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Personal Finance Blog By MoneyRates - October 2007

The Fed Cuts Rates a Quarter Point

October 31, 2007

By MoneyRates Team | Money Rates Columnist

The Fed voted to lower the fed funds rate a quarter point to 4.50% today with one dissenting vote. The rate cut, which follows a 50 point cut in September, will effectively lower the prime lending rate in the United States to 7.50%. Loan payments, mortgages, and credit cards which are indexed to the prime rate have been relieved of a total of 75 points or 9% of the total financing charge prior to Septemnber, a considerate gift to the strapped American consumer.

Banks and financial services firms are the other major beneficiary of today's rate cut as the spread between short and longer term rates has widened which increase profit margins for banks.

Check The Savings Investor tomorow for a complete list of updates rates on investment products and loan products including online bank deals.

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U.S. Treasury Yield Curve

October 25, 2007

By MoneyRates Team | Money Rates Columnist

Investors in United States Treasuries have to extend maturities out at least 5 years to earn a 4.00% yield and are only rewarded with another 50 basis points by extending out 30 years. Analysts believe a steepening of the yield curve is on track for 2008 with inflatin expected to pick up.

Investors may find the best value in the six-month yield curve (where the yield curve bump up in yield before falling again), while they wait for better long term rates.

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Savings for College [UPDATED]

October 25, 2007

By MoneyRates Team | Money Rates Columnist

The College Board reported on Oct. 22 that tuition at public and private colleges for the 2007-08 academic year continued to outpace inflation. Parents face on an uphill battle in saving enough money to cover college tuition for their children.Four-year public colleges have taken the hardest hit, with the rate of growth in tuition and fees this decade the highest it has been in 30 years. The average tuition and fees at four-year public colleges for the 2007-08 academic year are $6,185, up $381 (or 6.6%) from last year, the College Board said. Those numbers don't include room and board and other expenses, which add about $7,404 to the bill. The consumer price index for all urban consumers rose 2.8% between September, 2006, and September, 2007. Costs at private universities saw similar increases to those at four-year public schools. Tuition and fees for this school year averaged $23,712, a $1,404 (or 6.3%) increase over last year. University officials cited rising utility rates, health care, and workers' compensation costs among the reasons for the hikes.

- Business Week Report October 2007

529 Plans - A 529 plan, named after Section 529 of the Internal Revenue Code, is a savings plan designed to encourage saving for future college costs with tax advantages which vary from state to state. 529 plans, legally known as “qualified tuition plans,” are sponsored by either states, state agencies, or educational institutions. Currently there are two types of 529 plans: (1) pre-paid tuition plans and (2) college savings plans. A detailed state-by-state comparision of 529 plans can be found at savingforcollege.com.

Custodial Accounts - These type accounts (either UGMA or UTMA) can be set up at a bank or brokerage firm and will give the designated custodian full discretion over investment decisions. Custodial accounts have no restrictions on deposits, no restrictions on how the funds are used as long as it is for the child's benefit and no penalties for early withdrawal of funds. The disadvantages of a custodial account is that they are taxed annually as well as at withdrawal. In addition at age 21 the child has complete control over the account and funds. The custodial accounts are best used by parents/custodians who are confident that their portfolio management can outweight the tax consequences of custodial accounts. These type of accounts are also beneficial to parents who need to pay for secondary school through a savings plan. Custodial accounts set up at banks typically invest in a CD or money market. A CD would make sense for parents who are using the savings program exclusively for college, while a money market makes more sense for parents who may need to tap into the account for secondary school costs.

Coverdell Education Savings Account - The Education IRA has been renamed to the Coverdell Education Savings Account. The Coverdell ESA was created to give individuals a way to save for a child's elementary/secondary school education as well as for college, graduate school, or vocational school in the same investment vehicle. The account must be established for the benefit of a child under the age of 18 with all contributions made before the beneficiary's 18th birthday. An individual can contribute up to $2,000 annually to a child's Coverdell ESA if their modified adjusted gross income is less than $95,000 as a single tax filer, or $190,000 to $220,000 as a married couple filing jointly in the tax year in which they contribute. All earnings in the account will accumulate tax-deferred and can be withdrawn tax-free if used to pay for any qualified education expenses.

other college savings options include:

College Savings Bank - This bank offers a unique CD which indexes the interest rate paid on the CD directly to the year-to-year increase in college tuition. This is a fantastic hedge against inflation (and tuition costs) outpacing stock market returns or other returns generated in a 529 plan.

Affinity Bank - Offers a 10% rate on kids savings accounts up to $500. While this $500 cap may not go far enough as a college saving program this is an excellent way to sock some extra money away for college while teaching your kids about savings. Imagine the fun when they realize the are earning twice the rate that Mom and Dad are earning.

HSBC Bank - Offers a 5.05% savings rate on joint accounts opened with both an adult and child's name. This may be an appropriate investment for parents who wish to park funds temporarily or maintain some discretionary control of the funds through college.

