer screen.

Payment System RTGS

Payment System RTGS

1.
Q: Interbank funds transfers can now be processed quickly. Can you explain how this happens? In the past, funds transfers between banks could take several days.

A: This is clearly made possible by modern progress and advanced technology. BI now employs what is called the BI-Real Time Gross Settlement (RTGS) system for processing interbank funds transfers. The RTGS system is a settlement process in which payments are individually processed (gross settlement) in an electronic system in real time.

2.
Q: Can you explain what is meant by real time? How much time is needed for settlement of funds transfers through the BI-RTGS system?

A: The BI-RTGS system does indeed support the settlement of individual transactions (gross settlement) in real time. Nevertheless, the meaning of real time must be understood from the bank perspective. Why? This is because the time taken for completion of transactions ultimately depends on the technology employed by the individual bank. If a bank uses an online system linked to all branch offices, the time needed will obviously not be long. However, if the bank does not have online facilities, time will be needed for manual book entry processing before funds are made available to customers. In this case, transactions will clearly require longer time.

3.
Q: Why does gross settlement apply to transactions on the BI-RTGS? What is the difference with net settlement?

A: The gross settlement system is indeed different from the net settlement system used in clearing. In a clearing system, settlement takes place in a process called offsetting. That means that claims are subtracted by the bank’s liabilities to other clearing banks to obtain a net position at the end of the clearing period. The clearing mechanism takes a longer time to process funds transfers compared to the BI-RTGS system.

4.
Q: If almost all banks are BI-RTGS members, why do funds transfer charges vary from bank to bank?

A: It should first be clarified that banks transferring funds on the BI-RTGS system are charged Rp 7,000 per transaction from 07:00 to 15:00 hours local time in Jakarta. From 15:00 to 17:00 hours, during what is customarily referred to as the cut-off period, the BI-RTGS system charges Rp 15,000 per transaction. In regard how banks calculate their charges for funds transfers, this is left entirely to the discretion of the individual bank. The calculation of these charges also depends on operating costs, investment and other costs related to the use of the RTGS system. Banks can therefore be expected to set varying levels of transfer charges.

5.
Q: Can you explain the funds transfer mechanism used in the BI-RTGS system?

A: Because the question is about the mechanism, the answer is somewhat technical but not too complicated. From a high-level perspective, the system can be explained as follows. Each BI-RTGS member bank will input funds transfer orders into the RTGS terminals installed at member banks. These orders will then be forwarded to the RCC, or RTGS Central Computer, the heart of the processing system at BI. The RCC will then initiate processing and check the account balance of the bank sending the funds transfer order. If the account of the sending bank at BI has sufficient balance, i.e. is equal to or greater than the amount of the funds to be transferred, the RCC will execute the funds transfer by simultaneous posting to the accounts of the sending bank and the receiving bank. However, if the sending bank has insufficient account balance, the credit transfer order will be placed in the queue in the RTGS system. As explained, the RCC will continually check the account of the sending bank for sufficient balance to process the funds transfer. If there is sufficient balance, the funds transfer will proceed immediately.

6.
Q: But isn't there any facility or mechanism for a BI-RTGS member bank with insufficient balance to complete a transaction?

A: There is. To cover this, the central bank provides the Intraday Liquidity Facility (FLI). This facility enables RTGS member banks with insufficient balance to keep processing transactions in order to maintain the smooth flow of payments among members. Of course, to use the BI-RTGS system, each member is required to maintain a high level of liquidity throughout the day.

7.
Q: How much is permitted to be transferred through the BI-RTGS mechanism?

A: There is no limit on the amount of a transfer. Any amount can be transferred through the BI-RTGS system. It is true that certain times, such as in advance of religious festivities or official holidays, are marked by a massive surge in transaction activity. To keep the system working smoothly during periods of soaring transaction activity, BI has been compelled to impose restrictions on RTGS transactions above Rp 25 million.

8.
Q: If so, then it is important to maintain the smooth flow of transactions through the BI-RTGS system. But the risk of system failure is a real possibility. Can you explain what BI has done to anticipate this eventuality?

A: Of course, the transactions processed through the BI-RTGS system account for 95 percent of turnover in the domestic payment system. There is reason to be concerned about critical impact from BI-RTGS system failure. Even only a minor breakdown could affect financial system stability as a whole. For this reason, BI has given enormous attention to the security and reliability of the system.
To ensure the security and reliability of the BI-RTGS system, a series of tests was performed at each stage of development and system enhancement, for example, when developing encryption or the highly complex codes that could affect the networks to be used. BI also asked PT Telkom to conclude a service level agreement related to the provision of the network infrastructure used to support RTGS transactions. Moreover, there are regular performance upgrades for each computer used by BI, the system operator, and RTGS member banks. Each operational officer in charge of the system is registered and issued a password according to his or her powers and responsibilities. The BI-RTGS system is also provided with a backup system to cover the event of possible breakdown in the main system. The backup system is tested with all members each year to ensure that members are better prepared for possible emergencies in the main system.

Indonesia Payment System

Indonesia Payment System

:: What is the Payment System?

What is the payment system? The payment system covers the legal and regulatory framework, institutions and mechanisms used to transfer funds in order to settle liabilities arising from economic activities. What, then, are the components of the payment system? Needless to say, there must be payment instruments and a clearing mechanism that includes settlement. Of course, other components are involved, such as the institutions participating in the operation of the payment system. These include banks, non-bank financial institutions, non-bank funds transfer providers, switching companies and even the central bank (see Growth).

:: Evolution of Payment Instruments

There has been very rapid and sophisticated advancement in payment instruments. If we look back to the early days of payment instruments, the barter system was a common practice in ancient times. Gradually, people became accustomed to the use of specific units representing a value of payment, more commonly known as money. Now, money is one of the most widely used payment instruments in society. Payment instruments later advanced from cash-based instruments to non-cash payment instruments, such as the paper-based instruments of cheques and bilyet giro (non-negotiable bank clearing payment orders). Following this, payments took a further step forward to the use of paperless instruments, such as electronic funds transfers and card-based instruments (ATM cards, credit cards, debit cards and prepaid cards).

:: Cash Instruments

Cash exists mostly as banknotes and coins. Cash continues to play an important role, especially in small transactions. In today’s modern society, the use of cash such as banknotes and coins is declining in comparison to payments drawing on demand deposit funds. In 2005, cash accounted for 43.3 percent of the total money supply.

