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Ask The Expert

About Richard Barrington, CFA & MoneyRates.com Senior Financial Analyst
Richard Barrington

Richard Barrington, CFA, is the primary spokesperson and personal finance expert for MoneyRates. He is a 20-year veteran of the financial industry, including having served for over a dozen years as a member of the Executive Committee of Manning & Napier Advisors, Inc. He earned his Chartered Financial Analyst designation in 1991 with the Association for Investment Management and Research (AIMR). Richard has written extensively on investment topics, including investments, money market accounts, certificates of deposit, and personal finance as it relates to retirement.

Richard has been quoted by numerous media publications such as The New York Times, The Wall Street Journal, and Pensions & Investments magazine.[...] Read more Richard can discuss economic and market history in detail and is well respected for his ability to relate to a broad audience from a personal financial standpoint. Richard approaches financial topics with an understanding that fresh perspectives are often more valuable than mainstream consensus. He has written for over 50 financial Web sites, such as Investopedia, Yahoo, MSN, Allbusiness, and Encarta, and is most sought after by members of the media for his niche expertise in these topics: Certificates of Deposit, Money Market and Savings Accounts, Saving for Retirement, Housing and Mortgage Meltdown, Interest rates, Investments, Macro Economic and Government Policy Issues, Historical Financial Events, Discerning Long Term Implications

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How much can I contribute to my money market IRA?

December 11, 2014

| MoneyRates.com Senior Financial Analyst, CFA

Q: What is the maximum annual amount I can contribute to my money market IRA account?

A: There are some variables to this, so you should probably got to the IRS website to check out the details of your situation. However, in general terms these are some of the key limits:

  1. The standard IRA contribution limit for 2014 and 2015 has been set at $5,500.
  2. The government recognizes that many Americans have lagged behind on their retirement savings, so you can contribute an extra $1,000 a year if you are aged 50 or older, bringing the total maximum annual contribution to $6,500.
  3. You cannot contribute to a traditional IRA in the year when you will reach age 70 1/2. You can, however, contribute to a Roth IRA regardless of age.
  4. The amount you can contribute is not necessarily tax deductible. Most notably, if you or your spouse are covered by a retirement plan at work, then your ability to deduct your IRA contribution might be limited or disallowed completely. The nature of these restrictions depends on your income, your tax filing status, and how you are covered by the employer's plan, so be sure to see the IRS website for details.

With regard to an employer-sponsored plan, people are sometimes torn between whether to contribute to an IRA or to their retirement plan at work. Ideally, you could maximize your tax advantages by contributing to them both, but people cannot always afford to do that. So, if you have to choose, here are some of the factors you should consider:

  1. Whether there is an employer match. If your employer makes a full or partial match of contributions to your retirement plan, then you should contribute enough to that plan to get the most out of this match.
  2. The range of investment options open to you. Your employer's plan may have investment choices that you would not have access to individually. On the other hand, you may not want to be limited to the menu of choices your employer has chosen.
  3. The fees associated with the retirement plan compared with the fees on an IRA account.

Finally, while you happen to have specified a money market IRA account, keep in mind that you are not limited to investing your IRA in a money market account. In particular, if you have a long time to go until retirement, you may want to put some of it in growth vehicles -- especially given the low level of rates on money market and savings accounts these days.

If you do decide to keep it in a money market account, be sure to make the best of today's rate environment by shopping around for the best money market account rates.

Got a question about saving, investing or banking? MoneyRates.com invites you to submit your questions to its "Ask the Expert" feature. Just go to the MoneyRates.com home page and look for the "Ask the Expert" box on the lower left.

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Will bonds return to their former yields?

December 8, 2014

| MoneyRates.com Senior Financial Analyst, CFA

Q: I'm doing some retirement planning, and trying to figure out what return I can assume my investments will earn. We have a blend of stocks and bonds, and for years we always assumed this would be good for 8 to 10 percent from the stock portion, and 6 percent from the bonds. Now though, with the bonds yielding between 1 and 4 percent, does that mean there is no chance of them earning 6 percent over the long term?

A: While it is possible that bonds could produce a total return of 6 percent over the long-term, with yields now much lower, the odds are against it and lowering your return assumption would be prudent. A look at some of the dynamics involved in bond returns will help explain this further.

