interest http://www.wisebread.com/taxonomy/term/798/all en-US This Is How Rich You'd Be If You'd Saved the Money You Earned in High School http://www.wisebread.com/this-is-how-rich-youd-be-if-youd-saved-the-money-you-earned-in-high-school <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/this-is-how-rich-youd-be-if-youd-saved-the-money-you-earned-in-high-school" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/teenage-girl-barista-coffee-shop-Dollarphotoclub_78063768.jpg" alt="barista" title="barista" class="imagecache imagecache-250w" width="250" height="140" /></a> </div> </div> </div> <p>In 1978, the summer of my junior year in high school, I was offered a job at a Kentucky Fried Chicken franchise. It was owned by a family friend who needed more staff. My parents thought it would be a good first &quot;summer job,&quot; and so I began working. The job paid the California minimum wage of $2.65 an hour. It was fun, at first, since all of my coworkers went to the same high school, and we passed the time by goofing off and chatting a lot.</p> <p>But when I began receiving my checks, I was shocked at the difference between what I thought I would be earning, and what I actually took home. My father, a math teacher, explained the hard financial facts to me.</p> <p>I wish he had explained this one: compound interest. (In retrospect, he may have decided that arguing with a headstrong 16-year-old was not picking his battles wisely.)</p> <p>What is compound interest? Basically, it means allowing your earnings to accumulate, so that they earn interest, too. And if you take advantage of its power early on, you can accumulate funds much more quickly. Read on to see how much money I'd have today if I'd saved my high school earnings.</p> <h2>The Power of Compounding</h2> <p>I was working 20 hours per week at $2.65 per hour, which, before taxes, equalled $53 per week. Over the course of a couple of years, I earned about $5,500 (gross).</p> <p>Let's pretend that I had taken $4,000 of that and invested it in the stock market, earning near-average historical returns of about 10% for 37 years. (Watch this great video if you want to learn how to <a href="https://www.youtube.com/watch?v=hSIBoQlJ6AA&amp;feature=share">calculate compound interest by hand</a>.)</p> <ul> <li>My Principal: $4,000</li> <li>My Annual Interest Rate: 10% or 0.10</li> <li>Time: 37 years</li> </ul> <p>You'll probably want to use an <a href="http://www.thecalculatorsite.com/articles/finance/compound-interest-formula.php">online compound interest calculator</a> to do your own calculations.</p> <p>That original $4,000 would now equal approximately <strong>$136,000</strong>. Pretty great, right? And if I don't touch it until the &quot;official&quot; retirement age of 65, I'll have over <strong>$350,000</strong>. That's more money than most Americans retire with &mdash; all from just a measly minimum wage high school job!</p> <p>Had I invested that $4,000, I would be pretty tickled with myself right now. Instead, I probably blew it all on sodas, movie tickets, records, and whatever else teens were buying back then.</p> <h2>Advice on Compounding for Teens</h2> <p>So, if I were to advise a teenager right now, what would I say?</p> <h3>1. Get a Job</h3> <p>You will want to earn some of your own money. It will give you some independence, help you develop confidence, and learn responsibility.</p> <h3>2. Start Saving ASAP</h3> <p>Many banks have special &quot;teen&quot; checking and savings accounts. Open accounts, and decide how much you will put in each of them on payday. You'll need to learn how to manage and balance a checking account. Once you have some funds built up, open a brokerage account and invest in a <a href="https://investor.vanguard.com/mutual-funds/target-retirement/">target-date retirement fund</a>.</p> <h3>3. Be Wary of Debt</h3> <p>Eventually, you may have to take on some debt, for something like a student loan or a car. Learn about interest and credit cards. Don't sign up for debt without getting good advice first.</p> <h3>4. Learn How to Budget</h3> <p>You are about to need to figure out how to make your money stretch. Start by keeping track of what you spend, and where. This is usually the point where adults start packing their own lunches and making their own coffee.</p> <h3>5. Educate Yourself About Investing</h3> <p>You should start investing as soon as your start making money. Thanks to the power of compound interest, a dollar saved today is worth much more tomorrow, so get started ASAP. Learn the basics of investing, and find a trustworthy adult, such as a parent or banker, to help you make sound choices. You'll thank me someday if you do.</p> <p><em>Did you invest the income from your high school job? What's it worth today?</em></p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/marla-walters">Marla Walters</a> of <a href="http://www.wisebread.com/this-is-how-rich-youd-be-if-youd-saved-the-money-you-earned-in-high-school">Wise Bread</a>, an award-winning personal finance and <a href="http://www.wisebread.com/credit-cards">credit card comparison</a> website. Read more great articles from Wise Bread:</div><div class="view view-similarterms view-id-similarterms view-display-id-block_2 view-dom-id-1"> <div class="view-content"> <div class="item-list"> <ul> <li class="views-row views-row-1 views-row-odd views-row-first"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/join-the-rentier-class">Join the rentier class</a></span> </div> </li> <li class="views-row views-row-2 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/book-review-cash-rich-retirement">Book review: Cash-Rich Retirement</a></span> </div> </li> <li class="views-row views-row-3 views-row-odd"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/9-best-free-financial-learning-tools">9 Best Free Financial Learning Tools</a></span> </div> </li> <li class="views-row views-row-4 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/21-things-that-young-adults-absolutely-need-to-know-about-money">21 Things That Young Adults Absolutely Need to Know About Money</a></span> </div> </li> <li class="views-row views-row-5 views-row-odd views-row-last"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/the-false-allure-of-compound-interest">The False Allure of Compound Interest</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Personal Finance compound interest interest investing teens and money Wed, 25 Feb 2015 14:00:04 +0000 Marla Walters 1304086 at http://www.wisebread.com Never Use Cash for These 11 Things http://www.wisebread.com/never-use-cash-for-these-11-things <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/never-use-cash-for-these-11-things" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/girl-shopping-checkout-180329083-small.jpg" alt="shopping checkout" title="shopping checkout" class="imagecache imagecache-250w" width="250" height="140" /></a> </div> </div> </div> <p>Some people only make their purchases in cash in order to avoid accumulating debt. Others swear by credit cards in order to <a href="http://www.wisebread.com/which-type-of-rewards-credit-card-is-right-for-you?ref=inarticle">earn rewards</a>. But most people use a mix of cash and card. So which purchases should you never use cash for? (See also: <a href="http://www.wisebread.com/top-6-reasons-why-using-cash-only-rocks?ref=seealso">Top 6 Reasons Cash-Only Rocks</a>)</p> <h2>1. A House</h2> <p>There are few people who can afford to purchase a house outright, but even if you can, it may not be the wisest financial decision. Mortgage rates are at all time lows, and so you would likely be better off using the cash you would otherwise pay for the home to invest in the stock market. And obtaining and making payments on a mortgage is good for your credit history. Plus, mortgage interest is tax deductible.</p> <h2>2. Appliances</h2> <p>Many credit cards offer extended warranty protection, which is insanely helpful for appliances that are prone to breaking. This means that if your $300 above-the-stove-microwave breaks after 18 months (six months after the warranty expired), you can contact your credit card company and they will issue you a refund. <a href="http://www.wisebread.com/the-secret-credit-card-perk-that-saved-me-300">This exact thing happened to me</a>, and I got all my money back, and now I make sure to purchase all my appliances on a credit card which has warranty protection. (See also: <a href="http://www.wisebread.com/how-to-take-advantage-of-free-extended-warranty-from-your-credit-card-issuer?ref=seealso">How to Use Your Credit Card's Free Extended Warranty</a>)</p> <h2>3. Items From Stores With Short Return Policies</h2> <p>Some stores only offer a two week or 30-day return policy. If you pay cash and want to make a return past this period, you're out of luck. But many credit cards offer 90 day return protection, which means that if the store won't take back the item on day 89, the credit card will refund your money. (Note that usually you are required to ship the product you can't return to the store to the credit card company.)</p> <h2>4. Clearance Items</h2> <p>Many stores have no refund policies for clearance items (typically marked &quot;all sales final&quot;). For the same reasons as for stores with short return periods, by using a credit card with 90 day return protection instead of paying cash you'll protect yourself if the item doesn't work out.</p> <h2>5. An Item You're Likely to Break or Ruin</h2> <p>Another of my <a href="http://www.wisebread.com/ultimate-credit-card-perks-checklist-benefits-you-dont-know-about">favorite credit card perks</a> is &quot;buyer protection,&quot; a form of purchase protection that protects you if you lose or break an item within a certain time of purchasing it (typically three months). If you're buying an expensive item or something you could break, ruin, or get stolen, then charge the item to a credit card.</p> <h2>6. Medical Expenses</h2> <p>Medical expenses are subject to certain tax breaks and thus it's best to have a record of them. Whether you're claiming a deduction because you've accumulated expenses greater than 7.5% of your income, or you have a Health Savings Account (HSA), you must keep a record of your purchases. While the IRS may not accept a credit card bill (the rules on this are a little complex), it doesn't hurt to have the card bill if the tax man comes knocking at your door. More importantly, using a credit card will help you keep track of expenses so you can make the claim when the time comes.</p> <h2>7. Charitable Donations</h2> <p>Like with medical expenses, putting charitable donations on a credit or debit card will help you keep track of the expenses for tax purposes. Use a budgeting tool like Mint.com to easily help you compile your deductions at the end of the year.</p> <h2>8. Purchases at a Store Where You Shop Frequently</h2> <p>If you spend at least several thousand dollars each year at certain stores, it may be worthwhile to get the store's credit card to save you money. For example, a Target Card saves you 5% on every purchase and an Amazon.com card gives you 3% in rewards. Certain department stores even offer special coupons or savings events for their cardholders. (See also: <a href="http://www.wisebread.com/store-credit-cards-that-dont-suck?ref=seealso">Store Credit Cards That Don't Suck</a>)</p> <h2>9. Recurring Purchases</h2> <p>If you have recurring debits set up for payments on your water bill, cable TV, phone, utilities, or anything else, you should charge it to a credit card and not have the amount debited directly from your bank. Why? If you have a dispute over a charge, you can file a dispute with your card company and immediately get your money back. (If you file a dispute with your bank over an automatic withdrawal from a checking account, you have a much harder battle to fight.) I know someone who recently cancelled an insurance policy, but the company continued to debit her checking account anyway. Had she charged it to a card, it would have been far less hassle to sort out because the credit card company would do the fighting for her.</p> <h2>10. Airline Tickets</h2> <p>When you book your plane ticket using a credit card, you're likely eligible for a whole host of related benefits including: Baggage Loss Protection, Passport/Credit Card Loss Protection, No Baggage Checking Fees, Free Airport Lounge Access, Lost Luggage Tracking Assistance, Emergency Translation/Interpretation for Medical Emergencies, and Emergency Medical Transportation Assistance. Chances are you won't need to use any of these protections, but if you do run into a sticky situation, these protections will make a huge difference. (See also:<a href="http://www.wisebread.com/top-5-travel-reward-credit-cards?ref=seealso"> Best Travel Reward Credit Cards</a>)</p> <h2>11. Car Rentals</h2> <p>Want to save a lot of money on rental cars? Decline the additional insurance offering and rely on your credit card's insurance instead. Besides car rental insurance, using a credit card for renting a car may also entitle you to additional car rental discounts and roadside assistance.</p> <p>Note regarding credit cards: Many of the protections listed above vary by credit card, so be sure to check with your card company to see what benefits you're entitled to. And these benefits assume that you're paying your card in full every month; if you're not, the additional interest you accumulate may not offset the benefits of paying with a card.</p> <p><em>What other items do you never use cash to buy?