However, cash also has disadvantages in regard to efficiency. Inefficiency arises because of the high costs of cash handling, not to mention loss of time when making payments. For example, one can spend a long time queuing to make a payment at a counter. Also, conducting high value transactions in cash runs the risk of theft, robbery and counterfeiting.

In view of the inconvenience and inefficiency of using cash, BI has taken the initiative to promote the building of a less cash society (LCS).

:: Non-Cash Instruments

Non-cash instruments have become well established and are in popular use. This shows us that non-cash payment services provided by banks and non-bank financial institutions (NBFIs), whether for funds transfers, clearing operations or settlement, are available and operating in Indonesia. High value non-cash payments are processed by Bank Indonesia through the BI-RTGS (Real Time Gross Settlement) system and the Clearing System. The BI-RTGS System is the major channel for settlement of financial transactions in Indonesia.

Almost 95 percent of high value and urgent financial transactions, such as on the interbank money market, the stock market, government transactions, foreign currency transactions and clearing settlement, are processed through the BI-RTGS system. In 2005, the daily turnover of transactions handled in the BI-RTGS system reached at least Rp 82.8 trillion. By comparison, only Rp 4.7 trillion was recorded in daily non-cash transactions using card-based instruments provided by banks or NBFIs.

The importance of the BI-RTGS system to the national payment system means that the continuity and stability of the system must be safeguarded at all times. If at any time the BI-RTGS system breaks down or experiences a technical fault, there will inevitably be highly disruptive impact on the operation and stability of the domestic financial system. This does not even include the material and non-material impact of system breakdown. BI therefore pays very close attention to maintaining the stability of the BI-RTGS, which is categorised as a Systemically Important Payment System (SIPS), one that processes high value, urgent payment transactions.

Bank Indonesia therefore has every reason to take great care in safeguarding the stability of the existing SIPS. To do this, it manages the risks, design, technological reliability, supporting networks and the SIPS rules. In addition to the SIPS, there are also System Wide Important Payment Systems (SWIPS), which are systems used by the public. The clearing system and card-based instruments come within the SWIPS category. BI also pays careful attention to the various SWIPS because of their popular use. Whenever a system experiences disruption, the public interest in conducting payments will also suffer, as will confidence in the system and the payment instruments processed within the system.

BI does not only seek to create efficiency in the payment system, but also equitable access and consumer protection. Creation of efficiency in the payment system is intended to provide convenience to users in which they can select a payment method accessible throughout Indonesia at the lowest possible cost. Equitable access means that BI also considers how equity considerations are applied in the operation of the payment system. Lastly, consumer protection means that operators have the obligation to adopt reasonable consumer protection principles in their system operations.

Four Ways to Keep the Auditor Away

Four Ways to Keep the Auditor Away


As April approaches, taxpayers across the land have begun to shake. Despite the prospect of tax refunds and rebates, the specter of an IRS audit strikes fear into the heart of virtually any American. Here are some tips to keep the auditor far from your door.

Anyone in America who pays taxes, including many of the fine employees of the IRS, will admit that our tax system is extremely complicated. With myriad deductions, credits, forms, and loopholes, it's spawned a vast accounting industry, and an even larger government bureaucracy to process the entire mess.

Making things even more complicated is the fact that paying taxes is predicated on the honor system. The IRS is counting on taxpayers to be honest in regards to their deductions and overall return. However, the increase in the number of audits performed by the IRS during the past few years indicates that there'll be increased scrutiny of your filings. Here are some things you can do to avoid an audit.

1. Keep your expenses in line

The IRS tends to focus its audits on people who make six-figure salaries. Someone with a larger salary generally has more expenses. Owning rental properties or a small business, for example, can create a more complicated return. It makes more sense for the IRS to scour these returns for any errors, intentional or otherwise. If you have quite a few expenses, make sure they're honest and in-line with IRS regulations. Then you'll have nothing to hide if an auditor comes calling.

2. Watch your charitable deductions

A common red flag for an IRS agent is a huge charitable deduction on a return. It's uncommon for a person to donate 10 percent of his income to charity. If you approach that level, you increase the chances of scrutiny. Be especially careful if you're donating property, such as a car. A charitable gift of more than $5,000 will raise eyebrows at the IRS.

3. Don't allow your home office to spill into your home

Self-employed people who work out of their homes have been notorious targets for the IRS, particularly when it comes to home-office deductions. The IRS regulations regarding the deductibility of a home office are very specific. Consult your accountant before you write off that big screen TV as a business expense.

4. Be neat-or get an accountant

Sloppy tax returns are irritating to IRS agents, and are also an indicator that the person filling them out might have sacrificed accuracy for speed. Either you or your accountant should file a return electronically to improve your return's appearance.

As April 15th fast approaches, taxpayers are crossing their fingers in the hopes that an IRS auditor doesn't pluck their returns out of the pile. Instead of worrying, be proactive and limit the red flags commonly looked for. Adhere to the tips above, and you should enjoy many happy returns.

Don't Count on Credit Cards for Relief

Don't Count on Credit Cards for Relief


Free market theorists believe that the fallout from the subprime crisis will result in a natural correction: People will curb their spending habits and save money until they're out of the red. But instead of saving, some homeowners are turning to credit cards for relief.

The subprime lending crisis has resulted in pain in multiple directions. From homeowners to mortgage bankers to realtors, everyone has felt the sting. However, now that the first line of foreclosures has washed over the mortgage industry like a tsunami, a larger problem threatens to drown subprime borrowers. With no lenders willing to grant them a home equity loan, many have begun to rely on their credit cards for debt relief.

Home equity no debt consolidation hero

In the past, when credit card debts reached astronomical levels for subprime homeowners, they would take out a debt consolidation loan. Through the miracles of a second mortgage, they could roll all those hefty credit card balances into one loan with convenient, tax-deductible interest. Credit card debts would be wiped clean, and all would be well in the world.

This "robbing-Peter-to-pay-Paul" mentality was made possible by property values that seemed to be increasing at a never-ending pace. Or at least until the pace ended.

Back where they started

When home values started to tank all across America, subprime borrowers found themselves in serious trouble. They could no longer count on a home equity loan for their debts, as lenders had substantially reduced the number of second mortgages on their books.

