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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

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How do I get the best savings account rate on $40,000 while keeping liquidity?

July 20, 2017

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

Q: How do I get the best interest rate on $40,000 while keeping liquidity?

A: You have a few options. The major themes in answering your question are determining how exactly you need to define liquidity, and how you shop for the best provider no matter what vehicle you choose.

3 savings account options and levels of liquidity

It is important to figure out precisely what you mean when you say you want to keep the money liquid. Is the liquidity need a short-term certainty, or just a possibility that could occur sometime in the next few years? Will your liquidity need apply to all $40,000, or just a portion of it?

Depending on your answers, here are some options:

1. Savings account or money market account

If you need full liquidity at any time, a savings account or money market account with FDIC insurance coverage is the most appropriate option. These allow immediate access without penalty, do not fluctuate in value, and offer the security of FDIC insurance limits up to $250,000 per deposit, per covered institution for deposits.

2. A CD with a moderate early withdrawal penalty

The trade-off with certificates of deposit is that they typically offer higher interest rates than savings or money market accounts, in exchange for locking your money up for a specified period of time. If your liquidity need is at least several months in the future, and/or is only a slight possibility rather than a high probability, the extra yield you can earn on a CD might be worth risking the early-withdrawal penalty, especially if you can find a CD offering a relatively mild penalty.

3. A CD ladder

If your need for liquidity applies to only a portion of your $40,000, you might consider investing just that portion in a savings or money market account, while putting the remainder in long term CDs. If you anticipate a series of liquidity needs in the months or years to come, a corresponding series of CD terms with a CD ladder might give you the best combination of yield and liquidity.

Shopping for the best savings account rates

Having figured out which type of vehicle best fits your liquidity needs, you can shop around for the best terms on that type of vehicle. Use online tools such as the MoneyRates.com savings account, money market account and CD rate pages to compare products.

Compare the best CD rates

As you do so, remember to compare like against like. For example, don't compare the yield on a 3-year CD at one bank with the yield on a 2-year CD at another bank - longer CDs will generally offer higher rates.

Also, whether you are depositing the full $40,000 in one vehicle or spreading it among multiple accounts, make sure you are comparing rates that apply to the size of your deposit.

Pay attention to early withdrawal penalties

Finally, if you are looking at CDs, remember that in addition to comparing rates you should also take into account the severity of their early withdrawal penalties.

Congratulations on looking to make the wisest move with your money. As low as interest rates may be these days, $40,000 is a significant enough sum of money that shopping for the best terms possible can make a meaningful difference in the amount of interest you earn.

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 much interest can I earn on $1 million in 1 year?

June 12, 2017

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

Q: If one were to deposit $1 million into a savings account paying 5 percent, how much money would one expect to receive in a year?

A: That's an easy question to answer, though it should be pointed out up front that the answer is purely hypothetical. Savings accounts yielding 5 percent were a victim of the financial crisis eight years ago, and current bank rates are nowhere close to that.

Compound interest for $1 million in a savings account

To start with the theoretical answer, a $1 million savings account paying 5 percent would earn $50,000 a year. The nice thing about the way interest compounds is that if you left that interest in the account, it would then earn interest the following year, so that the account would produce $52,500 the following year.

Unfortunately, the reality is that while 5 percent savings accounts used to be commonplace, they are nothing more than a pipe dream today. The most recent MoneyRates.com America's Best Rates survey found that the average rate on savings accounts is 0.224 percent.

Using a compound interest calculator, this savings account rate would produce just $2,243 in annual interest on $1 million dollars. Money market rates averaged 0.182 percent, which would produce even less interest.

The America's Best Rates survey found that the best high yield savings accounts are paying about 1 percent, which would yield $10,000 on $1 million. That is more than four times better than the average savings account, but still well short of the $50,000 that a 5 percent yield would produce.

Alternatives to low-yield savings accounts

Today's low yields have many savers scrambling for alternatives. There are ways of potentially earning more interest, but each comes at a price. Here are some examples:

1. Certificates of deposit

If you were willing to commit your money for five years and search for the best CD rates, you could probably earn about 2 percent. Be advised, though, that you would probably also face a penalty if you wanted to access any of your money before the end of the CD's term.