First of all, there are two kinds of yield: income yield and yield-to-maturity. Income yield is the amount of interest the bond pays annually as a percentage of its current price, while yield-to-maturity takes into account both the income yield and the shift from the bond's current price to its par value between now and maturity. If you hold the bond to maturity, yield-to-maturity is more or less the total return you will get.

Over shorter-term periods, a bond may have a higher return than a yield to maturity. A drop in interest rates could boost its price, though the odds are against much of a decline in interest rates from today's levels. For lower-quality bonds, an upgrade in credit rating might give them a short-term price boost. However, these higher returns would only be over interim periods; if the bond is held to maturity, the total return would smooth out to roughly the yield-to-maturity at which the bond was purchased.

Treasury yields currently range from 0.2 percent to just over 3 percent, with longer durations providing the higher yields. Ironically though, if you want to exceed 3 percent over the long run, your best chance might be in shorter-term bonds. Long bonds will be hard-pressed to produce a total return exceeding their yield-to-maturity, but short-term bonds will have several opportunities to roll over and thus would benefit if interest rates rise.

If you want to pursue a strategy of rolling over short-term investments in the hopes that interest rates will rise, you might consider savings accounts or CDs as an alternative to bonds. These can provide you with a U.S. government guarantee like Treasuries, but the best CD and savings account rates today exceed the yield on Treasury securities of similar durations.

But again, while there are things you can do to manage your income return, lowering your return assumptions would be prudent to keep your retirement funding on track.

Got a question about saving, investing or banking? MoneyRates.com invites you to submit your questions to its "Ask the Expert" feature. Just go to the MoneyRates.com home page and look for the "Ask the Expert" box on the lower left.

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What's wrong with my CD statements?

December 2, 2014

| MoneyRates.com Senior Financial Analyst, CFA

Q: I'm starting to question how my bank credits interest to my CDs. I started two CDs with the same bank at different times. For one I get a statement every month; for the other I have yet to see a statement. For the account where I get a statement, it says I am earning interest but the market value hasn't changed in the last two statements. At this point, I'm no longer concerned about earning the best CD rates -- I'm just trying to make sure I'm not getting ripped off. Am I being paranoid?

A: Being diligent about monitoring your accounts is different from being paranoid. Assuming this is a legitimate, registered bank -- something you can look up on the FDIC's website at fdic.gov -- there is almost certainly nothing nefarious going on. However, mistakes do happen, and in any case it is important to fully understand how your accounts are being handled and reported.

Here are a couple possible explanations for the inconsistencies or irregularities you are seeing:

1. Statements may be on different cycles or in different formats. Banks more and more are trying to reduce expenses by cutting back on paper statements. In particular for certificates of deposit, which are not transactions accounts that customers need regular access to, banks may have them on a quarterly or even annual statement cycle. It is even possible that statements for the newer account are issued online. Banks increasingly are offering better rates for online-based CD, money market and savings accounts -- vehicles that are serviced via the Internet -- and in signing you up for a better rate, the bank may have put you into an online CD account. The point is, with accounts opened at different times, it is entirely possible that they are on different statement cycles, or have statements issued in different formats.

2. Interest may be accrued monthly but posted less frequently. Again, in an effort to make account administration less expensive, banks may be only posting interest to the account on a quarterly or other basis. This should not matter in the long run, as long as interest is being accrued monthly and is fully posted by the time your CD matures.

Remember, these are just possible explanations. Have a conversation with your bank about these possibilities so you can find out for sure what the story is.

Finally, you mention no longer caring about getting the best CD rates, but there is no reason you should not have competitive CD rates plus account reporting that is clear and consistent. If you can't reach an understanding with your current bank about their reporting methods, you might want to make reporting a search criteria -- along with interest rates -- the next time you choose a bank.

Got a question about saving, investing or banking? MoneyRates.com invites you to submit your questions to its "Ask the Expert" feature. Just go to the MoneyRates.com home page and look for the "Ask the Expert" box on the lower left.

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Should a husband and wife combine all their finances?

November 17, 2014

| MoneyRates.com Senior Financial Analyst, CFA

Q: I recently got married, and I'm wondering how much my wife and I should combine our financial accounts -- checking accounts, credit cards, etc. Does getting married mean we should combine everything?

