Sep 20

A Guest Post Today –

When trying to find which Certificate of Deposit (CD) is best for you, there’s really no right answer as to which one is the best. However, there are ones that may be more advantageous for you when compared to others.

As it stands, more people continue to opt for the traditional CD, but there are newer ones that have been rolled out by banks and credit unions that are much different. Here is a look at the different type of CDs offered right now:

Traditional

The traditional remains popular because it is so straightforward. You place a predetermined amount of cash in the CD for a predetermined amount of time and interest. Once the time span has ended (matured), you can either take out the cash that is owed to you, or roll it back into another CD.

For most banks, you can deposit more money while the CD is still in its term. However, if you want to take the money out, there’s likely going to be a large penalty for doing so. There aren’t laws in place to stop a bank from penalizing you, but they do have to tell you what it will be before you can get the CD.

Make sure to find out what the interest is going to be before jumping in and look at the best best 6 month CD rates at banks being offered right now.

Zero Coupon

When it comes to CDs, zero coupon ones aren’t very well known by most investors. It is very similar to that of a zero coupon bond, in the fact that you can get it discounted to the maturity value.

As a quick scenario, a 12 year CD of $100k can be bought for $50k at 6% interest. During the first decade, you would not get any interest. However, after the 12 years have passed, you will collect $100k which makes for a great investment.

Bump Up

What makes bump up CDs appealing is the ability to use a variable rate that continues to rise. As an example, you can buy a CD that lasts for two years. If the bank were to offer a CD for a higher rate to new customers after a certain time frame, then you can get your rate to match the new one.

There are a couple of things to consider with this. The first is that you are likely to have the ability to raise your rate just once. The other is that the beginning rate is possibly going to be lower than that of a more traditional CD.

Liquid CD

A liquid CD grants you the ability to take out money from your CD without being charged any penalty amount. There is likely going to be a minimum amount set as your balance to take advantage of this, but that shouldn’t be a problem.

Traditional CDs typically have higher rates than liquid CDs, but you get the flexibility and freedom that the traditional can not offer. You will want to find out how soon you can take money out of your CD first, as law states that it must be at least seven days. The last thing you need to know about liquid CDs is that there may be a set amount of times you can withdraw money.

Now that you know which types of CDs are offered to customers, it’s time to shop around. There is a lot to consider but if you find one that fits your financial interests the closest, it is sure to be a good investment. Do your homework and you will see some solid returns down the road.

written by Joe \\ tags: ,

Jun 11

Today, a Guest Post by Kristy Ramirez –

life savings penny jar

With the global financial crisis that our world is experiencing – beginning in 2008, and countries like Greece, Italy, the U.S. who are witnessing the collapse of their economic system, it’s no wonder we worry about where to put our hard earned cash. 

What is safe anymore?  

When we think about the crisis that put these countries in dire situations with unemployment skyrocketing, housing prices driven down to depression era values and more homeless people than ever before, not to mention the stock market crashes and losses of over 2 trillion dollars of retirement savings for so many, it’s unnerving to most people who want put something away for retirement, or a rainy day.

For Americans, the loss was catastrophic, with 401(k) plans dwindling, and an overall decline near 20 percent. So many people lost their live savings and nobody did anything for them. They have nothing to fall back on, and this event has been considered by the “WashingtonPost to be one of the greatest casualties of the current financial crisis. 

Bankers are now looked upon as ‘the bad guys’, mostly because they are being blamed for all of this crisis due to their greed; selling off mortgages, taking bail-outs for their horrific and greedy choices, yet not reaching out to help their customers, but instead foreclosing and selling individual mortgages off to the highest bidder.

But – believe it or not, there are still some good banks out there, and fortunately they offer a safe refuge in which to save money, and earn a little too.  Remember, in the U.S. at least, your money is federally insured.  It wouldn’t be wise to put all of your money into one place; however, if you stay within the insured limits, spread out between different types of accounts, you are safe.

Here are some safe havens for your retirement, and/or savings:

Checking accounts:

Banks and credit unions offer interest-bearing checking accounts, and the best part is they are safe.  The accounts are insured for up to $250,000, so if the bank were to crash and burn, you’d get what you had in there, back. 

Of course the interest rates are not even worth mentioning, however, it would be wise to put a little aside here, just in case.  You have full access to your money at all times.

Learning to SaveSavings accounts:

These accounts are safe as well, as they are insured for up to 250,000.  Different banks offer different rates, and they are usually dependent on how much you actually have in there, however, you won’t lose everything should the bank fail.