2. US government bonds

30-year Treasury bonds are currently yielding about 3 percent. That is higher than even the best CD rates, but the catch is that the price of the bond may fluctuate widely between now and the maturity date 30 years in the future.

3. Corporate bonds

Debt securities issued by corporations pay a variety of yields that will be higher than the yields on Treasury securities of the same length. However, the higher the yield, the more risk the marketplace perceives that the corporation won't be able to meet the interest and principal obligations of the bond.

4. Foreign bonds

These carry the default risk of corporate securities, and also introduce an element of currency risk that can wipe out any yield advantage.

The above are all legitimate alternatives for earning a higher yield than current savings accounts. But as you can see, each also carries some degree of additional risk. If anyone offers you a guaranteed yield of 5 percent these days, you should be very wary - it is likely such a scheme goes beyond risky, and is an out-and-out scam.

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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Will millennials ever be wealthier than their parents?

February 23, 2017

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

It's part of the American Dream that has started to seem more like a cruel joke: the idea that each generation would do a little better than the one that preceded it.

With a job market and economy that is especially unwelcoming to young people, millennials may seem to have the deck more stacked against them. However, they also have some advantages over the previous generation, in part by having the opportunity not to repeat their parents' financial mistakes. Here's a look at some of Generation Y's disadvantages and advantages when asking whether millennials will be wealthier than their parents:

Money challenges millennials have to overcome

Here are three of the main challenges facing the current generation coming out of school:

1. Student loan debt

Concern over student loan burdens is not just youthful angst - the problem is very real. Student loan debt outstanding has doubled in just seven years, so young adults today are starting out in a bigger hole than previous generations.

Still, since most of this debt is government-backed, many of these borrowers can avail themselves of programs that limit the percentage of income they are required to pay. There is also the chance to forgive a portion of the debt after a specified period through this particular payment plan.

2. A tough job market

The headlines say that employment has improved, but that's just not what many young adults are experiencing. They aren't imagining the problem. Unemployment for people aged 20 to 24 is more than twice the unemployment rate for people 25 and over. To overcome this, young workers need to be flexible. Be willing to get your foot in the door where you can, rather than holding out for your dream job. Also, employment varies greatly from state to state, so be willing to relocate if necessary.

3. Slow wage growth

Even once they obtain a job, slow wage growth would seem to limit wealth potential for millennials. Even so, learn prudent money habits for making the best of what you are earning, rather than overspending the way many of your parents did. Consider putting money in a high interest savings account to build your finances.

Financial advantages millennials have over previous generations

On the other hand, here are four financial advantages young adults have over their parents:

1. Low interest rates

Since younger people have not had a chance to accumulate savings, low interest rates work to their advantage by making their debt more affordable, while older savers have seen their income plunge as a result.

2. No long-term debt addiction

Student loan debt may be a problem, but auto loan debt is also a growing issue, with outstanding loans crossing $1 trillion for the first time in 2015, according to the Federal Reserve. Student loans are a single hurdle to overcome. The older generation has built itself multiple debt hurdles.

3. Up-to-date skills

Many middle-aged workers have found the job market has passed them by. Younger people have fresher skills. As they start to gain a little experience, this will make them more competitive in the job market.

4. Time

By failing to have adequate retirement savings, the older generation has squandered much of the time it takes to accumulate wealth. Young people have the opportunity not to repeat this mistake.

In the end, building wealth depends only partly on how much money you make. Ultimately, it comes down to how much they can save and grow. The parents of millennials have largely done a lousy job of preserving their financial resources, meaning that the next generation has a very good shot at being wealthier, if they can just be smarter with their money.

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Is a money market account considered cash in the bank like a savings account?

February 15, 2017

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

Q: Is a money market account considered cash in the bank like a savings account?

A: Yes, money market accounts have a great deal in common with savings accounts. As you say, they are considered cash equivalents in that entire balance of your account is available on demand at any time. That balance includes any interest earned to date.

Money market accounts also have fairly similar interest rates to savings accounts. The most recent MoneyRates.com America's Best Rates survey found that the average money market account these days pays 0.195 percent. The average savings account rate pays just a few basis points more, at 0.227 percent. In each case, MoneyRates.com found that the most attractive accounts paid rates in the neighborhood of 1 percent.