A: Your financial futures are now intertwined, but that does not mean you have to share every single financial account. In fact, sometimes a couple can manage more effectively if some things remain separate.

Here are some suggestions for a new couple who's figuring out how to integrate their finances:

Communicate and collaborate. Start by laying everything about your financial situation on the table: current resources and income, as well as liabilities like student loans or credit card debt. Once you both see the full picture, start to collaborate on the future. Discuss how to solve any immediate problems, and figure out what your financial goals are. You may get a clearer picture of which accounts to combine and which ones to leave separate once you know what role you expect those accounts to play.

Pool your major resources and expenses. To start with an obvious example, you probably wouldn't get married but each continue to maintain your own apartment. In other words, it makes sense to combine the big things like living quarters, and it also makes sense to combine long-term savings accounts, as long as you agree on the purpose of such accounts. Also as part of this exercise, look at things like the health care options and retirement benefits offered by your respective employers to see how you can best benefit from these programs as a couple.

Agree on your responsibilities. Come to an understanding on your respective responsibilities -- who is responsible for paying which bills, and how much is each of your going to contribute to your savings accounts? Part of your responsibilities should be full and immediate disclosure of any problem that comes up, such as a career setback or an unexpected expense. Financial problems only get worse if either spouse is exposed to them without accurate information.

Some day-to-day things can stay independent. None of this means you have to share everything. It can be more practical to keep checking accounts and even credit cards separate, so you don't have to coordinate every expenditure on a day-to-day basis. Just make sure you have a shared understanding about spending and debt management with regards to these accounts.

Of course, every relationship is a little different, so the same principles won't necessarily work in every case. However, if you and your wife talk through the above issues -- even if you come to different conclusions -- you will have a basis for making your own decisions about how to manage your joint finances.

Got a question about saving, investing or banking? MoneyRates.com invites you to submit your questions to its "Ask the Expert" feature. Just go to the MoneyRates.com home page and look for the "Ask the Expert" box on the lower left.

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    How can I find the best business bank account?

    November 10, 2014

    | MoneyRates.com Senior Financial Analyst, CFA

    Q: Where can I find information on high-interest business accounts? All I see advertised are accounts for individuals.

    A: To a large extent, the same interest rates advertised for individuals should be available for business accounts at those same institutions. Just don't expect to see much in the way of high interest these days. According to the FDIC, the average rate nationally is just 0.06 percent for savings accounts and 0.08 percent for money market accounts. Even the best rates these days are still around 1 percent.

    The good news is that you might be able to leverage a business relationship into more favorable terms from a bank -- it's just that those better terms may not necessarily involve your interest rate. Here are some things to keep in mind as you search for the right bank for your business needs:

    Do not expect a break on rates. You might expect that a business account is typically larger than the average personal account, so this size should entitle you to preferential savings or money market account rates. The problem is that banks really do not care much about large deposits these days. Jumbo accounts, which are deposits in excess of $100,000, receive no rate premium for savings accounts, and just 4 basis points extra for money market accounts. Banks are actually overloaded with deposits, and do not feel they need to offer higher interest rates to attract them.

    Be especially careful about checking account fees. Since business banking tends to be transactional rather than passive, you may want to focus on the cost of your checking account needs rather than on savings account interest in choosing a bank. At today's low interest rates, checking account fees can easily exceed savings account interest.

    Discuss your banking needs as a package. It is fairly easy for an individual to choose separate banks for savings and checking, depending on where the terms are better. Businesses often need closer coordination for cash flow management purposes. Banks are going to be most interested in revenue-generators like credit lines and payroll accounts, and discussing your business needs as a whole should improve your negotiating position.

    Be sure to shop around before you choose. Just be aware that services, interest rates and costs vary greatly from bank to bank. Do not choose a bank without doing some comparison shopping.

    In general, business accounts are more active than individual accounts. In choosing the right bank for your business needs, start by projecting what type of activity you expect your business accounts to generate. Then, choose a bank based on minimizing the cost of that activity, and on receiving the quality of service that will help you do business seamlessly.

    Got a question about saving, investing or banking? MoneyRates.com encourages you to submit your questions to its "Ask the Expert" feature. Just go to the MoneyRates.com home page and look for the "Ask the Expert" box on the lower left.

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