</em></p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/elizabeth-lang">Elizabeth Lang</a> of <a href="http://www.wisebread.com/never-use-cash-for-these-11-things">Wise Bread</a>, an award-winning personal finance and <a href="http://www.wisebread.com/credit-cards">credit card comparison</a> website. Read more great articles from Wise Bread:</div><div class="view view-similarterms view-id-similarterms view-display-id-block_2 view-dom-id-2"> <div class="view-content"> <div class="item-list"> <ul> <li class="views-row views-row-1 views-row-odd views-row-first"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/47-simple-ways-to-waste-money">47 Simple Ways To Waste Money</a></span> </div> </li> <li class="views-row views-row-2 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/11-ways-your-credit-card-will-save-you-money-while-holiday-shopping">11 Ways Your Credit Card Will Save You Money While Holiday Shopping</a></span> </div> </li> <li class="views-row views-row-3 views-row-odd"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/make-grocery-budgeting-a-game-the-price-is-right-style">Make Grocery Budgeting A Game, The Price Is Right Style</a></span> </div> </li> <li class="views-row views-row-4 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/would-you-get-rid-of-credit-cards-if-stores-give-more-discounts-to-customers-who-pay-cash">Would you get rid of credit cards if stores give more discounts to customers who pay cash ?</a></span> </div> </li> <li class="views-row views-row-5 views-row-odd views-row-last"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/do-you-spend-more-with-cash-or-credit">Do You Spend More with Cash or Credit?</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Budgeting Credit Cards Shopping budgeting cash credit cards interest shopping Fri, 03 Oct 2014 15:00:05 +0000 Elizabeth Lang 1226294 at http://www.wisebread.com Pay Bills Early? Only If You Want to Save Money http://www.wisebread.com/pay-bills-early-only-if-you-want-to-save-money <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/pay-bills-early-only-if-you-want-to-save-money" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/finances-176589208.jpg" alt="paying bills" title="paying bills" class="imagecache imagecache-250w" width="250" height="141" /></a> </div> </div> </div> <p>It&#39;s no surprise that being prompt with your bill payments saves you from late charges and frees up your income early in the month. But there are other benefits that may not be so apparent. Whether it&#39;s debt or utilities, getting your bills out of the way early can pay off even more than you think. (See also: <a href="http://www.wisebread.com/watch-out-for-these-4-sneaky-charges-on-your-monthly-bills?ref=seealso">4 Sneaky Charges on Your Monthly Bills</a>)</p> <h2>Discounts</h2> <p>In addition to avoiding penalties, you can snag some pretty good discounts by paying bills before they&#39;re due. For example, the Light Department of Holden, Massachusetts offers a 10% discount if customers pay within 15 days of the billing date. Similarly, residents in Alamo, Texas receive up to 3% off of their property tax bill if they pay early enough. Many doctors, hospitals, and other healthcare providers also give discounts if you pay at the time of service or within a certain time period, often 30 days. Check with your service providers and government agencies to determine if they offer prompt-pay discounts. Even if they don&#39;t advertise any, it can&#39;t hurt to ask.</p> <h2>Reduced Interest</h2> <p>You&#39;re likely aware that you can save yourself a nice chunk of change in interest by paying off things like car loans and mortgages early. But you may not realize this principle applies to your monthly credit card bill, too. Simply paying the bill by the due date will help you avoid penalties and fees, but you could still be costing yourself money by not paying as soon as possible.</p> <p>Interest on credit card balance accrues and compounds daily, meaning the interest charges are applied to your balance every day and are based on the original balance plus the interest that accumulated the previous day. So with a $1000 starting balance and 10% APR (which equals 0.027 percent in daily interest), you&#39;ll pay $1,000.27 the first day, $1,000.54 the second day, $1,000.81 the third day and so on. Most credit card companies also use the average daily balance method to calculate your bill, which adds each day&#39;s balance together and then divides that amount by the number of days are in the billing cycle. (See also: <a href="http://www.wisebread.com/the-best-low-interest-rate-credit-cards?ref=seealso">Best Low Interest Rate Credit Cards</a>)</p> <p>All of these factors combine to create a situation where every day that passes in your billing cycle costs you more money in interest. This becomes especially true with larger balances and when you&#39;re only paying the minimum every month. Although it may not be big money, making your credit card bill payment as soon as possible definitely decreases the amount you pay now and in the long term. That&#39;s extra money you can use to fund your savings and investments, or to just enjoy an occasional night out.</p> <h2>Better Health and Peace of Mind</h2> <p>Beyond the constant worry, sleepless nights, and other anxiety-induced mental health issues associated with unpaid bills, they can be the root of physical health problems, too. People experience a phenomenon called &quot;debt stress&quot; when they owe money. According to a survey conducted by the Associated Press and AOL, high amounts of this kind of stress can make you <a href="http://hosted.ap.org/specials/interactives/wdc/debt_stress/index.html">more likely to suffer</a> from headaches, back and neck pain, digestive issues, fatigue, and even heart attacks. (See also: <a href="http://www.wisebread.com/depressed-it-could-be-your-debt?ref=seealso">How Debt Can Lead to Depression</a>)</p> <p>Even if you&#39;ve got your bills under control and aren&#39;t worried about being able to pay, those pesky little pangs of anxiety you experience throughout the day when you remember that a bill remains unpaid can take their toll as well. Studies have shown that even little things like thinking about <a href="http://www.psychologytoday.com/blog/the-squeaky-wheel/201304/study-finds-minor-stressors-impact-long-term-mental-health">making a bill payment</a> can be a detriment to both your current frame of mind and your long term mood, especially if you don&#39;t deal with minor stressors well.</p> <p>Paying your bills sooner rather than later relieves you of this tension before it has a chance to ruin your day or cause more serious problems with your physical and mental health. Getting bills paid early can also give you a boost in your immediate emotional well-being, as you get to check a task off of your mental &mdash; or actual &mdash; to-do list. (See also: <a href="http://www.wisebread.com/live-long-and-prosper-with-these-15-small-healthy-habits?ref=seealso">15 Small Healthy Habits</a>)</p> <h2>Making Sure You&#39;re Early</h2> <p>Don&#39;t wait for your bill to arrive in the mail. If possible, make the payment on the first day of the new billing cycle by accessing your account online or calling customer service. You may also be able to set up bill payments through your bank that sends out your bill money to the appropriate party automatically every month. You can instruct your bank to send the funds for different bills on specific dates, ensuring each bill is paid early.</p> <p><em>Any benefits of paying bills early I&#39;ve missed? Hurry up and share them in comments!</em></p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/lauren-treadwell">Lauren Treadwell</a> of <a href="http://www.wisebread.com/pay-bills-early-only-if-you-want-to-save-money">Wise Bread</a>, an award-winning personal finance and <a href="http://www.wisebread.com/credit-cards">credit card comparison</a> website. Read more great articles from Wise Bread:</div><div class="view view-similarterms view-id-similarterms view-display-id-block_2 view-dom-id-3"> <div class="view-content"> <div class="item-list"> <ul> <li class="views-row views-row-1 views-row-odd views-row-first"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/this-is-how-rich-youd-be-if-youd-saved-the-money-you-earned-in-high-school">This Is How Rich You&#039;d Be If You&#039;d Saved the Money You Earned in High School</a></span> </div> </li> <li class="views-row views-row-2 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/money-metaphors-you-wouldnt-punch-a-kitten-would-you">Money Metaphors (You wouldn&#039;t punch a kitten, would you?)</a></span> </div> </li> <li class="views-row views-row-3 views-row-odd"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/6-steps-to-take-when-you-have-more-bills-than-income">6 Steps to Take When You Have More Bills Than Income</a></span> </div> </li> <li class="views-row views-row-4 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/video-on-how-to-spot-counterfeits">Video on How to Spot Counterfeits</a></span> </div> </li> <li class="views-row views-row-5 views-row-odd views-row-last"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/organizing-your-financial-paperwork">Organizing Your Financial Paperwork</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Personal Finance bill paying bills interest Wed, 29 Jan 2014 10:48:15 +0000 Lauren Treadwell 1119565 at http://www.wisebread.com While Waiting for Rates: I-Bonds http://www.wisebread.com/while-waiting-for-rates-i-bonds <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/while-waiting-for-rates-i-bonds" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/savings-bonds-large.jpg" alt="Savings bonds" title="Savings Bonds" class="imagecache imagecache-250w" width="250" height="164" /></a> </div> </div> </div> <p>Your short-term cash in a savings account or money fund isn't earning much yield. You could earn a bit more by locking your money up for a longer term, but that could be costly if your money is still locked-in when rates eventually do rise&mdash;and <em>especially</em> costly if inflation goes up.</p> <p>If only there were some instrument that paid a reasonable return, provided some inflation protection, and still gave you access to your money if rates went up.</p> <p>As you'll have guessed from the title, there is: the series-I savings bond.</p> <p>The I-Bond provides excellent inflation protection, by paying a rate that consists of a portion that's fixed for the life of the bond, plus a portion that changes every six months based on recent inflation. A bond you buy right now will only pay the inflation rate, because the fixed portion is zero. However, there'll be a new fixed rate announced May 1st.</p> <p>The I-Bond does this while providing considerable flexibility for you to decide how long you want to leave your money in. If it's providing a good return, you can choose to leave your money in for 30 years. Alternatively, you can take your money out any time after one year has passed. If it's been less than 5 years, you forfeit the last three months interest payments&mdash;but since rates are so low, that's not much of a penalty.</p> <h2>Four Scenarios</h2> <p>There are four scenarios that you need to consider: interest rates might stay low or they might go up; at the same time the inflation rate might stay low or it might go up. Let's look at each of those in turn, and see how the I-Bond works in that scenario.</p> <h3>Rates stay low, inflation stays low</h3> <p>This is basically the situation we've been in since the financial crisis began. The I-Bond is an adequate investment, keeping you even with inflation.</p> <p>Your best move: <strong>Hold your bonds</strong>. With low rates, you probably can't do better elsewhere anyway.</p> <h3>Rates go up, inflation stays low</h3> <p>This seems like the least likely scenario, but if this is what happens, you'd be okay.</p> <p>Your best move<strong>:</strong> <strong>Cash in your bonds</strong> and then invest in something paying the new higher rates. You'll have to give up three month's interest&mdash;but since inflation is low, that wouldn't be much.</p> <h3>Rates stay low, inflation goes up</h3> <p>This is generally the worst situation for the saver, but the I-Bond does a reasonably good job of protecting you, and you can't do much better elsewhere anyway. (People who locked in their money at low rates without inflation protection, on the other hand, are screwed.)</p> <p>Your best move: <strong>Hold your bonds</strong> and keep up with inflation.</p> <h3>Both interest rates and inflation go up</h3> <p>In this scenario you're protected from the inflation, but you're not earning the new higher rates.</p> <p>Your best move: <strong>Cash in your bonds</strong>. You'll pay a penalty, but it will be small (as long as you do it early, before you'd earned much of the new, higher inflation adjustment). Then reinvest at the higher rates.</p> <h2>Take Your Time</h2> <p>Probably the best move overall is to adopt this strategy gradually. For one thing, since you can't get your money out for the first year, you don't want to put in any money that you might need during that time. In any case, you're only allowed to buy $5000 worth of savings bonds per year anyway.</p> <p>If you make a modest investment into I-Bonds each year, all but the most recent batch will be available to cash in anytime that's the right move. And, once five years have passed, some of them will be available to cash in with no penalty.</p> <p>In fact, once you reach that point, you can start thinking of your savings bonds as part of your <a href="http://www.wisebread.com/figuring-the-size-of-your-emergency-fund ">emergency fund</a>. They can be cashed in at any bank, so they're <a href="http://www.wisebread.com/savings-bonds-as-interest-earning-travelers-checks ">almost like cash</a>. (But they're more secure than cash, because if they're lost, stolen, or destroyed, you can get them replaced.)</p> <p>If you want to invest larger amounts, consider TIPS. They're currently paying higher rates. (However, they don't have the feature of allowing you to cash them in early.) I wrote an article <a href="http://www.wisebread.com/tips-and-i-bonds ">comparing TIPS and I-Bonds</a> a while ago.</p> <p>See the <a href="http://www.savingsbonds.gov/indiv/research/indepth/ibonds/res_ibonds.htm ">Treasury's site on I-Bonds</a> for all the details on current rates, how the rate is calculated, how to buy them, etc.</p> <p>It's entirely possible that interest rates will stay low. In fact, the Fed is pretty much promising to keep rates low for &quot;an extended period.