Zions Bank - Parents or grandparents can sign up their child for the Zions Bank Kidsgreen Savings Account which features no minimum deposit or monthly fees, new account kit with kids activity book explaining the fundamentals of banking, and a free session with a savings account specialist

Independent 529 plans offer parents the chance to pay for college in the future at today's price which can lead to large discounts on future costs. The program co-sponsored between Independent 529 plan and TIAA-CREF allows allows you to prepay tuition today that your child can use later at any participating college. This program protects against increases in tuition and has no initial fees, no maintenance fees, and no annual fees��and is free from federal taxes. If one assumes that private college tuition inflation continues at an average rate of 5% per year and an Independent 529 Plan annual discount rate of 1%, then this is the equivalent of earning a 6% increase on those savings funds each year tax-free

State Farm Bank offers Fixed Rate CDs, Market Rate CDs, and mutual funds via State Farm Insurance which can be purchased in a Coverdell Education Savings Account.

Financial Aid is a vehicle that many parents use to pay for college costs. The site finaid.org is a comprehensive student financial aid site which may answer many of the questions parents may have regarding paying college tuition.

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Dividend Yield Update

October 23, 2007

By MoneyRates Team | Money Rates Columnist

Dividend News

Companies with profits reward shareholders by paying dividends to owners of the stock. The dividend yield of a stock indicates to the potential investor the yield they can expect at the current stock price and dividend payout. The dividend yield changes when the price of the stock goes up (yield increases) or when the price goes down (yield decreases). Resources to find stocks which pay dividends include this list of dividend yields for Dow Jones Industrial Average stocks and this list of dividend yield for S&P 500 stocks.

Three blogs which report on dividends are The Dividend Guy Blog, Dividend Money, and Bank Savings and Investing Blog.

Dividend Stocks of Interest

The Savings Investor likes stocks which reward investors by paying a consistent dividend and meet our filters of growth, market capitalization, volatility, and earnings. Some stocks of interest include:

Cedar Fair LP (FUN), 8.09% yield, amusement and water park operator has traded in narrow range between 21 and 30 for two years

Pfizer (PFE), 4.68% yield, prescription-maker conglomerate has long history of rewarding investors with strong dividends

Companies included in the S&P 500 which pay strong dividends include:

New York Times (NYT) - 5.05% yield

Integrys Energy Group (TEG) - 4.98% yield

Ameren (AEE) - 4.69% yield A

ltria (MO) - 4.22% yield

Verizon (VZ) - 3.79% yield

Bristol Myers Squibb (BMY) - 3.77% yield

AT&T (T) - 3.36% yield

Merck (MRK) - 2.84% yield

Bank Stocks with Strong Dividend Payouts

Banks traditionally have been one of the best sectors for finding dividend-paying stocks. The five largest banks in the country all pay dividends and trade with yields comparable to U.S. Treasuries or other fixed-income securities:

Citigroup (C) 4.89% yield

Bank of America (BAC) 5.31% yield

JP Morgan Chase (JPM) 3.32% yield

Wachovia (WB) 5.38% yield

Wells Fargo (WFC) 3.69% yield

Bank stocks have showed less volatility than other sectors while maintaining a history of rewarding shareholders. Banks on average distribute close to 50% of their profits in dividends and another 20% in stock repurchase programs. In addition, banks generally trade at a lower multiple to future earnings than the S&P 500, NASDAQ, or Dow Jones Industrial Average as a whole. The stocks for the five largest banks in the country (listed above) all trade with a Price-to-Earnings ratio of less than 15:

Citigroup (C) 10.47 p/e

Bank of America (BAC) 10.02 p/e

JP Morgan Chase (JPM) 9.45 p/e

Wachovia (WB) 9.64 p/e

Wells Fargo (WFC) 13.06 p/e

Other banks with attractive dividend yields and Price-to-Earnings ratios of below 25 include:

Key Corp (KEY)

Washington Mutual (WM)

Huntington Bancshares (HBAN)

National City (NCC)

Corus Bancshares (CORS)
9.05% yield
3.81 p/e

US Bancorp (USB)
4.96% yield
12.27 p/e

Fulton Financial (FULT)
4.92% yield
13.25 p/e

Fifth Third Bancorp (FITB)
5.50% yield
14.41 p/e

Regions Financial Corp (RF)
5.59% yield
10.67 p/e

United Bancorp
5.04% yield
18.43 p/e

Beverly Hills Bancorp (BHBC)
8.83% yield
8.09 p/e

New York Community Bancorp (NYB)
5.50% yield
24.88 p/e

Bank Stock Analysis Blog

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Bank of America's Risk Free CD

October 21, 2007

By MoneyRates Team | Money Rates Columnist

Bank of America is offering a CD which allows investors to withdraw funds prior to the maturity date without incurring a penalty.

Account Features:

* The ability to withdraw funds prior to the maturity date without penalties

* A minimum deposit of $5,000 and a short 9 month term

* A rate you would typically expect from a CD

* Get preferred CD rates when you have an
Advantage Checking Account

* Invest up to $500,000 in one or more Risk Free CD's

For more information or to apply online visit Bank of America's site.

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