Where do subprime borrowers turn when their preferred source of financing-the second mortgage-goes south? Where else but their old friend-the credit card. According to statistics compiled by the Federal Reserve, credit card debt increased significantly toward the end of 2007. With fewer mortgages to be found, homeowners are doing what they can to make ends meet, which unfortunately involves returning to the source of all their problems.

Keeping credit card companies happy

Credit card companies, who charge high interest rates that aren't tax deductible, are more than happy to help desperate homeowners. Unfortunately, their motives are far from humanitarian. Much of the profit for any credit card company is linked to their high rates and heavy-duty fees.

This vicious cycle of debt won't be an easy one to fix. For consumers who've experienced staggering medical bills or lost their jobs, it's difficult to generate additional income to right their ships. People who went on one too many shopping sprees may be lucky enough to sell off some of those non-essential goods and return to a more frugal lifestyle.

Either way, the practice of relying on credit cards to make ends meet is going to lead to some disastrous conclusions. The subprime lending crisis was a mess, but if people also can't make their new credit card payments, expect more pain in the not-so-distant future.

Escape Financial Quagmire with Debt Consolidation

Escape Financial Quagmire with Debt Consolidation


You can't continue to avoid the prospects of bankruptcy and foreclosure forever. Take action now by considering a strategic debt consolidation.

Getting out of debt is about as easy as walking through swampland wearing cement shoes. Every step forward pulls you just a little further into the financial quagmire. You could give up and sink straight into foreclosure and bankruptcy...but what if there's another option?

Debt consolidation might be your last-ditch solution to escape this predicament once and for all. Structured properly, debt consolidation will reduce your monthly payment burden and give you the breathing room you need to pay off your debts without going to court.
Understanding debt consolidation

Debt consolidation loans work by reducing your interest costs and your minimum monthly payments, while restructuring your debt to a fixed payoff schedule. In truth, many debt consolidation loans fail, because the borrowers desperately leap into a situation without really knowing how to make it work. Therefore, it's important to approach debt consolidation while thinking clearly and strategically. Here's a roadmap to get you moving in the right direction:

1. Itemize your debt. Make a list of your debts. Include amounts owed, interest rates, whether the rate is fixed or variable, and the length of time it will take for the debt to be paid off if you continue making minimum payments. A debt payoff calculator can help you run the numbers.

2. Price the rates. The lowest priced debt consolidation loans are mortgages. If you have home equity, research refinancing and home equity loan rates. If you don't have such equity, get quotes on unsecured debt consolidation loans.

3. Compare rates. Debt consolidation only helps if the loan you can get is cheaper than the debt you're consolidating. Review your debts in comparison to the consolidation loan rates that you're quoted. Debts that are priced higher than the quotes are candidates for consolidation; the rest are not. Estimate how much of a loan you'll need by adding up the accounts that you plan to consolidate.

4. Compare payments. With an interest rate estimate and a loan amount, you can calculate consolidation payments using any amortization calculator. Run the payments based on different loan maturities of five, 10, or 15 years. If you need to refinance your entire mortgage, look at 30- and 40-year terms. Next, compare your current payments to those of the prospective consolidation loan, starting with the shortest maturities first. Will the loan provide enough breathing room to keep you out of bankruptcy or foreclosure?

By now you have a pretty good idea of what a debt consolidation loan can do for you. The other side of the story is how you manage your funds after taking this step. Some borrowers relax and let their spending habits slide; some even start using their credit cards again. In either case, if you spend more than you make, you'll end up right back in that swamp. And that's no place for you to be-again.

Challenging Mortgage Environment

Hedge Your Bets in a Challenging Mortgage Environment


The mortgage market is in turmoil, and lenders are hyper-vigilant. In such a cautious climate, borrowers need to have a backup plan in case they get turned down when applying for a loan. One idea is to submit multiple simultaneous applications.

If you expect to qualify for a no-hassle mortgage this year, you need to have good credit and good income. But many people don't have those credentials, and even some that do may still get turned down because lenders are playing it safe.

Lenders are saying "no"

Some loans are rejected because the purchase price of the house is too high, according to the lender's appraisal report. And many lenders are ordering multiple appraisals, so that they can hedge their bets and lend money based on the lowest one. While mortgage companies and banks strive to guard against bad loans, it's important for borrowers to have their own strategies in place to fall back on if their mortgage applications are unsuccessful.

Applications are multiplying

The Mortgage Bankers Association recently announced that mortgage application activity is on the rise, and has increased about 18 percent above last year's levels. But apparently, not all these applications are resulting in closed loan transactions. Many analysts observe that borrowers are applying for their loans with multiple lenders, as a way to ensure that one of the loans will be approved to facilitate the purchase or refinance of a home. They apply to various lenders, wait to see which bank or mortgage company approves the application, and then follow through with the one who responds first or with the best deal. You may want to adopt the same approach, to ensure that one of your applications is a winner.

Preparing your paperwork

Before visiting a lender, prepare for the meeting by accumulating a few important documents. These should include copies of your tax returns for the last two years, at least two month's worth of bank statements, and the most recent statement regarding any stocks, bonds, or mutual fund investments you own. Additionally, you'll want to show them a copy of your existing mortgage and proof of homeowner's insurance if you're applying to refinance. If you're buying a home and have already signed a purchase offer agreement, you should include a copy of that contract.

Most lenders will not charge for a loan application, but expect you to provide access to your credit report early in the process. That's because without checking your recent credit score, the lender is unable to determine how mortgage worthy you really are. You can often expect to pay around $20 to $25 to have a potential lender check your credit. If you apply to four or five different mortgage companies, it might cost you a hundred bucks. But when a lender says "yes," you'll be on your way to a new loan, which makes the added effort and cost well worth it.

Payment System Clearing

Payment System Clearing

Q: Not long ago, there were widespread reports in the media of a massive clearing deficit at a national bank. What is actually meant by a clearing deficit?
A: A clearing deficit is a position in which a clearing member bank sustains a debit balance, with payment liabilities greater at the end of a clearing cycle in excess of claims.

Q: If I am not mistaken, BI is introducing what is called the National Clearing System. Could you explain what the system is, and what goal is to be achieved?
A: The Bank Indonesia National Clearing System (SKNBI) is a clearing system encompassing debit clearing and credit clearing with settlement conducted for all banks nationwide. The goal is to improve the efficiency of the payment system in Indonesia. It also aims to achieve compliance with risk management principles in clearing operations.

