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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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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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How do I find the best jumbo account with high interest rates?

January 3, 2017

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

Q: Where could I find the highest interest rate on a jumbo account?

A: In today's low-rate world, banks are less hungry for deposits and thus jumbo accounts are more scarce and less rewarding than they once were. In fact, according to the latest FDIC figures, there is no difference between the average rate for a jumbo savings account and the average for a regular savings account.

Tips to maximize interest rates on jumbo accounts

Even so, there are some things you can do to maximize the interest on your account, and given the size of jumbo accounts - $100,000 or greater - even small rate differentials can add up to meaningful dollars.

Here are four tips:

1. Determine the time frame for needing the money

Jumbo account or no jumbo account, the amount of interest you earn can be affected by how long you are willing to lock up your money. Making a longer commitment can have a much greater positive impact on your interest rate than having a jumbo account. So, unless you need immediate liquidity, consider stretching out into a multi-month or even multi-year certificate of deposit (CD).

2. Consider splitting money into multiple accounts

The issue of time frame is not an all-or-nothing proposition. You may need only some of your money to be immediately on hand, while the remainder of it can be invested for the long-term. In that case, consider splitting your money between a short term account for immediate liquidity, and long term CDs that can earn a higher interest rate. You can even split your money into a series of CDs with different maturity dates - a technique known as laddering - to make money available for a corresponding series of future needs.

3. Distinguish between money market and savings accounts

To the extent you need immediate liquidity, money market accounts and savings accounts are the choices that allow for this. They are largely similar, but according to the latest FDIC data, money market accounts are paying a slightly higher interest rate on average. They also tend to pay a premium for jumbo accounts, which savings accounts are not typically doing at the moment.

4. Shop around for the best bank rates before you commit

Once you've figured out what type of account what you need, shop around. The difference in rates between banks is much greater than the difference between jumbo and ordinary rates is likely to be.

FDIC insurance coverage and limits for jumbo accounts

Due to the financial crisis, the FDIC insurance coverage limit was raised from $100,000 to $250,000, while the determination of a jumbo account still generally remains at $100,000. With the FDIC insurance limit now well above the jumbo account definition, depositors have a great opportunity to reap any benefits associated with a jumbo account without leaving any of their assets uncovered.

However, if your account is in excess of $250,000, you may want to consider splitting it among multiple banks. The resulting accounts should still be able to reap the benefits of jumbo accounts at two or more banks, but you would be avoiding the risk of having some of your deposits left uninsured.

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 do I deal with a divorce settlement from an IRA?

December 15, 2016

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

Q: I am receiving my divorce settlement from my husband's IRA. They told me that now I have to put it in another IRA account. Is that true? I need some of that money to pay down debt. I am 61 - does my age help?

A: According to the Internal Revenue Service, a divorce settlement from a spouse's individual retirement account effectively becomes a new IRA on behalf of the person receiving the settlement. So, to avoid tax consequences on the total amount, you would be wise to put the money into an IRA, and then look at how best to take distributions from that IRA to meet your needs.

First of all, you should arrange for the transfer of the money to be done via a trustee-to-trustee transfer, rather than by you receiving a check. This will clarify that it is a non-taxable transfer from IRA to IRA.

Transferring from a traditional IRA vs. Roth IRA

Another important thing to establish in this process is whether the money is coming from a traditional or a Roth IRA. You'll most likely want to transfer into the same form of IRA to avoid unfavorable tax treatment. However, if it is a Roth IRA you should establish with your new trustee whether or not your IRA will be subject to the five-year waiting period on distributions from a Roth IRA, or whether the original start date of your husband's account can be carried over to yours.

Once the transfer occurs, and if you are not subject to that five-year waiting period for a new Roth IRA, the good news is that because you are older than age 59 1/2, you can take distributions from your IRA without penalties. However, the absence of penalties does not mean there are not potential tax consequences.

Non-deductible vs. deductible contributions

The key difference between a Roth and a traditional IRA is that a Roth is funded with non-deductible contributions, while a traditional IRA is funded with deductible contributions. What this means, in effect, is that tax has already been paid on money going into a Roth, but not on money going into a traditional IRA. Because of this, distributions from a Roth IRA are not treated as ordinary income for tax purposes, but distributions from a traditional IRA are.

That means that while you should not have to pay an early-distribution penalty on distributions from a traditional IRA because of your age, you would still have to pay regular income tax on those distributions. Since these distributions are treated as ordinary income, you should manage the timing of those distributions to avoid taking too much out in any one tax year. That could bump you up into a higher tax bracket.

The above are some general guidelines on what to look for, but keep in mind that it is difficult to generalize when it comes to tax topics. There are often specifics of a person's situation that could affect tax consequences, so you should consult with your IRA trustee or a tax advisor before taking any actions.

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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Should I worry about losing my mortgage interest tax break?

December 2, 2016

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

Q: There is talk about eliminating the mortgage interest tax deduction. Won't that hurt the housing market? If I'm thinking of buying a house for the first time, should I hold off and wait to see if prices go down once they do eliminate the deduction?

A: Interestingly, the head of the Mortgage Bankers Association came out and said there are circumstances under which his organization would support eliminating the mortgage interest deduction. Understandably, mortgage bankers have traditionally been among the staunchest defenders of that deduction. Even if they are open to discussing it, there is a possibility it might happen.

The question is, would this discourage home ownership enough to depress home prices? Conditions today suggest that it might not, for the following reasons:

1. Low interest rates diminished importance of mortgage interest tax breaks

Millions of people have already benefited by buying homes at or near record-low mortgage rates, and millions more have benefited from low refinance rates. Seeing mortgage rates drop from a normal level of around 8 percent to below 4 percent is more valuable to home owners than the deduction on mortgage interest. Furthermore, the lower mortgage rates go, the less the deduction on that interest is worth.

2. Entry-level home owners often don't itemize deductions anyway

Home buyers with relatively low incomes who are buying less expensive homes typically benefit more from the standard deduction than by itemizing. Thus, eliminating the mortgage interest deduction should have little impact on entry-level buyers. You mention planning on buying your first house. If you are buying at the lower end of the price range, you are less likely to see elimination of the mortgage interest deduction affect prices than if you were buying a more expensive house.

3. A broader tax reform effort could be stimulative to the economy

One factor that has lowered resistance to eliminating the mortgage interest deduction is that low purchase and refinance rates have helped shore up the housing market.

Another factor is that eliminating the deduction is being discussed in the context of a broader tax reform effort. Broader tax reform is the context in which the Mortgage Bankers Association has said it might be receptive to eliminating the deduction. A trade-off between eliminating specific deductions and lowering overall tax rates could be positive for the economy, and thus positive for the housing market.

In short, keep in mind that between people who don't itemize deductions and those who have paid off their mortgages, many home owners don't benefit from the mortgage interest deduction anyway. Add to that the fact that mortgage rates are extraordinary low right now, and the housing market may be less dependent on that tax break than ever.

Trying to guess the future of home prices is an exercise in speculating on the unknown. What you do know at this point is that mortgage rates are very much in your favor. You may want to act on what you know rather than trying to guess correctly about what no one knows.

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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