savings account

5 Alternatives to a 401(k) Plan

Tim Lemke — Mon, 18 Dec 2017 09:30:10 +0000

The status of 401(k) plans has been in the news a lot recently, as part of the wider discussion about tax reform on Capitol Hill. While it does appear that tax benefits for the popular employer-sponsored retirement plans will remain unchanged for now, even the prospect of change has left some people feeling unsettled about what to do with their money moving forward.

To be clear, a 401(k) plan remains a very powerful tool to help you save for retirement, especially if your company is generous in matching contributions. But if you are feeling confused or are not happy with what your current 401(k) plan offers, there are some other options available to help you build a retirement fund. Here's the skinny on a handful of 401(k) alternatives.

1. Roth IRA

A Roth Individual Retirement Account (IRA) is a popular option among people who don't have access to a 401(k) or other retirement plan through their employer. With a Roth, you can contribute up to $5,500 annually ($6,500 if over age 50), and since you contribute with post-tax dollars, the gains on those investments can be withdrawn tax-free when you retire. Roth IRAs are popular due to the flexibility to choose your own investments. It's also possible to use the account for certain emergency costs, such as medical bills or a home threatened by foreclosure, and you can even use it as a college savings account, though there may be penalties and taxes if you withdraw gains before age 59 ½. (See also: Using Your Roth IRA as an Emergency Fund — Ever a Good Idea?)

A Roth IRA is a good alternative to a 401(k) for those who don't have access to one. Even if you do have a 401(k), sometimes a Roth IRA is a better option, such as in cases when an employer does not offer matching contributions, or the fund choices are expensive or limited. (See also: 401(k) or IRA? You Need Both)

Roth IRAs are also useful because you can contribute as long as you have earned income; other retirement plans require you to begin making withdrawals by age 70 ½.

2. Traditional IRA

A traditional IRA is similar to a Roth IRA, but the tax advantages are more in line with a 401(k). In this case, any contributions to the account are deducted from your taxable income up front; you will be required to pay taxes on the gains when you retire.

It's entirely possible and sensible to have both a traditional IRA and a Roth IRA in order to get tax advantages both now and later. Note that with a traditional IRA, you must start taking required minimum distributions starting at age 70 ½.

3. Taxable brokerage account

There are no tax advantages to opening a good old-fashioned, regular, taxable brokerage account. But you do get flexibility that can't be offered by a 401(k) or IRA. With a regular taxable account, you can invest in whatever you want and buy and sell whenever you want without any early withdrawal penalties, though you will pay taxes on any gains. This type of brokerage account is great if you want to buy dividend stocks to boost your income, or use the investments for something other than retirement.

4. Peer-to-peer lending

This is a relatively new investment option that allows people to connect online with borrowers and collect interest income. Through peer-to-peer lending sites such as Lending Club and Prosper, you become a lender and loan money to someone in need of cash, profiting from the interest on that loan.

With peer-to-peer lending, lenders can earn considerably more than what they might earn from interest from the bank, and may even outpace stock market returns, depending on the riskiness of the loans they buy. But there is always some risk that the borrower will default. And keep in mind that interest from peer-to-peer lending is taxed as normal income, rather than investment gains. (See also: Everything You Need to Know About Peer-to-Peer Investing With Lending Club)

5. Stick your money in the bank

Putting your money into a savings account is always an option, though not the best one on this list. These days, interest rates are so low that in many cases the growth of your savings will barely outpace inflation. You may be able to find better-than-average rates at some online banks or by opening a certificate of deposit, but there's no chance you'll be able to match the returns of the stock market over the long term. It's fine to use a bank account for your emergency fund, but for long-term savings, look elsewhere.

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This article is from Tim Lemke of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

Money a Mess? Try This Personal Finance Starter Kit

Emily Guy Birken — Tue, 22 Aug 2017 09:00:05 +0000

I recently joined a meal delivery kit service, which has completely changed my cooking game. Every week, I receive a couple of boxes of pre-chopped and presorted fresh ingredients, along with a step-by-step recipe that helps me get a meal on the table in under 30 minutes. (See also: Are Meal Prep Subscription Boxes Worth It?)

As I put together one of these meals last week, I started wondering why we haven't applied this concept to money yet. Where is the deliverable personal finance starter kit that will make handling your finances as easy as putting a quick and delicious meal on the table?

Since we probably won't be seeing any "Hello Cash" or "Green Apron" boxes arriving in our homes anytime soon, I figured I could take matters into my own hands and create such a starter kit for adult-level finances. Here are the specific "ingredients" you need to go from broke to bank.

What you need: A checking account

Opening a checking account is the first step to conquering your adult-level finances. That's because having a bank hold onto your money is the safest and least expensive way for you to access and spend it. Putting your money in a checking account gives you several benefits:

Security and protection of your money: Up to $250,000 of your money is FDIC insured by banks and NCUA insured by federal credit unions, meaning you do not have to worry that your money will be wiped out if the banking institution fails. State-chartered credit unions are backed by private insurers. (See also: Here's the Difference Between a Federal and Non-Federal Credit Union)

Free check cashing: Without a checking account, it is nearly impossible to cash a check without having to pay a fee, and those fees can take up to 3 percent of the value of the check. It's tough to get ahead financially if you have to pay to access your own money.

Free bill pay: A checking account gives you access to paper checks and online bill pay. Without such an account, you will have to pay your bills with money orders, which also cost as much as $1 per money order. (See also: 5 Reasons Paper Checks Are Still Relevant)

Access to a debit card: We live in a digital world, and it can be very difficult to handle your finances without a debit card or credit card. The majority of checking accounts these days come with a check card, which allows you to use your debit card like a credit card. (See also: Debit or Credit? Which One Should You Choose at the Checkout?)

To find the best checking account for you, consider your needs ― do you need an account with a low minimum balance, or do you plan to keep a high balance and want to earn some interest? Will an online bank cover all of your needs, or do you need a local branch? How often will you need to access the ATM? (See also: 8 Ways to Make Sure You Never Pay an ATM Fee)

Taking the time to find a checking account and bank that will fit your financial needs will help you keep more money where it belongs ― in your account and in your wallet.

What you need: A savings account

The next financial ingredient you need is a savings account. While the interest rates on savings accounts are still depressingly low, that does not change the fact that an FDIC or NCUA-insured savings account serves as the foundation for financial planning for the future. Here's why.

It makes it easier to pay yourself first: It's very hard to save money without a place to put it that is separate from your checking account. Opening a savings account gives you a more difficult-to-access spot for your money to grow. (See also: 4 Easy-to-Fix Reasons Your Savings Account Isn't Growing)
It can serve as your emergency fund: Financial hiccups, mistakes, and emergencies can hit anyone at any time. The difference between a financial emergency just being a nuisance and it becoming a catastrophe comes down to whether or not you have an emergency fund. Without one, you will be left scrambling to find money. With one, your emergency fund can simply absorb the cost of the emergency without affecting your usual spending. (See also: Where to Turn for Help When You Don't Have an Emergency Fund)

While it may be easy to open a savings account with the same bank where you already have a checking account, you might want to consider an account at a different bank. This can help keep the money out of your reach if you're likely to spend it, and could possibly get you a better interest rate, especially if you're willing to put your savings into an online bank. (See also: The Pros and Cons of Keeping All Your Accounts in One Bank)

Of course, opening a savings account is not enough. You need to actually use it regularly. The trick to getting the most out of your savings account is to set up regular, automatic transfers into it, so that your savings will grow without you having to think about it. (See also: Earn More Interest by Reducing Savings Friction)

What you need: A simple budget

Once you have a checking account, a savings account, and automatic transfers into savings, then you are ready for the next ingredient: your budget.

This is often the portion of financial adulting that makes the fainthearted run screaming into the distance. But budgeting is really about organizing your money so that you can spend it on the things that matter and scrimp on the things that don't.

