Smart Money: When Your Bank Stiffs You, and Co-Signing Risks

Smart Money: When Your Bank Stiffs You, And Co Signing Risks
NerdWallet

Welcome to NerdWallet’s Smart Money podcast, where we answer your real-world money questions.

This week’s episode starts with a discussion about what to do when your bank stiffs you with a low annual percentage yield.

Then we pivot to this week’s money question from Andrew, who left this voicemail:

“I had a question about helping out family members with a lease. My wife and I were recently asked to help some younger family members by being guarantors or co-signers on a lease to help them get an apartment. And we were not sure what that might mean for us, what kinds of risks that might mean for our finances or our credit. Made us a little uneasy knowing that it could potentially impact our ability to buy a home in the future. So I was hoping you guys could give an answer about what kinds of responsibilities that [means] to be a co-signer or a guarantor on a lease, and what kinds of risks that has, and also whether it’s wise to help family members in that kind of way, even when you really, really want to. Thanks. Bye.”

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Our take on finding a better savings account

As the Federal Reserve raises interest rates to combat inflation, many high-interest savings accounts have increased their annual percentage yield, or APY, in tandem. But not all banks are being so generous. To find out what your interest rate is, log in to your savings account and dig in to your account details. Depending on your bank’s interface, this might be on your dashboard when you log in or tucked away on another page in your account. If you’re dissatisfied with the rate you see, shop around for a better place to store your money. Plenty of banks, especially online banks and credit unions, now boast APYs north of 3%, and some even offer bonuses to customers who switch.

Our take on co-signing

Becoming a co-signer for a loan or lease is a major financial — and legal — obligation. Co-signers agree to pay the debt in the event that the primary lender can’t do so, and if the account becomes delinquent or goes into default, the co-signer’s credit score may take a major hit. A lower score may jeopardize the co-signer’s chances of getting their own loan or line of credit. As co-signing can expose you to negative, long-lasting consequences, try to do so only when you are certain that the other person can afford their payments. If becoming a co-signer seems too risky, offer assistance in other ways.

Our tips

  • Know what you’re signing up for. When you co-sign, you’re responsible for any financial or legal obligations of the contract.
  • Understand the risks. Think through the worst-case scenarios, especially if you plan to buy a home soon.
  • Consider alternatives. You could help your family members in other ways instead, such as by giving them a lump sum of money or helping them find an apartment they can afford on their own.

Have a money question? Text or call us at 901-730-6373. Or you can email us at podcast@nerdwallet.com. To hear previous episodes, go to the podcast homepage.