Save! America

We've got a big announcement from MoneyAisle HQ: today we launch our "Save! America" contest. You may be asking yourself what, exactly, a "Save! America" contest is. If so, read on. All will be revealed.

You already know that MoneyAisle is the next-generation reverse auction website that provides great rates on CDs and High-Yield Savings accounts. Well, the "Save! America" contest is our effort to highlight the importance of savings for Americans by providing one contestant, randomly chosen, with a $5,000 High-Yield Savings account. Of course, the account's rate will be determined through a MoneyAisle auction - so the winner not only gets the five grand, but the great MoneyAisle rate that goes along with it.

The contest starts today and runs through the month of July. All you have to do to enter is go to MoneyAisle.com, register for an account, and then fill out the contest entry form. If you're already a registered MoneyAisle user, don't worry - you can also enter. Just log in and go to the contest registration page - the links from the contest page will take you there. There's more information on our contest page, including a full set of rules and disclosures. Check it out.

After doing that, why not run a MoneyAisle auction for yourself? As always, it's free, and you have the option of declining the rate if you don't want to open an account just yet.

Good luck to everyone!

Solving Our Energy Woes

Thomas Friedman's recent New York Times column, Mr. Bush, Lead or Leave, has been causing a great deal of stir around the blogosphere, with good reason.

In the column, Friedman attacks the President's new energy plan, and calls upon the government to set a floor price of $4.50 a gallon for gasoline and $100 a barrel for oil. Mr. Friedman argues that this would trigger massive investments in renewable energy.

I respectfully disagree.

I don't disagree that something needs to be done - soon - about America's dependence on foreign oil - that truth is self-evident. But burdening the American people with this additional cost is not the way to move forward. The average American uses around 500 gallons of gas every year. By creating a floor price of $4.50 a gallon, up from around $2.00 a couple of years ago, you're adding an additional $1250 per American driver every year - this is, effectively, an oil tax, subject to all of the bureaucracy and Congressional lobbying inherent in such an endeavor.

However, it would be unfair to criticize Mr. Friedman's plan (and the President's, as well) without offering up a solution of my own.

If 10% of the oil companies' profits (which work out to about $10 billion for the past year, with more profits still to come) were mandated to be invested in Venture Capital funds focused on developing alternative energy sources and enhancing energy efficiency, we could have a situation where everybody eventually benefits.

The economy would benefit from the new jobs created, the rise of new entrepreneurs, and the additional wealth created. The oil companies would benefit from the windfall their investments would generate. The average person wouldn't have to pay a high floor price "oil tax." By jumpstarting the free market, we could free ourselves from our dependence on foreign oil.

This country has always thrived on innovation, on competitive spirit. Given the incentive to solve our dependence on foreign oil, the great scientific and entrepreneurial minds of the United States will rise to this challenge, as they have risen to challenges past. By combining this innovative spirit with the benefits of the free market, we could solve the energy dilemma, and we could invest in ourselves.

That is an energy policy worthy of our Independence Day.

Freeing the Free Market

I recently read a very interesting interview with Slashdot Cofounder Jeff Bates at the Website E-Commerce Times. In the interview, Bates argues that the current models for online advertising are going to evolve into more behavioral targeting.

"Right now, throwing up an ad from a financial service company, for instance, next to an article about banking is primitive, really. What these companies who advertise really want to know is who these people are who are reading the articles and how can they target them."

One of our goals at MoneyAisle is to eliminate the current model for online advertising altogether - to have it evolve to the point where it no longer resembles its current state at all. Re-tooling the marketplace so that consumers get the best deals without having to sift through the endless noise of marketing.

Imagine a world where a consumer can go to one site and the sellers, rather than spending their money on having the most prevalent advertisements, instead passed those savings on to consumers. Letting the quality of their products and their deals do the "selling" for them. Freeing the free market from its dependency on marketing and focus groups - allowing it to once again function as an example of capitalism at its best, without all of the added dead weight it has accumulated in recent years.

That's the world I want to live in, and that's the world we're trying to build at MoneyAisle. It's not a change that will happen overnight, but I think the end result is well worth fighting for.

A Glossary of Commonly Used Financial Terms (#1 in an Occasional Series)

Education is one of the primary objectives of this blog. Occasionally we will explore and explain commonly used, and often misunderstood, banking terms. We recommend two resources that help define financial terms: Investor Words and Morgan Stanley.