&quot; That's assumed to mean at least six months, but it could be much longer than that. I-Bonds are a reasonable choice while you're waiting&mdash;and after May 1st, depending on what the Treasury sets as the new fixed rate, they might get better.</p> <p>&nbsp;</p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/philip-brewer">Philip Brewer</a> of <a href="http://www.wisebread.com/while-waiting-for-rates-i-bonds">Wise Bread</a>, an award-winning personal finance and <a href="http://www.wisebread.com/credit-cards">credit card comparison</a> website. Read more great articles from Wise Bread:</div><div class="view view-similarterms view-id-similarterms view-display-id-block_2 view-dom-id-4"> <div class="view-content"> <div class="item-list"> <ul> <li class="views-row views-row-1 views-row-odd views-row-first"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/new-rate-set-for-series-i-savings-bonds">New rate set for series I savings bonds</a></span> </div> </li> <li class="views-row views-row-2 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/tips-and-i-bonds">TIPS and I-Bonds</a></span> </div> </li> <li class="views-row views-row-3 views-row-odd"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/i-bond-rates-go-to-zero">I Bond rates go to zero</a></span> </div> </li> <li class="views-row views-row-4 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/dont-let-low-interest-rates-make-you-stupid">Don&#039;t let low interest rates make you stupid</a></span> </div> </li> <li class="views-row views-row-5 views-row-odd views-row-last"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/how-much-money-will-you-need-to-retire">How Much Money Will You Need to Retire?</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Investment i-bonds inflation inflation rate interest interest rates savings bonds Mon, 28 Feb 2011 13:00:09 +0000 Philip Brewer 496997 at http://www.wisebread.com When Interest Rates Head Up http://www.wisebread.com/when-interest-rates-head-up <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/when-interest-rates-head-up" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/bank-building_1.jpg" alt="Bank building" title="Bank building" class="imagecache imagecache-250w" width="250" height="278" /></a> </div> </div> </div> <p>It doesn't take any skill at prognostication to make this forecast: Interest rates are heading up. For one thing, they can't go any lower.</p> <p>Whether you think rising interest rates is good or bad mainly depends on whether you're a borrower or a lender. If you run a small business that depends on credit to buy raw materials or inventory, then rising interest rates are bad news. If you're a member of the <a href="http://www.wisebread.com/join-the-rentier-class">rentier class</a> and live on interest and dividends, then rising rates will be a boost to your income.</p> <p>Of course, it's an over-simplification to speak of &quot;interest rates&quot; as if they all moved together. There are lots of interest rates, and some of them behave very differently from others. In particular, although we talk about &quot;low&quot; interest rates, there aren't many borrowers who can actually borrow at low rates &mdash; just governments and large financial institutions, really. Mortgage rates have been pretty low (for well-qualified borrowers), and some car loan rates have been low as well. Other consumer rates, though, never fell much to speak of. Rates for borrowers with poor credit started high and stayed that way.</p> <p>Still, whether you think rising interest rates is a good thing or a bad thing, it's sure to happen, so you need to be prepared.</p> <h2>Dealing with rising rates</h2> <p>When rates are rising, the rule is this: borrow long and lend short. Now might be a fine time to lock in a good rate on a 30-year mortgage, but do not get an adjustable-rate mortgage, even if the rate seems like a great deal. Similarly, don't start putting your money into 30-year treasury bonds. (Inflation-adjusted Treasury paper may be an exception.)</p> <p>When will rates go up? I don't know. Probably even the members of the Federal Reserve Open Market Committee don't know, and they're the folks who decide. At their last meeting they left intact the language that said that rates would stay low for &quot;an extended period.&quot; People have been assuming that this means at least 6 months. A couple of members have started talking about the need to get rates back to &quot;normal&quot; levels, but just a day or two ago someone at the San Francisco Fed suggested that <a href="http://www.frbsf.org/publications/economics/letter/2010/el2010-18.html">near-zero rates might be appropriate until 2012</a>.</p> <p>I do know this: once rates start going up, they will keep going up for a very long time. To me, that means that locking in rates for the short-term (6 months or even a year) will be harmless. Yes, it will mean that you won't be participating in the higher rates the instant that they go up. But, since rates will keep going up, when your CD (or whatever) rolls over a few months later, you'll get an even higher rate.</p> <p>My take on it is that you needn't hesitate lock in for as long as year, if you can get a better rate than you can get on cash. But I'd definitely draw the line before 2 years. Once rates start up, rates on 2-year paper will move up sharply. You wouldn't want to have to wait 15 or 20 months to take advantage of that.</p> <p>Finally, once rates do start moving up, don't be in any hurry to lock in the new higher rates. Interest rate cycles tend to be very long: The current cycle of declining rates has been running for almost 30 years (since 1981). I wouldn't be surprised if, once rates start going up, they kept going up for just as long.</p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/philip-brewer">Philip Brewer</a> of <a href="http://www.wisebread.com/when-interest-rates-head-up">Wise Bread</a>, an award-winning personal finance and <a href="http://www.wisebread.com/credit-cards">credit card comparison</a> website. Read more great articles from Wise Bread:</div><div class="view view-similarterms view-id-similarterms view-display-id-block_2 view-dom-id-5"> <div class="view-content"> <div class="item-list"> <ul> <li class="views-row views-row-1 views-row-odd views-row-first"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/peak-debt">Peak Debt</a></span> </div> </li> <li class="views-row views-row-2 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/9-reasons-why-the-us-economy-is-kicking-the-worlds-butt">9 Reasons Why the U.S. Economy Is Kicking the World&#039;s Butt</a></span> </div> </li> <li class="views-row views-row-3 views-row-odd"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/what-i-miss-about-the-recession">What I Miss About the Recession</a></span> </div> </li> <li class="views-row views-row-4 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/what-qe2-could-mean-for-ordinary-americans">What QE2 Could Mean for Ordinary Americans</a></span> </div> </li> <li class="views-row views-row-5 views-row-odd views-row-last"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/book-review-life-inc">Book review: Life Inc.</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Financial News Economy interest interest rates Sun, 20 Jun 2010 17:00:04 +0000 Philip Brewer 141271 at http://www.wisebread.com Convenience Checks: 6 Reasons Why They Can Cause Trouble http://www.wisebread.com/convenience-checks-6-reasons-why-they-can-cause-trouble <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/convenience-checks-6-reasons-why-they-can-cause-trouble" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/1071930_check_book_and_statement.jpg" alt="check book" title="check book" class="imagecache imagecache-250w" width="250" height="163" /></a> </div> </div> </div> <p>Many people receive convenience checks in the mail and regard them as a monetary gift, another source of funds from a special-purpose checking account. Don't be fooled. Convenience checks aren't like regular checks attached to a checking account. They are a type of <strong>loan</strong>, a cash <strong>advance</strong> against the credit availability on your credit card. Below are 6 reasons why these checks can come back to haunt you.</p> <h3>1. High Interest Rates</h3> <p>Convenience checks usually carry a higher interest rate than the rate charged for credit card purchases, often in excess of 20%. If there is a low introductory interest rate promotion, read the fine print to understand the promotion time period and what the default rate will be once the period has expired.</p> <h3>2. Immediate Interest Accrual</h3> <p>Interest charges begin immediately after a convenience check is cashed, unlike with credit cards where you have a &quot;float&quot; of several weeks before interest starts accruing. In other words, when you buy an item and pay with a credit card, you don't pay interest on the amount owed until after the payment due date (if there is a balance). If you buy an item with a convenience check, the interest rate clock starts ticking when the check clears.</p> <h3>3. Fees</h3> <p>Convenience checks have a transaction fee attached, which can be up to 5%. For example, if you use a check to pay a $1000 bill, you could be charged a $50 fee. Using the check to do a &quot;low interest&quot; balance transfer from a higher interest card could also trigger a transfer fee.</p> <h3>4. Lower Credit Availability</h3> <p>As stated earlier, a convenience check is taking out a loan using the credit availability on your card. If you aren't sure about the amount of available credit on your card, call the credit card company to verify the amount before using the check. These days, credit limits can be changed (i.e., frequently lowered), so if your check puts you over your limit, it could bounce or you could be charged over-the-limit fees. In addition, your credit score is closely tied to your credit availability, so if your convenience check uses up most of your available credit, your score will be negatively affected.</p> <h3>5. Less Protection</h3> <p>According to the Fair Credit Billing Act, consumers have certain protections against defective goods when making purchases with a credit card. These protections don't apply when you use a convenience check.</p> <h3>6. Temptation for Thieves</h3> <p>If you receive convenience checks in the mail and you aren't tempted to use them, realize that other people might be tempted. Leaving blank checks around will invite theft, so shred the checks to avoid being on the hook for someone else's spending spree. Studies have shown that most cases of identity theft are caused by a friend or family member.</p> <p>In short, don't use a convenience check unless you understand the terms and know all of the potential consequences. Otherwise, these checks can be truly inconvenient.</p> <div class="field field-type-text field-field-guestpost-blurb"> <div class="field-label">Guest Post Blurb:&nbsp;</div> <div class="field-items"> <div class="field-item odd"> <p>This is a guest post by Hollis Colquhoun. Hollis has over 20 years experience in the financial industry, is an Accredited Financial Counselor and co-author of <em>Women Empowering Themselves: A Financial Survival Guide</em>. Contact her at <a href="http://www.womenempoweringthemselves.com/">Women Empowering Themselves</a>. Here are more articles by Hollis:</p> <ul> <li><a href="http://technorati.com/blogging/article/avoid-expensive-credit-report-services-when1/">Avoid Expensive Credit Report Services When You DIY For Free</a></li> <li><a href="http://technorati.com/business/article/the-college-challenge-which-way-to/">The College Challenge: Which Way To Pay</a></li> </ul> </div> </div> </div> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/hollis-colquhoun">Hollis Colquhoun</a> of <a href="http://www.wisebread.com/convenience-checks-6-reasons-why-they-can-cause-trouble">Wise Bread</a>, an award-winning personal finance and <a href="http://www.wisebread.com/credit-cards">credit card comparison</a> website. Read more great articles from Wise Bread:</div><div class="view view-similarterms view-id-similarterms view-display-id-block_2 view-dom-id-6"> <div class="view-content"> <div class="item-list"> <ul> <li class="views-row views-row-1 views-row-odd views-row-first"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/never-use-cash-for-these-11-things">Never Use Cash for These 11 Things</a></span> </div> </li> <li class="views-row views-row-2 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/are-debit-cards-as-safe-as-credit-cards">Debit Cards vs. Credit Cards: Fees and Fraud Protection</a></span> </div> </li> <li class="views-row views-row-3 views-row-odd"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/the-5-best-secured-credit-cards">The 5 Best Secured Credit Cards</a></span> </div> </li> <li class="views-row views-row-4 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/the-best-0-balance-transfer-credit-cards">The 5 Best 0% Balance Transfer Credit Cards</a></span> </div> </li> <li class="views-row views-row-5 views-row-odd views-row-last"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/top-5-travel-reward-credit-cards">5 Best Travel Reward Credit Cards</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Credit Cards convenience checks interest Wed, 31 Mar 2010 13:00:03 +0000 Hollis Colquhoun 6094 at http://www.wisebread.com The Three Interest Rates http://www.wisebread.com/the-three-interest-rates <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/the-three-interest-rates" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/tiger-shark.jpg" alt="Tiger Shark!" title="Tiger Shark!" class="imagecache imagecache-250w" width="250" height="245" /></a> </div> </div> </div> <p>I got a notice from one of my credit cards a bit ago, announcing that they were raising the interest rate. It's only of theoretical interest to me, of course--I use credit cards for transactions, not to borrow money--but looking at the rate they're charging reminded me that there are really three interest rates.