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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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Moving an IRA from one bank to another?

March 20, 2015

| MoneyRates.com Senior Financial Analyst, CFA

Q: How long do I have to roll an IRA CD over from one institution to another?

A: You have a 60-day period from when you receive an IRA distribution to roll it over into another IRA. It is very important to adhere to this time frame, because if you do not the distribution will be exposed to income taxes, and possibly to a 10 percent penalty for early distribution.

You can eliminate the risk of exposing your rollover to taxes by moving your IRA via a trustee-to-trustee transfer instead. Technically, this is not even a rollover; at your instructions, your current trustee would transfer your IRA balance to another qualified trustee without the money ever passing through your hands.

Before making any kind of transfer or rollover, you should take the opportunity to comprehensively evaluate the status of your IRA. Here are some of the issues involved:

  1. Check your current CD renewal date. Coordinating a transfer with the expiration of your current CD will help you avoid a possible penalty for early withdrawal from that CD.
  2. Re-evaluate the role of your IRA. Before you choose what to do with your IRA next, you should make sure you have a clear objective in mind for this money. Are you close enough to retirement age that you expect to be tapping into this money soon, or are you tying to grow it for the long term? Is this your primary source of retirement funding, or is it a complement to other retirement assets?
  3. Decide on the right vehicle and term for your next investment. The above analysis should inform what you do with the money next. While CDs should earn you more than money market accounts or savings accounts, they are not the best growth vehicle if you are several years away from retirement. If you do opt to stay in a CD, decide how long a term you want, remembering that the best CD rates will typically be found in longer-term CDs.
  4. Shop around. Once you are clear on what you want, you can shop around for the right provider, whether this involves pursuing the best CD rates or the most appropriate long-term investment expertise.
  5. Review your ongoing contributions. Once you have decided what to do with your current IRA balance, don't neglect to continue making new contributions to the plan. You must also decide how these new contributions should be invested.

Again, you should be able to move your IRA pretty seamlessly via a trustee-to-trustee transfer, but your choice of where to transfer the IRA could be more effective if you take the time to step back and review the program before you make your move.

Got a 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-Bonds or CDs?

March 6, 2015

| MoneyRates.com Senior Financial Analyst, CFA

Q: I just inherited about $10,000. What would be the wisest thing to do -- invest in an I-Bond or a certificate of deposit?

A: Assuming your goals are security and income, Series I Savings Bonds (I-Bonds) and certificates of deposit (CDs) make for an interesting comparison, especially given the unusually low inflation environment of recent years.

I-Bonds are issued by the U.S. Treasury and pay an interest rate that is made up of a fixed rate plus a variable rate based on the rate of inflation over the prior six months. For the most recently issued I-Bonds, that fixed rate was zero, making these instruments purely an inflation hedge. You can expect your rate of interest to keep up with inflation, no more and no less.

An important caveat about an inflation hedge is that inflation can differ from one person to the next. I-Bond rates are determined by changes in the Consumer Price Index (CPI), which measures a broadly based basket of typical consumer goods. However, if your expenses are weighted heavily toward a particular area -- for example, if you face significant health care expenses, or plan on going to college -- the changes in your expenses may not match changes in the CPI, and thus I-Bonds cannot be guaranteed to keep up with those expenses.

CD rates are generally fixed for the full term of the CD, and are based on prevailing market interest rates at the time of issuance. Market rates include an implicit inflation assumption, but they are not specifically geared to the inflation rate nor do they change as the inflation rate changes.

CD terms can range from as little as one month to multiple years. I-Bonds are issued for 30-year terms, but are redeemable after one year, and without penalty for five years. The latter restriction makes five-year CDs a good comparison for I-Bonds. Currently, I-Bonds are paying a 1.48 percent annual interest rate. Five-year CDs are paying an average of just 0.79 percent, though you should be able to do better if you shop around for the best CD rates. As of this writing, several banks are offering rates of 2 percent or more.

Where the recent inflation environment makes things more interesting is that the change in the CPI has turned sharply negative since the last time the I-Bond rate reset. That raises the possibility that the overall interest rate on I-Bonds could turn negative the next time it resets, on May 1, 2015.

In that case, you are likely to find the best yield for the near-term by shopping for the best CD rates. However, if you think that inflation will soon return to positive territory and start rising sharply, I-Bonds may be worth a closer look, since CD rates won't be able to adjust quickly.

Got a 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 can I keep getting paper bank statements?

February 25, 2015

| MoneyRates.com Senior Financial Analyst, CFA

Q: I like to keep meticulous records of my checking and savings accounts, but my bank is making it difficult. They cut my savings account statements back to quarterly, and now they charge a fee for getting paper statements. Also, the tellers no longer give me a receipt when I make a withdrawal. Can they do this?

A: The short answer is yes, but the question should not be limited to what the bank can do. You might find that the more satisfying question is what you can do about it.

What the bank can do. According to the Office of the Comptroller of the Currency, banks are permitted to do the things you mention. Banks do not have to provide statements more frequently than quarterly, unless there have been electronic funds transfers in or out of the account during the period. In addition, tellers are not obligated to provide paper receipts when you make a withdrawal.

