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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 can a retiree protect retirement savings against inflation?

October 2, 2015

| MoneyRates.com Senior Financial Analyst, CFA

Q: My biggest financial concern is inflation. I think I have enough saved for retirement, but that all depends on prices not rising faster than the value of my investments. How should I invest if I am concerned about retirement?

A: Inflation has been generally tame over the past couple decades, and particularly quiet over the past year, at just 0.2 percent. Still, it is not a good idea to get complacent about inflation remaining mild. A reversal in the direction of oil prices or perhaps a rise of protectionist sentiment in the course of the next presidential election could easily fire inflation back up again.

Inflation should be a consideration in any long-term investment approach, and it is a particular concern in retirement because you no longer have wages that can help your income adapt to the inflation environment.

Savings vs. CDs accounts for retirement accounts

As benign as the inflation threat has been in recent years, this is still a tricky investment environment for defending against inflation. A big reason is because interest rates are so low.

Traditionally, keeping money in short-term liquid vehicles like savings accounts has allowed people to keep pace with inflation reasonably well. The reason is that with interest rates on short-term vehicles able to adjust at any time, if inflation rises, they tend to rise soon afterward.

Unfortunately, Federal Reserve policy has resulted in unusually low short-term rates, so savings accounts have fallen behind inflation. Even though inflation over the past 12 months has been just 0.2 percent, the average savings account rate has been even lower, at 0.06 percent.

Since retirees need to keep some investments in stable and relatively liquid investments, one alternative would be to shop for a long-term CD with a good interest rate and a relatively mild penalty for early withdrawal. The best CD rates are up around 2 percent, which would put you ahead of the recent inflation rate, and as long as the penalty was not too severe, you could cash out of the CD early if rising inflation pushed interest rates higher.

Even once you retire, you should also keep some of your portfolio in stocks as a defense against inflation. Companies may adjust their business strategies to changing inflation trends, so while inflation can be damaging to stocks in the short-term, over the long-term, they are typically able to adapt to it. In particular, if there is an area of inflation that concerns you as far as your retirement expenses are concerned - health care inflation, for example - you could somewhat counteract it by investing in stocks in that sector.

The bottom line is that inflation, investment returns and life span are the big three uncertainties when it comes to retirement planning. Since there is no perfect investment approach to hedging against those uncertainties, the best response is to build in as big a cushion as possible in your retirement assumptions. You can do this by saving more before retirement, and spending less than you think you could afford after retirement.

More from MoneyRates.com:

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Are pre-paid cards a good alternative to checking accounts to avoid rising fees?

September 21, 2015

| MoneyRates.com Senior Financial Analyst, CFA

Q: My bank just raised the fee on my checking account - again. I'm now paying $20 a month. That's more than $200 a year, and I struggle to keep that much in my account to begin with, so this could wipe me out. A co-worker said he just has his paycheck deposited into a pre-paid credit card and uses that instead of a checking account. Is that a good alternative?

A: One thing is for sure - you should find an alternative to paying $20 a month for a checking account. Whether or not a pre-paid card is the right alternative is another matter.

Before you settle on a pre-paid card as an alternative to your current account, there are some important questions you should ask:

1. Am I paying for unwanted features on this checking account?

Recent data from the MoneyRates.com Checking Account Fee Survey show the average fee for checking accounts is $13.09, so $20 is about 50 percent above average. Accounts charging fees at that level usually come with special features such as relatively high interest (which does not mean much these days) or rewards. The problem is, since you say you typically carry a low balance, you probably won't reap much benefit from checking account interest or rewards - certainly not enough to justify paying $20 a month. As a first step, see if your bank has an account with fewer features but lower fees.

2. Are there cheaper checking accounts out there?

If your bank does not offer a cheaper account, there are banks that do provide free checking accounts. About a quarter of all checking accounts still have no monthly fee, so look for one of those. Online checking accounts are an especially good place to look for free checking.

