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

New! Richard Barrington discusses How to Save More with Neal Conan on NPR's nationally syndicated Talk of the Nation here (February 2012).

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 do I track down an old savings account?

April 10, 2014

| MoneyRates.com Senior Financial Analyst, CFA

Q: I found an old passbook of my parents, from Mellon PSFS. How can I check to see if it is active?

A: If you have ever watched any of those "cold case" detective shows, you will know that the more time has passed, the harder it becomes to track down leads. Then again, those same programs suggest that it is not impossible to warm up a cold case now and then.

The cold case analogy comes to mind is that this account may be quite old. According to the FDIC web site, Mellon Bank PSFS has been inactive since January 1, 1991, but there is a successor institution called BNY Mellon. The FDIC number for BNY Mellon is 7946. Because bank names are often quite similar to each other, this FDIC number might be useful in making sure that you are contacting the right institution.

When you contact BNY Mellon, be sure to have the account number from the passbook. Just be prepared for the fact that the bank may have changed the numbering system for savings accounts at some point over the past 20 or more years. Ideally, you should try to speak to someone who has been at the bank long enough to know some of the history involved, and can help you trace what might have happened to this account.

If your parents are deceased or otherwise have not been in contact with the bank for a long time, the FDIC advises that savings accounts and other unclaimed property are sometimes transferred to the state where the bank is located. The FDIC lists two websites where you might be able to track down such unclaimed property: unclaimed.org and missingmoney.com.

While it is worth checking with BNY Mellon and these unclaimed property websites, it is entirely possible that your parents closed out this account years ago. Assuming you have been through their financial records, if all you found was a passbook and not any account statements, there is a good chance they closed this account. Understandably, your patience for conducting your investigation will depend greatly on whether you think there is a significant amount of money at stake.

It sounds as though the following advice is too late in your case, but for the benefit of other readers, this situation is a reminder that once your parents reach retirement age, it is a good idea for them to review their finances with a trusted family member. This should involve not just what their plans are, but also a complete inventory of all assets and sources of income (such as pension plans, etc.) That information could prevent those finances from turning into a cold case mystery in the future.

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How do I find the best rate on $1 million?

April 4, 2014

| MoneyRates.com Senior Financial Analyst, CFA

Q: I'm looking for the best interest rate for a deposit of $1 million.

A: A deposit of that size gives you a number of options, but it also creates some practical considerations to be looked after. Here are some factors that should help guide you to the right decision:

  1. FDIC insurance. If you want absolute security for your money, you should look at savings accounts, money market accounts and CDs that are covered by FDIC insurance. The only catch is that your deposit exceeds the $250,000 maximum on such insurance. If the money is held jointly by you and your spouse, that amount doubles, and if the money is split between taxable and IRA money, each is entitled to $250,000 in interest. Even so, it is likely that you will have to split your deposits among multiple banks to keep them fully insured (simply splitting into multiple accounts at the same bank does not increase your coverage).
  2. Time horizon. Before you start comparing interest rates, you need to figure out when you will need to access the money. This will determine whether you should keep some or all of it in savings or money market accounts, which allow immediate access, or whether you can put the money into longer-term CDs, which commit your deposit for a specified term but in return offer higher interest rates.
  3. Investment goals and risk tolerance. You may want to consider whether deposit accounts are appropriate for the entire investment, or if you can afford to take some risk with some of it in order to meet other investment goals, such as pursuing growth through equities or higher yields through bonds.
  4. Comparison shopping. Once you have narrowed down what type of deposit products you are looking for, you can compare rates on those products. MoneyRates.com keeps up-to-date lists of rates for a variety of products. This comparison shopping is vital, because rates vary greatly. For example, the latest MoneyRates.com America's Best Rates survey found that the national average rate for savings accounts was about 0.18 percent. The highest rates, on the other hand, were up around 0.90 percent, or about five times the national average.
  5. Jumbo deposit rates. For deposits of the size you are likely to be making, be sure to inquire about jumbo deposit rates. These are special rates offered on larger deposits, typically $100,000 and up, though not all products offer a premium for large deposits. According to recent FDIC figures, the highest rate premiums for large deposits are typically found on jumbo money market accounts, with rates on those deposits an average of 5 basis points higher than on ordinary deposits.

Keep in mind when you are comparing interest rates on different types of products, you also have to compare risk levels. FDIC-insured deposits give you an absolute degree of certainty. Other types of investments may well offer higher interest rates, but you have to balance that against the potential drawbacks of accepting a higher level of risk.

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Do I need to pay taxes on my foreign CD?

March 27, 2014

| MoneyRates.com Senior Financial Analyst, CFA

Q: I am an American citizen and I have money in a CD in India that will mature in 10 years. Do I have to pay taxes in the U.S. in a given year, even if the value of my account goes down because of currency changes?

A: This is a very specialized tax question, so you would probably wise to consult with a qualified tax accountant for an answer that is completely suited to your particular situation. However, it is possible to outline the major issues involved.

First of all, it appears that in terms of reporting, there are three standards that may apply:

  1. Foreign holdings of more than $10,000 must be reported annually to the IRS via the Financial Crimes Enforcement Network's Form 114, Report of Foreign Bank and Financial Accounts.
  2. If the value of your foreign holdings exceeds $50,000 at the end of the tax year, or was above $75,000 at any point during the tax year, you will probably have to report those holdings by attaching IRS Form 8938 to your tax return.
  3. Regardless of whether you have to report the holdings pursuant to either of the above requirements, if you are paying U.S. taxes you will probably be obligated to report any income from those holdings on your return.

