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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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Best bank for a jumbo deposit?

September 12, 2014

| MoneyRates.com Senior Financial Analyst, CFA

Q: What's the best bank for depositing a million dollars?

A: You should break this decision process into three parts:

  1. Figuring out how best to protect your money.
  2. Figuring out what products or services you need.
  3. Finding the best banks for those products or services.

Here are some details on what you should cover with each step.

1. Protecting your money

A key advantage of depositing money in a U.S. bank is that it can be insured by the FDIC. However, there are limits to that insurance.

The basic insurance limit is $250,000 per depositor at each bank. You can have more money insured at one bank if you have a joint account, or if the money is in separate accounts belonging to different legal entities. So, for example, if you and your spouse had a joint account, it could be insured for up to $500,000. Also, if you have some of the money in a taxable personal account and some in an IRA, each of those accounts could be insured up to $250,000.

If you cannot cover the full million in this fashion, the best thing to do would be to split it among multiple banks, since each depositor is entitled to $250,000 in insurance at each bank.

2. Selecting a product

Before you choose a bank, you should narrow down exactly what you need. If you have to keep all or most of the money fully liquid at all times, you should be looking for savings accounts or money market accounts. If you want to invest conservatively but can lock up the money for a few years, you might consider a certificate of deposit.

If you are investing for the very long-term, you may want to put some of that money in growth investments like stocks, but of course those products will not have the security of FDIC insurance.

3. Choosing a bank

Once you decide what you are looking for, you can start comparing banks to see which one offers the best rates for the products you need. Your amount would be considered a "jumbo" deposit, so you may be eligible for rates that depositors with smaller amounts cannot get. MoneyRates.com lists updated rates from banks from around the country -- including rates for jumbo savings accounts and jumbo CDs -- so you can easily shop for the best yields.

But there are two things to watch for in that process: First, since you will probably be opening some fairly large accounts, make sure that the rates you find are not subject to deposit limits -- it's no good finding a great rate if it does not apply to most of your account. Second, ignore teaser rates, since these usually expire after a short period of time.

Having to find a home for a million dollars is a nice problem to have. However, it is also a big responsibility, so a careful, step-by-step approach is the answer.

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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Where should I store money while waiting to invest?

September 4, 2014

| MoneyRates.com Senior Financial Analyst, CFA

Q: I need help with the money I was awarded for a workers' compensation judgement. I just got $200,000.00 and want to be smart with the money as I am 54 years old with no other money to retire on ... I was thinking about moving south, and buying rental property and living off the rental income. Where would be the smartest place to put my money until I need it?

A: The short answer is that a certificate of deposit (CD) is probably the right answer for you. Your $200,000 is within the limits of FDIC insurance, so a deposit account would give you the absolute security you are looking for, and as deposit accounts go, a CD would probably give you a shot at a higher interest rate than a savings account or a money market account.

Beyond that generalization though, here are some more detailed points to consider about your plan:

  1. Short-term stability may be key. Normally, your retirement date does not mark the end of a retirement investment program -- it has to continue throughout the retirement years. However, since you already have an investment plan for once you retire, the key is keeping the money safe until then, and liquid for when you need it. That is why a deposit account seems like the right solution.
  2. Your time frame is also important. You didn't mention when you plan to retire, but this will determine what type of deposit account you should opt for. If you intend to start looking for a property right away, you might need the immediate liquidity of a savings or money market account. However, if you know it will be a few years before you are ready to make that move, think about a CD whose term matches the time till you plan to invest in property. Just keep in mind that CD rates vary, so once you've settle on a term, shop around for the best CD rates at that length.
  3. You have time for some research. Investing in and managing income property can be a complex undertaking. If you have some time before you plan to make your investment, use that time to do some practical research. This means not just looking into property values where you plan to invest, but also the demand and going rates for rental properties in the area.

Your caution about how to handle this money is well-placed -- $200,000 is a great deal of money to receive all at once, but it still is difficult to make that amount last throughout your retirement. That's why knowing what you invest in and protecting the money until you are ready to invest should be top priorities.

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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Taking IRA distributions after a divorce?

August 28, 2014

| MoneyRates.com Senior Financial Analyst, CFA

Q: I have $18,000 in an IRA money market account. It was half of my ex-husband's IRA that was transferred to me via judge's orders. If I take a few thousand out, do I have to pay taxes on it?

A: This is a complex situation with several variables, so you would be wise to consult a tax expert with the particulars. However, the following are some of the key issues in play:

  1. Your age. The critical number here is 59 1/2 -- and older is better. If you are younger than 59 1/2, most likely you would incur a 10 percent penalty on any distribution from the IRA, on top of any ordinary tax liability the distribution would trigger. That extra penalty is so onerous that most experts advise against taking early distributions from an IRA. So, if you are younger than 59 1/2, you might want to stop right here and decide to leave the money in the IRA, keeping in mind that you can change investment vehicles while keeping the money in an IRA if the money market account is not meeting your needs.
  2. The type of IRA. There are two types of IRAs: Roth and traditional. On a Roth IRA, tax has already been paid on the contributions, so you would just owe tax on any investment earnings in the plan when those earnings are distributed (i.e., withdrawn from the IRA). In a traditional IRA, the entire amount of the distribution is treated as income for tax purposes.
  3. How long the plan has been set up. If it is a Roth IRA and you have had it for less than five years, you may incur the 10 percent early distribution penalty if you make withdrawals before the account's five-year anniversary.
  4. Cost basis. If the account is a traditional IRA, cost basis should not be an issue, since there is no distinction between prior contributions and investment earnings. In a Roth IRA though, that distinction matters, and you might want to consult with a tax expert to determine the cost basis because the transfer from your husband could complicate that.

