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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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Should I worry about losing my mortgage interest tax break?

December 2, 2016

By Richard Barrington | MoneyRates.com Senior Financial Analyst, CFA

Q: There is talk about eliminating the mortgage interest tax deduction. Won't that hurt the housing market? If I'm thinking of buying a house for the first time, should I hold off and wait to see if prices go down once they do eliminate the deduction?

A: Interestingly, the head of the Mortgage Bankers Association came out and said there are circumstances under which his organization would support eliminating the mortgage interest deduction. Understandably, mortgage bankers have traditionally been among the staunchest defenders of that deduction. Even if they are open to discussing it, there is a possibility it might happen.

The question is, would this discourage home ownership enough to depress home prices? Conditions today suggest that it might not, for the following reasons:

1. Low interest rates diminished importance of mortgage interest tax breaks

Millions of people have already benefited by buying homes at or near record-low mortgage rates, and millions more have benefited from low refinance rates. Seeing mortgage rates drop from a normal level of around 8 percent to below 4 percent is more valuable to home owners than the deduction on mortgage interest. Furthermore, the lower mortgage rates go, the less the deduction on that interest is worth.

2. Entry-level home owners often don't itemize deductions anyway

Home buyers with relatively low incomes who are buying less expensive homes typically benefit more from the standard deduction than by itemizing. Thus, eliminating the mortgage interest deduction should have little impact on entry-level buyers. You mention planning on buying your first house. If you are buying at the lower end of the price range, you are less likely to see elimination of the mortgage interest deduction affect prices than if you were buying a more expensive house.

3. A broader tax reform effort could be stimulative to the economy

One factor that has lowered resistance to eliminating the mortgage interest deduction is that low purchase and refinance rates have helped shore up the housing market.

Another factor is that eliminating the deduction is being discussed in the context of a broader tax reform effort. Broader tax reform is the context in which the Mortgage Bankers Association has said it might be receptive to eliminating the deduction. A trade-off between eliminating specific deductions and lowering overall tax rates could be positive for the economy, and thus positive for the housing market.

In short, keep in mind that between people who don't itemize deductions and those who have paid off their mortgages, many home owners don't benefit from the mortgage interest deduction anyway. Add to that the fact that mortgage rates are extraordinary low right now, and the housing market may be less dependent on that tax break than ever.

Trying to guess the future of home prices is an exercise in speculating on the unknown. What you do know at this point is that mortgage rates are very much in your favor. You may want to act on what you know rather than trying to guess correctly about what no one knows.

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 should a single mother invest $25,000?

November 15, 2016

By Richard Barrington | MoneyRates.com Senior Financial Analyst, CFA

Q: I am a single mom with $25,000 to invest. Any ideas?

A: First of all, kudos on looking past immediate needs and temptations and thinking long-term by investing. Too many people in tight financial circumstances look at any lump sum as a windfall to be spent right away. But when this happens, it usually is not long before they find their finances tightening up again. The way to work towards a better future is through financial discipline and targeted investing.

So, what kind of investments should you be making? A good way to answer that question is to think of your future needs and work backwards from there.

Financial priorities for a single parent

As a single parent, you probably have a number of different needs to be met for you and your children. However, they probably fall into three major categories: short-term emergencies, future education needs and funding your retirement. Here's how you can put some of that $25,000 towards each of these types of needs:

1. Build an emergency savings fund

A basic building block of saving money is an emergency fund, a reserve of money you can access easily to meet unexpected expenses. Besides the usual expenses that can pop up - car repairs, medical bills, etc. - a single parent who is the only breadwinner for her family needs to be prepared in case she loses her job. Having an emergency fund of three to six months worth of essential expenses would help you cover the bare necessities while you look for a new job.

While people tend to think of savings accounts and money market accounts as the natural places to put an emergency fund, given today's low interest rate environment it may be worth looking for a long term CD with a relatively low early-withdrawal penalty. Unless a need arises in the first few months, chances are good that a higher-yielding CD would more than make up for the penalty if you have to break into your emergency fund a further down the road.