Our goal is to clarify many of the financial decisions you make on a daily basis. Feel free to send us suggestions of terms you would like to see defined.

Certificate of Deposit (CD): Short- or medium-term, interest-bearing, FDIC-insured debt instrument offered by banks and savings and loans companies. CDs offer higher rates of return than most comparable investments, in exchange for tying up invested money for the duration of the certificate's maturity. Money removed before maturity is subject to a penalty. CDs are low risk, low return investments, and are also known as “time deposits,” because the account holder has agreed to keep the money in the account for a specified amount of time, anywhere from three months to six years. (http://www.investorwords.com/808/Certificate_of_Deposit.html)

Savings Account: A deposit account at a bank or savings and loan which pays interest, but cannot be withdrawn by check writing. (http://www.investorwords.com/4388/savings_account.html)

Checking Account: An account which allows the holder to write checks against deposited funds. Checking accounts which pay interest are sometimes referred to as negotiable order of withdrawal (NOW) accounts. The interest rate often depends on how large the balance in the account is and most charge a monthly service fee if the account balance falls below a preset level. (http://www.investorwords.com/846/checking_account.html)

Annual Percentage Yield (APY): Annual percentage yield is the amount you earn on an interest-bearing investment in a year, expressed as a percentage. For example, if you earn $60 on a $1,000 certificate of deposit (CD) between January 1 and December 31, your APY is 6%. When the APY is the same as the interest rate that is being paid on an investment, you are earning simple interest. But when the APY is higher than the interest rate, the interest is being compounded, which means you are earning interest on your accumulating interest. (http://www.morganstanleyindividual.com/customerservice/dictionary)

Response to NetBanker

In the short time MoneyAisle has been out in the world, we have been getting tremendous support from the media, industry influencers, and friends.

Jim Breune, of NetBanker, wrote a great piece on his blog - even going so far as to include screen-shots of the site. In his post, Jim did have a few questions about the future of MoneyAisle and some of the potential obstacles we may face. Since one of the purposes of this blog is to engage in a dialogue with the wider Internet community, I thought this would be a good place to answer the questions raised by Jim.

1. How to convince users that it's in their best interest to take the rate offered at the end of the auction?

I would hope that the consumer, after running a MoneyAisle auction, would be satisfied with the winning rate offered and would then take the steps to open an account. Jim's concern is that some of our participating banks don't have a "name" for themselves outside of their local area. My response to his concern is that the situation he describes is to the consumer's benefit: as smaller and mid-sized banks look to grow their business outside of their local region, they are inclined to offer higher rates. Also, all participating banks are Members FDIC, so a consumer's account is insured up to $100,000 by the government.

2. How to make the auctions feel "real"?

At the outset, since our auctions only have one variable (interest rate), our thinking is that showing only the winner keeps it fair to all of the participating banks. Were we to show three to five names, there is a possibility that other banks who advertise and have an established brand would benefit from it, thereby discouraging the other banks from being more competitive. Having said that, using our "Advanced Options" allows you to exclude up to three banks per auction. This is a help to consumers who already have $100,000 in a bank and need another bank to open their next account in to be eligible for FDIC protection. As feedback continues to come in, however, we are experimenting with ways to make MoneyAisle auctions the best user experience possible.

3. How to keep one bank from dominating the bidding?

Our platform is completely seller-neutral - large banks have no advantage over smaller community banks. By providing this level playing field, the idea is that everyone will be able to compete at the same level. Because MoneyAisle doesn't accept advertising there is no way to influence the process outside of offering great rates to consumers. If one bank dominates the bidding for a short time it is my belief that other banks will adjust their rates to become more competitive. One of MoneyAisle's goals is to make the free market work for both consumers and banks.

4. How do you compete with the offers available via Google AdWords, another type of auction?

As I mentioned in this post, online CPC advertising rates are very high, especially when you factor in conversion rates. Since our model is success-based - banks only pay us a small fee after they've acquired a new customer - our participating banks won't have to factor in the high cost of advertising when acquiring customers through MoneyAisle. If you take out that added cost, the savings can be passed on to consumers in the form of better rates!

I'd like to thank Jim for taking the time to look at our site in detail and for posting his honest thoughts and questions, thereby giving me the chance to dive deeper into our product and relay the ideas behind it on a more personal level.

Goldman Warning on Banks

I read an interesting Reuters article last night:

U.S. stocks fell on Tuesday as Goldman Sachs warned that banks may need to raise an additional $65 billion, stoking worries about further fallout from the mortgage crisis.

