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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.
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February 9, 2016
Q: My mother passed away in 2004. Back in 2000, she had two CDs and a checking account with the Farmers Bank of Lynchburg, with balances of $50,000 and $21,000. The bank failed in 2012. Is there any way I can locate those missing deposits? I tried contacting the bank and the Treasury Department, with no luck.
A: This is a tricky situation, and not just because the bank where you believe your mother's deposits to have been has failed. What further complicates things are the gaps in time: The time between when your mother passed away and when the bank failed, and going back even further, the four-year gap between the last balance amounts you have (2000) and your mother's passing (2004).
Those gaps make it difficult to ascertain whether there really was any money left in these accounts by the time the Farmers Bank failed, and if so, how much. So, perhaps a good place to start would be by trying to address those gaps in time.
Here are ways to find more information about old bank accounts:
1. Speak to the executor of your relative's will
One logical step would be to speak to whoever was the executor of your mother's will. This person may already have researched whatever assets your mother had at the time of death, and should be able to account for how they were disposed of after she passed away.
2. Comb through previous financial records
If that avenue does not lead you anywhere, you might try looking through any old financial records and correspondence of your mother's, if any of that is still available. The purpose of this would be to try to find more up-to-date records of her bank accounts than four years before her death.
Keep in mind that people often draw down their savings in the latter years of their lives. Between medical bills and other costs associated with care, along with the limits of Social Security and other retirement income, in many cases this depletion of assets is inevitable.
It is entirely possible that your mother had to spend down those bank accounts between 2000 and when she passed away. Unless you can find more of a continuous paper trail demonstrating that there was still money left when she died, it will be difficult for you to conclude that this was not the case.
3. Contact the FDIC and see if other banks took over assets
There are a couple other leads you can try, though these may be a long shot with the gaps in information. The best place to research old bank accounts is not the Treasury Department but the Federal Deposit Insurance Corporation (FDIC). According to the FDIC, when the Farmers Bank of Lynchburg failed, the assets were taken over by the Clayton Bank and Trust of Knoxville, so you might try contacting them.
4. Use the FDIC's online search tool
Alternatively, the FDIC has a search tool that can help you try to locate any unclaimed funds that may be in your mother's name.
Good luck with your search. For other readers, this is a good reminder to encourage your older relatives to keep orderly financial records can be easily located if something happens to them. Come to think of it, that's good policy for everyone, young and old.
Comment: Have you had trouble locating old bank accounts? Have you found success in finding them with the steps described above?
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January 27, 2016
Q: With gold getting so beat up, do you think silver is a good investment for retirement savings?
A: Though they don't always perform the same way, gold and silver have similar problems as retirement investments. That does not necessarily mean you should rule them out entirely, but if you invest in them you should view them only as a small part of a very broadly-diversified portfolio.
Both gold and silver prices peaked around 2011, and since have been in a long descent. That may not be such a bad thing - buying on the way down is certainly better than buying at the peak. Still, the bear market in these metals that lasted for several years illustrates some of the problem with these kind of commodities.
Problems with investing in commodities
There may be certain issues with investing in commodities like gold, including:
Investing in commodities, whether it be metals like gold and silver, foods like grains or energy sources like oil, is very different from investing in savings accounts, bonds or stocks. They produce no regular income like savings accounts, bonds and dividend stocks, nor do they produce regular earnings like stocks to form a basis for future prices. They simply represent an asset that can be bought or sold. Depending on whether or not the price goes up, you will either profit, break even or lose money.
Volatility in value
This makes them highly speculative, and thus subject to large swings in value. Between their volatility and lack of income production, they are often not very suitable for retirement investment portfolios in which the owner needs to count on redeeming value from the assets at regular intervals.
May be hard to predict in market
Again, commodities in general tend to by highly speculative, but metals like gold or silver may be especially prone to speculation, because unlike grains or oil, they are not completely consumed when used. Metals, especially in the form of jewelry, can largely be recycled, so supply and demand is less subject to normal market dynamics.