Q: With the introduction of the SKNBI, can funds transfers take place in real time?
A: The answer is no. True, the SKNBI has integrated the operation of funds transfers (debit clearing) into a nationwide, online system. However, settlement cannot take place in real time. The integration will improve efficiency as a result of shorter processing time due to the use of paperless credit transfers (paper instruments no longer used). Furthermore, because most banks are connected online to the clearing operator, it follows automatically that transaction data can be sent and clearing results downloaded online. This will save time in comparison to the earlier system. At this time, Indonesia has a total of 105 local clearing operators comprising units managed directly by BI and third parties appointed by BI.

Q: What then is the difference between the clearing system and BI-Real Time Gross Settlement (RTGS) in which settlement takes place in real time?
A: In the clearing system, settlement of funds transfers must await the outcome of the netting process conducted by the operator, in this case BI. With the SKNBI in operation, netting can be conducted per cycle, for example at midday (end of first cycle) and then in late afternoon (end of second cycle). In contrast, the BI-RTGS system enables settlement in real time, because settlement takes place on a gross or per transaction basis during the RTGS operating hours. With netting twice daily, funds transfers processed in clearing can be completed on the same day as long as book entry is performed immediately at the bank after BI, the operator, has completed the processing of clearing results. Of course, the transaction data must be free of technical errors that would prevent processing by the operator. As a matter of information, the SKN design supports faster settlement of funds transfers. In the rules established by BI as operator, the beneficiary bank is required to credit funds immediately to the customer account on the same date as clearing settlement, or no later than 09:00 hours local time in Jakarta on the following day. Delay by the beneficiary bank is liable to payment of compensation in the amount of interest calculated from the settlement date. Funds transfers through the SKN will therefore take no more than one day after the transaction date, provided that the office of the beneficiary bank is also linked to the SKN. BI's target is to achieve nationwide integration of the SKN in 2007.

Stop the Bleeding with Debt Consolidation

Stop the Bleeding with Debt Consolidation


When charge cards become a way of life, it's time to make some serious changes. Before you jump to debt consolidation as a solution, make sure that you're 100 percent committed to living without the plastic.

Debt can often feel like a wound that never heals. Putting a bandage on it may help in the short term; but if you don't handle the underlying cause of the puncture, the bleeding will begin again. End these wounds once and for all by taking action to get out of debt. Then, take the psychological steps necessary to make sure it doesn't happen again.

Most of the time, overspending is the underlying cause of excessive debt. Maybe you had a legitimate reason for spending more than you make, and maybe you didn't. What matters now is what happens from this point on. If you're considering debt consolidation as a way to finally heal the wounds, there are some things you should know first.

A properly structured debt consolidation loan reduces your monthly payment burden and sets a fixed payoff schedule. In some situations, a consolidation loan may end up costing more in total interest, and it may even extend the payoff cycle. But for many debtors, these are secondary concerns. The bigger issue is structuring the debt so that it can be paid off without sleepless nights, and without phone calls from collectors.

Why debt consolidation fails

Debt consolidation will almost certainly backfire if you're unwilling to change your spending habits. Just think about what happened the last time one of your credit limits was increased-how long did it take for you to spend up to the new limit? After consolidation, you'll be armed with a supply of freshly paid off credit cards. If you can't keep from spending, it won't take long for the debt balance to spin wildly out of control again.

Any debt reduction strategy requires a serious lifestyle change. If you want consolidation to work, you have to be willing to give up some things. For example, are you willing to:

• Cut up your credit cards?
• Stop eating out?
• Stay home when your friends are all going out?
• Pay cash for everything?
• Stick to a spending budget?

As a test, make a detailed list of what you spend in one month. Identify everything that you bought that you didn't need, and add up the total cost. Then, ask a friend to review the list. Identify the non-essential purchases, and add up the cost. Compare your answers. If the two numbers are vastly different, you have a lot of work to do. Simply put, you can't control your spending if everything you buy is a "must-have."

When the debt level gets high enough, you'll realize that the upgraded cable subscription, satellite radio service, and daily chai lattes aren't really that important. Only then will the healing process begin.

Remodeling with Home Equity Loans

Remodeling with Home Equity Loans: The Advantages

There are some real advantages to using home equity loans for home improvements. You can borrow enough to completely remodel your home, or just to make some small specific alterations. Lenders don't place restrictions on the type of project, as long as it conforms to your local building code requirements. Usually, you have the option to do the work yourself or hire a general contractor. However, if you aren't a licensed contractor, some lenders may require you to hire a licensed professional for the parts of the project that require technical knowledge, such as electrical wiring.

The right loan

Before you apply for a home improvement loan, consider the type of project the money will be used for. If the project has a set price that will be paid upon completion such as replacing the roof, a home equity loan for a fixed amount is a good choice. These loans give you a lump sum that you pay back in monthly installments with a fixed interest rate.

If the project is large, like remodeling the kitchen, where the cost can increase as the work progresses, a home equity line of credit (HELOC) is the better option. A HELOC has the same flexibility as credit cards. In the case of a HELOC, your lender would give you a credit card or a checkbook, and you could withdraw money in varying amounts, as needed.

Home equity loan rates

A home equity loan's low interest rate and tax deductibility are additional reasons why it's often used as a home improvement loan. Terms for such loans can range from five to 30 years. The minimum amount you may borrow is generally about $10,000. However, most lenders will limit a home equity loan for home improvements to a maximum of $1,000,000.

Remodeling your home can significantly increase its value. When you need to finance a home improvement project, regardless of the size, a home equity loan is a good choice.

Understanding Yields on CDs

Understanding Yields on CDs


CDs have rates and they have yields. Knowing the difference between the two could mean a few more dollars in your pocket.

Robert Fulghum wrote a best-selling book called All I Really Need To Know I Learned In Kindergarten. Unfortunately, unless little Robert's teacher was a moonlighting banker, he probably didn't learn much about choosing or managing his CD investments.

Understanding your options

Certificate of deposit (CD) yields and rates are "need to know" topics for anyone interested in federally insured investments. CDs are fixed-rate time deposits, insured by either the Federal Deposit Insurance Corporation (FDIC) or the National Credit Union administration (NCUA). When you buy a CD, you agree to leave a fixed amount of money on deposit with the issuer for a specified time period. In return, the issuer promises to pay you a set interest rate on your deposit.

The most confusing part of CD investing is this: Banks and credit unions quote two separate rates in CD advertisements, a stated rate, and an annual percentage yield (APY). Most of the time, these two rates differ by only 10- or 12-basis points, i.e., the difference between 5.0 percent and 5.10 or 5.12 percent.

