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Personal Finance Blog By MoneyRates - May 2008

Health Savings Accounts with over 5% Taxable Equivalent Yields

May 27, 2008

By MoneyRates Team | Money Rates Columnist

Health Savings Accounts (HSAs) are designed to help individuals enrolled in a HDHP (High Deductible Health Plan) save money for current and future health care expenses. Money can be set aside in a HSA pre-tax and the money is controlled by the account owner. While it is possible to invest the funds in mutual funds or stocks, many banks across the country are also offering HSA accounts. A HSA account at a bank will pay interest at a market rate, which right now is between 1% and 3% at most banks. One exception would be National Bank of Kansas City which is offering a 4% rate on health savings accounts on all account balances over $1. Because the money is invested pre-tax the effective rate of return when compared to other taxable investment can be over 5% depending upon the owner's tax bracket. The Treasury Department has announced the new maximum annual contribution and out-of-pocket spending limits for Health Savings Accounts as posted below:

New Annual Contribution Levels for HSAs:

  • For 2009, the maximum annual HSA contribution for an eligible individual with self-only coverage is $3,000.
  • For family coverage, the maximum annual HSA contribution is $5,950.
  • Catch up contribution for individual who are 55 or older is increased by statute to $1,000 for 2009 and all years going forward.
  • Individuals who are eligible individuals on the first day of the last month of the taxable year (December for most taxpayers) are allowed the full annual contribution (plus catch up contribution, if 55 or older by year end), regardless of the number of months the individual was an eligible individual in the year. For individuals who are no longer eligible individuals on that date, both the HSA contribution and catch up contribution apply pro rata based on the number of months of the year a taxpayer is an eligible individual.

New Amounts for Out-of-Pocket Spending on HSA-Compatible HDHPs:

For 2009, the maximum annual out-of-pocket amounts for HDHP self-coverage increase to $5,800 and the maximum annual out-of-pocket amount for HDHP family coverage is twice that, $11,600.

Minimum Deductible Amounts for HSA-Compatible HDHPs:

For 2009, the minimum deductible for HDHPs increases to $1,150 for self-only coverage and $2,300 for family coverage.

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Linking Your Online Checking Account to Your Online Savings Account

May 22, 2008

By MoneyRates Team | Money Rates Columnist

Bank make a huge amount of money from their customers who are forgetful and bounce checks. While overdrafts can happen innocently enough there are ways for online banking customers to protect themselves against overdrafts. The different options vary from expensive to cheap:

Overdraft Protection or Bounce-Coverage Plans

Bank that offer this plan will not return your overdrawn checks as "insufficient funds", but instead charge a fee for covering each check plus a daily fee for each day the account remains overdrawn. Let's look at an example - while on vacation your account is accidentally overdrawn on 4 checks for $300 that the bank goes ahead and honors, despite the account not having funds available. When you are back in town and discover the cash flow discrepancy you also note that the bank has charged you $100 for covering the checks + another $28 on the daily charges. One simple mistake just cost you $128 in bank fees.

Linking Your Checking Account to a Credit Card

This solution is the most automatic in that the banking customer may not even know until they receive their statement that the checking account deficiency was covered by a cash advance off their credit card. At a typical $5 cash-advance fee + 20% APR this can be a costly solution as credit card companies apply payments to regular card charges before cash advances. So in the above example the customer who overdrew their account while on vacation could cost themselves $65 if they are unable to pay off their credit card balance over the next year.

Overdraft Line of Credit

Typically a line of credit involves a maintenance fee in addition to the 13 - 16% APR which acrrues immediately on the fund forwarded to an overdrawn checking account. This solution could be less expensive than the above two for frequent overdraft customers, but is impractical for a banking customer who rarely overdraws their account.

Linking Your Checking Account to Your Savings Account

Most major online banks allow you to automatically link your checking account to a savings account at the same bank or to an external account. In the above example of an overdrawn account while the account owner is on vacation, a one-time transfer between a savings account with funds available to the checking account with insufficient funds would typically cost about $5 and at some banks can be made automatically when a balance reaches a certain level. A linked checking account-savings account also allows accountholders to maximize the interest earned in both accounts by sweeping out excess funds back into savings. This is by far the best solution and protection for overdrawn checking accounts. While banks like ING Direct, EverBank, Washington Mutual Bank and others make it easy to link accounts internally and externally many local banks do not have this technology in place. Check the list of highest yielding online checking accounts at Money-Rates.com for more information about linking online checking accounts.

