Personal Finance Blog By MoneyRates - February 2008

Bond yields moved sharply higher today after news that Warren Buffett's firm Berkshire Hathaway has offered to assume liability for the municipal bonds of troubled bond insurers. US Treasuries have been a safe haven for investors since last summer when the credit and mortgage markets began to experience serious setbacks. So any news, like today's announcment by Warren Buffett, which is perceived as a partial solution to the nation's credit market woes is likely to fuel a selloff out of Treasuries into other fixed-income securities. The increase in yields in US Treasuries then ripples through the banking and investing world increasing yields on investments tied to US Treasuries and loan rates tied to US Treasuries. Today's yield on US Treasuries vs last week's yields:

90-day: 2.19% vs 2.08%

180-day: 2.06% vs 2.00%

2-year: 1.99% vs 1.89%

5-year: 2.75% vs 2.63%

10-year: 3.70% vs 3.53%

If this trend were to continue we might see some better rates on mid-term and long-term deposit rates as banks reset vs current Treasury yields. Short-term rates are likely to stay low or go even lower as they are more likely to move lock-step with mvoes by the Federal Reserve.

The US economy will grow in 2008 and avoid a recession despite a lingering housing slump and a related credit crunch, White House economists said Monday. The annual "Economic Report of the President" is claiming that the US economy will avoid recession and grow in 2008 contrary to what a consensus of economists believe. Citing the resiliency of the US economy and the well-publicized stimulus package passed by Congrss the report paints a rosier picture of the economy than that witnessed in a recent AP poll where 61% of Americans believed that the US was already in a recession or the trading at the online predictions market, intrade.com, where futures trading at the site are pricing in a 67% probability of a recession in 2008. The Bush administration's report stated:

"Economic growth is expected to continue in 2008. Most market forecasts suggest a slower pace in the first half of 2008, followed by strengthened growth in the second half of the year"

The report also forecasts that US gross domestic product growth (GDP) would remain at 2.7 percent in 2008 and would be 3.00% or higher in 2009. Treasury Secretary Paulson along for the ride said recently,

"I believe that we are going to keep growing. If you are growing, you are not in recession, right? We all know that"

The question here is can the happy-talk from the Bush administration and the Stimulus package save the day and hold back the tidal wave of consumer skepticism along with the slowdown in the housing and labor market. Any bets?

The Capital One Rewards Money Market Account is a money market account which offers an attractive yield of 3.00% and a program in which airline miles and other rewards can be earned through account activity. The 3.00% yield applies to all balances between $0.01 and $100,000 and higher. The account has no minimum balance fees or monthly maintenance charges and has check-writing privileges for easy trasfer of funds. Account information is online at capitalone.com.

How to Earn Rewards through the Capital One Rewards Money Market

You earn rewards for saving your money. Every month, you'll accumulate 1 mile for each $20 of your average balance for the month. For example, if your average balance for the month is $10,000, you'll get 500 miles for that month. Rewards miles will be posted to your account within 60 days after the end of each month. Also, deposit at least $500 within the first month and receive 2,500 bonus miles. If you already have a Capital One No Hassle Miles Rewards credit card, let Capital One know and the miles from your Rewards Money Market Account are added to your Capital One credit card miles. Redeem miles for cash, travel, merchandise and more either by calling or going online??Capital One will send you more information after you open your account. There's no limit to the number of miles you can earn. Miles never expire for the life of your account, and there are no blackout dates.

source: capitalone.com

What Are Health Savings Accounts?

Health Savings Accounts (HSAs) were created by Public Law 108-173, the "Medicare Prescription Drug, Improvement and Modernization Act of 2003," signed into law by President Bush on December 8, 2003. Health Savings Accounts will change the way millions meet their health care needs because they are designed to help individuals save for qualified medical and retiree health expenses on a tax-advantaged basis.

Any adult who is covered by a high-deductible health plan (and has no other first-dollar coverage) may establish an HSA. Tax-advantaged contributions can be made in three ways:

(1) the individual or family can make tax deductible contributions to the HSA even if they do not itemize deductions;

(2) the individual’s employer can make contributions that are not taxed to either the employer or the employee; and,

(3) employers sponsoring cafeteria plans can allow employees to contribute untaxed salary through salary reduction.

To encourage saving for health expenses after retirement, individuals age 55 and older are allowed to make additional catch-up contributions to their HSAs. Once an individual enrolls in Medicare they are no longer eligible to contribute to their HSA. Amounts contributed to an HSA belong to the account holder and are completely portable. Funds in the account can grow tax-free through investment earnings, just like an IRA. Funds distributed from the HSA are not taxed if they are used to pay qualified medical expenses. Unlike amounts in Flexible Spending Arrangements that are forfeited if not used by the end of the year, unused funds remain available for use in later years.

source: United States Treasury Department

Banks Paying Good Rates on Health Savings Accounts

For investors not looking to invest their Health Savings Account balances in brokerage accounts, the following banks offer HSA accounts which pay a variable rate of interest. Principal is FDIC-insured up to $100,000.

State Farm Bank - 2.90% APY on balances over $10,000

Principal Bank - 3.17% APY on balances over $50,000 and 3.01% on balances between $25,000 and $49,999

HSA Bank - 3.50% APY on balances over $15,000 and 2.50% on balances between $5,000 and $14,999

First Banking Center - 4.18% APY on balances over $100,000 and tiered yields down to 3.82% APY on balances of between $7,500 and $24,999.