3. Would the pre-paid card you are considering offer FDIC deposit insurance?

Some pre-paid cards may be set up in association with a bank so that money you put on the card is covered by deposit insurance, but don't assume this is so. Check to make sure because this is too valuable a protection to give up.

4. What fees are associated with this pre-paid card?

A pre-paid card may not have a monthly fee, but one of the knocks on them in general is that they are expensive to use, so find out what fees would be involved. These can include fees for loading and re-loading the card, transactions fees and even non-activity fees.

5. Do you write many checks from your current checking account?

A pre-paid card may be a viable alternative to a debit card, but if you also write checks, you will need to find an alternative.

6. Do you have automatic bill pay set up from your current account?

This is another convenience checking accounts offer that you may not be able to replicate with a pre-paid card.

Rising fees have allowed pre-paid cards to gain a growing following among consumers, but with a little searching, you should be able to get the advantages of a free or reduced fee checking account to avoid paying anything like your current $20 a month.

Got a financial 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 my business get a loan with no credit history?

August 27, 2015

| MoneyRates.com Senior Financial Analyst, CFA

Q: How can I get a business loan to buy the inventory to expand my business, especially when my business has not been around long enough to have much of a credit history?

A: Businesses without established credit relationships do have financing options to fall back when they attempt to get a loan:

1. Your personal credit history

When dealing with fledgling businesses, lenders typically look past the track record of the company and focus on the creditworthiness of the owners. This can help you qualify for a business loan if you have a good credit record, though it can also hold you back if you have had credit problems personally.

The possibility that you may someday want to start a company adds a business focus to the list of personal financial reasons for maintaining a good credit history. Manage your credit record carefully because it can be a precious asset.

2. A well-articulated business plan

This can demonstrate to potential lenders that your venture has a good chance of being successful enough to pay back the loan. Lenders are going to want to see that you have analyzed the competition, formulated a marketing strategy and crunched the numbers to determine your cash flow needs.

If you have not yet formalized a business plan, do it before you start contacting lenders. Without one, you will look unprepared.

3. Collateral

Very often, small business lenders are going to look for assets of value to serve as collateral. You mention inventory in your question, and if this inventory has clear value and can be readily liquidated, perhaps it can serve as collateral. In addition to business assets, the bank might also accept as collateral any personal assets you have, especially those that can be easily transferred and liquidated, such as savings accounts or marketable investments.

4. SBA loans

The U.S. Small Business Administration (SBA) is an important resource for business owners because it can help obtain financing for businesses that could not otherwise qualify for a loan. The SBA does not make loans directly, but it guarantees loan made through banks, credit unions and other lenders to businesses that meet its requirements.

SBA loans are not a giveaway - you are still going to have to demonstrate the personal credibility and thorough business plan that any lender would require. However, the SBA's guarantee can take the place of collateral if you do not have the type of assets necessary to back a loan.

5. Crowdfunding or peer-to-peer lending

With income sources like savings and money market rates near zero, investors are turning to alternatives like crowdfunding and peer-to-peer lending to earn better returns. This creates alternative sources of funding that might work for your business.

It may seem there are several hoops to jump through to get a small business loan, but ultimately lenders are just trying to assure themselves that you have a reasonable chance of repaying the loan. That scrutiny should also help you avoid taking on a financial responsibility that you won't be able to handle.

Got a financial 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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Direct deposit into savings or checking?

August 26, 2015

| MoneyRates.com Senior Financial Analyst, CFA

Q: My new job requires that I have my pay deposited directly into a bank account. Does it make more sense to deposit my pay into a savings account or a checking account?

A: As with so many banking questions, the answer to this depends on the circumstances of your situation. There is no single right answer that applies to everybody. Ideally, you would deposit pay into a savings account, but here are some factors that could determine whether that approach would work for you:

1. Do you expect to have money left over at the end of the month?

It's important to save money if you can, so having your pay deposited into a savings account would be the most efficient way of making that happen. However, given how low interest rates on savings accounts are these days, the benefits of having direct deposit go into a savings account may not outweigh the drawbacks (which are discussed below) if you are going to be living paycheck-to-paycheck, with no money left over.