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Social Lending Matches Lenders and Borrowers Online

May 21, 2008

By MoneyRates Team | Money Rates Columnist

Social lending sites have taken off in 2008 with Prosper, Zopa, and Lending Club already in operation and several new startups expected to be online by the end of the summer. Prosper is the highest profile peer-to-peer lending site in operation today and provides an online bidding system for borrowers to reduce their lending rates on small (less than $25,000) unsecured loans. Loans originated on Prosper have 3-year terms with monthly payments debited from the borrower's checking accounts. Lenders determine themselves which loans to enter bids on and can set up interactive portfolios to manage their loans and filters to find the type of loans which are most appealing to them.


Average Interest Rate Range for Prosper Loans for the Last 30 Days

Loan Grade AA (Borrowers with Experian Credit Scores +760)

7.57% - 12.67%

Loan Grade A (Borrowers with Experian Credit Scores +760)

10.60% - 16.17%

Loan Grade B (Borrowers with Experian Credit Scores 720-759)

14.21% - 18.92% (Borrowers with Experian Credit Scores 680-719)

Loan Grade C (Borrowers with Experian Credit Scores 640-679)

18.14% - 22.65%

Fees are not included in the above averages.

Prosper makes it easy to analyze historical lending returns by posting average returns on all loan grades and all loan sizes. For the most part, the returns have been solid with loans graded between AA and C averaging less than 3% defaults and loans in the same credit categories averaging less than 2% on 60-day delinquencies - marking portfolio lending returns which many banks might be satisfied with. Here are some frequently asked questions about Prosper posted on their site:

Who can lend money on Prosper?

A Prosper lender is any person who is a U.S. resident with a bank account and a social security number. After passing Prosper's identity verification and anti-fraud checks, lenders offer money to borrowers at a rate they select, often earning a much better interest rate than putting their funds in a money-market account or CD.

How much money can someone lend?

Because Prosper allows lenders to bid on all or parts of loans, lenders can fund as little as $50 and as much as $25,000 on any particular loan listing.
How should people that lend evaluate loan listings? Prosper allows lenders to select listings based on their own criteria. Lenders can evaluate listings by a borrower's credit grade, debt profile, or other factors. For example, a successful filmmaker may want to lend money specifically to independent filmmakers by browsing individual listings. Alternately, a lender may create a portfolio plan to fund any loan listings with specific credit criteria.

If I make a loan through Prosper, what guarantees do I have that the loan will get repaid?

There are no guarantees that your loan will be repaid. We try to give lenders as much information as possible about the credit worthiness (or "credit grade") of the borrowers on the site, their debt burden (known as the "debt to income ratio"), and the expected default rate of a borrower with their credit grade, which is based on historical data from Experian, one of the three major credit reporting agencies. The way to ensure a good return on your investment is to diversify your lending—use portfolio plans to place bids on many listings, and spread your risk across many borrowers. Even if one of your borrowers defaults, the return from your other borrowers should make up for the loss.

How should people who lend spread their risk?

Because Prosper allows lenders to bid small amounts on all or part of loans, it is easy for lenders to create well-diversified portfolios. Using Prosper's portfolio plans feature, lenders can efficiently diversify their portfolio by automatically funding listings that reflect their pre-defined criteria. For example, a lender can bid as little as $50 on any loan listing. To diversify their portfolio, a lender might want to spread an overall investment amount of $10,000 among several loans.

What happens if a borrower does not repay their loan?

Borrowers who miss payments on Prosper face the same consequences as they would if they miss a payment with any form of bank credit including the reporting of late payments to the credit bureaus. Borrowers also incur late fees, which are collected by Prosper and passed onto the people that loaned the money. When a borrower's payment is late, Prosper communicates directly with the borrower to encourage repayment. After 15 days, Prosper notifies the borrower's friends and group leader of the late payment. After 30 days, Prosper engages a nationally-licensed collection agency, giving borrowers 90 days to bring the account to current. At more than 120 days past due, the loans are sold to a debt buyer. At that point, the borrower's credit report is negatively impacted with a default and they are banned from borrowing on Prosper ever again.

Can I collect on late payments myself?

Under no circumstances should you attempt collection on a late payment yourself. Compliance with all state and federal laws while attempting to collect a delinquent loan is not trivial. When necessary, Prosper ensures all collection activity is performed by licensed and professional collection agencies. Lenders who undertake debt collection (even if they are a debt collector by trade) are in violation of Prosper legal agreements and will undermine the collection agency's ability to do their job. Moreover, in doing so you run the real risk of creating a legal liability for yourself.

