Advertiser Disclosure: Many of the savings offers appearing on this site are from advertisers from which this website receives compensation for being listed here. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). These offers do not represent all deposit accounts available.

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

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

Get the latest news from Richard by following him on Twitter! @RichBarrington

Follow Richard on Google Plus

Transferring a money market account to a CD: Will I pay taxes?

August 24, 2016

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

Q: Are there any tax consequences if I transfer money out of a money market fund or a money market account and into a long term CD?

A: This should be no problem, assuming the money is in an ordinary taxable account. If it is in a tax-advantaged vehicle like an individual retirement account (IRA), make sure the certificate of deposit (CD) is also within the IRA, or rolled into another IRA.

Interest held in a money market account is taxable in the year in which it is earned. So if you close the account, just remember that you will have to include any interest earned so far this year on your 2016 tax return.

As you contemplate the switch from a money market account to a CD, take some time to think about how to make this move fit with your eventual financial goals for the money.

How to evaluate financial needs and tax status for CDs

The first thing to think about is whether you are saving this money for some particular upcoming need, or generally for retirement. If there is a specific need on the horizon, that will help determine what length your CD should be, whether a long term CD or a short term CD.

If you are shifting this money into a long term CD because you are saving for retirement, you might consider shifting it into a Roth IRA. Assuming this is currently a taxable account, putting the money in a Roth IRA won't provide any tax advantage in terms of the principal you deposit. However, it will allow the account to earn interest tax-free until you withdraw money from it. Be advised, though, that there are income restrictions and contributions limits that determine whether and how much you can contribute to a Roth IRA.

What to look for in a CD

Whether or not you move the money into an IRA, identifying the purpose of this money will help guide your search for the right CD.

Here are four things to consider as you make that search:

1. Length

If you have an upcoming need for the money, that may determine the length your CD should be. Otherwise, since CD rates are generally higher on longer deposits, longer is better unless you think a rise in interest rates is imminent.

2. Laddering opportunities

If you have a series of different needs or want to hedge against interest rate changes, you might want to consider a CD ladder, which is a sequence of CDs with different maturity dates.

3. High Yield

Once you have decided on CD length, shop around to find the highest yield being offered at that length.

4. Low early withdrawal penalty

CDs carry a penalty for withdrawals made before the maturity date, but the penalties vary. Assuming the yield is competitive, look for a CD with a relatively low penalty because that will give you some flexibility if there is a significant move in interest rates.

Finally, in a few years when the maturity date of this CD is approaching, you should consider these issues anew with respect to your next CD, rather than letting the existing one roll over automatically at the same length and the same bank.

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 or send an email to Ask@MoneyRates.com.

See Comments(0) | Add your comment

Will I owe taxes on an inherited certificate of deposit (CD)?

July 21, 2016

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

Q: Our mother recently passed away. She had some CDs [certificates of deposit] that our names were on that are part of our inheritance. Will we owe taxes on that money?

A: First of all, sorry for your loss. One of the challenges of dealing with estate issues is that they can bring up complicated and unfamiliar issues at a time when one is least prepared to deal with them.

In terms of your question, the specifics of any tax situation usually require individual attention from a qualified tax expert in order to definitively answer any questions. However, there are some general principles that might give you an idea of what to expect.

The three concepts you should focus on when determining if there is a potential tax liability here are possession, size and timing:

Possession: Who are the primary owners of the CD account?

You mention that your names were on the CDs prior to your mother's death, so it is important to understand whether you were already considered the primary owners of those accounts, or just had joint privileges. What you are really trying to get at here is to make sure that you did not already have responsibility for paying taxes on the interest earnings of those CD accounts.

You may want to check your mother's past tax returns to determine whether your mother had been paying taxes on the CD interest in prior years. If so, and she was still the primary owner of these accounts, then the past interest is not a concern but your primary focus should turn to estate tax. This is where size becomes a key issue.

Size: What is the amount when you have to worry about federal estate tax?

Besides the issue of taxes on the CD interest, there is the potential for estate taxes to be due on the total amount left to you and the other heirs.

While estates can be subject to taxes, there is a fairly sizable exclusion amount that results in most estates not having any tax liability.

For 2016, the federal estate tax exclusion is $5,450,000. So, if your mother's estate was fewer than this amount, you should not have any federal estate tax to worry about.