Once you spot these two rates, you're likely to wonder why they come in twos, and which one is the real one. You're also probably hoping the APY is the one that counts, because that one's always higher than the stated rate.

Stated CD rates, APY, and compounding

The difference between the stated rate and the APY is related to the phenomenon of compounding interest. To demonstrate how this works, let's consider a one-year, 5-percent CD that's compounded quarterly. If you deposit $5,000 into this CD, you can expect four interest payments during the course of a year. After the first interest payment of $62.50, your interest-earning balance is $5,062.50. After the second interest payment of $63.28, your interest-earning balance is $5,125.78. In other words, compounding allows you to earn interest on your principal plus any interest earned in prior periods. Your balance in this account at year-end would be $5,254.73.

On the other hand, if the 5-percent interest on that $5,000 deposit wasn't compounded, your year-end balance would be $5,250.

Now, compare the return of $254.73 in the compounded account to the return of $250 in the non-compounded account. If you divide these two figures by the principal of $5,000, you get 5.09 percent and 5.00 percent, respectively. Both accounts have a stated rate of 5 percent, but the compounded account has a higher APY of 5.09 percent.

Because the APY includes the effect of compounding, it provides a better indication of the return you can expect on your CD. The APY also allows you to compare the performance of two CDs that have different compounding methods.

To put this life lesson into the simplest terms: You'll come out ahead if you select a CD based on the APY and not the stated rate.

Versatility of HELOCs

Versatility of HELOCs


Your home's equity can be one of the best ways to find capital when funds are scarce. And the best way to tap into this equity is with a home equity line of credit (HELOC), which gives you the flexibility of a credit card and the tax-deductions of a mortgage. Since a HELOC allows you to draw funds for myriad reasons, it has become the Swiss Army Knife of financial instruments.


One credit line, many uses

Popular reasons to tap a home's equity include home improvement, debt consolidation, a second home purchase, vacations, and college tuition. Many small business owners will opt to use a HELOC instead of applying for business loans, because the process is easier and less expensive.

In recent years, debt consolidation has proven to be an extremely popular use for the HELOC. It can drastically reduce a borrower's monthly payment by offering lower interest rates than credit cards. On the flip side of the coin, people who are debt-free often use the HELOC to buy a car, taking advantage of the tax-deductibility of the interest payments.

Rainy day fund

It's a basic rule of thumb to keep three to six months of living expenses stowed away in a liquid account as a rainy day fund. Even though it's a great savings habit, consumers are forsaking savings, and using a HELOC as a source for emergency funds. If you choose this route, make sure the lender you select doesn't charge a fee just to keep the line of credit open. Just because you have a rainy day fund doesn't mean the institution should rain on your parade.

Fee Free

HELOCs can be fee-free. Avoid a lender who wants to charge you for writing checks or proposes exorbitant closing costs. Some lenders might require an appraisal; but there are plenty of lenders who will waive the appraisal fee. The cost of writing checks should also be free of charge.
Convert to a fixed-rate loan whenever you want

Since HELOCs are tied to short-term interest rates, they may rise suddenly. If they do, you may find that a fixed-rate home equity loan can save you money in interest payments over the long-term. If you choose to convert, expect a higher monthly payment. There may also be additional closing costs, so do the math to see if this move is right for you.

These features, as well as caps on interest rate increases and no prepayment fees, are all versatile benefits that underscore the HELOC's Swiss Army Knife reputation. About the only thing you can't do with it is whittle, or use it to spoon up beans by the campfire. Short of those tangible benefits, the HELOC could be the versatile borrowing tool for just about anything you need.

Recession-proof Your Portfolio

Recession-proof Your Portfolio


The next recession is coming on strong, but you're not helpless. Here's how to protect your investment portfolio in tough economic times.

The Federal Reserve is on a lengthy rate-cut spree, and the U.S. dollar currently buys fewer and fewer yen and euros. The economy is in trouble, and your investments are going to suffer. Right?

Not necessarily. You can take a few steps to insulate your assets from the ravages of a beastly economy. Here are two possible approaches.

Better safe than sorry

One option is to get out of the market. Liquidate your stocks and bonds, because they're exposed to moving interest rates and shifting investor sentiment. Once you're in cash, it can still work for you, even if you stick with the safest investments available. Some high-yield money market accounts can outrun inflation, but it takes a high balance to earn the best rates. Right now, some banks offer a 4 percent annual yield if you have at least $10,000 to sock away.

If you have a slightly smaller nest egg, but won't need the money for many years, a certificate of deposit (CD) could be just what the money manager ordered. Interest rates on CDs don't depend on the amount you invest, but on how long you can keep your hands off the cash. The best CD rates currently stand at 3.75 percent for a three-month holding term, about 4 percent for a one-year certificate, and 4.5 percent for a five-year investment. The rates are attractive and, although it takes patience and discipline to own a CD, it can sometimes be your best choice.

You say risk, I say reward

If you have a very long investment horizon, with decades before entering your golden years, putting all your investments in cash may not be a good idea. A deep market gash, like the one we're experiencing, could work to your advantage. The stock market has crashed several times in the last century, but it always came back to rise above the troubled times.

During a recession, park your money in blue-chip stocks that aren't as sensitive to stock market swings. However dark the times, everyone needs to eat, for example. Supermarkets and food producers spring to mind. Then, when you see signs that the hardship is over, pick up shares of the very best companies in the problem sectors-the survivors-in the fire sale of the decade. The last couple of years have been rough on homebuilders and mortgage specialists, for example.

Hybrid investors

The smartest choice may be to combine these two styles. Forego the "safe" stocks, and shift your holdings to cash accounts or CDs until the red flags are gone; then you can go back to Wall Street or the bond market.

Economic ruin on a macro scale doesn't have to spell disaster for your personal wealth. Some prudent moves at the right time is all it takes, and you'll be back to growing your wealth again in no time.

Learn the Art of Frugality

Debt Problems? Learn the Art of Frugality


Life is all about balance, especially when it comes to finances. Overspend your hard-earned dollars, and you could wind up in need of a debt consolidation loan. On the other hand, while being frugal will keep you out of the red, you need to be careful not to become a miser in the process.