The biggest factor here is whether you are older than 59 1/2, because if you are younger than that you could be incurring both taxes and a penalty. However, whether this is a Roth or a traditional IRA is also critical, because it determines whether taxes have already been paid on the original contributions to the account. In that context, it would seem that a Roth IRA would have more long-term economic value than a traditional IRA as part of a divorce settlement, because the traditional IRA would carry a bigger future tax liability.

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 I switch out of my IRA?

August 22, 2014

| MoneyRates.com Senior Financial Analyst, CFA

Q: I have $47,000 invested in an IRA. The new rate will be 0.80 percent as of September 14. I am unsure whether it would be best to roll this over for another year, or switch it to a CD with a 0.80 percent rate for one year. What do you think?

A: Perhaps the key issue here is flexibility. This is not simply a question of whether to keep your money in an IRA, but also whether a one-year CD is the best vehicle for you at this juncture.

Here are some issues related to investment flexibility for you to think about:

  1. Is one year really the right time frame for you? It seems like under the circumstances you describe, you might benefit from going either longer or shorter. For example, some of the better savings accounts and money market accounts can provide you with a 0.80 percent interest rate, without locking you in for a year. That might prove useful if you believe that interest rates may rise in the near future, or if you anticipate a shorter-term liquidity need. On the other hand, if you don't need that kind of flexibility, why not go to a longer-term CD than one year, which would give you access to higher interest rates? The key there would be to look for a longer-term CD with a relatively low early withdrawal penalty, so you would not have to completely sacrifice flexibility for higher interest.
  2. Does your current IRA provider give you access to the best CD rates? It sounds as though you are already in a CD within your current IRA, and most other banks offering CDs can probably do so within an IRA account as well. So, if the issue motivating you is simply having the flexibility to shop for the best CD rates, you should be able to do that by transferring to an IRA at another bank once you find a rate you like.
  3. What would you gain by taking the money out of an IRA? Unless you have a traditional IRA and are at the age where you need to take required distributions (70 1/2), there seems little reason for you to incur the tax consequences of transferring out of an IRA. Since you have the flexibility to shop for rates within IRAs, is there a reason for you to give up the tax advantages?

Until you actually need the money, it's hard to see why you would move away from your IRA. In the meantime, the question is really about investment flexibility. This you should be able to achieve within an IRA, though it might mean choosing something other than a one-year CD -- or choosing another IRA provider.

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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Is a townhouse a good investment?

August 15, 2014

| MoneyRates.com Senior Financial Analyst, CFA

Q: My wife and I are currently renting, but we just saw a townhouse for sale in California wine country that would be perfect for us. However, the only way we could buy it would be if I borrowed from my 401(k) to make the 3.5 percent FHA down payment. Is that a terrible idea? Also, are townhouses good investments, and is this a good time to buy?

A: Breaking your question down into its component parts, here are some answers to the issues you have raised.

  1. Is borrowing a down payment from a 401(k) plan a good idea? Your need to borrow for a relatively small down payment raises some questions about your cash flow. Borrowing from a 401(k) means you will miss out on any investment earnings while you are repaying what you borrowed. If you have to borrow against your 401(k), you should have a budget plan for repaying the amount in as little time as possible, and if you have been unable to save up for a down payment, you also might find it difficult to repay your 401(k) plan in an accelerated time frame.
  2. Is a townhouse a good investment? With any property, the keys from an investment standpoint are the pricing and the location, but with a townhouse you are in effect buying into the association that runs the complex. Beside checking out the current fees, you should ask about what those fees have been historically, so you can get a feel for how quickly they are rising. Also, spend some time around the complex, so you can see whether it is well-maintained and whether you will be comfortable with your neighbors.
  3. Is this a good time to buy? California is home to some of the nation's most expensive real estate markets, but at least prices are not yet back to the peak levels of the housing bubble. Perhaps the thing that most makes this a good time to buy are current mortgage rates. Those rates are still among the lowest in history, so you would be getting a break on borrowing costs. Current mortgage rates have only a slim margin over a rising inflation rate, so you might not want to count on rates staying as low as they are now.

Real estate is an especially hard market to predict, in large part because each property is somewhat unique. However, what matters most when buying a home is not where the value might be in five or 10 years, but how readily the mortgage payments fit into your budget. Only if you can comfortably make those payments -- and especially if they compare favorably to your rental expenses -- does the decision to buy make sense for you.

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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