Commodities as an inflation hedge
A popular reason for investing in commodities is as a hedge against inflation. However, keep in mind that at any given time, inflation might be driven by a particular part of the commodities market. Thus, an investment in silver or any other particular commodity may not mirror the general move in inflation. This is why, if you want to invest in commodities as an inflation hedge, it is advisable to do so via a well-diversified basket of commodities. Even so, if inflation turns out to be driven by wage pressure rather than commodities prices, your inflation hedge might not work out.
Unless you have some particular knowledge of the gold and silver markets, there seems no particular reason to favor silver over gold. Both are already well into a sustained price slump, but given the history of these commodities, those slumps can last a long time. To be fair, the low inflation environment has not favored investments that are often viewed as inflation hedges. However, keep in mind that there is no guarantee that they will respond as expected if inflation heats up.
Comment: Do you invest in metals like gold and silver? Do you feel like it's enough for retirement income?
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January 12, 2016
Q: What should I do if my bank only allows direct deposits into checking rather than savings accounts?
A: It may be time to look for another bank, or at least reassess how much your current bank is worth to you.
To be sure, savings banks are not meant to be heavily transactions-oriented. In fact, Federal Reserve regulations limit them to no more than six withdrawals a month, but the key thing here in your situation is there is no such limitation on the number of deposits. So, there is no regulatory reason to forbid direct deposits into a savings account, even if the nature of your work (e.g. someone with multiple employers) is such that you receive frequent paychecks over the course of a month.
Absent any regulatory issue, one has to assume refusing to accept direct deposits in savings accounts is a matter of your bank's policy. Ordinarily, banks would be keen to attract deposits and unlikely to put up barriers to prevent people from sending money their way, but these are not ordinary times. A combination of low interest rates, a lackluster lending environment and new accounting regulations have made some banks feel they already have more deposits than they need. This may explain your bank's policy, but you do have alternatives.
3 ways to get around checking-only direct deposits
If you have restrictions on deposits into savings, here are three alternatives:
1. Transfer money after each payday
One alternative is to get into the habit of transferring money from checking to savings every time you get paid. This would depend on getting yourself on a regular schedule to make these transfers. Though, it might help if your employer gives you a pay stub or other notification of payment to serve as a reminder. It would also help if your bank has online features that would allow you to make these transfers from a computer or mobile device.
2. Switch to a new bank
Even if these transfers can be done efficiently, having to make them in the first place does create extra work for you, so you have to decide how much your bank is worth to you in other ways. For example, since your the savings account is causing extra effort, ask yourself whether that savings account compensates you with highly competitive interest rates. These days these would be something in the 0.75 to 1.00 percent range. If not, it might be worth it to switch to a new bank.
3. Make transfers between banks
On the checking account side, free checking has become scarce enough that having it might be sufficient incentive to stick with your current bank. Of course, you could still move your savings account to another bank and make transfers between banks, unless the savings account balance is helping you to qualify for free checking.
Your bank's fees and interest rates may well be competitive enough to make it worth your while to make these regular transfers between checking and savings yourself, but you won't really know how competitive those fees and rates are until you make some comparisons with other banks. In short, it seems likely that this particular policy of your bank will cause you to take a look at what some of their rival banks have to offer.
Comment: Does your bank have all the checking and savings account features and rates you want?
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December 29, 2015
Q: How do I deposit cash into an online bank account?
A: Different online banks have different procedures for handling this. Overall, it is perhaps the one distinct disadvantage of online banking versus traditional, branch-based banking, but it is a disadvantage you might be able to minimize.
Making deposits several ways
For most types of deposits, banks with online savings accounts operate much the same way as traditional banks, and are probably more technologically up-to-date. This means that you can make deposits via wire transfers from other institutions, direct deposits of paychecks, or often via electronic imaging of paper checks.
Cash, however, is more difficult to deposit. Some online banks accept cash deposits via participating ATMs, while others leave you no option but to mail cash in.
Disadvantages to online bank cash deposits
These limitations on cash deposits leave you with certain disadvantages. For one, putting cash in the mail or into an ATM lacks the certainty of handing the money to a bank teller and leaving the bank with a receipt in hand.