It seems that whenever December roles around, Ebenezer Scrooge catches a lot of flack for his miserly ways. This tightwad character, from Charles Dickens' play A Christmas Carol, becomes so obsessed with money, that he can't enjoy his life. Eventually, he learns that the only way to avoid an early grave is to loosen his purse strings.

The point of Dickens' play is well taken, but in today's world of credit cards and debt consolidation loans, more Scrooge-like behavior may actually be warranted. Being frugal cuts against the grain of our national psyche. We are, after all, constantly being urged to head to the shopping malls and spend our tax rebate checks. It's possible, however, to be frugal without being a miser.

Avoid the impulse

In our society, consumers need to understand that they can't have everything. That's not an easy concept to swallow, especially when people find their mailboxes crammed with offers for new credit cards. If you over-extend yourself and run up your credit card balances, however, you'll soon be in need of a debt consolidation loan. The first step to being frugal is to avoid the latest impulse to spend.

Build a budget and stick with it

Being frugal requires following through on your pledge on a daily basis. Creating a budget is a great first step. To build one, analyze your personal expenses and your income. If you use money management software, you can generally print reports of your expenses and income over the last six months. From those numbers, you should be able to project your future expenses. Allocate the money you foresee in the future, being careful to give yourself plenty of wiggle room. There's no sense in creating a budget if you can't stick to it.

Walk the frugal walk

Once you commit to a life of frugality and create a budget, you need to be disciplined and stick to the plan. But if you take Draconian measures, your life of frugality will soon fall by the wayside. Instead, allow yourself little rewards along the way. Budget for some splurges; after all, everyone needs to have some fun from time to time.

At the conclusion of A Christmas Carol, Scrooge repents his miserly ways and goes on a spending spree, showering friends and relatives with gifts. Today, the opposite reaction might be more appropriate for debt-straddled consumers. Say "Bah Humbug!" the next time you see a cool new cell phone or a big screen TV. Frugality may not be fun, but it will pay dividends over the long run.

Commercial Mortgages

Commercial Mortgages


Commercial mortgage loans differ from residential mortgages primarily because they're used to finance commercial property. The property may technically be a residence, but if it's used as a commercial venture-for example, a large apartment building rented out for its income potential-a commercial real estate loan is generally required. The volume of commercial loans grew 16 percent in 2005 to $1.3 trillion, as lenders provided business loans for various ventures, developments, investments, and construction projects.

Tips for successful business loans

When lenders qualify customers for a commercial mortgage, the credit history of the business and its directors is taken into consideration, and the risk of the commercial venture itself is carefully evaluated. The better you can present a successful business plan, the more likely you will be convincing lenders to approve your loan on favorable terms. For instance, if an office building has good tenants and a positive, profitable track record, lenders will be more inclined to lend money to help an investor buy it than they would for a building with vacancies or negative cash flow.

Commercial loans carry either fixed or adjustable interest rates, and many charge penalties for prepayment. Most commercial loans are structured with a balloon payment that comes due after five, 10, or 15 years, although some have fixed 30-year schedules. And commercial real estate loans are sometimes created as bridge loans, to help borrowers finance projects until they get off the ground. For instance, a developer might use a two- or three- year bridge loan to borrow money to build a shopping center, and then refinance to a longer loan once the shops are occupied and tenants are providing a steady cash flow of rents to the developer.

Commercial second mortgages

Just as homeowners often use a home equity loan to raise cash for household purchases, improvements, or expenses, commercial borrowers also use second mortgages, equity loans, or refinancing strategies to raise capital for such things as equipment, inventory, or business expansion.

Because commercial mortgages are tailored to meet the needs of the business community, they're the best option for those who need financing for commercial real estate ventures.

How Will Mortgage Market Mayhem Affect You?

How Will Mortgage Market Mayhem Affect You?


The hemorrhaging of the subprime mortgage industry is the news of the year, but only a small percentage of consumers directly participate in these kinds of special loans. All of us will feel the financial aftershocks, however, when we apply for other mainstream mortgage products.

Subprime mortgage troubles are severe, but defaults in the subprime sector only represent about one percent of the residential mortgage market. Many Americans don't pay much attention to the sensational news of historic subprime losses, because few of us actually have a subprime loan. Unfortunately, the problems have quickly spread to the rest of the mortgage industry. Nowadays anyone trying to buy a home, refinance a mortgage, or take out a home equity loan will encounter stricter policies and guidelines. The rules haven't really changed; they're just being enforced more vigilantly.

A whole new mortgage world

Here are a few of the challenges that you might face if you're shopping for a mortgage:


Jumbo loans have gotten much more expensive, while subprime loans are virtually extinct.

When you state your income, you'll be expected to prove it beyond a shadow of a doubt. Lenders used to ask for your most recent tax return, for example, but now they're more inclined to ask for two years of tax returns.

If you have a steady job in a high salary industry, the mortgage lender might still check to see what the average salary and the recent history of layoffs in that particular profession happens to be, before they approve your loan.

Banks are looking at the lowest credit rating between spouses. They're also occasionally ordering two real estate appraisals and using the lowest one to determine how much your home is actually worth.

Taking the lowest appraisal could limit the amount you can borrow to buy a home. If you're a seller, you might have to take less for your house in order to ensure that your buyer gets mortgage approval.

More conservative appraisals may also limit the amount you can borrow when you refinance, or the amount you're allowed to borrow with a home improvement loan or home equity line of credit.

Good credit prevails

Changes in lending practices are important to all of us-no matter what kind of mortgage instrument we need-because they make the application process more stringent and the availability of funds scarcer. On the other hand, if you have good credit and a solid income, you're going to be highly sought after by lenders who are struggling to make profitable loans. That preferred status will serve you well if you make the effort to shop around for the cheapest rate, the most convenient terms, and the best customer service. After all, if you maintained your excellent payment history through good times and bad, you deserve to be courted by competing lenders before signing on the dotted line-and you will be.

Refinance Mortgage Rates

Refinance Mortgage Rates

Find the best mortgage refinance option

To ensure the best savings possible, you can capitalise on the option of refinancing your mortgage loan. You will find that the refinance mortgage rates are usually lower than your original loan when you actually compare rates. When you are refinancing your home mortgage you are typically getting another loan of approximately the same amount but the refinance rates are usually much lower and thus more beneficial to you. Thus refinancing a home loan can actually afford you great savings.


Comparison of refinance rates online will help you decide on what is best for you. Taking advantage of these lower refinance mortgage rates will help you to save money which you can use for other purposes like home improvements, buying a new car, children's tuitions, planning vacations etc.