Again, you have full access to your money should you need access.

Certificates of deposit:

These are also known as Term Deposit accounts, or TD’s and also CD’s. These are federally insured deposit accounts that you purchase in time increments. The maturity dates can range, depending on your choices, from weeks to years. And, of course the longer you invest, as well as the more you invest, the better the interest rate. These are safe and are offered by banks, brokerage firms and credit unions.

CD’s and TD’s offer interest income, with low risk, but cashing out can be costly if you do so prior to the maturity date.  So if you put cash here, make sure you won’t need access to it prior to its maturity.

The most prominent disappointment with these accounts is that the interest rate you purchase your CD/TD at is where it stays.  If you buy a 5-year CD – and the interest rates rise, you’re out of luck.   Consider this when looking into Time or Certificate deposit accounts.  Experts suggest buying 2 or three, and having them expire within a month of each other to avoid missing out on interest increases.

Money Market accounts:

A Money Market account is a form of a deposit account that pays you interests, and the rate, dependent on how much you put into it.  They earn higher interest than a typical savings account, but have different requirements, such as higher minimum balances and restrictions on withdrawals. 

These are very low risk, and are also federally insured, so you can’t lose your principal. Make certain that you stay within the insured levels that are at this point in time, $250,000, or you could lose your investment.  Be sure you check with your credit union or bank to verify the exact insured amount because it is generally $100,000.

The benefit of a Money Market account is that you are allowed to write checks (most are 3 per month) should you require cash, without penalty as long as you don’t dip below your minimum balance. 

Money Market funds:

savings bondsThese are quite different than Money Market accounts, because they are short-term investments that mature in a year or less.  The interest rates vary depending on risk, but generally they are safe because a low risk fund usually invests in Treasury securities, CD’s, federal agency notes and municipal securities, which are fairly stable.  Some even include government bonds, which have a history of being safe and stable. 

Money market funds are a bit riskier than a standard savings or Money Market accounts because they are securities, and are not insured, however they have been deemed safe as long as you stay away from the more risky funds.

The benefit of these funds is that you can write checks, and can sell or buy at any time. Plus you get your money (interest earned) in monthly dividend checks and the interest rates are much better than a standard savings or checking account. 

A very wise (and successful) investor once recommended that putting your ‘eggs’ in one basket spells trouble.  So don’t be afraid to spread out your savings to include many different accounts, and if you have a little to spare, try investing in more risky accounts such as higher risk mutual funds that bring high yields, to get to your goals quicker.

Remember though; don’t risk more than you can afford to lose.

Kristy Ramirez is a frugal mom and writer. In her time away from work she manages the family finances and is living debt free.

written by Joe \\ tags: , ,

Aug 14

This was a wild week. The first four days brought us moves of over 50 points per day on the S&P. If we add up the point moves for each day, the S&P moved 243 points, although for the week it was only down 20.57 or 1.7%. Truth is, for most of us, the week wasn’t a killer, but the daily volatility was tough to handle. Let’s check out what others in the blogosphere wrote.

Matt at The Big Picture tell us why the S&P downgrade was An Excuse for Slashing Entitlements. Matt brings up far more good points that I could possibly share here, and agrees with my observation that if the downgrade were deserved, the yields on treasuries would have risen, not fallen. Investors don’t rush to a security that’s really at risk. Well, they shouldn’t.

Boomer offered some Economic Indicators You Should Track. He does a great job rounding up and explaining the usual suspects, unemployment, consumer confidence, and others.

Frugal Dad’s Jason offered a lesson in How to Manage Financial Stress. After this past week, I think we can all use Jason advice. I know I’ll be keeping the TV off this week. I’ll catch the news next Sunday.

At My Money Blog a few thought on Interest Rates Staying Low For A While. The Bernanke has pretty much stated he expects rates to remain low for the next two years, time to think how you can benefit from this.

And to close things out, Rob Bennett guest posted at my friend Kevin’s Out of Your Rut, Buy-and-Hold Is Either The Best Strategy of All Time or the Worst. An interesting thought, but more amazing is that this article was number 50 in his Beyond Buy and Hold series. Head on over, and check out this excellent observation of the market.

written by Joe \\ tags: ,

Aug 06

I’ve used the term Innumeracy here to describe the equivalent to numbers what illiteracy is to reading. However, I now seek a stronger word or phrase to describe the egregious claims I’ve run across. I’m leaning toward “numerical blasphemy,” but am open to suggestions.