Read the rest here.

News of this sort makes it obvious to me that we launched MoneyAisle in the proverbial nick of time: banks are looking for new and innovative ways to increase deposits without added expenses that get passed on to their customers. Customers are looking for great rates on their deposits during uncertain financial times.

We're in our second week now and, as Kevin mentioned below, we've already secured banks over $1 Million in deposits. I can't wait to see what we'll do in the weeks and months ahead.

One Million

Hello!

If you look at the "Posted by" tag at the bottom of this entry, you'll notice that I am not, in fact, Mukesh Chatter. Rest assured, Mukesh isn't going anywhere. But we here at MoneyAisle thought it would be a good idea to get a few different voices posting on our blog.

My name is Kevin, and I'm the Senior Web Producer at neoSaej/MoneyAisle and I'm going to be joining Mukesh to write about personal finance, saving you and your family money, and other interesting news items within that sphere. Think of me as the John Oates to Mukesh's Daryl Hall.

MoneyAisle's been around for almost 1.5 weeks now, and we just put out a press release announcing that more than $1 Million was invested via MoneyAisle in just our first week of existence. You can read the whole thing here. We've got more exciting announcements coming soon, so stay tuned.

Thanks for checking out the MoneyAisle blog!

Could dependence on advertising be contributing to the subprime crisis and high credit card interest rates?

In 2007, over $20 billion was spent on online advertising, and the number was far greater for traditional advertising. Banks and financial institutions of all sizes, especially large banks, have spent billions of dollars themselves to advertise both online and offline.

Since profit margins on checking and savings accounts, CDs and home equity loans are razor thin, banks need to invest in high-yield products in order to recoup dollars spent on advertising. The more banks advertise, the higher the expenditures and greater the need to recoup sums of money, resulting in deployment of that money in increasingly riskier assets such as subprime lending and credit cards. For an interesting take on the subprime crisis be sure to read this article from Investopedia.

Here is an example of bank costs when factoring in advertising:

• A customer purchases, online, a $20,000 CD paying 3% interest over 6 months
• After 6 months the bank owes the customer $300 in interest (3%)
• The bank also paid a fee to acquire that online customer. In general, it takes roughly 100 clicks (at a typical rate of $7.00 per click) to acquire just one customer. Thus, the total a bank must pay to search engines and aggregators to acquire a customer is $700. (7%)
• On top of acquisition costs and interest, banks also have to make at least 3% back on each transaction to help cover overhead and operating costs. In this case, that 3% equals $300.
• So, after 6 months, one customer cost the bank $1,300 (13%), and over half of that cost came from advertising.
• Bank fees can shave off percentage points and help recoup some of the costs, but by no means do they help a bank get close to breaking even, let alone make a profit.

Given the above information, I wonder if there is a closer cause and effect relationship between the advertising cost, the 19-25% credit card interest, and riskier subprime lending? As advertising has become such a dominant cost of doing business that it has severely influenced where banks can invest, or deploy the capital…and forces a much greater risk rate.

If banks could rely less on advertising, traditional and/or online, not only would CD and high yield savings rates be higher, but there would be no need for astronomical credit card interest rates or so much investing in subprime lending. Banks wouldn’t need to find a way to make back that 7% they squandered away on customer acquisition fees. Imagine if banks could free up 7% of costs on every customer! In this perfect world, everyone would win.

Unfortunately, banks have not had the mechanism to forgo advertising and pass the savings on to their customers. As a result, advertising continues to negatively affect their customers – and their bottom lines.

The Medieval Bazaar

You may have traveled to one of the famous bazaars in Istanbul, Cairo or outside of Beijing. If not, you’ve probably seen vibrant images of brick streets filled with an unending variety of goods and people on television or in films – the famous scene in “Raiders of the Lost Ark” where Indiana Jones shoots the swordsman takes place in such an environment. By looking at this 1875 painting “A Cairo Bazaar” by John Frederick Lewis, one can see seller competition at its purest.

The beauty of the bazaar selling format is that buyers closely interact with sellers and can verbally express their needs and wants as well as their price limitations, thus affecting the ultimate outcome of the sale. That is what makes a bazaar so special: anywhere in the world, no matter what language you speak, one can always barter for a better deal at any bazaar. If you’ve never witnessed the back and forth haggling process between multiple sellers and a prospective buyer, it’s quite a sight.