The basis of budgeting is keeping track of your income and expenses. There are several ways to do this without having to break out a spreadsheet. You can use sites like Mint.com to track your spending for you and declutter the financial information coming in to you so that it's easier to track. (See also: Build Your First Budget in 5 Easy Steps)

When you have a decent idea of what you bring in and what you spend, then it's time to start managing your funds so that you spend less than you earn. How you manage your money is up to you, but the main idea is to save your splurges for the things you really value, and cut back your spending everywhere else. (See also: How to Manage Your Money — No Budgeting Required)

What you need: A Roth IRA

Your financial life is really starting to look good at this point, so it's time to add the next ingredient: a Roth IRA. This tax-advantaged retirement account is a great way to save for your future.

Roth IRAs are funded with post-tax dollars, which means you will not get a tax break when you make a contribution ― but any investment gains can be withdrawn tax-free anytime after age 59½. Since it's very likely that you'll be in a higher tax bracket by then, this makes the Roth IRA a great deal for newly-minted financial adults. You may contribute up to $5,500 per year to your Roth IRA, and there is no age limit on contributions since you will never be forced to take minimum required distributions on this account, unlike traditional IRAs and 401(k)s. (See also: Which Retirement Account Is Right for You?)

In addition, you can access up to $10,000 of your earnings penalty-free from your Roth IRA to put toward buying your first home. You may also access your principal at any time without having to pay a penalty, which is not possible with traditional IRAs and 401(k)s.

That being said, if you do have access to a 401(k) retirement savings account at work and there is an employer match for your contributions, you will want to make sure you contribute up to the full employer match before funding your Roth IRA. The employer match is free money, after all. (See also: 7 Retirement Planning Steps Late Starters Must Make)

The best way to make sure you max out your Roth IRA contributions is to make them completely automated, just like your savings.

The optional garnish: A rewards credit card

At this point, your adult-level finances should be working well and taking good care of you. The next level of financial expertise is to start using your regular spending to help you achieve more of your financial goals. You can do this with a rewards credit card that rewards you for your regular spending. With savvy use of such cards, you can earn anything from flights to hotel stays to plain old cash back.

But, there is a reason why this is an optional garnish, rather than one of the main ingredients of financial adulthood. Banks and credit card companies don't offer rewards cards to be nice to their customers ― credit card rewards can make even the most frugal financial grown-up forget their budget limitations. If you are able to pay off your credit card in full each month and just reap the free rewards, then a rewards credit card can be a delicious topper to your financial adulthood. (See also: How to Escape Reward Card Spending Traps)

If, on the other hand, you know that you will struggle to pay off your balance every month, then feel free to enjoy your financial adulthood sans rewards credit card. It's not a necessary part of your financial starter kit ― it just makes for a nice addition. (See also: 6 Smart Reasons to Pay Your Credit Card Bill Before It's Due)

Whipping up a financial adulthood

While it would be convenient if you could order a financial adulthood starter kit to show up at your doorstep, it's actually pretty simple to put together one of your own. Just know the basic ingredients you need, find the ones that work best for you, be consistent ― and, voilà! You'll go from broke to bank before you know it.

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This article is from Emily Guy Birken of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

4 Easy-to-Fix Reasons Your Savings Account Isn't Growing

Emily Guy Birken — Wed, 16 Nov 2016 10:00:09 +0000

Your savings account seems to be broken.

You set it up some time ago, full of hope and high expectations, and you have been moving money into it whenever you can — but it just isn't growing the way you would expect.

The lack of growth in your savings account may be disheartening, but it's probably due to a problem that you can fix easily. Here are the top four reasons your money doesn't grow in a savings account, and what you can do to start seeing higher balances:

1. The Problem: You Make Regular Withdrawals From Your Savings Account

The quickest way to undo all your savings work is to raid the account. Whether that happens because you are regularly transferring funds from savings to checking, or because you're withdrawing cash from your savings account at the ATM, or because you let your savings account act as your overdraft protection, the result is always the same — your savings account balance stays low.

The Easy Fix: Reduce Access to Your Account

The fix for this problem is to reduce your access to your savings account. Having too-easy access to savings accounts can kill your ability to effectively save money. Instead, consider moving your savings account to a different bank than your checking, and establish a link between the two. With your savings account out of sight, the money will be out of mind. And that's the best way to let it grow without your interference.

2. The Problem: Transfers to Your Savings Account Are Infrequent and Small

You transfer money to your account when you can, but that tends to only happen every couple of months when you finally get ahead of your bills. And even when you are able to make deposits in your savings account, the amounts are never very high. It almost feels like it's not worth transferring the money.

The Easy Fix: Automate Your Savings

Regular Wise Bread readers are well aware of the importance of automating your savings. Doing so allows you to pay yourself first and take away the temptation of extra dollars in your checking account. Set an automatic transfer up once, and you will reap the benefits of savings account growth for good. Remember that there are a couple of ways to make sure your automation helps you build your savings as much as possible:

Automatically transfer a set amount to savings on your payday. If you don't see it in your checking account, you won't spend it.

Have your paycheck deposited directly into your savings account, and transfer the amount you need for your monthly budget into checking. While this gives you less of a buffer in your checking account, it offers the psychological boost of seeing the numbers in your savings account go up quickly, which can help curb mindless and impulse spending.

3. The Problem: You Are Saving Money, But Not for Anything in Particular

Without a specific goal in mind, it can be difficult to get psyched about the money in your savings account. Yes, it's great that you have several hundred (or several thousand) dollars sitting in a savings account, but it can feel like having an auxiliary checking account if you don't have a specific purpose in mind for the money. And not having a goal for you money makes it much easier to raid the account if you find yourself lusting after Coachella tickets.

The Easy Fix: Create Targeted Savings Accounts

We are much more likely to feel excited about saving money if we have a specific goal in mind. This is partially due to something known as mental accounting, which is our tendency to value money differently depending on how it is physically and mentally labeled. You might feel no compunction about "borrowing" $400 from your general savings account for a Coachella ticket, but taking that money from your new car fund would hurt.

Many online and traditional banks will allow you to create several targeted accounts, each with its own nickname. Taking the time to put a name to each one of your savings goals can help you save more and spend less.

4. The Problem: Your Interest Rate Is Too Low

Maybe you are doing everything right with your savings account. You have regular, automatic deposits, and you keep your hands off the account. But it's still not growing — because the interest rate is at rock bottom. According to Bankrate, the average APY for savings accounts is a measly 0.08%, which means inflation is eating into your money if you leave it in your savings account for any amount of time.

The Easy Fix: Transfer Your Money Into a Money Market Account

If you are just getting started with savings, it's probably a good idea to continue to set money aside into your savings account. But if you've grown your savings account over time and get sick of seeing teeny tiny interest payments, then you might want to consider transferring your savings into a money market account.

These accounts are a type of savings product that double as a checking account, with an interest rate that is much more generous compared to that of traditional savings accounts. For instance, according to Bankrate, the best money market accounts offer APY rates of up to 1.11%.

Money market accounts generally require a larger minimum deposit — you can expect to need at least $1,000 to open your account. In addition, you may face fees on your money market account if you allow your balance to dip below a certain level. For most money market accounts, you may write checks on the account, although you are generally limited to no more than six checks (or other withdrawals) per month.

For savers who have been diligently putting money aside into a traditional savings account, rolling that money into a money market account can be a great way to put your savings to work for you by increasing your interest.

The Bottom Line

Your savings account deserves to grow and flourish. Most of the problems keeping your balance down are well within your control, as long as you take the time to address them. Don't let an easy-to-fix problem keep you from meeting your savings goals.

This article is from Emily Guy Birken of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

Chase Total Checking and Savings: Easy Everyday Banking

Amy Lu — Mon, 07 Dec 2015 23:01:36 +0000

Years ago, when you wanted to open a checking or savings account at a bank, you'd head over to a bank in your neighborhood. These days, setting up a new account no longer requires a live person to walk you through it. There are banks exclusively online to prove it. (See also: Banks Still Offering Free Checking and Great Interest Rates)

If you're shopping for a bank to open a checking or savings account at, you're probably wondering which bank is best: local credit union, exclusive online bank, or one that provides both online and brick and mortar services. While online exclusive banks may offer slightly lower fees or higher APYs, a large, traditional bank can provide valuable resources and services along with integrated online and mobile options that make banking a breeze.