Will borrowers know their lenders' identity?

No. Everything on Prosper is done anonymously, and there is never a need for lender and borrower to contact each other. If a lender and a borrower do communicate through the Prosper web site, it is entirely up to each person to choose how much information they wish to share with the other.

Are lenders' deposits insured?

Prosper is not directly insured by the FDIC, but lenders' deposits are covered up to $100,000 by FDIC pass-through insurance provided by our banking partner, Wells Fargo Banks.
Do lenders earn interest on deposits?Lenders do not currently earn interest on deposits to their Prosper account. Because of rules associated with pooled accounts (such as the ones that we use to hold your money), we are not allowed to earn interest on those accounts. Prosper encourages lenders to transfer money to Prosper as needed to fund loans, while leaving a modest amount available for immediate bidding on interesting opportunities. How much cash you keep in your Prosper account will depend on how frequently, and in what amounts, you bid. Additionally, using portfolio plans can significantly improve the pace at which you acquire loans and will allow you to move more money faster. Because portfolio plans are automated, they can minimize the amount of time your money sits idle and therefore improve your internal rate of return (IRR).

Find out more about Prosper.

Posted in: Loans & lending

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Online Financial Management

May 20, 2008

By MoneyRates Team | Money Rates Columnist

Online financial management has been taken to the next level by the online site Mint.com. Mint allows registered users to consolidate all their banking, credit card, brokerage, and mutual fund information on one platform with a wealth of management and comparision tools. Mint connects to over 5,000 US banks and credit unions, credit card, brokerage, and mutual fund companies to keeping transactions and account balances automatically updated. Mint has bank-level data security and according to their site its security and privacy have been validated by VeriSign and TRUSTe. Mint offers artificial intelligence to categorize expenses and compare your spending habits by category or even to other geographic locations.

Another interesting feature of the Mint site is the ability for Mint to provide offers based on spending and savings habits of their users. While this is most likely the best source of revenue for Mint, it does appear that the offers promoted are relevant and timely perhaps even more so than a basic search on Google and Yahoo with their paid-search results displayed before their algorithm-based search results.

Mint Financial Alerts

Registered users at Mint can opt-in for regular e-mails for the following notifications:

  • Low balances in any checking or savings account
  • Credit card bill due dates
  • Low credit on credit cards
  • Over your budget on any selected category
  • High or unusual spending based on your history
  • Bank/ATM fees and finance charges
  • Large purchases
  • Large deposits, like a paycheck
  • High or unusual spending by category based on your history

One final note about Mint and their service....

It's free.

Posted in: Personal Finance

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HSBC Bank - Online Savings Account Available in Sterling, US dollars, or Euros

May 16, 2008

By MoneyRates Team | Money Rates Columnist

HSBC Bank is justified in it's slogan as "The world's local bank" because they have branches in countries around the world including England, Hong Kong, Mexico, France, Taiwan.

Customers of HSBC Bank US are insured by the FDIC, but customers of HSBC Banks in other countries are not subject to FDIC insurance. HSBC Bank has been a favorite of US citizens living abroad because of the ease of convenience of opening a new checking account in a foreign country for the period of time the person is visiting or living in the new country and with easier access to money in the local currency. Converting money out of US dollars involves risk due to currency fluctuations when converting back to US dollars (the local currency may have appreciated or depreciated against the US dollar). In addition, banks charge a fee for converting currencies - although HSBC Bank's fees appear to be below the average.

HSBC Bank US is offering a 3.05% APY savings accounts for online banking customers through their online banking site at hsbcdirect.com. The HSBC Bank US online savings account offers no minimums, no fees, and online banking features as well as keeping a yield consistently in the top 30 highest yielding savings accounts posted on Money-Rates.com. Other currencies in which HSBC is offering savings account rates include:

United Kingdom Pound Sterling

The pound sterling is the currency of the United Kingdom. HSBC Bank UK is offering the following savings rates for funds held in an online savings account denominated in the sterling:

Premier Interest (AER): 5.00% variable
Minimum Balance: £10,000
Maximum Balance: £500,000

European Union Euro Currency

The Euro is the official currency of the European Union (EU) used in 15 member states in Europe. The online savings account denominated in Euro by HSBC has the following features:

Premier Interest (AER): 3.90% variable
Minimum Balance: €20,000
Maximum Balance: €1,000,000

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