2. Does the checking account require a minimum balance to avoid a monthly maintenance fee?

Unless you have a free checking account, your bank may require you to keep a certain minimum balance in your checking account to avoid paying a monthly maintenance fee. According to the latest MoneyRates.com Bank Fees Survey, these fees average $12.26 per month, or just over $147 a year. So, if having your pay deposited into checking helps you avoid this kind of fee, it may be worth more than the interest you would earn by having your pay deposited into savings.

3. Are you confident in your ability to avoid overdrafting the checking account?

The MoneyRates.com fee survey found that overdraft fees recently rose to an average of more than $30 per occurrence. It's best to opt out of overdraft protection, but if you need your pay directly deposited into checking to avoid overdraft situations, this could make more sense than repeatedly paying a $30 fee.

4. Consider savings first

People have a tendency to deposit their pay into checking accounts, and then periodically transfer any accumulated money into savings accounts. However, a better saving strategy would be to have your pay deposited into your saving account, and then transfer a budgeted amount into checking to meet your expenses. This would maximize the interest you earn by getting your money into the savings account sooner, and perhaps more importantly, this method would help you put savings first, and have money available for spending only according to a budget.

So, as long as you can avoid a checking account fee and keep your spending within budget, depositing pay into a savings account would be preferable.

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

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Are step-up CDs a good choice if the Fed raises interest rates?

August 12, 2015

| MoneyRates.com Senior Financial Analyst, CFA

Q: With all the talk that the Fed is going to raise interest rates, would this be a good time to invest in one of those step-up CDs that let me switch to a higher rate if rates go higher before the CD matures?

A: An opportunity to make a future choice based on prevailing conditions can be thought of as a financial option. An option is a valuable thing, but as with any thing of value, you should expect to pay a price for it. The question is whether or not the price is worth it.

What's it worth to you?

With a step-up CD, the option to switch to a higher rate in the future often comes at the price of accepting a lower rate initially than you would get on a conventional CD. For example, if the best CD rates for five years were around 2 percent, you might only get a 1 percent rate on a 5-year step-up CD. Therefore, rates would have to rise by 1 percent just for you to draw even with the most competitive conventional CDs, and would have to go even farther for you to make up the ground you lost by starting out at a lower rate initially.

If the gap between the best CD rates and what you could get on a step-up CD were smaller than 1 percent, you would be paying a lower price for the option of raising your rate later on. Knowing that price allows you to better evaluate whether the option is worth it.

Indexed CDs

Indexed CDs are another possibility for a rising rate environment. Rather than giving you a one-time option of stepping up to a higher rate, these adjust automatically to rate conditions based on a specified market index. As with step-up CDs, this feature might come at a price in the form of a discount to conventional CD rates. It also carries the possibility that your rate could go down.

Other rate-changing possibilities

Here are some other deposit account possibilities if you think interest rates are going to rise:

  1. Savings and money market accounts. Rates on both savings accounts and money market accounts adjust periodically to changing rate conditions. The price you pay for this flexibility is that they typically yield a lot less than CDs. However, you can reduce this price by shopping for the best savings and money market rates. The top savings accounts pay about 1 percent these days - better than the average rate on a 5-year CD.
  2. Conventional CD penalties. Rather than exercise a step-up option, you could get a conventional CD and simply pay the penalty for early withdrawal if rates rise. Knowing the size of this penalty would tell you how big a price you would have to pay for this option, though the nice thing about this approach is that you only pay this price if you actually exercise the option.

So, by all means consider step-up CDs as a possible way of preparing for a rising interest rate environment. Just remember to also identify the price you will have to pay in the form of how it compares with competing alternatives. Only by knowing that price can you make a reasonable judgement about whether the option is worth it.

Find out more information about the best savings rates and money market account rates on MoneyRates.

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