Take, for example, Chase Total Checking®. Their motto is “Simple and Accessible” — and with 16,000 Chase ATMs and 4,700 branches across the nation, it won’t be too difficult to find a location to get cash or deposit checks in person. And you can get even more out of your banking if you open a Chase Savings^SM account too. And they're offering new customers up to a $200 bonus! See details below.

How to Open an Account

To open a Chase Total Checking® account, you need to deposit a minimum of $25. There is a $12 monthly service fee, which you can get around by doing one of the following:

Make direct deposits to your account totaling $500 or more.
Maintain a $1,500 minimum daily balance.
Maintain an average daily balance of $5,000 or more in qualifying linked deposits or investments.

The minimum deposit for a savings account is also $25. The monthly fee is $5, which is waived if you do one of the following:

Maintain a $300 minimum daily balance.
Have at least one repeating automatic transfer of at least $25 from your personal Chase checking account.
Link your savings account to a Chase Premier Plus Checking, Chase Premier Platinum Checking, or Chase Private Client Checking account.
Be younger than 18 years old.

Sign-up Offers

Chase is offering $200 for their new customers who open a Chase Total Checking® account and set up direct deposit. But be sure to jump on them soon — these offers expire April 14, 2021.

Online and Mobile Banking

If you prefer to do your banking from the comfort of your living room — or really, anywhere with Internet connection — Chase offers online and mobile banking. Some of their services include:

Chase QuickDeposit: Take a picture of your check and deposit it with the Chase Mobile App. Easy!
Chase QuickPay: Send money to another person, no cash or checks necessary. Just enter the recipient’s email address or mobile number and Chase will send them an email with instructions on how to accept the payment. They don't have to be a Chase customer, but they do have to create a Chase user account.
Online Bill Pay: Your bill payments will be sent on the date you specify. If your payment is ever delayed, Chase will refund 100% of any late fees (provided they got the payment request before the cutoff time and the payee information was correct).

Automatic Savings

You can set up a repeating automatic transfer from your Chase checking to your savings account...and forget about it! Actually, don't, because it's important to monitor your money. But there's no denying that Chase's Automatic Transfer Program takes most of the effort out of saving, and it's an easy way to get the monthly fee on your savings account waived — just set the transfer amount to at least $25 a month.

Account Alerts

Need to keep a close eye on your account? (I mean, who doesn’t?) Chase will text or email you if your account is low on funds, there is a large transaction, or other account activity. It’s easy to personalize what account alerts you receive and how you receive them.

Are Chase Total Checking® and Savings^SM Right for You?

If you're looking for a solid bank with both a physical presense as well as plenty of online and mobile conveniences, Chase is a great option. Along with their basic banking offerings, Chase has a good reputation for their other consumer products like credit cards. Having a lot of your financial accounts under one company can be incredibly convenient.

This article is from Amy Lu of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

5 Ways to Grow Your Savings Without a Steady Paycheck

Carrie Smith — Thu, 10 Sep 2015 15:00:27 +0000

Whether you're a freelancer or part-time employee, not having a regular salary can disrupt your progress toward big financial goals. Money fluctuations can mean you either have to stop the savings transfers, or withdraw money out of the account to cover bills.

But saving money without a regular paycheck isn't impossible, and with these tips you can learn to create a savings habit that sticks!

1. Separate All Your Savings Goals

Even if you have a separate savings account, it's too tempting to have all the money in one account while simply allocating the funds to different savings goals. For this reason I recommend opening a new savings account for each individual goal.

My husband and I recently did this as an experiment, and for two months in a row we've had a surplus of money in our bank accounts, and have been able to save money toward all of our goals. And we're both self-employed so you know how difficult this can be!

While it is possible to have too many accounts, this strategy works for us, and has allowed us to pay all of our bills, self-employment taxes, and save extra money toward various specific goals.

2. Pay Yourself a Regular Salary

As a freelancer, temp, or someone who works on commissions, it's still important to pay yourself a "salary" on a regular basis. I deposit a regular salary from my business account to the household account every Monday — no matter how little or how much my freelance business brings in.

Giving yourself a regular "paycheck" will help combat the inconsistent income that comes with being self-employed. It may take a few months for your budget to adjust to the changes, but it can drastically improve your finances and allow you to finally get into the habit of saving money.

3. Try a Microsaving Tool

Microsaving is when you save extremely small amounts of money — like $2 or $5 a week. As your budget adjusts to the savings, and you begin to see your small balance grow, you can increase the savings amounts. Next thing you know, you've saved a couple hundred dollars that can be used towards anything you want.

To make it even easier to save money without thinking, there are several different microsaving apps available that will put saving money into automatic mode.

Digit is a popular tool that allows you to start saving money via text message. Once you link your account, Digit will start withdrawing a few dollars every week and deposit into your new Digit account, based on your bank balance and only if you can afford it.
Acorns is a microsaving investment tool that helps beginner investors or students get their feet wet in the market. Everyone has to start somewhere and Acorn's round-up payment withdrawals makes saving money very easy.
SmartyPig allows you to create individual accounts for each savings goal and keeps you updated on the progress. You can also earn rewards, cash back, and gift cards as incentives to save money.

4. Find What Motivates You to Save

What motivates you to save money? Are you a competitive person who likes to turn saving money into a challenge? Find a few friends who will commit to a savings competition with you. Whoever reaches the goal first gets a free dinner, night out, or other incentive (paid for by the losers, of course!).

Are you an artist or visual person? Try mapping your progress by coloring in circles for each $50 or $100 you save. Whether it's goal tracking, paying off debt, or saving for a particular event, try coloring your way to reaching your goal. And when you've reached your goal you can hang the artwork in your home as a motivational reminder.

5. Join a Savings Challenge

Much like a diet helps you jumpstart your weight loss plan or workout regimen, a savings challenge can help you get your spending under control, and create a regular savings habit.

There are lots of different challenges available. You can go on a 14-day spending diet, a 60-day cash budget challenge, a year-long shopping ban. Last year I participated in a 12-month money challenge from inspiration I found on Pinterest. But the options are basically limitless, so start out small and then increase the challenge as you become more comfortable with it.

Experiment with different methods and test out strategies based on your money personality and saving style. Don't be afraid to try out new ideas to see how they work for you.

How do you save money without a regular paycheck? Share your best tips!

This article is from Carrie Smith of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

Why Savings Account Interest Rates Are So Low

Miranda Marquit — Wed, 17 Apr 2013 10:24:31 +0000

In 2006, I started writing about personal finance. One of the first topics I wrote about was the online high-yield savings account. (See also: The Best 5 Online Savings Accounts)

Back then, these accounts were all the rage. I opened an account offering 5% APY and wrote about how great online accounts were for emergency fund purposes. A deposit of $1,000 meant a little more than $4 in interest the first month.

Now, you'd be hard-pressed to find a high-yield account offering much more than 1% APY, providing you with right around 83 cents in interest the first month. That's a big difference.

But why are interest rates so low on savings accounts? Shouldn't we want to encourage savers in our current economy?

Depositors vs. Borrowers

In reality, banks can pay whatever yield they want on a savings account. If a bank wanted to start paying 5%, it could. There's nothing stopping it, except the desire to turn a profit.

Banks set yields on deposits based on the rate they can get for lending money. The difference between what a bank receives on mortgages and auto loans and other credit, and what the bank pays out in yields to depositors, represents one of the bank's revenue streams.

In 2007, when I bought my home, the best interest rate available to me was 6.02%. By then, the yield on my savings account had dropped to 4%. Now, you can get a mortgage for right around 3.50%. As long as a bank is able to lend at a rate higher than what it pays to depositors, there's a better chance of profit.

So why even pay depositors at all? The reason is that banks are required to keep some capital in their reserves. They are required to keep money in — for lack of a better word — the vault in order to lend. For the most part, credits and debits appear on paper and digitally. But those records have to show that the bank has money in reserve.

Hence the need for depositors.

Banks need to attract depositors to put money in the bank, so they have something to lend (or something to leverage). A bank pays a yield in order to encourage you to park your money in an account; the bank then lends the money at a higher rate than it pays you.