In a bazaar, the seller is active, the competition fierce, and the buyer ultimately has the advantage. These fundamental characteristics are beginning to emerge on the Web, the largest marketplace in the world. Right now the Web is flooded with online auctions, but most fall far short of the purity of a medieval bazaar. Most of these online auctions give the advantage to sellers. Take eBay, for example. There buyers compete against each other for a desired object, driving up the price, and giving the seller the benefits of competition. So what is the true benefit to buyers on places like eBay?

At MoneyAisle, we want to recreate the medieval bazaar online. So we have created a fully automated process where buyers get to watch sellers bid against each other live to secure the buyer’s business. It’s fast, easy, and has all the advantages of a bazaar – without the shouting, of course.

One TV, Two TV, Red TV, Blue TV

About three years ago, on a typical Saturday morning, I drove to the mall on a quest to buy televisions – three of them, in fact. My family and I had just moved into our new house and we decided to upgrade from our old sets to new ones.

My goal, of course, was to get the best deal possible. I figured the easiest and smartest way would be to compare prices at two stores, and pick the best one. How hard could that be? It turned out to be much more complicated than I could ever have expected.

I was prepared to sift through the hundreds of models, compare the pros and cons between the dozen or so makers, but never in my wildest dreams could I have imagined how much disparity there was in the pricing. Every TV I looked at had drastically different prices between stores. One particular 52-inch ranged from $2800 to $4800! The price difference at online retailers was just as bad.

Later that day, flipping through the newspaper, there were dozens of ads for dozens of banks, each offering a different Certificate of Deposit rate. Then it hit me. I wanted to find a place where I could easily get great prices, not just those advertised or found locally. I wanted sellers to compete for my business. The initial idea that would evolve into MoneyAisle was born.

Why am I telling you this story? Because I know that I’m not alone. Retailers know how to draw consumers in with advertising and marketing – they also utilize loss leaders hoping that you’ll buy something more expensive or upgrade with costly features once they have you in the store. It’s a sound strategy because most people don’t want to spend all day driving around for the best prices. We have all wasted an entire day “shopping around” for the best price on wallpaper, cars, credit card rates, you name it – and it can be a trying experience.

Shopping online turns out to be a lot like shopping at a physical store. Most sites search through established prices (and many of them work closely with the sellers) and present consumers with information. MoneyAisle takes this concept to the next level – we have sellers actually bid for your business – against each other – in real time, like a reverse version of eBay.

MoneyAisle’s patent-pending technology makes this happen for us. And I mean us. Because not only am I the CEO of MoneyAisle, but I’m also using it to help save me and my family money.

Welcome to the Buying Revolution!

Welcome to the online buying revolution. Welcome to MoneyAisle!

MoneyAisle was founded on a simple, but powerful, premise: to use the power of the Web to put the control of buying back into the hands of the consumer. Unlike other online sites that are merely aggregators for listed rates, MoneyAisle actually has sellers competitively bidding for your business in live auctions – 24/7 and free of advertisers. Think of it as the reverse of the eBay model: many sellers are bidding for the business of one buyer.

Our primary goals are to save people money by cutting through the expense and clutter of advertising and marketing in order to find the best price and the best deal for consumers, as well as to create a new paradigm for online business: one where sellers compete for the business of the consumer in real-time. The MoneyAisle Web site, which is powered by our patent-pending technology, launched today.

Soon you’ll be able to price a vast array of your financial services through MoneyAisle, but today we’re keeping it simple and rolling out our first products: Certificates of Deposit (CD) and high-yield savings accounts. Banks from across the country offer all kinds of deals for CDs and high-yield savings accounts and now consumers can tap into these deals through MoneyAisle.

Here’s how we do it:

• We have a network of more than 65 participating banks (with an additional 25 to be activated in the next few weeks) from across the country – who are all interested in expanding their customer base.


• Upon visiting MoneyAisle, a consumer simply types in the amount of money they have to invest in a CD or high-yield savings account and (in the case of a CD) how long they want the CD to mature for (three months, six months, one year, 18 months, etc.).


• Within seconds, MoneyAisle shoots your request to the banks in our network and they respond with their best rates for that particular CD or high-yield savings account-in real time. The banks have a fully automated process set up, so you can utilize MoneyAisle 24/7.


• MoneyAisle captures the best overall rate and then sends the winning rate in each round of bidding back to the banks to see if any of them will beat it.


• The bidding is repeated as many times as necessary, until there is only one bank remaining, and the best price is left standing.