The sections below will look a little more in depth at how you might use a money market account, and when you might want to consider different vehicles.

Money market accounts vs. savings accounts: What is a money market account for?

Savings and money market accounts are ideal for situations where you need immediate access to your money. That includes both for planned expenditures and simply to have an "emergency fund," which is a reserve you can draw on when unexpected needs arise.

How to earn higher bank rates

Savings and money market accounts are also useful for accumulating savings from paycheck to paycheck. You may ultimately want to transfer this money into longer term investments. But as an initial step getting the money out of your checking account and into a money market account should allow you to earn a higher rate of interest and make you less likely to spend rather than save that money.

Certificate of deposit: Another option to grow your money

In some cases, you might consider a certificate of deposit (CD) as an alternative to a money market account. The advantage is that CD rates are typically higher than money market rates. The disadvantage is that CDs lock your money up for a specified term with a penalty for early withdrawal. However, if you think it unlikely that you will need your entire balance all at once, you may choose to put a portion of your savings into a CD.

Limitations of money market accounts

Like savings accounts, money market accounts typically put a limit on how frequently you can draw on the money over the course of a month, so they are not suited for heavy transaction volumes the way a checking account would be.

Other investment options for retirement savings

Also, because of their relatively low interest rates, money market accounts are not well suited for long-term retirement savings. Those low rates mean that they will provide little growth to build your savings over time. In fact, money market rates are currently running below the rate of inflation, so you would lose rather than gain purchasing power over the long run. Investment vehicles with some growth potential, like online stock funds, are more suited to this type of long-term saving.

If you decide a money market account is appropriate for your needs, just remember that rates offered on these accounts vary widely, so be sure to shop around to get the best bank rate available.

Got a financial question about savings, banking, or investing? 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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Is the stock market's "Trump rally" for real?

January 27, 2017

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

Q: I'm hearing a lot about a "Trump rally" in the stock market. Is this for real, and if so, is it too late to get in?

A: The rally is certainly for real in the sense that through mid-January, the S&P 500 had gained 6.3 percent since last November's election day - a nice return for just over two months. Whether this is justified or likely to continue is another question. Also, in considering these things, keep in mind whether you are just making short-term speculative trades or whether you are investing long-term for retirement in a 401(k) plan, IRA account, or similar vehicle.

2 reasons the stock market rallied

On the plus side, there appear to be two legitimate reasons for the market to have enjoyed a bit of a rally since the election:

1. The election cleared up some uncertainty

This kind of scenario has played out many times in the past. Markets hate uncertainty, and often will rally based on having that uncertainty cleared up rather than as a result of the specific outcome. After all, in times of uncertainty people tend to delay investing. Once the uncertainty is cleared up, people can assess which investment themes look promising and move ahead with their decisions.

2. There have been some pro-investment policies proposed

Between tax cuts and infrastructure investments, there is a lot for investors to like in the proposed financial approach of the new administration. If these proposals become reality, they could have a more lasting impact than just the relief of getting the election over with.

Why investors should be wary about current market

Despite the positives, there are at least two reasons to be concerned:

1. The potential cost of policy proposals is being ignored

Higher interest rates create a headwind for investments, not to mention for mortgages and other forms of borrowing. Government spending that would increase the deficit could push interest rates higher. Meanwhile, if the recurring campaign theme of protectionism becomes reality, its impact would likely be inflationary - something else that could result in higher interest rates.

2. The rally has made an already-expensive market even pricier

The recent rally has moved the price-to-earnings ratio of the S&P 500 to nearly 23 times earnings, a relatively high level. This means that there is already a fair amount of optimism priced into the market, diminishing the prospective reward on subsequent investments.

Don't get too caught up in short-term moves

Of course, while the election cleared up some things, a great deal of uncertainty remains. If you are a short-term trader, you may be attempting to profit off of making sense of that uncertainty.

However, if you are like most people and trying to make sound investment decisions for your 401(k) or IRA, then you should be less influenced by short-term developments. The best thing in that case is to set an asset allocation that best fits your retirement time horizon, and accept that you will have to ride out some ups and downs along the way.

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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