The Federal Reserve and Savings Account Rates

So why are mortgage (and other loan) rates so low? What sets those rates?

The Federal Reserve plays a large role in determining what the rates look like. There are two main rates that come into play:

Federal Discount Rate: This is the rate at which the Federal Reserve lends money to the banks.
Federal Funds Rate: This is the rate we're all familiar with when the news talks about the Fed "setting rates." This is the rate at which banks can lend money to each other.

The Federal Reserve prefers banks to lend to each other, rather than borrow from the Fed, so the Federal Funds Rate is often a little lower than the Discount Rate.

Since consumer spending drives about 70% of economic activity in our country, the ability of banks to lend to each other, and to consumers, to keep the money going 'round the economy is a big part of what the Federal Reserve does.

Lower Fed Rates Encourage Borrowing

In times of economic turmoil and difficulty, the Fed lowers the two rates in order to encourage borrowing. Right now, the Fed Discount Rate is at 0.75%, and the Fed Funds Rate is operating in a target range of between 0% and 0.25%.

In a down economy, with so much of the activity dependent on consumer spending, the goal is to attract consumers to loans. These low Fed rates bring loan rates down. Since banks can borrow from the Fed, and from each other, at such low rates, it means they can lend to consumers at lower rates, encouraging them to borrow.

Fed Purchases of Treasuries Reduce Mortgage Rates

Another twist is the fact that the Federal Reserve is still buying long-term Treasury securities. The rates on long-term Treasury securities often influence mortgage rates. As long as the Fed maintains its monthly bond purchase program, long-term Treasury rates are expected to remain somewhat low, keeping mortgage rates down with them.

Of course, once the banks are no longer enjoying higher rates of return on the money they lend, it means they no longer pay their depositors a truly high yield.

When Will Savings Account Rates Go Up?

Following the last policy meeting for the Federal Open Market Committee (FOMC), the body that sets interest rate policy, Federal Reserve Chair Ben Bernanke announced that interest rates will remain ultra-low until 2015. The bond purchases will continue for now, but they are likely to be reduced as a prelude to an interest rate hike from the Fed.

No one knows for sure when the Fed will decide to hike rates. The FOMC makes its decisions based on how members feel the economy is faring. If the economy is heating up, the Fed raises interest rates in order to slow inflation and keep growth in check.

As the economy improves, interest rates are more likely to rise. There isn't the need to encourage banks and consumers to borrow, so rates are allowed to rise. Once the interest rates on loans begin rising, the yields on savings accounts are likely to begin rising as well.

Until then, consumers are stuck looking for yield in places other than savings accounts. Many are turning to the stock market, since all of these efforts at economic stimulus are aimed at helping businesses borrow at lower rates (and boost their profits). However, there are larger risks with stocks than with cash held in a bank insured by the FDIC.

If you have debt, though, now is a good time to aggressively tackle it. With interest rates lower, more of your payment goes to principal. And paying off high-interest debt will offer you a better return on your money than watching it languish in a savings account.

This article is from Miranda Marquit of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

A Step-by-Step Guide to Creating Your Emergency Fund

Darren Wu — Fri, 18 Jan 2013 11:24:35 +0000

Ask any respected voice in the personal finance community what the number one thing you should do to get your finances in order is, and the chances are very high that they'll say you need to start by developing an emergency fund.

For instance, Dave Ramsey, author of the "The Total Money Makeover," has this as the very first step in his Seven Baby Steps.

Why?

Because if you ever lose your job or are otherwise unable to bring in an income, the emergency fund would be your go-to source until you get back on your feet.

So how do you go about creating your emergency fund? Here's a step-by-step guide to help you. (See also: Emergency Plan: Better Than an Emergency Fund)

Figure Out How Much You Can Save

The first step to creating an emergency fund is to determine how much you can consistently save. Now, if you work a normal job, you probably get paid every two weeks on a Friday. Knowing this, with each pay period, you should be dividing your paycheck between four main categories: retirement savings, fixed costs, regular bills, and savings.

Digging deeper, how much money should you send to each category?

Let's start with your retirement. Most experts suggest saving 10% of your income. That leaves 90% available for your fixed costs, regular bills, and savings. Fixed costs usually include rent/mortgage payments, food, and transportation expenses. Regular bills include utility, phone, and internet bills.

Now, we'll assume you need 85% of your income to pay for fixed costs and regular bills. That leaves 5% available for you to save for your emergency fund.

Knowing these percentages, here's how your money should be divided. Suppose you make $2,000 every pay period. In that case, you'd put $200 towards your retirement, $1,700 for your fixed costs and regular bills, and $100 towards your emergency fund.

Of course, if you look for ways to lower the amount you pay for your fixed costs and regular bills, you'll have more money available to build your emergency fund.

But if you find that your income is barely enough to meet your necessary expenses and you don't have enough to save, you may want to consider getting an extra job on the side.

Set Your Savings Goal

Now that you know how much you can save, the next question to ask yourself is this — how much do you want to save?

Dave Ramsey suggests that $1,000 is a good amount to start with. In our example above, you're saving $100 each pay period, or $200 a month. That means it'll take you five months to create your emergency fund.

Though $1,000 is a good start, most people don't think that's enough. An emergency fund that covers three to six months — or even a year's worth of expenses — has been recommended.

Let's go back to our example above. If your monthly expenses total $3,400 ($1,700 x 2) and you want your emergency fund to protect you for three months, you'll need to save $10,200. By saving $200 each month, this will take 51 months, or four years and three months.

Similarly, if you want ensure that your emergency fund will protect you for six months or a year, it'll take more time. Now after you look at this time horizon, you may get overwhelmed with a feeling of despair.

But don't worry. That's why this last step is the most important.

Automate Your Savings

If you had to manually transfer money out of your checking account and into your emergency fund every month, you'd probably give up after a few months or find excuses to spend your money. Fortunately, there's a better, easier way.

The simplest way to establish your emergency fund is by setting up an online savings account at a bank such as ING Direct or Ally Bank. After you open up an account, you can set up automatic transfers to occur from your checking account. Since the money is out of your checking account, it'll be a bit harder for you to access, so you'll be less tempted to spend it.

Here's an example of how this would work. If you get paid every other Friday, schedule your automatic transfer of $100 to occur on the following Tuesday. That way, in case there are issues with your direct deposit, you have a few days to cancel a transfer. Although this should rarely happen, it's nice to give yourself some wiggle room.

Now you know how to establish your emergency fund step-by-step. By automating your savings, your emergency fund will grow month after month, even while you sleep.

This article is from Darren Wu of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

Investments Worth Making With $50 or Less

Aaron Crowe — Mon, 26 Nov 2012 11:00:29 +0000

Having an extra $50 in your pocket can be a blessing or a curse, depending on how you use it.

You could do something fun and treat yourself out to a nice dinner, blow it on a lottery ticket in the hope of getting more money, or find many other ways to enjoy the extra cash. The spending possibilities are endless. There's nothing wrong with enjoying spending money — it's one reason why people work so hard to earn it.

But saving or investing it so you'll have it for a rainy day may be the smartest move, even if it's only $50. Putting $50 a month away in savings will at least get you in the habit of being a saver.

No matter how you've come upon that $50 — by working a few hours, not buying lunch out for a week, or getting rid of cable TV — there are plenty of ways to invest it for long-term savings. And I'm not talking about stock tips from your cubicle buddy that may not pan out. While some of these ideas are risky, my aim with this article is to highlight investments that can be started for $50 and can continue with regular deposits at least once a month. (See also: Investing 101: 5 Essential Steps)

Savings Account

If you don't have one, this is the best place to start. Although interest rates are low, depositing money regularly into a savings account will get you on the right path to becoming a lifelong saver and not a spender. Search for a savings account with a low minimum deposit, no fees, and the highest yield you can find, and start putting money there. Use a free online savings calculator to determine how much you'll gain after a few years and regular deposits of $50 a month.