</p> <p>Of course there are an infinity of different interest rates, but I&nbsp;find I&nbsp;think of them in three broad categories:</p> <ul> <li>The rate you have to pay</li> <li>The rate the big boys have to pay</li> <li>The rate you can earn on your savings</li> </ul> <p>These rates used to have a particular relationship to one another. (People used to talk about bankers following the 3-6-3 rule: Take deposits at 3%, make loans at 6%, and hit the golf course by 3 PM.) Things haven't been that way in a long time--and it really bugs me.</p> <h2>Rates you have to pay</h2> <p>The credit card I just got new rate terms for has a variable rate. I don't know what the old rate was, but the new rate will be prime plus 9.74%, which currently works out to 12.99%. That's better than a lot of credit cards, but it's still a terrible way to borrow money.</p> <p>The banks, of course, claim that they need to charge these high rates to cover the costs of running a whole transaction system, and to make up for all the people who don't pay their loans off. Personally, I'd find that a lot more convincing if I didn't know that they covered the cost of the transaction system by charging the merchants transaction fees and if they didn't load up even higher rates (along with a bunch of fees) on everyone who began to look like they might default.</p> <p>Still--it's a free market and all that. If you don't want to pay those interest rates, you're free not to borrow money.&nbsp; That's what I do.</p> <h2>Rates the big institutions pay</h2> <p><img align="right" src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/u203/dff-2000-2009.png" alt="Fed Funds Rate dropping to near zero in fall of 2008." />The news often reports the rates that big institutions pay. The prime rate used to be big, although it's become less important of late. The US treasury has to pay just a fraction over 3% to borrow for 10 years. The Fed Funds rate (the rate banks pay each other when they lend/borrow overnight) is around zero (0.17% on July 29th), down from over 5% before the economic crisis hit and the Fed hit the panic button. During the crisis the Fed has been making money available via a temporary program called the Term Auction Facility. They just lent out <a href="http://www.federalreserve.gov/newsevents/press/monetary/20090728a.htm">$82 billion for four weeks at 0.25%</a>.</p> <p>Understand: the Fed has done this on purpose. A big part of the reason things are like this is that after the big financial institutions trashed their balance sheets by lending huge amounts of money to people who would never be able to pay it back, it became necessary to recapitalize the banks. The Fed and the Treasury lent them billions to keep them together during the crisis, but the only hope for the banks ever paying that money back is for the banks to be hugely profitable.</p> <p>If you could borrow at 0.25% and lend at 12.99% you could be hugely profitable too. Of course, that's not going to happen.</p> <h2>Rates you can earn</h2> <p>For a decade or two, back in the 1980s and 1990s, savers had a pretty sweet deal. Savings accounts, CDs, treasury paper, even savings bonds paid great rates. Through most of the 1980s it was possible for ordinary savers to get 5 percentage points over inflation. That gradually narrowed--through the 1990s the difference was down to about 2.5 percentage points, but it was still pretty sweet.</p> <p><img align="right" src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/u203/savings-rate-1995-2004.png" alt="Interest rates on 6-month CDs 1995-2994" />Then, in 2001, rates that savers could earn collapsed.&nbsp; From a very satisfactory after-inflation return of over 3% in 2000, rates fell almost to zero. In fact, the after-inflation return to savers has often been negative, starting in 2002.</p> <p>The <a href="http://www.wisebread.com/the-whole-sorry-mess-in-one-picture">fraction of their income that American's saved collapsed</a> to around zero in 2005 or so. There's plenty of blame to go around for that, but you have to figure that an absence of any real return on savings didn't help. Savings have spiked up now, because everyone is afraid, but they won't stay up if savers can't earn anything.</p> <h2>What to do?</h2> <p>First of all, unless you can borrow at 0.25% or so, don't borrow any money. That's the easy part.</p> <p>There's really no solution for the way savers are getting screwed. Reported inflation is momentarily low, but that's about to change (once last fall's big declines in fuel prices drop out of the year-ago calculations). I'll be very interested to see if savers put up with negative real returns, once the <a href="http://www.wisebread.com/watch-out-for-surge-in-cpi">reported inflation rate surges</a>.</p> <p>Until rates for savers move up, about all you can do is shop around for the best returns on savings accounts and CDs, and invest some of your money in <a href="http://www.wisebread.com/non-financial-investments">non-financial investments</a> (such as <a href="http://www.wisebread.com/huge-tax-free-investment-returns">stocking your pantry with stuff you're going to use</a> anyway, and putting cash into things like <a href="http://www.wisebread.com/invest-some-of-this-cheap-energy">better insulation and weather stripping</a> that'll pay a return in the form of reduced future expenses).<br /> &nbsp;</p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/philip-brewer">Philip Brewer</a> of <a href="http://www.wisebread.com/the-three-interest-rates">Wise Bread</a>, an award-winning personal finance and <a href="http://www.wisebread.com/credit-cards">credit card comparison</a> website. Read more great articles from Wise Bread:</div><div class="view view-similarterms view-id-similarterms view-display-id-block_2 view-dom-id-7"> <div class="view-content"> <div class="item-list"> <ul> <li class="views-row views-row-1 views-row-odd views-row-first"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/borrowers-lenders-and-others-beware-trusting-the-government">Borrowers, lenders, and others--beware trusting the government</a></span> </div> </li> <li class="views-row views-row-2 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/dont-let-low-interest-rates-make-you-stupid">Don&#039;t let low interest rates make you stupid</a></span> </div> </li> <li class="views-row views-row-3 views-row-odd"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/10-types-of-friends-who-are-costing-you-money">10 Types of Friends Who Are Costing You Money</a></span> </div> </li> <li class="views-row views-row-4 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/when-should-you-say-no-to-those-who-want-to-borrow-money-from-you">When Should You Say No to Those Who Want to Borrow Money from You?</a></span> </div> </li> <li class="views-row views-row-5 views-row-odd views-row-last"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/73-easy-ways-to-save-money-today">73 Easy Ways to Save Money Today</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Personal Finance Banking borrowing credit cards interest interest rates lending rates saving Tue, 04 Aug 2009 13:00:33 +0000 Philip Brewer 3458 at http://www.wisebread.com Debit Cards vs. Credit Cards: Fees and Fraud Protection http://www.wisebread.com/are-debit-cards-as-safe-as-credit-cards <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/are-debit-cards-as-safe-as-credit-cards" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/visa_debit.jpg" alt="visa debit card" title="visa debit card" class="imagecache imagecache-250w" width="250" height="167" /></a> </div> </div> </div> <p>Many financial experts suggest <a href="http://www.ncnblog.com/2007/10/19/how-i-live-without-using-credit-cards-my-simple-system-for-living-on-a-budget/">using debit cards</a> instead of <a title="Guide to Using Credit Cards Wisely" href="http://www.wisebread.com/credit-card-guide">credit cards</a> because in theory, you will spend less if you are only paying with money you have.&nbsp;</p> <p>On the other hand, many people are concerned that debit cards may generate overdraft fees and offer less legal protection against unauthorized charges.&nbsp; Are these valid concerns?</p> <p><strong>Overdraft Fees</strong></p> <p>According to <a href="http://www.bankrate.com/brm/news/cc/transcript-debit-or-credit-card-a1.asp">Consumer&rsquo;s Union</a> &quot;a person using a debit card more than 20 times a year pays an average of $223 in bounced check fees. The one who doesn&rsquo;t use a debit card at all pays an average of $40.&quot;</p> <p>You can avoid these fees with some thoughtful planning. Here are some great tips from <a href="http://www.bankrate.com/brm/news/check_card/debit_card_problems_a1.asp">Bankrate.com</a>:</p> <blockquote><p class="rteindent1">Most banks provide &quot;convenience&quot; overdraft protection -- which is basically a high-interest loan to cover the shortfall in the account -- a consumer who's trying to manage money responsibly could get hit with a fee of around $35.</p> <p class="rteindent1">&nbsp;</p> <p class="rteindent1">Be sure to note all debit transactions in your check register and sign up for overdraft protection linked to your savings account to be on the safe side.</p> <p class="rteindent1">&nbsp;</p> <p class="rteindent1">Consumers should also ask their banks in what order payments are made. Ask where you can find information on nonsufficient funds. Most banks manage payments by paying the largest items first and on down to the lowest. If your biggest item overdraws your account, you'll pay an NSF fee for every subsequent check or debit.</p> </blockquote> <p>Keep in mind the average American pays <a href="http://ems.gmnews.com/news/2008/1223/Greg_Bean/">$1,200 a year</a> in credit card interest fees.&nbsp; If you minimize your overdraft fees with the basic precautions listed above, you will most likely pay less fees by using a debit card.</p> <p><strong>Protection Against Fraudulent Charges</strong></p> <p>One of the major benefits of credit cards is that they offer generous protection against unauthorized charges.&nbsp; Under federal law, debit cards do not have the same level of protection as credit cards.&nbsp;</p> <p>However, many debit card issuers are offering extended liability protection to make up for the legal differences.&nbsp; As <a href="http://articles.moneycentral.msn.com/Banking/BetterBanking/DebitCardsAGoodDealGetsBetter.aspx?page=all">MSN pointed out</a>, &quot;in effect, check cards now have the same protections as credit cards.&quot;&nbsp; I wanted to verify this for myself.&nbsp; Since Visa is one of our sponsors I&nbsp;was able to get a very quick response back from their spokesperson:</p> <blockquote><p>Despite the popularity of debit cards, consumers are often confused about the security features and consumer protections debit cards offer. Many of the same features and protections provided by credit cards are also offered with debit cards. It&rsquo;s important to know that Visa debit cards carry the <strong>same protections as Visa credit cards</strong>.</p> <p>&nbsp;</p> <p>All Visa cardholders (prepaid, debit or credit) are protected by <a href="http://usa.visa.com/personal/security/visa_security_program/zero_liability.html">Visa&rsquo;s Zero Liability policy</a>.</p> <p>&nbsp;</p> <p>This policy means you pay nothing if unauthorized purchases are made on either a Visa Check card or credit card when you choose to sign for your transactions. Some issuing financial institutions offer Zero Liability protections for certain PIN debit transactions as well, but the best way to ensure you are protected is to <strong>sign for your purchases</strong>. Visa&rsquo;s Zero Liability policy actually surpasses protections mandated by federal law, which in most cases caps liability at either $50 (for credit) or $500 (for debit).</p> </blockquote> <p><strong>The Verdict</strong></p> <p>Of course, cash is almost always better than debit or credit cards.&nbsp; And as Nora pointed out, there are many <a href="http://www.wisebread.com/top-seven-reasons-why-i-use-my-credit-card-for-everything">great reasons to use credit cards</a> such as building up credit rating and earning reward points.&nbsp; However, if overdraft fees and fraud protection were holding you back from switching to debit cards, perhaps it is time to take a second look.</p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/will-chen">Will Chen</a> of <a href="http://www.wisebread.com/are-debit-cards-as-safe-as-credit-cards">Wise Bread</a>, an award-winning personal finance and <a href="http://www.wisebread.com/credit-cards">credit card comparison</a> website. Read more great articles from Wise Bread:</div><div class="view view-similarterms view-id-similarterms view-display-id-block_2 view-dom-id-8"> <div class="view-content"> <div class="item-list"> <ul> <li class="views-row views-row-1 views-row-odd views-row-first"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/never-use-cash-for-these-11-things">Never Use Cash for These 11 Things</a></span> </div> </li> <li class="views-row views-row-2 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/everything-you-should-know-about-getting-a-credit-card-but-didn-t-have-a-clue-to-ask">Everything you should know about getting a credit card but didn’t have a clue to ask</a></span> </div> </li> <li class="views-row views-row-3 views-row-odd"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/security-breach-puts-50000-credit-card-holders-at-risk">Security Breach Puts 50,000 Credit Card Holders at Risk</a></span> </div> </li> <li class="views-row views-row-4 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/5-best-cash-back-credit-cards">5 Best Cash Back Credit Cards</a></span> </div> </li> <li class="views-row views-row-5 views-row-odd views-row-last"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/top-seven-reasons-why-i-use-my-credit-card-for-everything">Top Seven Reasons Why I Use My Credit Card for Everything</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Credit Cards credit cards debit cards fraud interest overdraft fees VISA Tue, 23 Dec 2008 13:33:13 +0000 Will Chen 2670 at http://www.wisebread.com Book review: Cash-Rich Retirement http://www.wisebread.com/book-review-cash-rich-retirement <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/book-review-cash-rich-retirement" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/cash-rich-retirement-cover.jpg" alt="Cover of Cash-Rich Retirement" title="Cover of Cash-Rich Retirement" class="imagecache imagecache-250w" width="105" height="160" /></a> </div> </div> </div> <p><a href="http://www.amazon.com/gp/product/0312377401?ie=UTF8&amp;tag=wisbre08-20&amp;linkCode=as2&amp;camp=1789&amp;creative=9325&amp;creativeASIN=0312377401">Cash-Rich Retirement: Use the Investing Techniques of the Mega-Wealthy to Secure Your Retirement Future</a>&nbsp;by Jim Schlagheck.