Timing: When was possession of the CD passed down?

If the CD term was still continuing when possession of the CDs passed to you and the other heirs, you will be subject to income tax on any interest earned from that point forward. Coordinate with the bank to make sure that their tax forms accurately reflect the timing of when possession formally passed to you.

Again, consult a tax adviser to see how these concepts of possession, size and timing apply to your situation. Also, please note that these concepts apply to federal taxes, so you should check to see if there are any state tax implications where you live.

Finally, when inheriting a CD, it is wise to check the maturity date so you can decide about rolling over into savings accounts, new CDs or other investments. For example, don't automatically roll the CD over at your mother's old bank because you might find better CD rates elsewhere.

Comment: Have you considered rolling over inherited CDs into other investments?

More from MoneyRates.com:

How can I avoid estate taxes?

What can I do about a suspected estate theft?

Ask the Expert: Tax consequences of a maturing CD

See Comments(0) | Add your comment

Which retirement investments can supplement Social Security income?

July 5, 2016

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

Q: I am 60 years old, and plan to retire at age 62. Because Social Security won't be enough to live on, I am continuing to put money into a 401(k) for extra income. Can you recommend an investment product for me?

A: Naturally, you should start with income-producing products, since you are looking for something to supplement the annual income you will get from Social Security. As you start to look into the possibilities more closely, what you find should indicate whether you can afford a more diversified approach than one devoted to income production - and this process might even affect your retirement plans.

Retirement income and inflation

Low-risk investment options

Every 401(k) retirement savings plan offers a menu of investment options that represents a range of risk levels, and you should be focusing on the portion of your plan's menu dedicated to income-producing vehicles. Some of these are likely to be stable-value vehicles. Though as with savings accounts and other conservative investments these days, the main drawback of stable-value options is an extremely low income yield.

Bonds for a higher source of income

A higher-yielding source of income should be bonds. Your 401(k) likely has long-term bond options, and these should be offering a higher income yield than the stable value options. Just be advised that both the price and the yield of bond funds are variable, so you will be subject to market fluctuations. You can mitigate this risk somewhat over the long-term by choosing a fund dedicated to high-quality bonds only.

If you find a bond fund that produces enough income to meet your projected needs, you might consider putting any excess 401(k) balance into a stock fund, to give you some element of inflation protection. Retirement is likely to be just the beginning of a long period in which you will be living off your investments. This means some inflation protection for the long run would not be out of place, if you can afford it after you have taken care of your income needs.

Use time to your advantage for retirement savings

Choosing an investment vehicle could be an instructive exercise, not just for the present but for the future. Looking at how much income current yields would provide will allow you to gauge the extent to which your current 401(k) balance is sufficient to meet your income needs.

Why delay retirement to boost retirement income

If it is not sufficient, you might want to consider delaying retirement long enough to build more savings and increase your Social Security benefit. That may not be what you want to hear, but if you you don't feel physically or mentally ready to continue working past the age of 62, at least consider downshifting to part-time work. Even that may be sufficient to buy you enough time to improve your retirement income.

In summary, income investments should be a central part of the answer if you are looking to supplement Social Security income. Just how much of your 401(k) should be devoted to income investments, and how soon you should access it, depend on the extent to which your income needs would be met by current yields.

Comment: How do you plan to supplement your Social Security income?

More from MoneyRates.com:

Retirement Savings Calculator

Retirement Saving Stories: How 5 Regular People Save for Retirement

6 reasons retirement saving fails (and what to do about it)

See Comments(0) | Add your comment

What is the best payment method for online purchases?

June 28, 2016

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

Q: What is the best way to pay for stuff online?

A: As commonplace as online commerce has become, it does not pay to get complacent, and you are correct to raise concerns about security. There are also financial differences in the different methods of payment.

Broadly speaking, you have three options: credit cards, debit cards and online payment services like PayPal.

Credit cards

Purchases protected from fraud

From a security standpoint, credit cards offer consumers excellent protection against unauthorized transactions, if they are reported on a timely basis. Financially, credit cards allow people to use the money interest-free until the bill is due, during which time their money could be earning a little extra interest in their savings accounts. Another advantage of credit cards is that many offer rewards programs, so you can get a little something back on your purchases.