ETFs

Buying exchange-traded funds, or ETFs, is a way to buy stocks without all of the costs of mutual funds, says Mike Sena, a certified financial planner in Canton, Ga. Most mutual funds have an initial minimum purchase requirement of typically $2,500 or more, and investing $50 at a time can be unworkable, Sena says. Most every discount brokerage, such as E*Trade and TD Ameritrade, have generous lists of commission-free ETFs that he recommends investing in until the investment reaches several thousand dollars.

An ETF is traded on stock exchanges and trades throughout the day. While most brokers charge a small fee of less than $10 to trade them, there are plenty of ETFs without trading fees, though Forbes warns investors may not be getting the best performing ETFs from brokers that don't charge fees.

Sena recommends that for $50 a month, investments should be scattered among different types of companies, from a large company ETF one month to a small one the next, and an international one and other types of ETFs in other months. Such investments should only be made after making sure you have an adequate emergency fund and little or no consumer debt, he says.

DRIP

Joining a company's Direct Investment Plan, or DRIP, is a low-cost way to invest in an individual stock on a regular basis without having to go through a broker. Most DRIPs don't charge fees for ongoing investments. Some require high minimum initial purchases, such as $500, so look for plans with low minimums to start and that allow $50 purchases. You may have to save up for awhile to get to the initial purchase requirement.

Lending Club

Instead of putting your money in some big bank or company and not knowing where your money is going, loan money to your peers through Lending Club and avoid putting your money in a nameless, faceless bank. Alan Moore, a financial planner in Shorewood, Wis., recommends it as a great way to start investing partly because the initial investment can be made for $25. Loan returns vary but are usually much better than a savings bond, CD, or other savings account method. The loans can be risky, so it's a good idea to diversify with small loans to a variety of borrowers instead of loaning most of your investment with one person.

A Band

I promised to stay away from wacky investments, but SellaBand is so intriguing that it may be worth $50 just for bragging rights. The site helps you find a hot, new artist to invest in. Initially an investment will get you free downloads, signed T-shirts, backstage passes, and other band swag. It's up to the band if you'll ever share in sales revenue. You may not get rich, but it's fun to say "I'm with the band" and really mean it.

This article is from Aaron Crowe of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

The Lincoln Guide to Personal Finance

Aaron Crowe — Fri, 16 Nov 2012 10:36:39 +0000

The Treasury Building is just a short walk from the White House, making it an easy stop for any president to visit.

President Abraham Lincoln, who invested most of his presidential salary in Treasury bonds, didn't visit the Treasury Department often. But he did get there often enough to save most of his salary for three years. (See also: Receiving Your Tax Refund in Savings Bonds)

The movie "Lincoln" opens nationally on Nov. 16, and while it provides historical lessons, the former president's investment methods can be a good study of sound personal finance advice.

Saving almost all of your salary is nearly impossible, but as the president showed, regular investments are a good start to a healthy portfolio.

Lincoln stopped by the Treasury Building each month and "counted out what money he was able to spare from his salary" and invested in bonds, according to then-Treasury official Levi Gould, who helped Lincoln with his investments, as quoted in the 2006 book "Personal Finances of Abraham Lincoln."

Lincoln invested almost all of his $25,000 annual salary in governmental bonds, with $68,000 in total assets from his three years in office, according to a website run by the Lincoln Institute.

One day the president arrived at the office of the Secretary of Treasury and threw a mass of governmental notes on the secretary's desk, instructing that they be converted into bonds. His holdings in government obligations totaled $54,515, along with a bag of gold worth $883 that he brought to be Treasury Department. The assets were: $16,000 of 7-30 notes, $26,181 of certificates of deposit, $8,000 of 5-20 bonds, $4,044 in salary warrants, and $489 in cash.

Anyone who has received a savings bond certificate as a birthday gift — though they're now all electronic and can be given as a gift certificate to be redeemed — knows that getting a $25 savings bond is almost as exciting as getting new socks. While the payments for the various Treasury securities aren't exciting, they do provide long-term interest and give you the satisfaction that you're helping the country account for its debt. Even children can understand it.

Treasury bonds, for example, pay a fixed rate of interest every six months until they mature in 30 years. The types of Treasury notes that Lincoln bought can still be bought today, though at different rates. T-Notes also pay a fixed term of interest every six months until they mature. They're issued in terms of 2, 3, 5, 7, and 10 years. Recent rates on bonds and notes ranged from 0.375% interest rate for a 3-year note to 3% interest on a 29-year bond.

Lincoln did well with his bonds. The 7-30 notes, called "seven-thirties," paid at a rate of 7.3% — two cents a day on $100 — that was payable in gold semi-annually. The government issued $140 million in Treasury Notes in 1861 to finance the Civil War.

The 5-20 bonds that the president bought were redeemable after five years and matured at 20 years. They paid 6% interest payable in gold on May 1 and Nov. 1.

Lincoln followed the rule billionaires such as Warren Buffett have followed — reinvest any interest payments. Whenever Lincoln, according to the book on his finances, was paid interest in gold, he sold the gold to the Treasury Department and used the proceeds to buy more bonds or loans to the government at interest rates of 4 to 6%.

The president received almost $10,000 in interest and premiums on savings from his salary that he reinvested almost in its entirety, according to the book.

Like any busy president, Lincoln apparently didn't have time to get to the bank often enough. He must have been doing well enough not to need to cash his pay "warrants," according to biographers, with four uncashed paychecks found in his desk after his death.

If you have four paychecks sitting in your desk that you haven't deposited yet, follow Lincoln's likely advice and go invest them in some government bonds.

This article is from Aaron Crowe of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

50 Great Things to Do With $50

Mikey Rox — Mon, 07 May 2012 10:36:08 +0000

There’s not much you can buy for a dollar these days, but 50 big ones can still score you something pretty decent.

From funding in a Kickstarter campaign to updating your kitchenware to pampering your pet, here are 50 ideas on how you can spend half a Benjamin and not feel too bad about it. (See also: 10 Smart Things to Do With $25)

1. Pick Up a Nice Bottle of Wine

Stop drinking the cheap stuff. Splurge for a better bottle, and make tonight a special occasion just because.

2. Tip Your Service Provider(s)

Did you give your mail carrier, door attendant, super, or other service provider a tip during the holiday season? If not, use the extra money as an opportunity to make amends.

3. Replace Old Pots and Pans

Kitchenware isn’t cheap, but there are times when you can score great deals on skillets and other cooking essentials. If something you need falls below $50, go for it.

4. Catch Up on Bills

If you’re behind on bills, put the money toward what you owe. Even if it’s not the full amount, it still counts. You don’t want to rack up any more late fees, do you?

5. Take a Friend to the Movies

A matinee might not cost the full $50, but an evening show with drinks and popcorn will come pretty darn close. Just make sure you invite a friend who’s worth it.

6. Have Your Oil Changed

Haven't you put this off long enough?

7. Stock Up on Toiletries and Grooming Products

Toothpaste, deodorant, and hair products are all pricey. Stock up now, and put these items away until you run out of what you already have.

8. Invest in the Stock Market

Open an E-Trade account, and buy stock in an up-and-coming company whose shares are at basement-level prices.

9. Donate to Charity

I prefer support local charities instead of national organizations because I feel like my money will directly impact someone needy in my community.

10. Go Grocery Shopping

Is your fridge almost empty? Make a stop at the supermarket to grab good food to make yourself a few nice meals.

11. Treat Yourself to New Clothes

I recently bought myself a new pair of shorts for summer. They were a much smarter and cheaper purchase than the sneakers that I was eyeing up. Although I still have my fingers crossed on the sneakers; my birthday is coming up, and I sent a tip to the Birthday Fairy informing him about the shoes.

12. Make Goodies Boxes for Your Neighbors

Buy all the ingredients you need to make several batches of cookies or muffins, plus boxes, bags, baskets, and ribbons to make a nice presentation to give to your neighbors.

13. Buy a Bus Ticket and Visit Friends or Family

Greyhound has affordable prices. I scored a ticket from NYC to Baltimore for this weekend for $48 round trip.

14. Score Tickets to an Event

You can find cheap tickets to sporting events and concerts on StubHub. Browse the selection, and find something cool that’s within your budget.

