From bank fees to stock risk, planning defuses these 4 threats

Americans face many financial problems — inadequate retirement savings, identity-theft risks and often-high personal debts, to name a few. Some of those obstacles take a lot of time and effort to resolve.

But various other money-related problems aren't nearly as daunting as they might seem. Many can be eliminated by people who make the effort to plan ahead. Here are some examples:

•Safeguarding deposits. In years past, during economic slumps or banking crises, you could occasionally see anxious customers lined up outside their closed financial institutions, worried about losing deposits. But with some foresight, deposit losses can be totally avoided, assuming you have enough money for this even to be an issue.

With the economic rebound, hardly any banks are shutting their doors anymore. Bank failures plunged from 157 in 2010 to just four last year, as industry profitability recovered and problem loans receded. The list of problem banks identified by the Federal Deposit Insurance Corp. is down to 253 from a cyclical peak of 888 in 2011. Meanwhile, the FDIC's deposit insurance fund continues to fill up with money destined to make depositors whole in the event of future failures.

Standard FDIC insurance of $250,000 per depositor per bank is sufficient to cover potential losses for most customers. If you have more than that, you can gain additional protection by splitting your money among different types of accounts or, better still, dividing it among financial institutions. The FDIC.gov website explains deposit-insurance rules.

Bank failures could increase again someday, likely when the next recession hits. But for now, this isn't a significant problem, making it a good time to check the adequacy of your deposit insurance so that you never have to worry about this peril.

•Avoiding bank fees. Not all Americans have access to low-cost banking services or know how to qualify for them. A lot of people are "unbanked," doing business with payday lenders, auto-title loan companies and other high-cost outlets instead. But for the majority of Americans with at least a couple thousand dollars to work with — and who trust and are familiar with the banking system — it's easy to avoid fees.

For example, 61% of consumers said they pay nothing for services such as checking accounts and ATM access in a July survey of 1,000 adults by the American Bankers Association. Free checking is widely available for individuals who maintain a minimum balance or sign up for direct deposits. Other ways to avoid fees include monitoring account balances regularly, signing up for alerts when balances drop to low levels and sticking to your own bank's ATM network.

A 2014 study by Bankrate.com found that nominal fees for ATMs, checking accounts and overdraft charges have been rising. But the study also asserted that fees are avoidable for most people who plan ahead. Of the banks surveyed, two in five offer unrestricted no-fee checking. But nearly all offer free checking to customers who maintain minimum balances, sign up for direct deposit, agree to receive statements electronically or meet other requirements.

•Minimizing individual-stock risks. The stock market remains a volatile place, with two fundamental types of risks. One is related to broad market downdrafts, and the other is tied to problems from specific companies.

The first risk is hard to avoid. If the market drops 20% in a week, it's going to pull most everything down with it. But the second danger can be greatly alleviated through diversification.

The spread of mutual funds, exchange-traded funds and other packaged portfolios means you can diversify away virtually all of the dangers tied to specific companies. If one stock craters — following a poor profit report, a legal setback, a bankruptcy filing or whatever — it won't drag down the entire portfolio with it.

Americans never before have had access to more stock market investments, in this country and in once-exotic locales like China, Eastern Europe and the Middle East. Investing in these places can subject investors to considerable volatility. But risks tied to individual companies in these various markets, and in the U.S., can be greatly reduced. They key is to choose baskets of stocks, or funds, rather than concentrate your portfolio in a handful of individual securities. This is a significant benefit but one that often goes underappreciated.

•Skirting estate taxes. Government levies on wealth upon a person's death long have been among the most confusing and feared taxes. But the reality is that estate taxes don't apply to most Americans, and much of the political uncertainty and rhetoric tied to the tax has eased.

Individuals this year can exempt up to $5.43 million in assets from the federal estate tax, one of the highest thresholds of the past decade or so, and married couples can potentially double that to $10.86 million. The top levy of 40% also is fairly mild, historically speaking.

Most states don't levy an estate or inheritance tax of their own. The Tax Foundation reports 15 states and the District of Columbia impose an estate tax only, four states have an inheritance tax only and two states have both. People living in one of the tax states do need to be mindful of their state laws. But residents still would need to have at least several hundred thousand dollars in assets, if not several million, to trigger a tax — and state rates are lower than the 40% federal levy.

Estate taxes thus aren't something most Americans need to worry much about, though this isn't a reason to neglect estate planning. It's still wise to prepare for the transfer of assets in a way that avoids probate and other complications such as fighting among beneficiaries. Proper account titling, living trusts, life insurance, transfer-on-death deeds and other tools remain valuable, even if estate taxes aren't a widespread concern.

Reach Wiles at russ.wiles@arizonarepublic.com or 602-444-8616.