2. Look into a 529 education savings plan

These are funds that allow money invested in them to grow tax-free as long as they are eventually used for educational purposes. Long-term stock investments within a 529 fund may be appropriate if your kids are very young, but you should downshift to more conservative investments as their college years approach. Also, since you cannot access this money for non-educational uses once it is in the 529 plan, don't commit more than your kids are likely to need for school.

3. Continue to save for retirement

Between running a household on a single income and providing for your kids' education, there will always be plenty of demands on your money. Still, don't forget to also provide for your own future by using some of the money you have at hand to boost your long term retirement investments. And no, this isn't being selfish - if you don't provide for yourself, your kids may be called upon to do it when you are older.

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.

More from MoneyRates.com:

Can I turn $100,000 into $1 million by the end of the decade?

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How do I transfer an IRA into a CD without taxes or penalties?

November 11, 2016

By Richard Barrington | MoneyRates.com Senior Financial Analyst, CFA

Q: I'm 62 years old and have a traditional IRA that is maturing and I want to put it in a high interest rate CD at a different bank. Can I take the money out and take the check to the other bank for the CD without any penalty or taxes on that money?

A: You should be able to make this kind of individual retirement account transfer without taxes or penalty. But you must take care how you do it to be sure you don't inadvertently trigger tax consequences.

How to avoid taxes and penalties when transferring an IRA

Specifically, the wording of your question raises three issues:

1. Make sure you roll over into a traditional IRA

People often refer to IRAs and certificates of deposits interchangeably. While they are often linked, they represent different things.

IRAs vs. CDs

IRAs. An IRA is a tax arrangement, a retirement account that allows you to defer taxes on contributions (for a traditional IRA) and on investment earnings. The money in this tax arrangement can be invested in a variety of ways, including savings accounts and CDs, but also more long-term investments like stocks and bonds.

CDs. A CD is not a tax arrangement but a type of deposit account, usually paying a specified interest rate over a particular length of time.

The key here is to make sure the CD at the new bank is within an IRA. Because you are above age 59 1/2, you could take money out of your IRA without penalty. But you would have to pay ordinary income taxes on the withdrawal and then you would lose the tax deferral on future investment earnings.

2. Look into a trustee-to-trustee transfer

You could get a check from your existing IRA and then deposit it in a new IRA. However, that withdrawal might be subject to tax withholding since it is going through you rather than directly into the new IRA. To avoid this you should look into a trustee-to-trustee transfer, where one IRA trustee (in this case, your first bank) transfers the money directly to another IRA trustee (your new bank). Trustee-to-trustee transfers are not subject to withholding.

Also, this might be the most efficient method of transfer, since it is important to make the rollover to new IRA within 60 days or else the withdrawal would be subject to taxation. Just be sure to check first on any bank fees associated with a trustee-to-trustee transfer.

3. Find the best CD rates before transferring

Take the time to compare banks to find the best CD rates before you transfer, because unless you do a trustee-to-trustee transfer, you will be effectively locked in for a year. The IRS only allows tax payers a single IRA transfer within any 12-month period, though trustee-to-trustee transfers are exempt from this limitation.

The kind of transfer you are talking about can be a good technique for earning a little more interest on your retirement savings by finding the best CD rates. Just make sure you stay within the guidelines for this kind of transfer, so that your extra interest gains are not negated by unnecessary tax consequences.

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 do stocks compare with savings accounts?

November 3, 2016

By Richard Barrington | MoneyRates.com Senior Financial Analyst, CFA

Q: How do you rate the pros and cons of stocks compared to savings accounts?

A: It's a bit like comparing apples and oranges. But looking at the contrasts between stocks and savings accounts is a good way to highlight the strengths and weaknesses of each.

Listed below are three key characteristics you might use to evaluate possible investments, along with some comments on how stocks and savings accounts stack up in these categories.

Investment risk

Do you want to be sure you won't lose money? Then stocks are not for you. The stock market goes up and down every day, and can have sustained declines where it might lose more than 20 percent in one year. Individual stocks are generally even more volatile than the market as a whole.