15. Send Your Mom a Present

Seriously, don’t forget. Mother’s Day is in less than two weeks.

16. Help Fund a Kickstarter Project

You never know — your gift might help someone create a product that will change the world. That’d be pretty cool to be a part of.

17. Plan a One-Night Staycation

Book an available room or apartment nearby using Airbnb. It’ll be like spending the night at a hotel — but for waaaay less.

18. Give It to Your Partner or Kids

Under one condition — they must leave the house for the better part of the day so you can relax.

19. Hire Someone to Clean Your House

Yes, you should probably do this yourself. But why bother when someone else is willing to do it for you?

20. Visit a Local Spa

Day passes are usually between $30 and $50, which gives you access to everything the facility has to offer. This is a great way to unwind and de-stress.

21. Schedule a Hair Appointment

Get a quick ’do update.

22. Splurge on a New Video Game

I would suggest buying two games for less than $25 rather than one game at $50. My way means double the fun.

23. Purchase Fresh Pillows

When was the last time you replaced the pillows on your bed? Pick up a couple quality head-resters and look forward to a good night’s sleep.

24. Snag a Few Daily Deals

Check Groupon, LivingSocial, and other deal sites to find money-saving offers and activities in your neck of the woods.

25. Buy New Socks and Underwear

It’s time to retire some of your rattier undergarments and replace them with undies and socks that your sweetie actually wants to see you in.

26. Start a _____________ Fund

Have your eye on something that costs more than $50? Start a fund specifically for that item with the $50 you have now.

27. Pamper Your Pet

Treat your pet to a day of play and a few new toys and goodies.

28. Have Your Car Detailed

Keeping it clean will help with resale value down the road.

29. Start a Garden

I recently went to Home Depot and bought a plastic tub, dirt, and herb seeds to grow a small garden on my roof.

30. Update Your iPad

Buy a few new movies, books, music downloads, or apps.

31. Spring for Two New Ties

You should always look good at the office. And if you’re paying more than $25 per tie, you’re shopping at the wrong stores.

32. Gas Up the Car

Hurry, before prices start climbing again.

33. Order a Disaster Kit

Better safe than sorry. This pre-packed disaster kit might very well save your life or help you save someone else’s.

34. Adopt a Dog or Cat

Visit your local shelter to fall in love with a wonderful dog or cat in need of a forever home.

35. Send Your Grandmother a Gift

She’s not your mom, but she’s still a mother — and she loves you like you were her own. Show her your appreciation by sending her something that will make her day.

36. Take Cold-Weather Coats and Sweaters to the Dry Cleaner

Have the items cleaned now so they’re ready to wear come fall.

37. Join a Social Sports League

I’ve played social sports (dodgeball, kickball, bowling) in two cities, and each league was $50 or less to join. Plus, you get to make friends while you’re having fun. Totally worth the investment.

38. Plan a Date Night at Home

If you have On Demand, you can purchase pre-theater movies on your TV. They cost a bit more than the just-released titles — some can be up to $14.99 — but it’s worth the money if it’s a film you would have seen in theater anyway. Pick up some junk food too. Before the show starts, make munchies and milkshakes.

39. Add an Extra-Special Touch to a Getaway

If you’ve already planned a vacation, look into adding something more romantic to the package. B&B owners in particular are generally open to helping you enhance your stay with candlelight dinners, picnics, and other activities. I’m sure you can find just the right thing for $50 or less.

40. Renew a Membership or Subscription

Whether it’s a membership to a wholesale club or a subscription to your favorite magazine, update it now while you have the extra cash.

41. Make It Rain

Do you know what it feels like to drop money on unsuspecting people? Find out by going to your local mall with a pocket full of one-dollar bills and making it rain. You’ll puts smiles on lots of faces, and you might even get away with it if you hightail it out of there before security catches up with you.

42. Buy Supplies for a Local School

I know needy school kids along with teachers who have to buy all their own classroom supplies. Help students and educators out by picking up school supplies that the whole class can enjoy and dropping them off.

43. Book a Massage Appointment

You may have to do your research to find a masseur who will give you a massage for less than $50, but even if the hour price is out of your budget you can ask if he or she offers more affordable 30-minute sessions.

44. Put It Into a Savings Account

Of course this is no fun, but it is the responsible thing to do. You never know when you might need that $50.

45. Make Repairs Around the House

I’m sure there are a few small projects you’ve neglected. Maybe it’s replacing a few light bulbs or batteries, or perhaps you need organization supplies to clean up the garage. Whatever it is, make it your mission to take care of it with your $50.

46. Do Something You’ve Never Done Before

Try a new restaurant. See a new show. Find something in your area that you haven’t done yet and do it.

47. Create a Work of Art for Your Home

Pick up a blank canvas and a few supplies and channel your inner Andy Warhol.

48. Hide It In Your Wallet for a Rainy Day

Out of sight, out of mind. Hide a $50 bill in your wallet to use in emergencies. Much better than having to swipe the plastic.

49. Get a Tattoo

This isn’t for everybody, but you can get a small tattoo for around $50 if you want one.

50. Play Blackjack

It’s a risk, but if you know what you’re doing you can double your money in an instant.

Tell me, what would you do with an extra $50 in your pocket? Let me know in the comments below.

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This article is from Mikey Rox of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

What I Wish I Had Known When I Started Living Frugally

Kentin Waits — Tue, 06 Mar 2012 11:24:17 +0000

I’ve always been a fairly frugal person. I didn’t decide to be frugal one day or make a resolution on January 1 of any particular year. Evolving in the "frugal arts" has been more a path of gentle reminders and little lessons that have kept me on the straight and narrow. But early on, there was so much I didn’t know. As a younger person in my early twenties, frugality was a guiding, albeit much grayer concept, and I had no idea of the wide network of people who were following a similar path and having similar struggles.

If I could speak one-on-one to that fresh-faced 22-year-old just out of college, there’d be a few pieces of advice I’d give on the topic of frugal living — advice that might have saved him some stress, confusion, and money. (See also: The Two Biggest Mistakes People Make When Starting to Live Frugally)

It Gets Easier

Frugality is a skill. The more you practice, the easier it gets. Eventually, whole categories of expenses will buckle and fall to your instant and flawless number-crunching. Meanwhile, enjoy the small pleasures and keep your eye on the prize.

It’s Not Necessarily How Much You Make; It’s How Much You Save

Our society puts so much emphasis on making money and very little on saving it. Most people think the path out of money problems or the road to a more secure financial future is paved with higher-paying jobs. While there’s certainly nothing wrong with career advancement, without the fundamental skills on how to manage it, more money often means just more spending and bigger debt. But even with a very modest income, amazing feats of savings can be achieved with the right mindset and discipline. In short, never be fooled into thinking that you make too little to save, and never be lulled into believing that you make so much that you can catch up later.

Frugality Is Even More Important Than You Think It Is

Living within your means, living simply, and saving for goals and for retirement are important in ways you can’t even conceive of yet. As you get older, you’ll thank yourself for saving early, avoiding debt, and letting the magic of compounding interest do much of work for you. Though money isn’t everything, being on the wrong side of 40 is just a little bit “righter” when you have a firm grasp on the financial fundamentals.

There Are Young People Just Like You; You’re Part of a Movement

Though the idea of frugality may, at times, feel like the quaint sport of an older generation, take comfort — you’re not alone. In about ten years everyone will be connected via a network of personal computers, and you’ll see on a global level just how many folks are spurning over-consumption, living simply, and talking and writing about frugality. Stay tuned.

Frugality, Simplicity, and Sustainability Are All Petals on the Same Flower

It sometimes takes years to reach a vantage point where you can see how ideas are connected. Though they sometimes seem abstract, frugality, simplicity, and living sustainably are all part of the same idea. It’s nearly impossible to live a truly frugal life without simplifying and being mindful of the environment and sustainability concerns. As you grow into your lifestyle and connect with others, you’ll finally begin to see just how cohesive all of your disparate interests actually are.