What you are experiencing in this regard is a symptom of the ongoing cost-cutting the banking industry has conducted since the 2008 financial crisis. First, the collapse of the housing market sharply curtailed the mortgage lending business. Then, a spate of financial regulations squeezed profits on things like overdraft fees, debit card transaction fees from merchants and credit card rates. In particular, those overdraft and debit card fees were used by banks to help subsidize checking accounts, so banks were left to re-evaluate their strategies for those accounts.

In response, banks have been trying to make up for it by raising fees and cutting services. It sounds as though you have been on the short end of both of those responses.

What you can do. So, banks are doing what they can do to cut costs. What can you do to get the service you want?

Regarding withdrawals, you might consider starting to make them at an ATM rather than from a teller at a bank branch. ATMs are required to produce receipts when you make a withdrawal. Given that ATM locations are typically more convenient than bank branches, theoretically the only reason for continuing to walk into the branch is to get more personal service. However, if the result is that you are getting less of the service you want rather than more, you might want to just cut the teller out of your life altogether.

As for statement frequency, you might want to start monitoring your bank records online. This is especially helpful for the up-to-date information needed to keep close track of checking accounts, but for savings accounts it can let you check the status at any time and help you avoid statement fees.

Finally though, the ultimate response might be to shop around. Not all banks are responding as drastically to the need to cut costs, and you might find one that still provides the documentation you want without extra charges. Just remember, though, that those policies are subject to change at any time, so ultimately going online might be the longest-lasting solution.

Got a 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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The best checking accounts: Why finding one is critical

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Pay down student loans or save for retirement?

February 5, 2015

| MoneyRates.com Senior Financial Analyst, CFA

Q: I graduated a few years ago with a lot of student debt. I've kept up with my payments, and thankfully now I'm starting to make more money. I'd like to get rid of my debt faster by starting to make bigger payments, but my parents are telling me I should use the extra income to start saving for retirement. Which is the smarter move?

A: Look at it this way: With the choices you have presented, you can't really lose. Either one is a responsible use of your growing income.

With that said, you do still have a choice to make, and there isn't one right answer to this that fits all situations. Rather it comes down to some specific numbers. Basically, you need to investigate whether you could earn more on the money by investing it for retirement than you could save on interest by paying off your student loans sooner.

Right now, the federal student loan interest rate for undergraduates is 4.66 percent. That dwarfs what savings accounts are paying these days, though it is less than the long-term expected return from the stock market. Also, you would gain a tax advantage by saving for retirement in a plan like a 401(k) or an IRA. Thus, if your interest rate is in the low-to-mid single digits, you have a good chance of coming out ahead by just making your scheduled loan payments, and putting the excess toward retirement.

On the other hand, depending on when you got your loan or whether some of it was borrowed for graduate school, your rate might be higher than 4.66 percent. The higher the interest rate is, the more you should lean toward paying the debt off faster. Note that if you have multiple loans, you should target the one with the highest rate for early payment first.

Not to complicate things, but there is a third option you should consider. This would be to use some of your spare income to build an emergency fund. This would be money you could access at any time in case the need arises. This kind of emergency money is typically invested in highly liquid vehicles such as savings accounts or money market accounts, and is kept outside of tax-advantaged retirement savings so you could tap into it without penalty.

Once you have built three to six months worth of expenses in your emergency savings account, you could move on to your plan to either pay down your student loans more quickly or start to save for retirement. Meanwhile, having that emergency savings to fall back on would give you some added flexibility to keep up with your obligations in case of a financial setback.

Got a 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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Should I hire a professional to do my taxes?

January 30, 2015

| MoneyRates.com Senior Financial Analyst, CFA

Q: The past few years have been a bit stressful for taxes. I've tried doing them completely by myself, and I don't think I got back as much as I should have. I think I may want to get help from a tax accountant this year. Would you recommend that?

A: It has been about 30 years since there was a major reform of federal taxes, and what happens over time is that taxes tend to get increasingly complicated, as each year brings a few more tweaks. The IRS advises that e-filing can catch many common errors automatically, but this won't necessarily help you make all the right decisions about your taxes. A tax accountant or other professional tax preparer is a possible solution.

Here are some things to consider in deciding if this makes sense for you:

  1. Just how complicated is your particular tax situation? If your investments are limited to plain vanilla savings accounts, tax prep can be a simple matter, but if you have more exotic investments like real estate holdings or options, it might be more important to get a professional involved. This can also be the case if you have several deductions.
  2. What would you have to pay for professional tax preparation? Be sure to shop around to get competing quotes on this.
  3. How valuable is your time? It's not just the result of the tax return that's at stake -- there is also the amount of time you have to invest to do the taxes yourself. You might realize that the money you are saving is not worth the time you are putting in.
  4. What is your comfort level with tax rules? This is not just a question of making sure you don't overpay. It is also important to avoid making mistakes that could result in you incurring fines and penalties.

By the way, don't necessarily take not getting much money back as a sign that you are not preparing your taxes correctly. It may simply be a sign that your withholding is set at an efficient level. In fact, many people feel getting a refund is a bad sign, because it means they had too much withheld and could have been earning money on that interest in the meantime. Of course, given the low level of savings and money market rates, this is less of a big deal than it used to be.

There are firms that offer to give your returns a free look to see if they could do better for you. It might make sense for you to start with one of those reviews, to see if paying for tax prep is likely to be cost-efficient in your case.

Got a 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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