In contrast, savings accounts are designed never to lose value. In addition, U.S. bank savings accounts are backed by FDIC insurance up to a limit of $250,000 per depositor at any one institution (i.e., you can get more money insured if you spread your deposits out among multiple institutions).


This is a question of how readily available your money will be. As noted above, stocks are subject to ups and downs, so you can't be sure exactly how much money will be available at any given time. Also, the process of selling stocks may cause slight delays in accessing your money. This may result in a reduced value due to taxes, commissions and market fluctuations.

Here again, savings accounts are quite the opposite, as one of their key attributes is that your money is available at any time. The one restriction is that you are limited to six withdrawals per month. As such, you should not use a savings account for frequent transactions the way you would a checking account.

Growth potential

Stocks represent ongoing business ventures and thus have considerable growth potential, though it is far from a sure thing. Unfortunately though, so far in the 21st century earnings on U.S. stocks have increased at an average rate of just 3.32 percent a year, so you would not exactly be tapping into a high-growth phase of the stock market.

Still, even 3.32 percent looks robust compared to the 0.06 percent average interest rate on savings accounts these days. You can get a much better yield (up in the 1.0 percent territory) if you shop around for the best savings accounts. However, stocks definitely have the advantage when it comes to growth potential. Just remember that potential is not a sure thing.

Clearly, these investments are designed to do very different things, so the starting point for this type of decision is to figure out the purpose of the money you are trying to invest. Is it something you need to be sure of in the near future, or are you looking for long-term results?

Both stocks and savings accounts have very worthwhile purposes. This is why people with well-developed investment programs tend to have a mix of both types of assets, as well as bonds.

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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Protect your portfolio: 3 big factors of investment risk

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Can I get out of a bad home mortgage loan?

October 6, 2016

By Richard Barrington | MoneyRates.com Senior Financial Analyst, CFA

Q: My Mobile Home interest is 8.0 percent and feel I have been ripped off. I have been living here for 17 years and my home is not worth my balance. I think I was railroaded. Should I do a short sale or can they lower my interest rate?

A: The lack of equity in your mobile home after all this time makes it sound like there is a somewhat complicated history involved that may limit your options. Even so, it is worth exploring the possibilities to see which alternatives may be open to you.

Reviewing past and current mortgage rate history

For starters, while 8 percent sounds high by today's standards, if your loan dates back to when you originally bought the mobile home 17 years ago, 8 percent does not seem so out of line. After all, current mortgage rates are about half what they were 17 years ago, and auto loan rates have experienced a similar drop over that time. Solid data on mobile home rates is not as easy to find. But since those loans can be thought of as combining some elements of both home mortgages and vehicle loans, it is reasonable to expect that they have dropped considerably in the past 17 years.

Of course, that assumes that you have had the same loan all that time, but the fact that your home is not worth your balance after all this time suggests that you have refinanced at least once. A combination of overly-aggressive refinancing and rapid depreciation of your property could well have left your loan under water. Unfortunately, that limits your options.

Options to deal with an underwater mortgage loan

Here are five possibilities at this point, depending on some of the details of your situation:

1. Refinance your mortgage

Unfortunately, your loan being under water probably eliminates most refinancing possibilities. However, it is possible that your current lender might be amenable to a rate reduction since they already own the risk of the underwater loan.

2. Use savings to retire part of the remaining loan

If you have savings accounts or other assets, you might pay the loan down to below the value of your property. This could open up more refinancing opportunities.

3. Put down savings to pay off all of the remaining loan balance

Given how low interest on savings accounts is these days, it might be worth using savings to retire the entire loan balance. Eliminating an 8 percent expense is better than earning 1 percent in deposit interest.

4. Initiate a short sale

You mention a short sale, but this would still require resources to retire the excess balance on the loan.

5. Stay in the home

If you can still afford your payments, your best option for the time being may be to stay put. After all, if you sell out, you are still going to have to pay for some other form of housing.

Your current loan rate and your lack of equity are certainly less the ideal. However, the important thing is to assess which of the above is your best option for the future, rather than trying to remake the past.

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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