Oh...and There’s a Big Recession Coming

Crystal ball time — in about 20 years, through a series of global financial missteps, the whole economic house of cards will tumble. Small successes now and larger lessons later will inform how prepared you are and how much of a personal adjustment you’ll have to make in response to some serious new economic realities. (Meanwhile, don’t invest in anything called "OTC derivatives.")

Hindsight, as they say, is 20/20. Whatever lessons I’ve managed to learn so-far have come at the right time and in largely the right way. I wonder though, if I were to have a similar conversation with myself 20 years from now, what would my 65-year-old self have to say?

What do you wish you had known when you started on your frugal path? What’s the most valuable thing that frugal newbies should know?

This article is from Kentin Waits of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

Beware the Small Print of High Interest Savings Accounts

Silicon Valley Blogger — Fri, 24 Sep 2010 14:00:07 +0000

How many times have you seen ads for savings accounts that have touted superb interest rates? And how many times have you looked into the offer only to discover that it isn’t quite what it seemed to be initially?

I’m not saying there are no good deals out there to be found. For instance, a savings product like the HSBC Advance Online Savings Account still offers a rate that’s higher than the what an average bank account offers, plus low fees and no minimum balance requirements. However, it pays to be careful and to keep your eyes and ears open and your brain engaged when you are shopping for a place to park your cash. Those tempting posters and advertisements have always got small print –- and it’s the small print that you really need to look at more closely.

Give Your Savings Account a Second Look

Here are some reasons why savings accounts with superb rates aren’t always the delightful find you thought they were.

1. They require a monthly savings contribution.

Some institutions may require you to contribute an amount each month to your account. This may be ideal if you've got a handle on your outgo, if you’ve got a good budget and you know how much cash you’ve got left over each month. But if you struggle to put away the same amount each time (or you even miss some months altogether) it’s no good opting for this kind of savings account. Instead, you’ll have to pass on the interest rate and settle for something less. For a savings account that’s more customer-friendly, check out the Sallie Mae Bank Savings Account.

2. The interest rate includes a "bonus" that disappears after the first year.

The good thing about these savings accounts is that for a specific time period, you can reap the rewards from a better rate of interest. They very often have few limits and they allow you to take out your cash whenever you want to. But they’re banking on the fact that you will forget to close the account and go elsewhere with your money. If you do opt for this kind of account, and you're really only after that rate boost in the beginning, then make sure you mark the anniversary on your calendar and move your money elsewhere when the intro rate expires.

In my case, I prefer to choose an account that still offers a high yield with or without the bonus tacked on. I also look at savings accounts that have other things going for it -- say, if they are part of an institution that has a great reputation, has a brokerage arm and has other interesting investment products to offer. EverBank is an online bank which offers accounts with initial interest rate boosts but also offers a great variety of investment products as well.

3. You don't get the stated interest unless you lock up your money for a given term.

An example of such an account is one that only pays out the advertised interest if you deposit your money and don’t touch it for four or five years. Now there is nothing wrong with this in principle, if you are quite willing to tie up your money for this long. But you wouldn’t choose this kind of account as your main savings account. You should only consider it if you've already got a designated account that gives you more liquidity and that perhaps, contains your rainy day money. If this is the case, you can enjoy getting a better rate of interest on any cash you are willing to tie up for a few years.

4. The account's interest rates change way too frequently.

How stable is that interest rate? Perhaps you are lured to a savings account because of its interest rate advertisement. At times, this type of fluctuation may seem to be a positive thing, particularly if rates are going up. But what if the trend is downward? If you’re using the rate as your primary reason for choosing an account, you may be disappointed later on when you find that the account’s rate changes quite a bit over time. So if you’ve pegged your hopes on a particular rate, it may not necessarily last.

Be Aware of the Hidden Costs

As you can see, there are some good deals to be had on savings accounts, even today when the interest rates are incredibly low. But you need to be prepared to give up something else in order to get them –- whether that is access to your cash, a good rate for an extended period of time or something else.

This means that you have to consider all aspects of every account before making your decision on which one is the best savings account for you. We all want our money to work for us and we want to get the best returns for it that we can. But sometimes we also need to know where to draw the line. Otherwise, we could end up getting tied to something that we really don’t need.

This article is from Silicon Valley Blogger of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

Living Well on a Feast to Famine Income

Little House — Mon, 13 Sep 2010 12:00:13 +0000

Living on a fluctuating income can wreak havoc on a person's finances. I should know; my income is slightly erratic from season to season. From October through June, my income is steady and stable with an occasional fluctuation — a surge of income one month, or a great reduction the next. Then, from July through September, my income drops like a brick and remains lower than normal, but constant, over the summer months. What I've learned through trial, error, and a great many tears is that living on an erratic, fluctuating income means coming up with a plan many months before hitting the low point of the year. (See also: 5 Tried-and-True Strategies for Saving When Your Income Isn't Consistent)

Make a Plan; Set up a Budget

Setting up a budget takes a little planning and getting into the habit of recording expenses and income. For instance, I use QuickBooks for my check register and categorize my expenses. I've set up categories for everything from rent to utilities to Starbucks. Since QuickBooks allows me to pull reports over time, I've been able to get a good idea of my average income for the year; a very important average for someone with an unstable income.

Since I have accumulated a lot of data over the years, I have a good idea of an average income and expenses over a 5-year period. Not wanting to over-estimate my income in any given year, I take the lowest amount over a five-year period and base my monthly budget on that average (dividing the annual income by 12 months). This is my base salary that I work with. For instance, if my lowest annual income in a given 5-year range was $63,000, I can use the monthly average of $5,250 to portion out how much will go into each expense category: rent, utilities, insurance, car, groceries, savings, etc.

Knowing that there's a good chance I might make more in one month than the next, I set aside the difference and plan ahead for the next month.

Create a Slush Fund

My budget dictates the expenses I must pay. However, in the months where I've ended up with a windfall, I set aside a portion of it in a "Slush Fund" account for next month's bills. My slush fund is basically a savings account that is connected with my regular checking account allowing me to easily transfer the money to and from accounts. One month I might be able to save a couple of thousand dollars in my slush fund, while the next, I might have to pull out most of the slush fund money if my income was insufficient.

Obviously, I've learned the hard way that I must be diligent and stick to my budget for this method to work. Before I became financially savvy and responsible, I would spend all the windfall money one month, then freak out the next when I had trouble digging up enough dough to pay the rent. Living with the stress of not knowing how to pay the bills from one month to the next is not a fun way to live.

Save for a Rainy Day

One of my monthly budget categories is savings, which is different from my slush fund money. Every month, I set aside a small portion of my income towards a separate savings account no matter what money I have coming in. That way I have a solid emergency fund in case I encounter a couple of famine months in a row. If I happen to hit a streak of luck where windfalls just keep coming, I increase my savings amount and still set aside the majority of the extra money into my slush fund, anticipating a slower month in the future. I try to budget ten percent of my income towards savings; most months I can reach this goal.

My idea behind the emergency fund money is it is only to be touched in an emergency, like an unexpected visit to the vet or an unforeseen car repair. The only other time I allow myself to touch this fund is when I run into a couple of months of below normal income. However, my slush fund is usually sufficient to cover one month of expenses at the minimum, if not two. I've set up a separate online savings account for my emergency fund that makes it a little more difficult to access, reducing any spur of the moment loss of sanity spending spree.

It took me quite a few years to figure out how to successfully live on a roller-coaster type income. Yet, recording my expenses and income and setting up a budget has made me realize it's not an impossible feat. Now that I understand I have to save the extra income in any given month has reduced my anxiety by allowing me a cushion of freedom.

This article is from Little House of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

Are You Saving Too Much Money?

Dan Rafter — Thu, 09 Sep 2010 13:00:07 +0000

You've diligently saved your entire life, contributing the maximum amount to your 401(k) plan or IRA. You've even built a solid emergency fund so that you'll never have to rely on a credit card to pay for unexpected expenses.

But is it possible that you're saving too much?

Sounds implausible, right? How you can save too much money? The financial experts all preach that you need to sock away as much as possible so that you can afford the retirement you've been dreaming of — whether that means traveling the world, relaxing by the lake, or spending more time with your grandkids.