</p> <p>Do you need a kick in the pants to get you saving for retirement?&nbsp; Do you need someone to wave their arms and run around screaming that your whole future is at risk, in order to motivate you to put some serious money aside and take the time to learn how your 401(k) works?&nbsp; If so, this is the book for you.</p> <p>It's fascinating to read this book in conjunction with <a href="/book-review-work-less-live-more"><em>Work Less, Live More</em></a>, which I checked out of the library the same day.</p> <p>Where that book goes way beyond the classic notion of retirement at age 65, suggesting that not just retirement, but <em>early</em> retirement, is readily available to almost anyone--if they're willing to live frugally and maybe keep on doing a bit of work on the side--this book is the complete opposite. &nbsp;</p> <p>Schlagheck scarcely talks about early retirement, and it doesn't even seem to imagine that anyone might do any work to earn money after they retire.&nbsp; It's all about straight-up retirement:&nbsp; You work to retirement age, and then you quit.&nbsp; And, it warns, if that's your plan, you may be in for an unpleasant surprise.&nbsp; Not only is your retirement in &quot;grave danger,&quot; the <em>whole system</em> of retirement is on the verge of being a failed experiment.</p> <p>Schlagheck sees two sources of danger.</p> <p>The first is the &quot;coming demographic storm&quot; of baby boomers all getting set to retire at once.&nbsp;&nbsp; Not only are they all going to want to get their social security payments at once, they're also going to be taking their pensions (from old-line businesses and from state and local governments) at once.&nbsp; Plus, they're all going to stop accumulating investments, and switch to selling them instead.&nbsp; With everyone trying to get their money at once, Schlagheck sees a real danger that they won't all succeed.</p> <p>The second is a set of foolish ideas about investing.&nbsp; You cannot, he says, safely rely on capital gains for your investment returns; reliable long-term returns are largely going to come from income:&nbsp; dividends, interest, and rents.&nbsp; In addition, you can't&nbsp; get adequate diversification simply by dividing your investments among American companies of different sizes (a generous helping of S&amp;P 500 seasoned with some mid-cap and small-cap funds).&nbsp; You need to diversify both internationally and among asset classes (stocks, bonds, REITs, etc.).</p> <p>I actually agree with most of what Schlagheck says, especially about his focus on income in your investment portfolio and on the kinds of investments you ought to be focusing on.&nbsp; In addition to the excellent chapters on investing, he's got a good chapter on health insurance, some interesting thoughts on long-term care insurance, and lots of good detail about complicated subjects like annuities (that aren't so well covered other places).</p> <p>Where I have a problem is in the way he's trying to work the reader up into a tizzy.&nbsp; The book could not have been printed before the digital age, because in the days of metal type the printer would have used up his entire supply of exclamation points before getting halfway through the manuscript.&nbsp; Every page is splashed with italics warning you of a threat or urging you to action.&nbsp; The repeated exhortations to &quot;save, save, save&quot; become wearisome, and the drumbeat warning that your retirement is in danger don't become more compelling with repetition.</p> <p>Still, if you or someone you know is just blithely assuming that retirement will take care of itself, a wake-up call like this may be just what you (or they) need.&nbsp; The information is right on, even if I got an unusually vigorous workout for my eye-rolling muscles as I plowed through the cautions, dangers, perils, warnings, and urgent urgings. &nbsp;</p> <p>For the right person, though&nbsp;<a href="http://www.amazon.com/gp/product/0312377401?ie=UTF8&amp;tag=wisbre08-20&amp;linkCode=as2&amp;camp=1789&amp;creative=9325&amp;creativeASIN=0312377401">Cash-Rich Retirement</a> by Jim Schlagheck is a fine book.&nbsp; Excellent content.&nbsp; Just a little strident for my tastes.</p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/philip-brewer">Philip Brewer</a> of <a href="http://www.wisebread.com/book-review-cash-rich-retirement">Wise Bread</a>, an award-winning personal finance and <a href="http://www.wisebread.com/credit-cards">credit card comparison</a> website. Read more great articles from Wise Bread:</div><div class="view view-similarterms view-id-similarterms view-display-id-block_2 view-dom-id-9"> <div class="view-content"> <div class="item-list"> <ul> <li class="views-row views-row-1 views-row-odd views-row-first"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/book-review-retire-on-less-than-you-think">Book review: Retire on Less Than You Think</a></span> </div> </li> <li class="views-row views-row-2 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/book-review-work-less-live-more">Book review: Work Less, Live More</a></span> </div> </li> <li class="views-row views-row-3 views-row-odd"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/book-review-the-little-book-of-common-sense-investing">Book review: The Little Book of Common Sense Investing</a></span> </div> </li> <li class="views-row views-row-4 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/book-review-the-only-investment-guide-youll-ever-need">Book review: The Only Investment Guide You&#039;ll Ever Need</a></span> </div> </li> <li class="views-row views-row-5 views-row-odd views-row-last"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/book-review-your-money-or-your-life">Book review: Your Money or Your Life</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Personal Finance Retirement book review books dividends interest investing investments rents retire retirees retirement benefits retirement funding retirement planning review Mon, 28 Apr 2008 13:08:05 +0000 Philip Brewer 2046 at http://www.wisebread.com Join the rentier class http://www.wisebread.com/join-the-rentier-class <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/join-the-rentier-class" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/central-park-penthouses.jpg" alt="Penthouses as viewed from central park" title="Central Park Penthouses" class="imagecache imagecache-250w" width="250" height="193" /></a> </div> </div> </div> <p>You don&#39;t hear much about the rentier class any more. Perhaps that&#39;s because we all expect to be members by retirement age. Perhaps it&#39;s because even the very wealthy now all seem to work at something, if only at being a celebrity for our entertainment. Whatever the reason, I recommend that you take advantage of its modern social acceptability, and join the rentier class sooner, rather than later.</p> <p>The rentier class, if you&#39;re not familiar with the term, are the people who live off capital: stockholders, bondholders, landowners. If you receive any income in the form of interest or dividends, then you&#39;re already on your way.</p> <p>Invest for income! A money fund or an internet savings account is a good place to start, but once you have enough cash set aside in your <a href="/figuring-the-size-of-your-emergency-fund">emergency fund</a> and you&#39;re fully funding your 401(k), start investing in bonds and in dividend-paying stocks. </p> <p>Investing for income hasn&#39;t been popular these last few decades; investing for growth was the way to go. There are a couple of reasons for that. Tax policy long discouraged investing for income--you have to pay taxes on income every year, but you don&#39;t have to pay taxes on growth until you sell (and then at a lower rate). The tax rules were really just an excuse, though. The real reason that investing for income was unpopular was that it&#39;s not a way to get rich quick. That made investing for growth much sexier.</p> <p>Tax policy has changed, at least for the moment. Since 2003 you&#39;ve been able to get low rates for dividends. But, since tax policy was really only an excuse to prefer sexy, sexy growth over dividends, there hasn&#39;t been a huge shift in how people invest. Personally, I&#39;ve always trusted income over growth. Growth seemed somehow imaginary. Income showed up in my checking account.</p> <p>The reason income has alway seemed so dull is that it doesn&#39;t offer the short-cut that growth seems to (and actually does, but only to a tiny fraction of investors). If your goal is enough income that you don&#39;t need to work any more, it takes years and years of living frugally, saving, and investing for income before you reach your goal. But that&#39;s the wrong way to look at it. Long before you have enough income that you don&#39;t need to work, you have enough income to make your life better.</p> <p>I think a lot of people look at investing for income, and quickly decide that the income is simply too small to matter. Buy a $1000 treasury bond at current rates and your interest payments will amount to something like $20 every six months. What&#39;s the point in that? The average stock in the S&amp;P 500 pays a dividend rate that&#39;s even lower--you&#39;d have to invest a couple thousand dollars just to get $10 a quarter.</p> <p>The thing is, though, those $10 and $20 quarterly and semi-annual payments add up quickly. More important, they don&#39;t depend on you actually doing anything to get the money.</p> <p>Just a few years of investing is enough to build up a tidy little portfolio of bonds and dividend-paying stocks. Plenty of stocks pay higher dividends than the average of the S&amp;P 500. Pick a few that seem to be well-managed and profitable; invest in those. Interest rates on treasury paper are down near multi-year lows, but several times in the last two years it has been possible to get 5% on treasury bonds. (For how to buy treasury paper, see <a href="/treasury-bills-for-ordinary-folks">Treasury bills for ordinary folks</a>.)</p> <p>It may take your entire career to save and invest enough money that your investment income can entirely replace the earnings from your career. (In fact, if you don&#39;t save and invest pretty diligently, it may take more than your entire career.) But income that isn&#39;t enough to live on is still worth having. At different times in your life it can provide additional money to invest, a boost to your standard of living, or a supplement to your emergency fund if your regular income is lost.</p> <p>Invest for income. Join the rentier class.</p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/philip-brewer">Philip Brewer</a> of <a href="http://www.wisebread.com/join-the-rentier-class">Wise Bread</a>, an award-winning personal finance and <a href="http://www.wisebread.com/credit-cards">credit card comparison</a> website. Read more great articles from Wise Bread:</div><div class="view view-similarterms view-id-similarterms view-display-id-block_2 view-dom-id-10"> <div class="view-content"> <div class="item-list"> <ul> <li class="views-row views-row-1 views-row-odd views-row-first"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/book-review-cash-rich-retirement">Book review: Cash-Rich Retirement</a></span> </div> </li> <li class="views-row views-row-2 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/this-is-how-rich-youd-be-if-youd-saved-the-money-you-earned-in-high-school">This Is How Rich You&#039;d Be If You&#039;d Saved the Money You Earned in High School</a></span> </div> </li> <li class="views-row views-row-3 views-row-odd"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/9-best-free-financial-learning-tools">9 Best Free Financial Learning Tools</a></span> </div> </li> <li class="views-row views-row-4 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/21-things-that-young-adults-absolutely-need-to-know-about-money">21 Things That Young Adults Absolutely Need to Know About Money</a></span> </div> </li> <li class="views-row views-row-5 views-row-odd views-row-last"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/5-financial-obstacles-that-are-especially-tough-for-women">5 Financial Obstacles That Are Especially Tough for Women</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Personal Finance dividends interest investing Sun, 06 Jan 2008 14:40:59 +0000 Philip Brewer 1591 at http://www.wisebread.com How low interest rates might save the world http://www.wisebread.com/how-low-interest-rates-might-save-the-world <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/how-low-interest-rates-might-save-the-world" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/stone-wall.jpg" alt="Stone Wall" title="Stone Wall" class="imagecache imagecache-250w" width="250" height="182" /></a> </div> </div> </div> <p>Low interest rates generally lead to inflation, which is bad for everybody. But if inflation were really low, then low interest rates would tend to follow, and in that situation, low interest rates just might save the world.