For another, mailing in cash will cause a delay in when the deposit is reflected in your account. That delay could be inconvenient if you need to write checks against the deposit, and it also could cost you a few days' worth of interest.
To some extent, these disadvantages could be reduced by special mailing of your deposit, such as registered mail for security or express mail for timing. However, that would cost you every time you wanted to make a deposit.
How to deposit cash into an online bank account
Here are five options for dealing with the problem of depositing cash into an online account:
1. Minimize cash receipts. This may depend on what you do for a living, but if possible, encourage payment via check rather than cash.
2. Choose an online bank that accepts ATM deposits. These are at least a little better than mailed deposits, but not all online banks accept deposits via ATM.
3. Consolidate deposits to make special handling worthwhile. The costs involved in registered or express mail become smaller as a percentage of a large deposit. If you can stay away from several small deposits in favor of the occasional large one, it may be more worthwhile - as long as this doesn't entail the risk of leaving large amounts of cash sitting around.
4. Stick with a traditional branch-based bank. Online banking may not be feasible if you have regular cash income.
5. Split your banking for transactions and interest-earning purposes. In other words, maintain a traditional bank checking account, but accumulate savings in an online savings, money market account or certificate of deposit (CD) to reap the interest rate advantage online banks often offer.
Generally speaking, online banking offers consumers several advantages, including advanced technology, low-cost checking and higher interest on deposits. However, the awkwardness of handling cash is a difficulty if you need to make regular cash deposits. This illustrates that there really isn't one banking solution that is best for all people, but that choosing a bank comes down to matching a bank's features and capabilities with your needs.
Comment: Do you prefer an online or traditional bank for your deposits? Why did you choose your current financial institution?
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December 3, 2015
Q: I am 60 years old and plan to retire at 62. Because Social Security would not be enough to live on, I plan to invest some money from my 401(k) in order to have some extra income. Could you advise on an investment product?
A: Your question touches on two key issues that go a long way to determining what type of investment product you should consider: time horizon and withdrawal rates. In addition to looking at those considerations, it might also be worth revisiting your Social Security strategy.
It is easy to assume that being two years from retirement equates to a fairly short investment horizon. However, before you retreat completely to certificates of deposit (CDs) or savings accounts, keep in mind that your actual time horizon is probably closer to 25 years than two years. This is because your probable life span means you should be investing for a long time to come. It might be wise to keep some growth element in your 401(k) plan, perhaps in a balanced stock/bond portfolio, especially since that plan is complementing Social Security payments, which effectively have the characteristics of an income investment.
If you plan to withdraw money from your 401(k) at a low percentage rate - say 4 percent or less - you should be able to sustain your balance without rapidly drawing it down. This would allow you to assume a longer time horizon and invest more aggressively. However, a higher rate of withdrawal is likely to draw your balance down more rapidly. This effectively shortens your time horizon, pointing you towards more conservative investments for liquidity reasons. The problem is, with rates on savings accounts near zero and even 30-year Treasuries barely yielding 3 percent, this will greatly lower your return potential.
One other thing about withdrawals - if you regularly draw a fixed dollar amount from retirement savings and start to draw your total balance down, that dollar amount will become a larger and larger percentage of your remaining balance. This in turn will hasten the drawing-down process.
Social Security strategy
One final thing to consider is whether you should delay drawing on Social Security to receive larger payments in a few years. If you can continue to work, it would also give you a few more years to build up retirement savings, and fewer years over which you will have to draw on those savings.
When putting this all together, keep in mind that as your money leaves your 401(k) it will become taxable. Try to withdraw no more than you will need from year to year, so you don't incur taxes any sooner than is necessary. For that reason, the first step in your process might be to formulate a retirement budget, to see how much money you will need to live on.
From there, you can figure out the rate of withdrawals you'll be taking from your 401(k) plan, and that in turn should give you an idea of how aggressively you can afford to invest.
Comment: Are you close to retirement age? How do you plan on investing your money?
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