Saving too much money is certainly better than not saving enough. However, in rare circumstances — believe it or not — it might be possible to save too much money.

An emergency fund that's too big

Financial experts recommend that your emergency fund include enough savings to cover daily living expenses for about six months. This way, if you lose your job, you'll have a financial cushion as you look for new employment. You'll also have dollars to draw from if your water heater should suddenly burst or your furnace conks out. With an emergency fund, you won't have to resort to paying for these emergencies with a credit card.

But it is possible to build an emergency fund that is too big. It doesn't make sense to keep depositing money in such a fund if you've already saved up a year's worth of living expenses. The reason? The money in an emergency fund doesn't generate much interest. Generally, you'll deposit money for your emergency fund into a savings account, and it's rare to find a savings account that comes with an interest rate higher than 1 percent.

If you want your savings to earn money, it makes more sense to invest it in retirement accounts or the stock market. You'll usually receive a far bigger return on your money.

Building an emergency fund is a key financial goal. But obsessing over this fund and building it too high can cost you far more valuable returns. (See also: 10 Money Goals All 30-Somethings Should Have)

Stashing away too much for retirement

Can it be possible that you're saving too much money for your retirement years? This is unlikely, but it is possible. It all depends on how much you've already saved and the type of lifestyle you expect to live after you leave the working world.

How much should you be saving for retirement? A general rule of thumb is that you should save 10 to 15 percent of your income every year. Others suggest that you should save enough, and have enough in other income streams, to replace 80 percent of your pre-retirement income, aka the "80 percent rule."

Determining your pre-retirement income

What is your pre-retirement income? A good number to use is the average income you earned during the last 10 years during which you were employed. So if you earned an average of $50,000 during the last 10 years you were working, you'd need to have enough in savings and other income streams to come up with $40,000 a year, or $3,333 a month.

That sounds like a lot. But you do have options for coming up with that money. If you've saved diligently in a retirement savings account such as an IRA or 401(k) plan, you'll get the bulk of that money each month from these accounts. You can also rely on Social Security payments, pension payments, or other monthly income streams.

Expenses you'll no longer have

There is some debate about whether you'll actually need that 80 percent figure. The goal when you reach retirement is to have your mortgage paid off. At the same time, you won't be paying for your children's college tuition. And Medicare should cover a good chunk of your health care costs.

If you've planned well for your retirement, you might not need as much savings as you expected. You might reach the end of your working life with a surplus of money saved up.

Of course, this isn't necessarily a problem. Having more money saved further reduces the stress of retirement. Having more savings can protect you from unexpected costs during your retirement years. It's impossible to predict, for instance, if you'll need emergency medical care or if you'll need to live in an assisted-living home earlier than expected. (See also: 9 Times Life Can Throw Retirement Off Course)

But if you're saving so much money today that you're not enjoying yourself — holding off on a well-deserved vacation, or making do with secondhand furniture — you might consider spending a little more money today. As long as you're meeting your retirement goals, it doesn't hurt to treat yourself before you hit your post-work years.

This article is from Dan Rafter of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

5 Tips for Easy College Savings

Tisha Tolar — Mon, 30 Nov 2009 14:00:03 +0000

When you have a baby, there are many initial financial concerns, especially when a family is still working hard just to make ends meet. College savings on a tight budget may seem like something you'll do later when the kids start elementary school but time goes by so fast. The reality is by the time today's toddlers are in college, the costs of higher education will be outrageous.

To get a jump start on saving money for college, here are ideas for starting to save when kids are still young and money's still tight. Also check out our 40+ College Resources for Parents and Students to get more information.

Choose the Right Savings Plan for College

You can start the account in your child's name to save on taxes but be warned — if you are later eligible for financial aid, it can be cheaper to have the funds in your own name. Colleges expect contributions toward tuition to be 5-6% of your assets each year. Assets in a child's name are marked considerably higher at 20%. Savings bonds are also affected in this manner.

Balance the Budget

The earlier you start, the smaller increments you can deposit. If your child is still in elementary school, work through your parenting budget to find at least $50 a month to invest into a college account. Make a serious commitment to socking away $50 each month until the college years loom. It may seem like an insufficient amount but in 18 years time at 6% interest a year, that $50 a month can be worth around $20k.

Invest Extra Cash

Any windfalls in money (bonuses, inheritance, etc.) should have an allocation right off the top of at least an additional $50 to invest, if not more, into the college account. It can be easy to find uses for "extra money" but $50 is rather small and you'll feel better making that extra deposit during the month.

Automate Your Savings Plan

Psychologically speaking, you can save more when you see less. Talk to your payroll department about having $25 a check (if you get paid bi-monthly) deposited directly into the college account. After a month or so, you'll likely never even notice it is missing.

Look But Don't Touch

It's great to track your progress and see that $50 start adding up but don't touch it, not even for emergencies. Start a similar plan where you deposit money into an account for emergencies like home or vehicle repairs. Since you have been dedicated to the savings process, a second account should be just as simple. It can be tempting to withdraw the money but consider instead how good it will feel when your child is getting ready to go off to college without additional financial stress on them — or you.

This article is from Tisha Tolar of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

savings account

5 Alternatives to a 401(k) Plan

1. Roth IRA

2. Traditional IRA

3. Taxable brokerage account

4. Peer-to-peer lending

5. Stick your money in the bank

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Money a Mess? Try This Personal Finance Starter Kit

What you need: A checking account

What you need: A savings account

What you need: A simple budget

What you need: A Roth IRA

The optional garnish: A rewards credit card

Whipping up a financial adulthood

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4 Easy-to-Fix Reasons Your Savings Account Isn't Growing

1. The Problem: You Make Regular Withdrawals From Your Savings Account

The Easy Fix: Reduce Access to Your Account

2. The Problem: Transfers to Your Savings Account Are Infrequent and Small

The Easy Fix: Automate Your Savings

3. The Problem: You Are Saving Money, But Not for Anything in Particular

The Easy Fix: Create Targeted Savings Accounts

4. The Problem: Your Interest Rate Is Too Low

The Easy Fix: Transfer Your Money Into a Money Market Account

The Bottom Line

Chase Total Checking and Savings: Easy Everyday Banking

How to Open an Account

Sign-up Offers

Online and Mobile Banking

Automatic Savings

Account Alerts

Are Chase Total Checking® and SavingsSM Right for You?

5 Ways to Grow Your Savings Without a Steady Paycheck

1. Separate All Your Savings Goals

2. Pay Yourself a Regular Salary

3. Try a Microsaving Tool

4. Find What Motivates You to Save

5. Join a Savings Challenge

Why Savings Account Interest Rates Are So Low

Depositors vs. Borrowers

The Federal Reserve and Savings Account Rates

When Will Savings Account Rates Go Up?

A Step-by-Step Guide to Creating Your Emergency Fund

Figure Out How Much You Can Save

Set Your Savings Goal

Automate Your Savings

Investments Worth Making With $50 or Less

Savings Account

ETFs

DRIP

Lending Club

A Band

The Lincoln Guide to Personal Finance

50 Great Things to Do With $50

1. Pick Up a Nice Bottle of Wine

2. Tip Your Service Provider(s)

3. Replace Old Pots and Pans

4. Catch Up on Bills

5. Take a Friend to the Movies

6. Have Your Oil Changed

7. Stock Up on Toiletries and Grooming Products

8. Invest in the Stock Market

9. Donate to Charity

10. Go Grocery Shopping

11. Treat Yourself to New Clothes

12. Make Goodies Boxes for Your Neighbors

13. Buy a Bus Ticket and Visit Friends or Family

14. Score Tickets to an Event

15. Send Your Mom a Present

16. Help Fund a Kickstarter Project

17. Plan a One-Night Staycation

18. Give It to Your Partner or Kids

19. Hire Someone to Clean Your House

20. Visit a Local Spa

21. Schedule a Hair Appointment

22. Splurge on a New Video Game

23. Purchase Fresh Pillows

24. Snag a Few Daily Deals

25. Buy New Socks and Underwear

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