A Money Merge Account agent sent me a link to a You Tube video titled Truth in Lending. The author wanted to illustrate the concept of “front-loaded” interest on a 30 year mortgage. I’ve never seen a post that started with that idea end in anything that made sense, this video was no different. The video itself was well done, nice animation and voice over, but the numbers soon fall apart. I’ll offer two screen shots that show this.

truth1

As this slide came up, it seemed innocent enough,unfortunately it ends incorrectly. When working with a financial calculator you need to be very specific. N is not the number of years but number of payments, in the video’s example, 360. PMT, the payment, can be positive or negative depending on the calculator. Excel looks for it to be negative, a classic TI BA-35 calculator, positive. PV is not the equity built, but the present value of the mortgage, starting at the borrowed amount, and of course, ending with a FV (future value) of zero. He then says Compute, but there are two variable missing, %i (the interest rate) as well as FV. So, while I have no idea what his intention was, he now suggest taking I (the interest rate, I suppose) and dividing by Y (years, but why?) to produce a number which is admittedly large but meaningless.

truth2

Here, you can see that he author suggests that somehow the interest rate over 15 years is over 24%. But, back to a calculator or spreadsheet, we can see that PV = $200K (original loan) i = .5% (monthly rate or 6%/12) N=360 months (30 years) FV = 0 (after 30 years it’s paid to zero. If we enter these numbers we can comput the missing variable, the payment, which is $1199.10. Then it’s simple to set N to 180 (year 15) and compute the new future value, $142,097.69, as he shows above. On the other hand, we can enter PV =$200K, i = .5%, PMT = $1199.10, N=180 and FV = $142,097.69, and ask to calculate the rate, which of course comes back as .005 or 6% per year. By the way, it’s easy to look at the interest column above and divide say, the 2021 interest into the prior year ending balance and see you get under 6%. A couple hundred video views and no one saw how silly this all was?

As far as front loading is concerned, there’s nothing diabolical in how mortgages are calculated, you owe interest on the principal outstanding at any given time. Since you owe far more in the early years, more of your payment is interest. On this example $200K mortgage, in the first month the interest is $1000, but the principal paid is only $199.10. Pay more if you wish, that’s your decision. But don’t fall for an abomination of bad math. What does this have to do with the Money Merge Account? Only that every time I see numbers abused this badly I’m reminded of my friends at UFirst and the MMA.

Joe

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Apr 30

My regular readers will recognize this is a post regarding the Money Merge Account, an expensive mortgage accelerator I consider to be a scam. New readers should note, this was part of a series confined to a weekly Thursday post, and today this series ends as my intent is to provide a variety of articles well beyond this one issue. Now for the last MMA post…….

Well, I found this in my draft folder, seemed a waste to delete it:

I offer one agent’s rants, and my response:
“Yes, you might be able to do this kind of interest cancellation without the use of the software only IF:
1. you have the financial discipline and mathematical skill
2. you have the right kind of ALOC
3. you are willing and able to account for every penny at all times
4. you can tally all the variables and refigure your financial position each and every day
5. you can do this day in and day out for 5 to 10 years
6. you can do this without personal support if something goes wrong or you get confused
7. you are willing to forfeit tens of thousands of dollars in monetary gains in addition to doing all the work all by yourself.”

My response:
1. One need to write the checks regardless, the discipline is no different with or without this program. There is no mathematical skill required. If you can balance your checkbook, you’re all set.
2. The right kind? The “HELOC shuffle” provides little benefit and more risk than any agent understands.
3. Every penny? Hardly. This is just a scare tactic. You see, MMA with all its claims falls short by many dollars per month, adding up to quite a bit over the years. Skip MMA entirely, and now you’re watching those pennies.
4. Paying off your mortgage early is no more complex than paying extra toward your principal each month. The secret is…. there’s no math involved, just those payments. A spreadsheet or calculator will let you calculate the days until it’s paid in full, but MMA doesn’t add any value any more than a tape measure helps your child grow taller by frequent measurements.
5. I have better things to do with my time, so do you. It will take you a few seconds to make the extra payments at month end. You decide, do you really want to have to report every penny every night to your computer, and achieve worse results than you can on your own?
6. Per UFF disclaimer, they will not offer you any mortgage or financial advice, you want support, UFF isn’t going to be much help.
7. MMA costs you both time and money, doing it yourself will save you both.
Now, I think I’m done, the draft folder is empty. I will update the PDF to include the last set of articles in this series.
Joe

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