Mortgage refinance comparison

Comparisons of refinancing home mortgage loans and refinance mortgage rates are very essential when you possess equity in your home. A good knowledge through a thorough comparison will help you reduce your refinance mortgage rates, allow you to change the terms and conditions of your mortgage and assist in debt consolidation. If you were to refinance your home loan through an online procedure, you may not be required to use your home as a security; instead it will allow you to integrate you debt into the amount owed. This will give you the added benefit of low refinance mortgage rates with your monthly payments.

Refinance your home mortgage loan and save money!

Given your personal needs and your financial situation, a refinance mortgage rate comparison will tell you exactly what is best for you. Refinancing of mortgage loans with low refinance mortgage rates is a good way to lighten the burden of your bills. One low payment will enable you to consolidate your bills and help you to pay off your debt in cash. Your lender will advise you of the best financial breaks through a comparison of refinancing mortgages and refinance mortgage rates.

Simple procedure for finding the best refinancing rates

Fill out the simple online form to refinance mortgage loans. It will help you in making comparisons and educated decision making. MortgageLoan.com will allow you to search for several lenders and loan programs. You can compare rates through our refinance calculators and get yourself the best refinance mortgage rates through our daily updates and rate comparisons.

Get four refinance quotes for free!

You will avail the benefit of up to 4 lenders who will get in touch with you to compete for your business. You have the option of choosing the lender that best suits your needs by comparing rates and other information and save yourself hundreds of dollars.

Building your Portfolio: No Better Time Than Now

Building your Portfolio: No Better Time Than Now


Don't give up on your portfolio just because the market looks bad. This could be the perfect time to invest.

How does that old investing adage go? Buy high, sell higher? Of course not. When prices are low, it's the right time to buy. During the darkest time, you should get out your flashlight and start looking for deals.

Friends in low places

Right now, the real estate market is hitting rock bottom and the stock market is stop-and-go. Homes and land, blue-chip stocks and hyper-growth rockets, they're all starting to look mighty cheap. Your favorite investment vehicle is less important than your eye for undervalued assets.

It's easy to find beaten-down investments these days. The trick is to identify the ones that will make it through the hard times and realize their true value once again. Great management can steer a solid business through rough waters, only to come out stronger when the market normalizes again, and the less talented competition is fighting for its life. And great real estate is great real estate, even when market conditions push buyers away and prices down.

Investing decisions

If you don't feel comfortable calling the bottom quite yet, you have a couple of options. For one, you could take the leap anyway. Very few investors manage to jump in at exactly the right time, and there's no shame in getting in too early. The name of the game is to get in, because you can't make any money in the market if you don't invest at all.

Another choice is to take a hard look at alternative investments. International stocks, for example, are good bets while the U.S. dollar remains in free-fall. When the dollar drops 10 percent against the yen, Japanese investments get a free 10 percent value boost above whatever returns the stocks themselves may give.

Finally, you could simply park your nest egg in a high-yield money market account or certificate of deposit (CD) until you see market conditions that you like. Just remember the first point: don't stay out for too long. That's no way to grow your wealth, or even protect your assets from the ravages of inflation.

Retirement in mind

The younger you are, the more you need to be in the market. When you're investing for retirement, which is decades away, you can afford to take on some short-term risk in order to catch the long-term rewards.

Recessions and bear markets are an investor's best friends, as backwards as it might sound. As long as you're still looking to make new investments, you really want prices to be as low as possible, and broad market downturns give you plenty of that. Let the good times roll, but not until you've funded your nest egg. Buy low, then sell high-that's the way to riches in your golden years. Just remember to thank your friend, Mr. Bear, when you're booking that cruise for your 50th wedding anniversary.

Credit Cards: When More is Merrier

Credit Cards: When More is Merrier


At a time when consumers with credit problems have wreaked havoc on the mortgage industry, it's not surprising to find that many people carry more than one credit card. However, when you consider the advantages, having multiple charge cards makes sense.


Among financially conservative people, the notion of debt has always been frowned upon. However, debt tools, such as credit cards, aren't evil at all if used wisely. Carrying multiple credit cards can enable you to enjoy some substantial benefits.

1. Safeguard against identity theft

With identity theft an ever-present danger, you can use an extra credit card to your advantage. You could, for example, consider designating one credit card for online shopping. Internet shopping can be more prone to attacks by identity thieves. If you've designated only one card for use on the net, you can prevent your other charge accounts from being attacked.

2. A great back-up

In the event that you misplace your credit card or lose your wallet, having a back-up card provides you with a source of instant funds. Instead of storing it in your wallet, however, find a secure place. Choose either an in-home fireproof safe, or a safety deposit box at the bank. A backup is also nice to have available if one of your other cards is compromised.

3. Alternative option

Besides having a backup at home, carrying multiple cards can come in handy when you're out shopping. Different vendors have different policies regarding the credit cards that they accept. What if you stumble upon the perfect item, but the vendor only accepts MasterCard, but not American Express? It's wise to have both options, just in case you run into a bind.

4. Rolling in the rewards

Credit card companies are falling over each other in the ongoing attempt to woo new customers. Many offer generous rewards programs, and if you pay off your balance every month, you can scoop up some nifty gifts.

Choose a few different rewards cards, and be careful to link the paybacks to something you value (travel points if you love to travel, for example). Don't spread yourself too thin. If you have too many cards, you'll have to wait a long time to cash in the rewards.

Carrying multiple credit cards is a big responsibility, however. You'll have quite a few monthly statements coming your way, and you'll need to make sure that you pay all those balances in full and on time; otherwise, your credit score will suffer. If managed well, however, carrying multiple cards can produce big rewards. You'll have a backup in case you misplace your wallet or your card isn't accepted. You can designate one card specifically for online expenses, minimizing your exposure to online identity theft. And you can take advantage of numerous rewards programs offered by the issuers.

There are countless reasons why you should avoid debt. But don't let them steer you away from the multiple benefits of using multiple credit cards.

Help your Teens Become Millionaires

Help your Teens Become Millionaires


Parents always want their kids to grow up and be successful. It's even better if that success includes a seven-figure savings account.

It isn't too late to turn your surly teen into a millionaire. Yes, your teen-the same kid who periodically loses an iPod in an unorganized backpack-can be taught the tenets of saving. You've taught him about integrity, courtesy, and personal responsibility; now it's time to teach him about compound interest.