Income earned in a foreign currency must be translated to U.S. dollars for tax reporting purposes. So, if the Indian currency goes down, your reportable CD interest could be reduced by the currency change. However, the change in principal value of the CD would probably not be reportable as a loss until you cash in the CD and convert it back to U.S. dollars.

Currency translation is often the fatal flaw of investing in foreign CDs. The best CD rates, along with the highest rates on savings accounts or money market accounts, can often be found in countries with weak currencies. This is because those countries often pump up their interest rates in an attempt to attract investment to shore up the currency, and also because a weak currency is generally inflationary, which causes interest rates to rise naturally.

To a U.S. investor, this means the interest you earn may be devalued by currency translation, and meanwhile, the principal value of the account would also be devalued by that same currency translation. Keep in mind too that foreign bank accounts are not covered by FDIC insurance protection, so their rates are really not directly comparable with U.S. rates.

Adding insult to injury, it appears that you would have to pay tax on the interest earned from a foreign CD (adjusted for currency translation), but this would not be offset by losses to the principal until you cash in your CD.

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How should I invest $10,000 while in college?

March 21, 2014

| MoneyRates.com Senior Financial Analyst, CFA

Q: I am 19 years old and would like to know a good place to put my $10,000 so it can grow, and help me finish college or retire.

A: A good way to answer this might be to introduce some investment concepts, and then comment on how they relate to your situation.

Some of the investment issues that should factor into a decision like this are the following:

  1. Liquidity. This is the availability of money when you need it. Stocks and long-term bonds move up and down too much to be counted on for immediate liquidity. Things like savings accounts and money market accounts provide immediate access.
  2. Growth. Growth is important to help build up long-term savings and keep their value ahead of inflation. Stocks have traditionally shown more growth potential than bonds or deposit accounts.
  3. Volatility. This is the risk that the value of an investment might go up or down from year-to-year, or even suffer permanent losses. Stocks tend to have a high degree of volatility.
  4. Income yield. This is the amount paid out by an investment on an annual basis. Currently, long bonds are paying a little under 4 percent in income, and deposit vehicles less than 1 percent.
  5. Tax deferrals. Some retirement assets can get you a tax break until you use them when you retire. Traditional IRAs and 401(k) plans allow contributions to be deducted from taxes, and then any investment earnings are tax-free until retirement as well. Roth IRAs do not allow deductions of contributions, but they do defer taxes on earnings until retirement.
  6. Time horizon. This is the time until you will need to access the money. If your time horizon is within the next few years, you need to emphasize highly liquid vehicles like deposit accounts. If you have a long-term time horizon, you can lean more toward growth investments like stocks.

If you were to start saving for retirement now, you could get a valuable head start on the process. In that case, you would have a long-enough time horizon to consider growth-oriented investments like stocks, and you could also benefit by deferring taxes on your gains via a Roth IRA (chances are, you don't have enough income currently to really benefit from the tax deduction of a traditional IRA.)

The only question is whether you might need any money to complete your college education, or to help you get started in your career. If this is a possibility, you should budget for how much you need, and keep that amount in more liquid vehicles like savings accounts or money market accounts. The remainder you could put in growth investments in a Roth IRA, and get at least a partial head start on retirement saving.

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 do foreign money market funds work?

March 13, 2014

| MoneyRates.com Senior Financial Analyst, CFA

Q: Can a foreign money market mutual fund purchase American commercial paper?

A: That question can be approached two ways:

  1. If you are referring to a U.S.-based fund whose mandate is to invest in foreign securities, then the answer lies very much in the details of the prospectus. Even with a foreign investment mandate, a U.S. fund may have some latitude to invest in domestic commercial paper for liquidity purposes or for tactical investment reasons.
  2. If you are referring to a fund based in a foreign country, the answer would depend on both the laws of that country and the latitude of the mandate. Before you invest in any kind of fund based in another country, you should make yourself aware of how that country's investment laws differ from those of the U.S.

In either case though, there are a number of things an investor should consider in this type of situation:

  1. Read the prospectus -- labels can be deceiving. Mutual funds can be named for a type of investment that is the fund's primary emphasis, but the investment objectives of the fund might give the manager substantial discretion to invest elsewhere. It is important to go beyond the title and read the prospectus to see just how much latitude the fund has.
  2. Scour the annual report. The annual report should contain a list of holdings, so you should review this for any fund you own to see if those holdings match your understanding of the investment approach.
  3. Consider currency risk when investing for income. Foreign income yields can look much more attractive than domestic ones, but often a high yield is a sign of a weak currency. Fluctuating exchange rates not only can negate the yield advantage you are seeking by investing in foreign securities, but it can also make the fund's yield much more erratic than you might expect from an income investment.
  4. Pay particular attention to fees in income funds. High-quality U.S. commercial paper yields are running between nearly zero and about a quarter of a percent. With yields so low, you need to make sure that fees won't wipe out the lion's share of a fund's income.
  5. Do not mistake money market funds for money market accounts. Money market accounts held at a U.S. bank carry the deposit insurance backing of the FDIC. Money market mutual funds, whether invested in U.S. or foreign securities, are not covered by the FDIC.

One of the dangers a low interest rate environment creates is that even conservative investors find themselves taking on extra risk in an attempt to find higher yields. That may be necessary, but it is important to understand the risks you are incurring.

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