Easy to accumulate debt

On the other hand, there are two major problems with credit cards. Credit lines make it easy to spend more than you have, which can lead to racking up an uncontrollable debt balance. And, with credit card interest rates running in excess of 13 percent, that debt costs much more than any potential extra interest on savings accounts. So, use this method only if you are diligent about limiting your spending and paying your balances off in full every month.

Debit cards

Avoid overspending

Debit cards make it easier to limit your spending to what you have in your checking account, and thereby avoid overspending and onerous credit card interest.

Less protection than credit cards

On the other hand, debit cards provide less protection against fraudulent purchases. This is a particular concern because they provide direct access to your checking account. Also, whether the transaction is legitimate or not, directly drawing on your checking account can result in expensive overdraft fees. Finally, while debit cards rewards programs once were commonplace, they have largely disappeared in recent years.

Online payment services

Reduce security risks

Using an online payment service like PayPal can allow you to create a buffer between various online vendors and your actual accounts, so this can limit your security exposure.

Unable to earn interest

At the same time, balances kept with these services do not earn interest, nor are they protected by FDIC insurance. So, be sure to transfer just what you need into these payment accounts, and make your purchases with that money shortly after it is available.

Credit, debit or online payments: Which will you choose?

Face it - all e-commerce is a trade-off between security and convenience. Each vendor you deal with, and each transaction you enter into, is a potential security risk. To the extent you can limit how many vendors you transact with online and consolidate purchases into fewer transactions, you can help rein in the risk you are taking.

Ultimately though, if technology is the source of this security problem, it is also part of the solution. Use technology, such as transaction alerts and online account monitoring, to keep closer track of all activity in your accounts. No approach is completely safe from cyber threats, but vigilance can help you monitor the size of any potential problem.

Comment: How do you prefer to pay for your online shopping purchases?

More from MoneyRates.com:

Can I use my ATM card to buy things online?

15 online shopping and banking security tips in time for the holidays

Is the internet saving you money? Not necessarily

See Comments(0) | Add your comment

How can I buy a home on a low income?

June 22, 2016

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

Q: Do you have any tips for buying a home on a low income?

A: Often, being able to afford a home is not so much a question of income as of expenses. If you are good at managing your expenses and can find the right property, you may well be able to afford a home on a modest income. In fact, the low level of current mortgage rates makes homeownership unusually accessible.

To take advantage of this opportunity, here are three steps to consider:

Master your household budget

Not getting in over your head with a home purchase depends greatly on being able to predict your income and expenses. The income side of this comes down to the stability and security of your job. You should not contemplate homeownership unless you are confident that you have a steady job, and marketable skills in case you need to change jobs.

On the expense side, you can only know what you are getting into with a mortgage if you learn to predict expenses reliably. This means laying out a budget that accurately captures all your upcoming expenses, and then having the discipline to stick to that budget. Saving for a down payment in a savings account can be a great exercise in implementing this kind of strict budget discipline, and the money you save up should also help with your home purchase.

Concentrate on home values, not price

While you are working on your budget and saving for a down payment, get to know the area real estate markets. This will give you an idea of where the best values might be found, and give you enough of a sense of local prices that you will know a good deal when you see it.

The key word here is value, rather than price. The cheapest home might not be the best buy, if it is in a bad neighborhood or not in sound condition. You should be looking for something you can live with long-term that is reasonably priced.

Secure an FHA or VA loan

With a limited income, a possibility you should look into is a mortgage through the U.S. Federal Housing Administration (FHA). The FHA is a department of the federal government that arranges mortgage insurance in order to give lenders confidence to make loans to homebuyers with relatively low incomes or minimal credit histories. They also provide loans with low down payments, though saving up for a larger down payment should earn you better terms on your loan.

If you are a U.S. military veteran or service member, you should also look into a loan with the U.S. Department of Veteran Affairs. This is another federally-backed program, with even more favorable terms than FHA loans.

If you choose an FHA or VA mortgage, keep in mind that while these are government programs, they are offered by private lenders. Even though the level of current mortgage rates is generally low, actual rates will vary from lender to lender. So, shopping around for the best rate will help your income go farther toward affording a house.

More from MoneyRates.com:

Best States to Make a Living

Mortgage Interest Calculator

Basic Guides for Mortgage

See Comments(1) | Add your comment
Older entries » See all Ask the Expert articles»