• The consumer then ends up with the highest possible rate for the CD or high-yield savings account at that given time. If the consumer wishes to buy, he or she merely has to accept the winning bid and will then be taken to instructions for opening the account.

It’s that easy, only takes a couple of minutes and is automated to work 24/7. If you want to try it out before registering, we even have a "test-drive" option with real banks bidding their real rates. However, you won't have the option to accept the winning bid after a "test-drive" auction completes.

Over the course of the next few days, weeks and months, I will be blogging about buying and selling and providing tips on saving money and beating the system. I’ll also be providing consumer resources, links to valuable and interesting sites, insight into MoneyAisle, and more beneficial information for consumers.

Don’t Let Surprise Fees Break Your Bank

We’ve all experienced the different fees banks charge, whether it be ATM fees, minimum balance fees, or annual fees. Certainly, we can understand how there are some fees that banks must collect in order to make a profit, but there are also some simple ways to avoid being surprised by random bank fees. I've been reading up a bit on reducing fee frustration and thought I'd share some of my findings with you all.

1. Read all bank correspondence – I know we are all very busy and reading through every piece of collateral you receive from the bank isn’t high on a list of things to do, but by just keeping an eye out for updated fee schedules or new terms and conditions we can become more aware consumers. Be sure to watch for unmarked mail – banks often send important announcements in unimportant-looking envelopes.

2. Review your bank statement – Paper bank statements are vanishing as many consumers move to online banking. But regardless of how you receive your bank statements, you shouldn’t neglect them. Keeping up-to-date on statements is crucial for sound financial planning. Tracking statements will not only help you understand bank charges, but will give help you guard against the possibility of fraud or ID theft.

3. Call a bank representative – Sitting on hold for 10 minutes isn’t the best use of anybody's time, but you can quickly learn about all of the fees associated with your account when you finally do get a customer service representative live. If you ever see a random fee on your statement without a detailed description, this may be the only way to find out what the fee is.

4. Look in to other options – It is somewhat of a hassle to switch banks, but you’ll enjoy your banking experience more if you are at a place where you aren’t befuddled by the exorbitant amount of fees. Research all of your options – national banks, community banks – before taking your money elsewhere. If you have some extra disposable income, look into other financial tools to build your portfolio, including IRAs, 401ks, certificates of deposit, high-yield savings accounts, stocks, bonds, etc.

The bottom line is this: You work hard for your money, make sure your money sticks around long enough to work hard for you.

FDIC: A Reliable Friend

In times of financial crisis, like the Great Depression, investors and savers alike might race to their bank, withdraw every last cent, and store their life savings under their mattress.

As the subprime crisis and weak dollar continue to have an impact on the economy in 2008 – please don’t do this!

It’s important to understand that you don’t need to panic in financially difficult times, and that beneath a mattress is the last place you want to store your savings.

There is a fail-safe system in place, and an excellent one at that, called the Federal Deposit Insurance Corporation, better known as the FDIC. Throughout time, banks have come and gone, but since 1933 the FDIC has always been there to provide support and reassurance to investors.

In 1929, when the stock market crashed on Black Tuesday it kicked off one of the most financially painful times in American history. Unfortunately, there was no institution in place at that time to protect one’s savings. The FDIC was still 4 years from its creation. Today, the picture is completely different. We should think of our current situation as a weak dollar and subprime crisis, among other things. This situation has undoubtedly been making recent months very difficult for Americans, and may continue for several months to come. But in contrast to 1929, we now have the FDIC to protect our savings.

The FDIC currently guarantees savings and checking deposits in participating banks up to $100,000 per depositor. Does this mean only up to $100,000 is insured? Yes and no. One of the most admirable aspects of the FDIC is that accounts at different banks are insured separately; meaning one person could keep $100,000 in each of two separate accounts and be fully insured for a total of $200,000. Also notable, the Federal Deposit Insurance Reform Act raised the amount of insurance for an Individual Retirement Account to $250,000.

Since 1933, not a single cent from any account within that $100,000 range has been lost due to bank closings.

But do keep in mind annuities, stocks, life insurance policies and mutual funds are not FDIC insured. Why is this? The FDIC only covers savings options and these products are classified as investment options, rather than savings options like checking and savings accounts.

If you have any concern that your bank may be the next to close, call the agency at 877-ASK-FDIC or go to http://www.fdic.gov/.

It will help you sleep at night.