</p> <h2>Present value</h2> <p>This article is really about present value. (It's about saving the world, too, but first it's about present value.) Present value is the way economists think about the value today of something that you're going to get in the future. Money that you're not going to get for a while is worth less for a whole list of reasons:</p> <ul> <li>You can't spend it now</li> <li>Inflation might make it worth less before you get it</li> <li>There's some risk that whoever is supposed to give it to you won't</li> <li>If you had the money now, you could invest it and earn some return</li> </ul> <p>So, how do you calculate the value today for some money that you're supposed to get in the future? You calculate the present value of the money.</p> <p>The calculation is rather complex. That's not a big deal--any financial calculator and many web sites include a present value calculator--but it's worth understanding the basics of the formula. The gist of it is in that last bullet item there--if you had the money now, you could invest it and earn some return. The formula essentially figures out how much money you'd need to have now in order to be able to invest it and get whatever you've got coming to you later.</p> <p>Let's say some rich uncle died and the lawyers tell you that you can expect to receive $1000 once the estate settles in six months. Further, let's say you could get 5% on the money in your internet savings account. Plug those numbers into a present value calculator (6 months, 5%, and a future value of $1000) and it will tell you that the present value is $975.36. (That interest rate, by the way, is called the discount rate, because it's used to figure the discount of the present value to the future value.) An economist would tell you that you should sell your right to receive that money if anyone would offer you $976 for it. Likewise, if whoever is inheriting the money offers to let that economist have the inheritance in exchange for $975 today, the economist would no doubt jump at the chance to pick up a free 36-cent profit.</p> <p>In the real world, of course, the second-to-last bullet point also comes into play. The 5% that you could earn on the money is all well and good if you've got great confidence in the lawyers, the estate is large, and the will clearly gives you $1000 off the top. But oftentimes things aren't so very clear. Maybe the estate is overly invested in subprime mortgages. Maybe there's an illegitimate son out there with a claim to the whole thing. Anything that adds uncertainty to the payment increases the discount rate.</p> <p>Economists, of course, don't like to dirty their hands with figuring out what the discount rate actually needs to be to account for the fact that there might be another heir out there. Instead, they just tell you to use the &quot;appropriate&quot; discount rate.</p> <h2>Decision-making and present value</h2> <p>To an economist, not having to pay money is the same thing as getting money, so the present value formula lets you answer all sorts of questions about paying money now to save money later.</p> <p>If you can buy a cheap widget today for $100 and have it last 10 years, or you could buy an expensive one for $200 and have it last 20 years, which would you pick? It's not even a toss-up: buy the cheap widget. The cost of the replacement widget ($100, 10 years from now, 5% discount rate) has a present value of only $61.39. If you had the $200 you could buy the cheap widget, invest the $61.39 (which would be worth $100 when the time came to replace your widget), and have the $38.61 to spend or invest in some other way. On the other hand, if the longer-lasting widget only cost $160, that would be the way to go.</p> <p>Of course there's a lot of issues that need to be handwaved away for this to work out so simply: the risk that the cheap widget will fail at a critical time, the risk that the replacement widget might not be so cheap, the value of your time spent widget shopping twice instead of just once, and so on. But the principle is sound.</p> <p>People make these sorts of calculations all the time. Why do roads need to be repaved every 3 years instead of being made to last 20? Because the present value of repaving an extra six times is less than the present value of making a road to last.</p> <h2>Choosing a discount rate</h2> <p>As I said, economists just tell you to choose an appropriate discount rate and leave the dirty work to you. It's a big deal, though, because which rate you chose has huge implications for what makes sense and what doesn't.</p> <p>Suppose the appropriate discount rate were only 2% in the widget example. All of a sudden the right amount to pay for the better widget is $182. On the other hand, if the appropriate rate were 9%, you it wouldn't make sense to buy the better widget unless you could get it for just $142.</p> <p>The main things that factor into the discount rate are the general level of interest rates in the economy (because you could invest whatever money you don't spend now--or alternatively, have to borrow whatever extra you need, which is the same thing to an economist) and any unique risk factors related to this particular transaction (such as the risk that they might not even make widgets ten years from now).</p> <h2>High discount rates in action</h2> <p>Ever see somebody who makes seemly irrational financial decisions, such as borrowing from payday lenders or skipping routine car maintenance that ensures much higher repair bills later? Without speculating on what is actually in the mind of such a person (feeding their family, perhaps), you can model their behavior by treating it as indicating a very high discount rate.</p> <p>When would it make sense to borrow $100 today and have to pay back $115 in two weeks? It makes sense if your discount rate is over 365%. If it is, then $100 today is worth more than $115 in two weeks. Note that it doesn't matter if the borrower is actually making such a calculation--surely almost none of them are. But they're acting as if they were.</p> <p>The effect of high discount rates is to make future results insignificant compared to the present. And the reverse is also true: If the future is insignificant (such as, for example, if you're dying of a terminal illness), then making decisions as if the appropriate discount rate were very high makes a certain kind of sense. So what if spending $30 on your car today could save you a $1400 repair bill next year if the car is sure to be repossessed long before then?</p> <h2>Roofing beams</h2> <p>Now we get to the saving the world part.</p> <p>Here's a story I've heard more than once. Sometimes it's about Cambridge, sometimes it's about Oxford, but either way it goes like this:</p> <blockquote><p>The facilities guy comes to the head of the college and says, &quot;The huge oak beams that hold up the roof in the great hall are almost 400 years old. They're wearing out and need to be replaced. I don't know where we're going to find replacements, and if we do find them, they're going to cost a fortune.&quot;</p> <p>The head of the college gets advice from various people and eventually finds himself talking to the college forester. (Old colleges have odd positions like college forester.) He explains how the oak beams are wearing out and that they're trying to figure out what they can use as a replacement.</p> <p>The college forester, of course, says, &quot;No problem. When they built the great hall 400 years ago, my predecessor planted a grove of oak trees. They should be just about ready.&quot;</p> </blockquote> <p>Now, this is a wonderful story about planning ahead and about the value of continuity--only a really long-lived institution, such as a college, could make such a thing work. It's also about sustainability. It just makes sense to do things this way</p> <p>But think about this story in terms of the discount rate. Suppose 400 years ago beams for the roof cost a total of 1500 pounds sterling (back when a pound was really worth something). Someone doing the net present value calculation at the time, trying to figure out whether to devote the land necessary to grow a whole grove of oak trees to provide replacements, would have found that (at a 5% discount rate) the future value of 1500 pounds in 400 years would only be worth 0.00001 of a pound. In other words, you couldn't even justify the cost of the acorns, let alone the cost of tying up the land for 400 years. If the discount rate were only 2%, the present value of the oak beams 400 years later would be 0.54 of a pound--easily enough to pay for the acorns, anyway. If the discount rate were 1.1%, then the present value would be nearly 20 pounds--very possibly enough to make it worth tying up the land (especially since other trees can be grown alongside oak trees).</p> <p>In other words, sustainable behavior makes economic sense if the discount rate is low enough.</p> <h2>How to get low rates</h2> <p>The government manipulates interest rates all the time. In the US the Federal Reserve raises rates to head off inflation and then cuts them again to protect the financial system from the harm done by high rates.</p> <p>Setting the rates too low produces inflation--and leaving the rates low after inflation has begun to rise makes savings grind to a stop. (If your money is worth less every day, why hold onto more than you need just to transact daily business?)</p> <p>The only way to get lasting low rates is to have very low inflation. During periods when people had great confidence in their money, such as in England and the United States during the gold standard, people made just the sort of long-term decisions I'm talking about. Planting oak trees to be harvested after 400 years is an extreme (and probably apocryphal) example, but there were plenty of real-world examples of investments made and stewardship undertaken that only made economic sense if the discount rate were 2% or less.</p> <p>A few years ago the inflation rate got down close to zero and the Fed panicked. They're much happier with an inflation rate that runs between 1% and 2%, because they worry that they don't have the tools to stop deflation once it starts. The problem with not driving inflation down to zero, though, is that long-term sustainable behaviour will never make sense when interest rates are high.</p> <p>If you're going to get $100 after 50 years it doesn't make sense to invest even $9 today, if the discount rate is 5%. If the discount rate is 2% then you might invest $37, and if the discount rate is 1% then you might invest nearly $61.</p> <p>To make sensible sustainable activity also make economic sense, you need to have very low interest rates. And the only way to get very low interest rates is to have very low inflation.</p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/philip-brewer">Philip Brewer</a> of <a href="http://www.wisebread.com/how-low-interest-rates-might-save-the-world">Wise Bread</a>, an award-winning personal finance and <a href="http://www.wisebread.com/credit-cards">credit card comparison</a> website. Read more great articles from Wise Bread:</div><div class="view view-similarterms view-id-similarterms view-display-id-block_2 view-dom-id-11"> <div class="view-content"> <div class="item-list"> <ul> <li class="views-row views-row-1 views-row-odd views-row-first"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/5-easy-ways-to-start-green-investing">5 Easy Ways to Start Green Investing</a></span> </div> </li> <li class="views-row views-row-2 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/how-to-celebrate-earth-day">How to Celebrate Earth Day</a></span> </div> </li> <li class="views-row views-row-3 views-row-odd"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/welcome-to-container-city-how-shipping-containers-are-recycled-into-green-dwellings">Welcome to Container City - How Shipping Containers Are Recycled into Green Dwellings</a></span> </div> </li> <li class="views-row views-row-4 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/the-three-interest-rates">The Three Interest Rates</a></span> </div> </li> <li class="views-row views-row-5 views-row-odd views-row-last"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/learn-techniques-for-sustainable-living">Learn techniques for sustainable living</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Green Living interest lower interest rate public policy rates sustainability Mon, 03 Sep 2007 11:39:38 +0000 Philip Brewer 1072 at http://www.wisebread.com My car payments are too much! What should I do? http://www.wisebread.com/my-car-payments-are-too-much-what-should-i-do <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/my-car-payments-are-too-much-what-should-i-do" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/wheel_0.jpg" alt="tire wheel" title="tire wheel" class="imagecache imagecache-250w" width="224" height="168" /></a> </div> </div> </div> <p>I&#39;ve been struggling with a big financial dilemma for the past few months: whether or not to sell my car. I decided to take my question to three of my favotire personal finance bloggers.</p> <p>Last August, I decided to purchase my first new car ever. I had only ever owned used (and entirely paid-for) vehicles prior to this. I researched the type of car that I wanted and settled on a 2007 Mazda3. It&#39;s a sexy little hatchback. It&#39;s sporty, zippy, and has all the trimmings. Problem is, it&#39;s busting my budget.</p> <p>I got a decent base price on the car, but I fell for all the extras that the salesmen throw in at the end. You know, the extended warranty, the LoJack system. They kept showing me my monthly total (and not the grand total), and before I realized it, I was paying $3000 more for my car than I should have. I should note that this is pre-Wise Bread, so I wasn&#39;t nearly as wise as I am now. Ahem.