This idea of counterparty risk should be a concern to you as an individual as well. Why? Well, besides the worry about your bank deposits being at risk (which is a lot smaller issue than many think due to FDIC insurance coverage), you have to worry about the rewards points you’ve earned on your credit cards. Rewards programs have always had the risk of program changes and points devaluation, however now you have the risks of the bank that issued your card either ceasing to exist or being nationalized. If your bank ceases to exist and the account is assumed by another bank, it is almost certain that your rewards program will be converted to one offered by the assuming bank, which could be very different than what you currently have. A bank being nationalized is more of a wild card, as theoritically the bank will be under the same management, but with added pressure from the government to pursue policy objectives rather than profit objectives. It is anyone’s guess what that would mean for credit card rewards programs, but it is very possible high cost rewards programs could be scrapped to free up more funds for programs deemed to be in the “public interest”.

It is for this reason I have all but completely cashed out my rewards on my Citibank accounts. I had about $85 in rewards on my Citi Dividend card I withdrew last week, and I called today to cash out most of my Thank You points for a mortgage payment reward. That brought my Thank You point balance down from around 96,000 to about 2,000, which is a tolerable risk for me.

On a related note, you should also consider gift cards in the idea of counterparty risk as well. If the retailer you have a gift card for goes out of business (i.e., Circuit City, Linens-N-Things, Sharper Image), your gift card becomes worthless. That is the reason I used the Thank You points for the mortgage payment reward instead of for gift cards: of the retailers offering gift cards with a traditional 1 point=$0.01 redemption rate, none of them were stores I felt comfortable that I could spend the full amount in a reasonable period of time with my normal shopping habits (mostly department stores like Macy’s and Dillard’s). The stores I would actually use (Walmart, Target, Home Depot) only offered cards at the $50 level at a rate of 1 point=$0.00833, which isn’t that much better than the mortgage payment reward (1 point=$0.007987 at the $750 level), and considering the additional credit card rewards I would earn using my credit card instead of a gift card the two are nearly identical. Additional pluses for the mortgage payment reward are the elimination of counterparty risk (no chance of a retailer going out of business as I spend the balance of the gift cards) and fewer gift cards to keep up with.   

E-Loan Savings – I signed up for this one last year when they had the highest interest rate, but they have since dropped their rate. The interest rate drop along with a bad customer service experience trying to change my externally linked account make this an easy one to close. I called the 800 number and was told I had to submit a request through the website. I submitted the online request and they closed the account without issue.

EmigrantDirect – Another one that once had the highest interest rate, but has since fallen out of relevance. That along with their crappy website adds this one to the list. Same as ELoan, the 800 number instructed me to submit an online request, and upon submitting the online request they closed the account without issue.

HSBC Interest Checking – I only opened this with $1 for a $75 bonus. Except for the bonus, this account is crap. We are past the 180 days I have to keep it open to keep the bonus, so this account is gone. I sent an email through their Bankmail function requesting the account be closed and the funds be transferred to my HSBC Online Savings. It took several days, but they eventually closed the account as directed and transferred the funds to my savings account.
Citi Ultimate Savings – Another one opened with $1, this time for a $50 bonus. The interest rate is lower than competitors, so bye-bye Citibank! I couldn’t find my online user ID and password, so I just called the 800 number from the confirmation when I opened the account. I talked to the rep for about five minutes to get the account closed and a check sent to the house for the balance.

I know some people are asking why I bother closing the accounts that have no minimum balance requirement or fees, but I am just tried of having all of these abandoned accounts out there. It is all about simplification. On the off chance any of these accounts become the new rate leader, I can always apply for a new account if I really wanted to.

These four accounts are just the beginning. As time permits over the next several weeks I plan to go through my entire portfolio of accounts and analyze their role in our family’s finances, which of course I will chronicle here for everyone’s review and amusement. I really want to nail down the pros and cons of each account, whether its purpose could be better served by a different product, a justification for keeping the account and ultimately a decision on whether to put it to sleep. Stay tuned!