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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

For PR inquiries and opportunities please email us at pr@moneyrates.com.

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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.

More from MoneyRates.com:

5 ways to avoid early withdrawal penalties on your CD

How to compare CD rates

Ask the expert: When are taxes on CD interest due?

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Is there a middle ground between low-return deposit accounts and high-risk stocks?

August 3, 2015

| MoneyRates.com Senior Financial Analyst, CFA

Q: Is there a middle-ground type of investment between the low interest rate of, for example, a certificate of deposit, and the high risk of stocks?

A: Yours is a timely question because the extreme low interest rates of recent years seems to have widened the gulf between deposit accounts and the stock market. While there is no perfect middle-ground investment, you do have some options for bridging the gap to some degree.

According to the Federal Deposit Insurance Corporation, 1-month CDs currently pay an average of just 0.06 percent in annual interest, and savings accounts have the same average rate as well. This means it is particularly unrewarding to sit on the sidelines if you want to avoid the risk of the stock market. As a consequence, people are relying on stocks more than they normally would, which only serves to drive stock valuations to even riskier heights.

So, what can you do to get a little better return without submitting to the full volatility of the stock market? Some options are listed below.

Limited-risk options

While none of the following is an ideal, best-of-both worlds type of solution, they are ways to get a little bit better return without accepting the full risk of the stock market:

  1. Look at longer CDs. If you can commit to CD accounts for a little longer, it can make a big impact on how much interest you earn. At 78 basis points, 5-year CD rates are currently paying 13 times what 1-month CDs yield.
  2. CD laddering. If you do not want to lock all of your money up for five years, consider a CD ladder - a series of CDs set to mature on different dates. This will allow you to benefit from the higher rates offered by longer-term CDs, while still having some of your money becoming available at regular intervals.
  3. Shop around for your CDs. It pays to compare rates to find the best CD rates. For 5-year CDs, the best CD rates are nearly three times the national average, and for 1-year CDs the best CD rates are more than five times the national average.
  4. Consider high-quality bonds. Longer-term bonds are yielding more than CDs, so if you can put up with some interim volatility, you could own an investment vehicle that will pay you more interest and be guaranteed to pay its full face value upon maturity. Just be sure you focus on high-quality bonds like U.S. Treasuries because corporate bonds would expose you to some of the same economic risks as the stock market.
  5. An asset allocation approach. Of course, deciding between stocks and lower-risk alternatives is not an all-or-nothing proposition. A blended asset mix with a limited stock allocation could give you some chance at higher returns without taking on full market risk.

There is no easy solution to this problem, nor is the cure going to be very pleasant. Higher interest rates would offer bank depositors and bond owners better returns. But on the way there, the rise in interest rates could be very disruptive to the stock and bond markets.

For more information on CD rates for your savings, visit the MoneyRates CD section.

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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I have no credit history. Why am I considered a bad risk?

July 17, 2015

| MoneyRates.com Senior Financial Analyst, CFA

Q: I am retired, have no debts, pay my bills on time and live within my means. I have no credit rating since I have no use for credit. However, if I should require a loan (medical bills, new car, whatever) I'd be considered a bad credit risk. Why does this make sense?

A: Chalk it up to fear of the unknown. With no credit history, your financial record is an unknown as far as lenders are concerned. The history of how well borrowers have met their financial obligations in the past gives lenders some basis for judging how they will meet their obligations in the future.

Your frustration with this system is understandable. You pay your bills on time and do not run up debts, so why does that make you a bad risk? Well, having no record is better than having a bad payment history, but it does not leave lenders much to go on.

Think about this as if you were evaluating job applicants. Say you interviewed two applicants: Candidate 1 had an extensive work history with largely positive accomplishments, and Candidate 2 had no resume whatsoever. With this information, you would probably not feel as comfortable with Candidate 2 as Candidate 1.

It may well be that Candidate 2 was more talented and more energetic than the first. However, with Candidate 2's lack of a job history and a responsibility to make decisions based on more than a hunch, you would have a hard time favoring Candidate 2 over Candidate 1.

How to build a credit history without running up too much debt

The good news is that you have an opportunity to address the issue of no credit history. It sounds like you have no specific needs looming, but are simply concerned with what would happen if you did need credit someday. To prepare for that possibility, here are three things you should consider:

  1. See what your credit status really is. People tend to think that having a credit history is synonymous with having credit card accounts, but if you have had a mortgage or a car loan in the past, you may have a credit history on record. In any case, you should know what credit information is out there about you, so start by checking your credit report.
  2. Open a credit card account for cash flow purposes. If you find a no-fee card and pay your balance off every month, you can have the use of a credit card at no cost. This will help you maintain a credit history and can simplify your checking account bookkeeping because instead of several transactions a month, you can just have the one that pays off your credit card balance.
  3. Build up a reserve of savings. While savings accounts are not very rewarding these days, building a savings reserve can be an alternative to using credit if you feel you might need a chunk of money all at once in the future.

The bottom line is that having a credit history does not have to mean having debt. Building a positive credit history without building up debt helps keep your financial options fully open.

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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