</p> <p>My payments aren&#39;t horrendous, and I have an excellent interest rate on the loan. But all together (insurance, gas, payments, upkeep), the car cfosts me about $600 per month. Everyone keeps telling me that $600 a month in transportation costs isn&#39;t that bad. But I can&#39;t stop thinking about how I could use that money every month to pay down my debt or contribute to my IRA. </p> <p>Also, my car contributes to my laziness. It&#39;s an enabler. Having a car allows me to go anywhere, any time. While flexibility is nice, it&#39;s rarely necessary. I drive to the supermarket instead of walking. Hell, I drive to the closest mailbox instead of walking. I go to Target on a whim, buying stuff I don&#39;t need. </p> <p>I&#39;m thinking that if I didn&#39;t have a car, I wouldn&#39;t be so prone to spur-of-the-moment shopping, or runs to Safeway for blueberry sorbet in the middle of the night. I&#39;d have to bike and bus to work. I have a motorcycle, so I can use that to get around if I need to go farther than a couple of miles, or go somewhere that Metro Transit doesn&#39;t cover. Also, the Flexcar program is increasingly popular in my area, and there&#39;s a pick-up location not too far from where I live. </p> <p>Now, I know that I would still have to pay for that transportation, so the full $600 won&#39;t be going directly into a new money market account. I figure that, without the car, I could spend about $150 a month in transportation costs, max (I have a free bus pass, and my motorcycle gets great gas mileage). So I&#39;d really only be putting away $450 per month. </p> <p>My remaining balance on my car loan is just under 19K. My car is valued at about 19.5K. I decided to put the car up for sale to see if anyone wanted it. So far, I&#39;ve had three people try to lowball me (&quot;Yo, man, I&#39;ll give you 15K cash – here&#39;s my digits&quot;) and sales people try to help me list it on eBay. But I&#39;m not getting a lot of bites. I tried lowering the price to 1K below the Kelly Blue Book value, but I&#39;m still not getting much in the way of responses.</p> <p><strong>My questions to my favorite PF bloggers:</strong></p> <p>Should I just suck it up and continue making the payments? At the end of five years, I&#39;d have my own car and not have to make payments anymore, so that&#39;s good. But on the other hand, I&#39;d be paying well over 25K for something that I don&#39;t technically NEED. </p> <p>Which is worse? To sell the car for less than it&#39;s worth, and thereby losing a couple of grand in payments that I&#39;d still have to make to pay off the loan? Or keeping the car and paying all this money that could otherwise be going to shore up my finances? </p> <p><strong>Below is the advice that some very busy bloggers graciously offered me in response.</strong></p> <p><strong>Leo Babuta, </strong><a href="http://zenhabits.net/"><strong>Zen Habits</strong></a></p> <p>&quot;It sounds to me like you definitely want to get rid of the car ... so I would do it, assuming you can afford to pay for the difference between the loan principal and the selling price. You might be losing a few thousand dollars, but you will lose even more than that in interest over the course of the loan. The important factor here isn&#39;t financial, though, it&#39;s psychological: you want to be free of this<br />debt, and using the $450 per month on improving your financial situation, rather than spending it on something you don&#39;t need. And that is perfectly legitimate, and admirable in my opinion. As for surviving without a car ... many people have done it, it&#39;s better for your health, and better for the environment. Positives all around!&quot;</p> <p><strong>Nina Smith, </strong><a href="http://www.queercents.com"><strong>Queercents</strong></a></p> <p>Six hundred dollars per month is a boatload of money. How much money do you make each month? How much do you pay in rent? I’m not expecting an answer… I only ask to emphasize that your car expense is probably more than half of what you’re spending on housing per month. If you really love the car, then you could consider living in it like this <a href="http://www.queercents.com/2007/02/21/sleep-in-truck-student-pays-off-credit-card-debt/" target="_blank">college kid</a> did to recover from his financial sins. His vehicle is a truck and a bit more suitable for sleeping. So even though most of us have found frugal uses for the backseat at some point in our cash-strapped lives, it’s probably not an option for you.</p> <p>So by all means, sell the car! A car is a <a href="http://biz.yahoo.com/special/mmcarguide.html" target="_blank">depreciating asset</a> so it should be treated as a liability (which means the money spent on it isn’t working for you – it’s working for someone else). Liabilities bad! I <a href="http://www.queercents.com/2007/01/15/leasing-vs-buying-the-car-debate-continues/" target="_blank">drive a Volvo</a> that’s paid for and seven years old. I certainly think (at my age and income) that I deserve to be driving an E class Mercedes, but it’s tricky to build wealth and buy assets, when you’re paying for the privilege of driving a fancy car.</p> <p>By selling the sporty Mazda and taking a loss, you’ll lose on the front-end but you’ll be better off in the long run. Plus, you’ll be uber cool by going car-free. </p> <p><strong>Trent Hamm, </strong><a href="http://www.thesimpledollar.com/"><strong>The Simple Dollar</strong></a></p> <p>I&#39;d continue making the payments and sell it later when you can get closer to book value. You&#39;ve already made payments through the period where the car really depreciates - selling now is the equivalent of selling a stock at its low point.</p> <p>--------------------------------------------</p> <p>So, what do you readers think about this predicament? Should I just deal? Should I sell the car at a loss, because I&#39;ll come out ahead in the long run? </p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/andrea-karim">Andrea Karim</a> of <a href="http://www.wisebread.com/my-car-payments-are-too-much-what-should-i-do">Wise Bread</a>, an award-winning personal finance and <a href="http://www.wisebread.com/credit-cards">credit card comparison</a> website. Read more great articles from Wise Bread:</div><div class="view view-similarterms view-id-similarterms view-display-id-block_2 view-dom-id-12"> <div class="view-content"> <div class="item-list"> <ul> <li class="views-row views-row-1 views-row-odd views-row-first"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/10-magic-words-to-say-to-get-the-best-new-car-price">10 Magic Words to Say to Get the Best New Car Price</a></span> </div> </li> <li class="views-row views-row-2 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/how-to-save-money-buying-a-new-car-and-be-happy">How to Save Money Buying a New Car and Be Happy</a></span> </div> </li> <li class="views-row views-row-3 views-row-odd"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/is-this-the-best-search-engine-ever-for-new-used-cars">Is This the Best Search Engine Ever for New &amp; Used Cars?</a></span> </div> </li> <li class="views-row views-row-4 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/5-myths-about-car-insurance">5 Myths About Car Insurance</a></span> </div> </li> <li class="views-row views-row-5 views-row-odd views-row-last"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/car-buying-part-1-going-for-broker">Car Buying Part 1 - Going For Broker.</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Cars and Transportation interest loan loss new car sell used Mon, 30 Jul 2007 01:22:06 +0000 Andrea Karim 925 at http://www.wisebread.com How to Build Your Own Amortization Schedule http://www.wisebread.com/how-to-build-your-own-amortization-schedule-0 <p><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/wisebread_imce/couplereadyforproject.jpg" alt="project-ready couple" title="project-ready couple" width="225" height="336" align="top" /></p> <p>Looking for a dull, but financially eye-opening home project? Great! Today, we&#39;re going to build an amortization schedule. All the tools you need are: 1) an electronic spreadsheet with PMT (payment calculation), addition, subtraction, division, and multiplication capabilities (I use Excel) and 2) this guide. </p> <p>Let me go ahead and answer the questions you may have after reading this guide and completing your project:</p> <p>Hey, I have a 30-year fixed rate (6%) mortgage loan of $200,000, but why is my payment so much higher? <br />This schedule does not include amounts paid to escrow, such as homeowner&#39;s insurance and property taxes.</p> <p>Won&#39;t I have more equity built up over time?<br />For the purposes of this demonstration, equity is based on principal paid down; in real life, equity is calculated as the value of your home less the amount of outstanding loans (payoff amounts). </p> <p>Can I put my numbers (mortgage loan amount, interest rate, etc). in this spreadsheet and figure out my own mortgage amortization? <br />Yes, though you will need to make adjustments if you do not have a fixed rate loan. </p> <p>Where the heck is the PMT function? <br />In Excel, go to &quot;Insert,&quot; click on &quot;Function,&quot; select &quot;Financial&quot; from the categories, and then click on &quot;PMT.&quot; You can also click on that E-looking key on your tool bar. </p> <p>Why bother? <br />This guide is the first step in a series to show you how to pay down your mortgage faster than the original schedule (with a discussion of whether you should pay it down to follow in a subsequent post). It also mirrors an explanation given by UFirst in regard to its MMA (Money Merge Account) program (again, with further explanations in subsequent, equally intriguing posts), which a reader has asked about.</p> <p>So.... (the following information is also in the attached spreadsheet, which has the full schedule to Year 30, Month 360 -- <a href="/files/fruganomics/How_to_Build_Amortization_Schedule.xls">http://www.wisebread.com/files/fruganomics/How_to_Build_Amortization_Schedule.xls</a>)</p> <p><a href="/files/fruganomics/How_to_Build_Amoritization_Schedule.xls"></a> <p>Given the following: <br />Primary Mortgage $200,000 <br />Term in Years 30 (360 months) <br />Annual Interest Rate 6.00% (.50%/month or .005/month) </p> <p>Payment $1,199.10 PMT(6%/12,360,-200000,0,0) <br />Annual Interest Rate/Number of Months in a Year, Number of Payments, Mortgage Balance (note: don&#39;t use commas to separate thousands) <br />Value at the End of the Term, Payments Are Made at the End of the Month </p> <p>Build the Spreadsheet </p> <p>Enter Formulas into Spreadsheet in this Order</p> <p>Month 1 </p> <ul> <li> Balance= Primary Mortgage...1</li> <li> Payment= Payment (PMT)...2 </li> <li> Principal= Payment - Interest...4</li> <li> Interest= Balance x (Annual Interest Rate / Number of Months in a Year)...3</li> <li> Equity= Principal...5</li> <li> Total Interest= Interest...6</li> <li> Total Payments= Payment...7</li> </ul> <p> Months 2-360</p> <ul> <li> Balance= Prior Month&#39;s Balance - Principal...1</li> <li> Payment= Payment (PMT)...2</li> <li> Principal= Payment - Interest...4</li> <li> Interest= Balance x (Annual Interest Rate / Number of Months in a Year)...3</li> <li> Equity= Principal...5</li> <li> Total Interest= Total Interest from Prior Month + Interest from Current Month...6</li> <li> Total Payments= Total Payments from Prior Month + Payment from Current Month...7 </li> </ul> <p>Month Balance Payment Principal Interest Equity Total Int. Total Pmt<br />1 200,000.00 1,199.10 199.10 1,000.00 199.10 1,000.00 1,199.10<br />2 199,800.90 1,199.10 200.10 999.00 399.20 1,999.00 2,398.20<br />3 199,600.80 1,199.10 201.10 998.00 600.29 2,997.01 3,597.30<br />4 199,399.71 1,199.10 202.10 997.00 802.40 3,994.01 4,796.40<br />5 199,197.60 1,199.10 203.11 995.99 1,005.51 4,990.00 5,995.51<br />6 198,994.49 1,199.10 204.13 994.97 1,209.64 5,984.97 7,194.61<br />7 198,790.36 1,199.10 205.15 993.95 1,414.79 6,978.92 8,393.71<br />8 198,585.21 1,199.10 206.17 992.93 1,620.96 7,971.85 9,592.81<br />9 198,379.04 1,199.10 207.21 991.90 1,828.17 8,963.74 10,791.91<br />10 198,171.83 1,199.10 208.24 990.86 2,036.41 9,954.60 11,991.01<br />11 197,963.59 1,199.10 209.28 989.82 2,245.69 10,944.42 13,190.11<br />12 197,754.31 1,199.10 210.33 988.77 2,456.02 11,933.19 14,389.21</p> <p>13 197,543.98 1,199.10 211.38 987.72 2,667.40 12,920.91 15,588.31<br />14 197,332.60 1,199.10 212.44 986.66 2,879.84 13,907.57 16,787.41<br />15 197,120.16 1,199.10 213.50 985.60 3,093.34 14,893.17 17,986.52<br />16 196,906.66 1,199.10 214.57 984.53 3,307.91 15,877.71 19,185.62<br />17 196,692.09 1,199.10 215.64 983.46 3,523.55 16,861.17 20,384.72<br />18 196,476.45 1,199.10 216.72 982.38 3,740.27 17,843.55 21,583.82<br />19 196,259.73 1,199.10 217.80 981.30 3,958.07 18,824.85 22,782.92<br />20 196,041.93 1,199.10 218.89 980.21 4,176.96 19,805.06 23,982.02<br />21 195,823.04 1,199.10 219.99 979.12 4,396.95 20,784.17 25,181.12<br />22 195,603.05 1,199.10 221.09 978.02 4,618.04 21,762.19 26,380.22<br />23 195,381.96 1,199.10 222.19 976.91 4,840.23 22,739.10 27,579.32<br />24 195,159.77 1,199.10 223.30 975.80 5,063.53 23,714.90 28,778.43 </p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/julie-rains">Julie Rains</a> of <a href="http://www.wisebread.com/how-to-build-your-own-amortization-schedule-0">Wise Bread</a>, an award-winning personal finance and <a href="http://www.wisebread.com/credit-cards">credit card comparison</a> website. Read more great articles from Wise Bread:</div><div class="view view-similarterms view-id-similarterms view-display-id-block_2 view-dom-id-13"> <div class="view-content"> <div class="item-list"> <ul> <li class="views-row views-row-1 views-row-odd views-row-first"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/diy-mortgage-acceleration">DIY Mortgage Acceleration</a></span> </div> </li> <li class="views-row views-row-2 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/speeding-through-your-mortgage-0">Speeding through your mortgage</a></span> </div> </li> <li class="views-row views-row-3 views-row-odd"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/how-to-keep-the-low-teaser-rate-for-your-mortgage">How to keep the low teaser rate for your mortgage</a></span> </div> </li> <li class="views-row views-row-4 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/mortgage-application-declined-here-s-how-to-respond">Mortgage Application Declined? Here’s How to Respond</a></span> </div> </li> <li class="views-row views-row-5 views-row-odd views-row-last"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/citimortage-told-me-to-default-on-my-loan-if-i-want-their-help">CitiMortgage Told Me to Default on My Loan</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Real Estate and Housing amortization amortization schedule interest MMA mortgage mortgage acceleration mortgage loan Sat, 26 May 2007 18:05:06 +0000 Julie Rains 683 at http://www.wisebread.com Money Metaphors (You wouldn't punch a kitten, would you?) http://www.wisebread.com/money-metaphors-you-wouldnt-punch-a-kitten-would-you <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/money-metaphors-you-wouldnt-punch-a-kitten-would-you" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/kitten_money.jpg" alt="money cat" title="money cat" class="imagecache imagecache-250w" width="250" height="196" /></a> </div> </div> </div> <p>My boyfriend and I occasionally (at least weekly) argue over money. I like to spend it, he likes to save it. We have fundamentally different ways of looking at money. He carefully researches purchases and buys high quality goods. I like to buy the first thing that catches my eye. He spends money when he has some extra to burn on things he needs, I spend money to make myself feel better, regardless of whether I have the actual cash to blow. (See also: <a href="http://www.wisebread.com/relationships-and-money-two-sides-of-the-same-coin" title="Relationships and Money: Two Sides of the Same Coin">Relationships and Money: Two Sides of the Same Coin</a>)</p> <h2>That's My Money!