From time to time, I’ll post about current events and news I come across that adds to our recent discussions.
In today’s post, we’ll talk about Capital One’s alleged deceptive practices, rising credit card balances, and how much we should save for retirement.
Like with our Q&A posts, please leave a comment below, email me, or reach out on the socials if there are any stories you’d like to discuss here.
Let’s start with recent news that impacted me personally.
A reminder to consistently evaluate your banking relationships.
For a long time, I used Capital One for all my savings accounts. When I started law school in 2006, there was a Capital One cafe right next to my school. You could get a cup of coffee for $.75 and talk to a banker at the same time. It was a cool concept and convinced me to bank with Capital One.
I told everyone about how great Capital One was. I had Capital One savings accounts and a Capital One credit card. You could say I was a huge Capital One fan.
Key word: was.
In November 2023, I had been a loyal Capital one customer for 17 years. This was during the time period when interest rates on savings accounts were rising dramatically. Many banks were advertising rates as high as 4% or 5%, which were higher than most of us had ever seen.
One day that November, for whatever reason, I logged into my Capital One account to see what rate I was earning. I was sure it would be in the 4% range, and probably closer to 5%, since Capital One was a leader in online banking.
When my statement loaded, I was shocked.
0.30%!
Shocked probably isn’t the right word. I was disgusted.
0.30% in 2023 might as well have been 0.0%… from a bank that had been a leader in online savings accounts that I had banked with for 17 years.
What the heck happened?
Capital One, unbeknownst to me, switched my savings from its high interest platform into an account with the much lower interest rate. At the same time, Capital One was still advertising and offering top rates to new customers.
It wasn’t just me. I am one of the many people that Capital One switched out of high interest rate savings accounts into inferior products. These deceptive practices are now the subject of a federal lawsuit brought by the Consumer Federal Protection Bureau.
When I discovered the sneaky switch, I immediately closed all of my accounts and transferred my money to a new bank. I no longer have a Capital One credit card, either.
Capital One, of course, denies the allegations. Maybe they did nothing legally wrong. For me, I saw the deceit in my own statement and the damage was already done.
Why do stories like Capital One’s alleged deceptive practices matter?
It wasn’t the amount of interest I lost out on that bothered me.
This all happened during that time we talked about when my wife and I were aggressively acquiring properties, so we never had a lot of money sitting in savings for an extended period.
For me, it was about the principle. I don’t want to have any relationship with a bank that would do that to its customers, especially long-term customers like me.
That said, I have to admit that writing this post is reopening old wounds.
I did a quick search in my inbox and found a Capital One statement from December 2022 showing a 0.30% interest rate. That means Capital One had deceived me for at least a year before I caught on.
Now I’m getting hot all over again.
“Take a deep breath,” as my son says to his sister when she’s crying.
On the bright side, this experience was a good reminder of how important it is to look at our accounts regularly.
You could also say it’s a good reminder to regularly think and talk about money so something like this doesn’t happen to you.
No matter how much you trust your bank, keep an eye on your accounts.
Americans are spending more on credit cards and carrying bigger balances.
As The WSJ notes, “Bigger credit-card balances mean people are paying more in interest charges, with rates hovering around their highest levels on records. The average credit-card rate was around 21% late last year, according to data from the Federal Reserve.”
These findings are consistent with a recently published study by The Federal Reserve reporting that consumers are using credit cards more often when compared to cash transactions.
Higher credit card balances combined with more frequent credit card use is a problematic combination.
I am no stranger to carrying a credit-card balance. These reports don’t come as a shock to me. Especially in an era where the cost of living is rising so sharply everywhere.
It’s because I’ve personally felt the negative emotions tied to credit card debt that I never like seeing stories like these.
I understand that some people don’t have options besides using credit cards because of life circumstances. I’m hopeful that through money wellness education, more and more people will realize that they do have options.
I’m not saying it’s easy. But, there is a path forward. You can create a money plan that is consistent with your life goals and does not include high-interest debt.
How much money should you have saved for retirement by age 50?
Investopedia recently summarized reports from three major 401(k) providers on the average balances people have in their 401(k) plans. These articles can be helpful to measure your progress. Just be careful on what you take away from them.
We all have different goals in retirement. That could mean when we hope to retire. Or, how we plan to spend our money in retirement.
Plus, some of us have different investments, such as real estate holdings, that would not be reflected in studies like this.
For many of the same reasons that I’m not a fan of a rigid 50-30-20 budget framework, I don’t find these types of comparisons too helpful. I prefer we strive for personal improvement, like fitness instructors have been teaching us for years.
Let’s look at one of the potential issues with articles like these. Empower reports that the average balance for someone in their 50’s is $592,285, and the median balance is $252,850.
That’s a big difference. Let’s refer back to high school math (ok fine, Google) for a refresher on what “average” and “median” are.
The average balance is calculated by adding up everyone’s account balance and dividing by the total number of people. The median reflects the middle account balance if we list everyone’s balance from smallest to largest.
Using Empower’s data, the average balance seems skewed on the high side. This is likely because of a subset of high net worth individuals driving the average up. The median value is probably a more informative number for the average American.
Let’s put this all another way. Whether my colleague has $50,000 saved or $500,000 saved should not impact my retirement planning. The amount he has saved doesn’t matter to me.
Instead of talking about his numbers, I can still benefit from talking to him about his goals. I should be talking to him about his money mindset, like what motivates him to save in the first place.
Am I saving too little or too much for retirement?
Since 2011, I’ve represented individuals with mesothelioma, a terminal cancer caused by exposure to asbestos. Most of my clients are in their 70’s and don’t get the chance to enjoy their retirements because of their mesothelioma.
My perspective on work, family, and life has undoubtedly been shaped by visiting with my clients in their homes and talking about their life experiences. I am forever grateful for what I have learned in these moments.
When I see stories like this one from The WSJ about the financial regrets of people over age 80, I pay attention. I read these stories about people who are living longer than they expected and can’t help but think of my clients with mesothelioma who won’t have that same experience.
I also think about Bill Perkins and his excellent book, Die with Zero. You can read more about Perkins and his philosophy that many of us are saving too much for retirement on the Die with Zero website.
For my own money decisions, I’m still sorting out these three competing realities:
- Some people, like my mesothelioma clients, don’t get to enjoy a full retirement;
- Others outlive their money in retirement; and
- Still other people saved more than they’ll ever spend in retirement.
My main takeaway is that I want to make choices today that allow me to spend more time with the people I love and more time doing the work that I love. However those three realities play out in my own life, I’m confident I won’t regret living this way.
This mindset is what led me to start Think and Talk Money. I enjoy helping people think through these types of choices.
Please help me spread the word about Think and Talk Money so more of us can consider these important concepts.
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