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Personal Finance Blog By MoneyRates - March 2008

Online Broker Rewards

March 31, 2008

By MoneyRates Team | Money Rates Columnist

Online brokers facing intense competition for accounts are offering incentives to open a new account with their brokerage firm. Some of the deals available this week include:

Charles Schwab

high yield checking account available with 3.01% APY and no ATM Fees for Schwab customers

link

TD Ameritrade

-$100 cash bonus + 30 days of free trading for new accounts opened before June 30, 2008 with at least $25,000

link

E*Trade

-3.45% savings account available at E*Trade Bank which can be linked to brokerage account
-commisions as low as $6.99 to $9.99 for accounts with $50,000 in net equity

link

ZECCO

-10 free stock trades with new accounts opened up with at least $2,500

link

Scotttrade

-commissions as low as $7 for stock trades

link

Fidelity

-a year's worth of free trades (commission-free) for customers who roll over a 401K or IRA

link

Zions Direct

-$100 referral fee to existing customer who refer a new customer to Zions Direct

link

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All About TIPS (Treasury Inflation Protected Securities)

March 27, 2008

By MoneyRates Team | Money Rates Columnist

A popular investment topic recently has been inflation and investments which provide a hedge to protect investors from inflation. Treasury Inflation Protected Securities commonly referred to as TIPS is a simple easy for an individual investor to buy inflation protection for their portfolio. For those who are not familiar with these products the Treasury Department provides all the answer to the basic questions about TIPS on their website Treasurydirect.gov as follows:

What are TIPS?

TIPS -- Treasury Inflation-Protected Securities -- are marketable Treasury securities whose principal is adjusted according to changes in the Consumer Price Index. With inflation, the principal increases. With deflation, it decreases.

What happens to TIPS if deflation occurs?

The principal is adjusted downward, and your interest payments are less than they would be if inflation occurred or if the Consumer Price Index remained the same. You have this safeguard: at maturity, if the adjusted principal is less than the security's original principal, you are paid the original principal.

What are the maturity terms for TIPS?

The maturity terms for TIPS are 5 years, 10 years and 20 years.

How do I know when TIPS will be auctioned?

We auction 5-year TIPS in April and October, 10-year TIPS in January, April, July, and October, and 20-year TIPS in January and July.
For specific dates, our
Tentative Auction Schedule, which shows auction dates months in advance, or "Upcoming Treasury Marketable Securities Auctions," which shows auctions that we have officially scheduled. (Auctions are officially scheduled only days before they are conducted.)
Also, you can sign up for
e-mail notification of auctions.

What are reopenings, premiums, and accrued interest?

In a reopening, we auction additional amounts of a previously issued security. Reopened securities have the same maturity date and interest rate as the original securities but a different issue date and usually a different price.
When you buy a reopened security, you have to pay a premium if the price of the security at reopening is greater than the face value of the security. The price of the reopened security will be determined at auction. Because the security is being auctioned at two separate times, market conditions probably won't be the same and, therefore, the prices likely won't be the same either.
Also, when you buy any reopened security, regardless of its price, you may have to pay accrued interest – interest the security earns from the original issue date of the security until the date we issue the security to you. However, we pay the accrued interest back to you in your first semiannual interest payment.
These TIPS are reopenings: the 5-year TIPS we auction in October, the 10-year TIPS we auction in April and October, and the 20-year TIPS we auction in July.

How can I calculate the inflation adjustment to my principal?

Treasury provides TIPS Inflation Index Ratios to allow you to easily calculate the change to principal resulting from changes in the Consumer Price Index. To determine your inflation-adjusted semi-annual interest payment, simply follow this three step process:

  1. Locate your TIPS on the TIPS Inflation Index Ratios page. Follow the link and locate the Index Ratio that corresponds to the interest payment date for your security.
  2. Multiply your original principal amount by the Index Ratio. This is your inflation-adjusted principal.
  3. Multiply your inflation-adjusted principal by half the stated coupon rate on your security (i.e., 2%). The resulting number is your semi-annual interest payment.

Can I be taxed for TIPS earnings before I receive payment for those earnings?

Yes. If the principal of your TIPS grows in a given year, that growth will be taxed as income in that year, even if your security hasn't matured and, therefore, you haven't received payment of the principal.

How can I place a competitive bid for a TIPS?

To place a competitive bid, you must use a bank, broker, or dealer.

Do you issue TIPS in paper form?

No.

Can I purchase TIPS in Legacy Treasury Direct?

You can purchase 5-year TIPS and 10-year TIPS, but as of January 2007, you can no longer purchase the 20-year TIPS. However, you can purchase 20-year TIPS in TreasuryDirect or through government securities brokers and dealers.

How do I transfer a TIPS from Legacy Treasury Direct to TreasuryDirect?

To transfer a TIPS from Legacy Treasury Direct to TreasuryDirect, take these steps:
Open an account in TreasuryDirect. (If you already have an account, you may skip this step.) NOTE: At this time, only individuals can hold accounts in TreasuryDirect.
Complete the Legacy Treasury Direct form "Security Transfer Request" (PD F 5179). In the form's section 3, check the box for "Transfer to an Established On-line TreasuryDirect Account Number." (
Download or order the form.) Your signature on this form must be certified. Your bank may provide this service.
Mail the form to the Bureau of the Public Debt, at the address shown on the form.