</h2> <p>Not that long ago, my boyfriend said something that really threw me for a loop. I was defending my <a href="http://www.wisebread.com/new-year-new-spending-habits" title="New Year, New Spending Habits">spending habits</a>, which aren't easily defensible, and we ended up arguing over something like a dental bill. It wasn't for much, but it was something I forgot to pay. And I was hit with a late fee. And then another late fee.</p> <p>And I, as usual, casually brushed the fees aside with one of those &quot;It's JUST money&quot; type of comments that so infuriates the beau. If I accrue late fees, I pay them. Money, to me, is often something to just be tossed at problems. I don't look at my receipts after buying groceries. I don't worry about being charged too much, since I figure that carefully studying my receipts makes me look petty. In fact, this is an attitude that gets me nowhere. I don't protect my money.</p> <p>&quot;You don't protect your money!&quot; my boyfriend exclaimed, clearly exasperated and in need of a drink.</p> <p>&quot;Protect? It's not an infant. It's money.&quot;</p> <p>&quot;Well, maybe it's time you start thinking of it as an infant.&quot;</p> <p>He could see my wrinkling my nose, mentally picturing changing my money's diapers. &quot;Ok, then, how about a puppy? Or a teeny weeny wittle kitty? Remember when the cat was small, like 4 weeks old?&quot;</p> <p>My heart melted, recalling the times when our cat was too tiny and delicate to shred the curtains or torment the dogs or knock vases off of shelves.</p> <p>&quot;Yes. She was just this little orphaned baby kitty....&quot; my voice veered off into dangerously high-pitched territory as I pictured her teeny little claws and pink nose, and the way she would try to meow but ended up sort of hissing instead.</p> <p>&quot;Well, think of your money like that. Whenever you go to spend something, imagine that you are handing someone our kitten. And think about what the results are going to be. When you just casually lay your money down without thinking about it, you are putting the kitten at risk.&quot;</p> <p>&quot;You mean, when I get hit with a late fee, it's like someone punching our kitten?&quot;</p> <p>&quot;Ok, that's just sick.&quot; He walked out, and I found him 20 minutes later, curled up on the couch with a purring cat on his lap, both of their eyes directed at an episode of The Sopranos. They both turned to glare at me as I walked in. No doubt the cat had been filled in on abuse-by-proxy and was already planning which of my shoes she would leave her next hairball in.</p> <p>Alright, kitten-punching is a little sick. But it was powerful for me, because I hate the idea of animals being mistreated (so much so that I refused to finish watching The Brothers Grimm, an already awful movie that stupidly features a cheap, obnoxious &quot;tragic gag&quot; in which a small white Persian kitten is chopped to pieces). In fact, I once got angry at a friend who had a virtual pet, one of those Japanese toy-devices that has a digital puppy on the screen. My friend thought it was hilarious that if you &quot;kicked&quot; the &quot;puppy&quot;, it would &quot;squeal&quot;. I wouldn't talk to her for about a week after that.</p> <p>So I've got issues. But let's say that I can turn those issues to work in my favor. If I really manage to equate my money, emotionally, with something that I find dear and worthy of protection, I might be able to force myself to treat my money with the respect it deserves, thereby giving myself the kind of financial security that I deserve (and need).</p> <h2>Save Me!</h2> <p>I don't have a lot of money in savings, even though I know I should. I haven't become adept at saving money yet. Better than I used to be, but still not <strong>good</strong>.</p> <p>But there was a brief period a year or so ago, when I saw the light when it came to the benefits of saving. And it was a bright light indeed.</p> <p>You already know that <a href="http://www.money-rates.com/savings.htm">you earn interest</a> on the money in your savings account. You probably know that you should shop around for an account, be it savings or money market, or whatever, that gives you a good interest rate. But I never appreciated with this meant until I saw the results.</p> <p>Last March, I was in the process of buying a home. Not being the saving type, I was using my inheritance from my grandmother, along with a loan from my parents, to put the necessary money down on the house. The money had all been transferred into my savings account, and it sat there for a while as we signed papers and secured inspections and fretted over the neighborhood (too close to the freeway? safe to walk at night? etc.).</p> <p>It was only a while later, when I was in the process of transferring the down payment from my savings to my checking account, that I noticed the interest that I was earning on it. I generally earn about $0.11 per year on my savings account. I'm not going into detail about how much was in there, but it was a really good sum. And I don't even remember how much interest I was earning, but I know that it was enough to pay for lunch every day for a month and then some.</p> <p>And that's with a not-so-high interest rate at a not-so-incredible bank. I wish I had put it into my credit union, because I probably could have had dinner every night for a month with THAT interest rate.</p> <p>So, with savings, I have to think of the money I put in there as my lunch program. The phrase &quot;make your money work for you&quot; doesn't mean that much to me, but the thought <em>that I end up with a free lunch everyday</em> <strong>does</strong> mean something to me.</p> <p>It's with that in mind that I've started squirreling away a bit of money. Nothing to brag about at this time, but I'm glad I'm doing it. And while my interest rate is nothing to crow about, it's nice to see the money ad up like that. Whenever I feel like I'd rather take the money out and, say, buy dog sweaters or something, I remember that that money can earn me a free lunch, and carelessly spending it is like punching my kitten.</p> <p>Odd as it may sound, that helps.</p> <p><img width="431" height="310" alt=" " src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/wisebread_imce/tinykitten_0.jpg" /></p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/andrea-karim">Andrea Karim</a> of <a href="http://www.wisebread.com/money-metaphors-you-wouldnt-punch-a-kitten-would-you">Wise Bread</a>, an award-winning personal finance and <a href="http://www.wisebread.com/credit-cards">credit card comparison</a> website. Read more great articles from Wise Bread:</div><div class="view view-similarterms view-id-similarterms view-display-id-block_2 view-dom-id-14"> <div class="view-content"> <div class="item-list"> <ul> <li class="views-row views-row-1 views-row-odd views-row-first"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/how-to-navigate-3-common-money-arguments-with-your-significant-other">How to Navigate 3 Common Money Arguments With Your Significant Other</a></span> </div> </li> <li class="views-row views-row-2 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/are-you-doing-bad-things-with-your-money">Are You Doing Bad Things with Your Money?</a></span> </div> </li> <li class="views-row views-row-3 views-row-odd"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/the-inanity-of-my-humanity-and-why-i-choose-to-share-it-on-wisebread">The Inanity of my Humanity (and why I choose to share it on Wisebread)</a></span> </div> </li> <li class="views-row views-row-4 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/placing-prepositions-where-you-from-where-you-at">Placing Prepositions: Where you from? Where you at?</a></span> </div> </li> <li class="views-row views-row-5 views-row-odd views-row-last"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/managing-your-short-term-money">Managing Your Short-Term Money</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Personal Finance Extra Commentary checking down payment interest kitten money mortgage protect savings account spending Wed, 11 Apr 2007 03:49:24 +0000 Andrea Karim 485 at http://www.wisebread.com Get $25 FREE for opening a savings account with 5.05% interest. - UPDATED http://www.wisebread.com/get-25-free-for-opening-a-savings-account-with-5-05-interest <p><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/wisebread_imce/676091_piggy_bank.jpg" alt="fat piggy bank" title="fat piggy bank" width="225" height="300" /></p> <p>PLEASE NOTE: Since writing this article, I&#39;ve been less than overwhelmed by the support from E*Trade. After initially being told by a customer service rep that my $25 would indeed be given to me (and the good folks of Wisebread), I was recently sent en email saying I would only get it if I provide evidence of the postmark on the date of the offer I was sent. Who keeps old envelopes? Not me. So, although the account itself is a good deal, you won;t get the $25 at all. I apologise to all. Read o, but ignore the $25 deal (unless it resurfaces). What a shame E*Trade. I&#39;ve been a customer only a few days and I already plan on moving over to <strong>HSBC savings, with a 6% interest rate. </strong> </p> <p><strong>[Original article follows]</strong></p> <p>5.05%. That&#39;s <strong>6 times more</strong> than what you&#39;re most likley getting from your regular savings account, which averages around 0.84%. <strike>And they&#39;re paying you $25 to make you more money!</strike> I love America. </p> <p>I saw a financial advisor recently and he told me about the E*trade savings account. In fact, he told me I&#39;d be a fool not to get one. So, I looked it up. He was totally on the money (sorry, bad pun). The E*trade Financial savings account is legitimate and seriously cool. I&#39;ve just opened my <a href="https://us.etrade.com/e/t/jumppage/viewjumppage?PageName=CSA25&amp;tb=3997&amp;WT.mc_id=3997">Complete Savings Account</a> , and here&#39;s what did it for me:</p> <ul> <li><strike>A free $25 bonus for opening my account before April 30th 3007</strike></li> <li>NO minimum balance (my Compass account has a minimum of $500)</li> <li>NO account fees. That&#39;s zero. Zip. Nada.</li> <li>FREE quick transfer - withdraw or deposit funds quickly from any institution, anytime.</li> <li>FDI-insurance to at least $100,000</li> </ul> <p>I can&#39;t think of a quicker, easier way to make a little extra cash right now and over the next 12 months. Sure, you can invest in stocks, bonds, mutual funds. But if you&#39;re into the no risk game and just want to make one small step toward earning a lot more for your money, this is a sure thing. </p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/paul-michael">Paul Michael</a> of <a href="http://www.wisebread.com/get-25-free-for-opening-a-savings-account-with-5-05-interest">Wise Bread</a>, an award-winning personal finance and <a href="http://www.wisebread.com/credit-cards">credit card comparison</a> website. Read more great articles from Wise Bread:</div><div class="view view-similarterms view-id-similarterms view-display-id-block_2 view-dom-id-15"> <div class="view-content"> <div class="item-list"> <ul> <li class="views-row views-row-1 views-row-odd views-row-first"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/beware-the-small-print-of-high-interest-savings-accounts">Beware the Small Print of High Interest Savings Accounts</a></span> </div> </li> <li class="views-row views-row-2 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/behind-the-times-i-learn-about-keep-the-change">Behind the Times - I learn about Keep the Change</a></span> </div> </li> <li class="views-row views-row-3 views-row-odd"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/5-ways-to-boost-your-odds-of-retiring-early">5 Ways to Boost Your Odds of Retiring Early</a></span> </div> </li> <li class="views-row views-row-4 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/10-investing-lessons-you-must-teach-your-kids">10 Investing Lessons You Must Teach Your Kids</a></span> </div> </li> <li class="views-row views-row-5 views-row-odd views-row-last"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/how-to-save-26000-in-5-years-or-less">How to Save $26,000 in 5 Years or Less</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Investment bank account cash bonus e*trade free money high interest savings interest make money savings savings account Tue, 03 Apr 2007 03:53:32 +0000 Paul Michael 441 at http://www.wisebread.com