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Personal Finance Blog By MoneyRates - March 2009

Take the MoneyRates.com Survey

March 31, 2009

By Clark Schultz | Money Rates Columnist

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Online Banking and Linking External Accounts

March 29, 2009

By Clark Schultz | Money Rates Columnist

One of the best features of online banking is linking external bank accounts. The basic idea behind linking an external account to your existing bank account is the ability to transfer funds between the two accounts online. The transfer of funds online is much easier and faster than mailing a paper check from one bank to the other. It is also cheaper than paying to wire transfer funds. In fact in most cases it's free! And to the surprise of some, it can be a safer way to transfer funds. According to recent statistics, identity theft is more likely to occur through the use of paper records than from the hacking of a bank's website. That doesn't mean you don't have to protect your data and your computers on your end, but it does mean that the overal level of online security at banks is very good.

Linking an external banking account is easy. Most banks offer the feature for free through their online banking platform. Often the banks will require you to verify a deposit or two which can take up to 1 to 3 days. Some banks will limit the type of account you can link to checking accounts, but other banks will allow you to link to money market accounts and savings accounts as well as checking accounts. Transfers from a savings account or a money market account will count against your monthly withdrawal limitations.

Linking external banking accounts is smart even if you do have a pressing need to tranfer the funds. Savers who like to shop for the highest bank rates can link external bank accounts and use external transfers to maximize the rate of return on their savings. Benjamin Franklin said: " A penny saved is a penny saved earned", but a penny saved at a higher interest rate is even better.

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Lower Interest Rates Make Reverse Mortgages More Attractive

March 26, 2009

By Clark Schultz | Money Rates Columnist

A reverse mortgage allows senior citizens, of at least the age of 62, to convert equity from their principal residence to cash. Similar to a normal mortgage, lower interest rates help make the mortgage more affordable. The Federal Reserve's significant pledge to buy more than a $1 trillion worth of mortgages securities is expected to help keep mortgages rates low for an extended period of time. For anyone over the age of 62 years with a pressing financial need, the timing for a reverse mortgage may be now.

Their are two primary reasons to consider a reverse mortgages.

CASH FLOW - Any senior citizen facing negative monthly cash flow could benefit from borrowing against the equity in their house. Installment payments from a reverse mortgage can help seniors make their required monthly payments.

EMERGENCIES - A sudden and unanticipated change in monthly expenses can catch senior citizens in a position where they don't have the time to set up their reverse mortgage as fast as they need the funds. By opening a reverse mortgage line of credit, the funds are instantly accessible by check. Just like a home equity line the interest will not accue if the balance is zero.

Setting up a HUD-approved reverse mortgage requires receiving consumer information from a mortgage counselor. To apply an applicant does not need income, but the appraised value of their house, the applicant's age and the current level of interest rates will determine how much money is available through a reverse mortgage. Reverse mortgages rates will vary from case to case due to all the factors considered. The U.S. Department of Housing and Development which regulates reverse mortages has detailed information about reverse mortgage loans on their site

Posted in: Mortgage

Tagged in: HUD, mortgages rates, reverse mortgage

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Where are the Banks Offering Inflation-Linked Deposits?

March 24, 2009

By Clark Schultz | Money Rates Columnist

If you do a search for banks offering rates which are indexed to the S&P 500, Dow Jones Industrial Average, or yields on U.S. Treasuries you can find various money market and CD products. Missing from the list of variable-rate offerings is anything tied to inflation. There are inflation-linked securities available, but surprisingly there are no banks directly advertising an inflation-indexed CD or money market.

Banks do offer variable-rate deposit products. Banks like Capital One Bank who offers a Treasury Indexed CD or Pacific Trust Bank with their Indexed Money Market provide customers a FDIC-insured account with an interest rate that changes as Treasury bill yields change. The problem for investors is that Treasury yields may not necessarily increase as fast as inflation as measured by the Consumer Price Index (CPI). The Treasury Department offers a product called TIPS (Treasury Inflation Protected Securities) and the I Savings Bond, which both have rates of return linked to the trailing rate of inflation in the United States. It is about time for some banks to step up with a similar product.

The advantage for depositors would be that their savings account could be protected against a sudden increase in inflation. Because inflation erodes the value of money, hedging against inflation with a portion of your savings could be a smart step. The banks, to their advantage, would be offering a very low-yielding account because the economy and prices are stagnant right now. But for a depositor earning low interest rates anyway the difference is minimal. For an inflation-indexed bank product to work, what would be mandatory (and obvious) would be that the banks would need to protect principal against deflation. In other words if inflation was negative (called deflation) a depositor's interest rate would be 0.00% and not negative. Now which bank will be first to offer this product?..........

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Should Parents Worry About Prepaid College Savings Plans?

March 12, 2009

By Clark Schultz | Money Rates Columnist

There is a group of parents in America right now who made an outstanding investment decision for their children's college savings. Due to good planning (or good fortune) they purchased prepaid college savings plans. These plans allow parents to pay for future college tuition at today's prices. The plans administered by either states or the universities allow parents to protect themselves against the relentless increase in college tuition. With the average 529 college savings plan down over 30% from less than one year ago, these parents have made a very wise decision. In fact, by paying for college in today's dollars they are protected from both inflation and from stock market losses. Kudos to these parents.

But do these parents need to be concerned that the prepaid tuition promises will be kept? There have already been reports that many states are facing severe deficits in their ability to meet their prepaid tuition obligations. Even worse, in at least one state legislators are openly debating borrowing the money currently held in prepaid college savings plans which would leave the funds severely underfunded. We know that the stock market has decimated the value of these plans. And we know that college tuition is always increasing. What we don't know is how the states and universities are going to make up this difference. Hoping that the stock market magically shoots back up to 14,000 to increase the value of assets in the plans just doesn't quite cut it.

Now is the time for parents to check out exactly who is administering their prepaid college savings plans. Determine what their guarantee is to you and how that can be enforced. If you live in state where there is an open debate regarding tapping into prepaid funds held by the state, contact your state representatives and let them know that this is a sacred cow which should be protected. You made a great decision - now you need to protect yourself.

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