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Online Banks Deals that Beat Your Local Bank Rates

March 26, 2008

By MoneyRates Team | Money Rates Columnist

Chances are your local bank has taken note that the Federal Funds rate is at 2.25% and that Treasury Bills are below 2.00%. Even more likely is that the bank has lowered their deposit rates on your checking or savings account accordingly. Fortunate for savings investors there are a number of online banks willing to pay higher rates in order to win your business. Online bank rate specials still available today include:

EverBank is offering checking accounts and money market accounts with an introductory APY of 4.51%. The average monthly balance must be kept over $1,500 to earn APY and avoid fees. More information here.

Century Bank Direct is offering a savings account with an APY of 4.54% on all balances over $1. Minimum deposit to open an account is $100. More information here.

Reward Checking Accounts offer customer APYs of 6.00% and higher on balances up to a preset maximum if specific monthly online banking requirements are met. More information here.

Ascencia Bank is offering 2.5-year and 3-year CDs with an APY of 3.97%. Minimum deposit of $500. More information here.

National City Bank is offering 4-year CDs with an APY of 5.00%. Minimum deposit of $10,000. More information here.

Provident Direct is offering a savings account with an APY of 4.54% on all balances over $1. Minimum deposit to open an account is $1. More information here.

Capital One Bank is offering 5-year CDs with an APY of 4.30% as well as 7-year and 10-year CDs with an APY of 5.00%. Minimum deposit $5,000. More information here.

Banks listed above are FDIC-insured up to $100,000 per depositor.

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Stimulus Payment Schedule from IRS

March 25, 2008

By MoneyRates Team | Money Rates Columnist

Below are the schedules for economic stimulus payments related to tax returns processed by April 15, 2008.

Stimulus Payment Schedule for Tax Returns Received and Processed by April 15

Direct Deposit Payments

If the last two digits of your Social Security number are 00-20
Your economic stimulus payment deposit should be sent to your bank account by May 2

If the last two digits of your Social Security number are 21-75
Your economic stimulus payment deposit should be sent to your bank account by May 9

If the last two digits of your Social Security number are 76-99 your economic stimulus payment deposit should be sent to your bank account by May 16

Paper Checks

If the last two digits of your Social Security number are 00-09 your economic stimulus payment deposit should be sent to your bank account by May 16

If the last two digits of your Social Security number are 10-18 your economic stimulus payment deposit should be sent to your bank account by May 23

If the last two digits of your Social Security number are 19-25 your economic stimulus payment deposit should be sent to your bank account by May 30

If the last two digits of your Social Security number are 26-38 your economic stimulus payment deposit should be sent to your bank account by June 6

If the last two digits of your Social Security number are 39-51 your economic stimulus payment deposit should be sent to your bank account by June 13

If the last two digits of your Social Security number are 52-63 your economic stimulus payment deposit should be sent to your bank account by June 20

If the last two digits of your Social Security number are 64-75 your economic stimulus payment deposit should be sent to your bank account by June 27

If the last two digits of your Social Security number are 76-87 your economic stimulus payment deposit should be sent to your bank account by July 4

If the last two digits of your Social Security number are 88-99 your economic stimulus payment deposit should be sent to your bank account by July 11

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2008 Tax Tip: Deducting Points on Home Mortgage Loans

March 23, 2008

By MoneyRates Team | Money Rates Columnist

Homeowners face a lot of confusion regarding how "points" paid on their home mortgage loans can be deducted as mortgage interest on their tax returns. The IRS has published the following information on this topic:

The term "points" is used to describe certain charges paid to obtain a home mortgage. Points may be deductible as home mortgage interest, if you itemize deductions on Form 1040, Schedule A (PDF). If you can deduct all of the interest on your mortgages, you may be able to deduct all of the points paid on the mortgage.

For more information on deducting interest, refer to Topic 505.

You can deduct the points in full in the year they are paid, if all the following requirements are met:

  1. Your loan is secured by your main home (your main home is the one you live in most of the time).
  2. Paying points is an established business practice in your area.
  3. The points paid were not more than the amount generally charged in that area.
  4. You use the cash method of accounting. This means you report income in the year you receive it and deduct expenses in the year you pay them.
  5. The points were not paid for items that usually are separately stated on the settlement sheet such as appraisal fees, inspection fees, title fees, attorney fees, or property taxes.
  6. The funds you provided at or before closing, plus any points the seller paid, were at least as much as the points charged. You cannot have borrowed the funds from your lender or mortgage broker in order to pay the points.
  7. You use your loan to buy or build your main home.
  8. The points were computed as a percentage of the principal amount of the mortgage, and
  9. The amount is clearly shown on your settlement statement.

Points that do not meet these requirements may be deductible over the life of the loan. Points paid for refinancing generally can only be deducted over the life of the new mortgage. However, if you use part of the refinanced mortgage proceeds to improve your main home and you meet the first six requirements stated previously, you can fully deduct the part of the points related to the improvement in the year you paid them with your own funds. Points charged for specific services, such as preparation costs for a mortgage note, appraisal fees or notary fees are not interest and cannot be deducted. Points paid by the seller of a home cannot be deducted as interest on the seller's return, but they are a selling expense which will reduce the amount of gain realized. Points paid by the seller may be deducted by the buyer provided the buyer subtracts the amount from the basis, or cost, of the residence. Points you pay on loans secured by your second home can be deducted only over the life of the loan.
You may be subject to a limit on some of your itemized deductions, including points; for more information on the adjusted gross income limitations please refer to the Form 1040 Instructions.


For more information on points, refer to
Publication 936, Home Mortgage Interest Deduction.

Posted in: Mortgage, Retirement

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