The American dream is about working hard to accumulate wealth. Fortunately, in this land of free enterprise, wealth is an attainable dream. Since your kids have a lot of time, they can get rich without ever breaking a sweat. If you start teaching them about investing now, you can watch them build wealth thanks to compound interest.

A little now versus a lot later

The concept of compound interest is the process of making money on money made. As confusing as this might sound to a teenager, it's really pretty simple. Here's an example to get the message across:

Let's say you deposit $2,000 into an interest-bearing account with a 3.5 percent annual yield. After one year, the account will have earned $70, and the balance will be $2,070. If the interest rate never changes, and the earnings are taken out every year to buy, say, 70 iPod downloads, the account will indefinitely produce that $70.

But what happens if you skip the 70 downloads, and you leave the money in the account? In the second year, you'll earn interest on the $2,000 plus the $70 previous interest, for total earnings of $72.45. Let that money sit there longer, and the earning power continues to grow. By the tenth year, the account will earn more than $95 per year, and the balance will be in excess of $2,800. That's $800 earned just by waiting around.

Making a millionaire

Your teen will probably argue that $2,800 is nowhere near $1 million. He might also imply that forgoing ten years of downloads is a high price to pay. You'll then have to move to the more interesting lesson-what it takes to save up seven figures. The most important considerations in the calculation are yield, and the amount and timing of additional investments. If you can stash away $500 a month at an 8 percent average annual yield, the investment will crack the million-dollar mark after 35 years.

Your teen may then argue that 35 years is practically an eternity, and too long to wait for the million-dollar jackpot. Yes, it's a long time-but there's another factor to the equation. The $500 per month for 35 years only adds up to $210,000. That means that your teen will only contribute a couple of hundred thousand, but will end up with $1 million. That's the kind of return even a surly teenager should appreciate. What's more, by the time he becomes a millionaire and he's just turning 50, he'll have his own surly teenager to explain the miracle of compound interest to.

Refinancing Woes - Meet the Parents

Refinancing Woes? Meet the Parents!

When you're facing foreclosure and you don't qualify for a refinance, consider asking mom and dad to help you out of the jam.

Kids in TV families are always asking their parents for help. Remember when Arnold and Willis Jackson were accused of robbing their neighbor's apartment on Different Strokes? Mr. Drummond helped his kids prove their innocence, despite the presence of some damaging circumstantial evidence. If you're struggling to meet your adjustable-rate mortgage (ARM) payments, it could be time to follow Arnold Jackson's lead, and ask for a little parental redemption.

Avoiding foreclosure

Being stuck in the web of an inappropriate mortgage forces you to consider the possibility of foreclosure, particularly if you can't sell your home and your mortgage refinance applications continue to be declined. It's a high-stress situation that offers no easy answers.

If you're not ready to play victim to foreclosure just yet, your parents might be able to help you out. A parental bailout may not be the preferred course of action, but it could be the best way to survive this temporary crisis. Parents can help you in one of three ways: by giving you money, co-signing on your refinance, or buying your property.

Gifting cash

You might be able to negotiate a refinance if you had some cash available to reduce the debt balance. Your parents can give you up to $12,000 per year without tax consequences; if you're married, they can give that amount to both you and your spouse. Split up the gift in two separate tax years, and your parents can donate up to $48,000 to your cause. Lenders may want to see a signed statement from your parents stating that the funds do not need to be repaid.

The gift of a signature

Your parents can also co-sign for you on a mortgage refinance. As a co-signer, they're agreeing to pay the debt if you default. The lender may approve your refinance with this additional backing; but having a co-signer won't help you make the payments. Before asking for those parental signatures, make sure that you understand why you didn't qualify for the refinance. Then, ask yourself honestly if this mortgage is realistic for you and your household. If it isn't, find another solution. You don't need to get your parents involved if foreclosure is inevitable.

An investment gift

You could also sell your property to your parents, and use the cash to pay off the loan. Once the transaction is complete, your parents can rent the property back to you. Or you can move to a smaller rental, and your parents can rent it out to a third party.

While your parents may not be as financially well off as Diff'rent Strokes' Mr. Drummond, it's likely that they're more stable than you are. Try opening the conversation-you just might end up with a solution to your mortgage dilemma.

Avoid Penalty Points for Missed Payments

Avoid Penalty Points for Missed Payments


The fallout from delinquent subprime mortgages continues to illustrate how inter-connected our financial system truly is. Because of a penalty known as "universal default," a late payment on a mortgage can cause the interest rate on your credit card to rise.

In the wake of the surbprime mortgage crisis, credit card companies have moved to their battle stations, carefully keeping watch over potential credit problems. After observing countless financial institutions lose millions on defaulted mortgages, they're pricing their products to reflect potential risks. People with bad credit are now paying more than ever before, and their interest rates are also being adjusted upward based on a provision called universal default.

Domino effect

Credit card companies base their interest rates on a person's credit score. The higher the score, the lower the rate. When a financial institution issues a piece of plastic, their contracts generally allow them to change the interest rate. This is the case with the universal default provision.

These companies monitor the scores of their cardholders, and they react if they observe risky financial behavior. If, for example, a cardholder makes a late payment on his mortgage, the credit bureau will report a lower score. The credit card company sees the reduced score, and assumes that the customer is stumbling financially and could be a potential risk. Despite the fact that the cardholder's late payment was on his mortgage and not the credit card, the financial institution may raise interest rates to compensate for the potential risk.

Preventive maintenance

Unless you've got a card that excludes the universal default provision, there's not much you can do to stop the credit card company from raising your rate. Ideally, you should check your contract carefully, ensuring that it doesn't contain such provision. However, if you find that your current card has it, there are two ways to avoid the penalty.

The first is to get another piece of plastic without the default charge. The other is to make sure that your credit score never dips by making timely payments on all your accounts. Set up automatic withdrawals from your bank account on big ticket items like your home or car payment, and keep up on all your other bills. Consider using online payment systems so that you don't have to worry about a check getting lost in the mail. Also, make sure that you don't take on more debt than you can handle, as that can also lower your score.

The universal default provision is yet another example of how skittish financial institutions have become in the wake of the subprime mortgage crisis. By penalizing cardholders if they make a delinquent payment on other accounts, they're pricing for a potential credit risk. It's an example of how people with bad credit are being held to a higher standard-one that can, unfortunately, involve much higher interest rates.