Personal Finance Blog By MoneyRates - September 2010

What's the worst place you could retire to?

September 15, 2010

| Senior Financial Analyst, CFA

Where is the worst place you could imagine spending your retirement?

This coming Monday, September 20, will post its list of the 10 worst states for retirees. If you are giving some thought now to where to spend your golden years, this list is a must-read.

What makes a bad place for retirement?

What will determine the list of the worst states for retirees? Naturally, subjective opinions on what makes a place great or terrible will vary, but takes an objective view by coming up with a list of quantifiable criteria.

Those criteria take into account the following factors that can make a state a bad place for retirees:

  • A bad economy. Even if you are no longer working, you don't want to be living in a bad economic environment, because that can lead to deteriorating housing values and a decline in the availability of commercial and social services. looked at tax burden, unemployment and cost of living as economic indicators.
  • Crime. Both personal and property security are important to retirees, so the study accounted for both.
  • Bad weather. Since most people are comfortable in a moderate climate, the accounted for how extreme a state's temperatures could be, high or low, throughout the year.
  • Shorter life expectancy. There are surprising variations among states in life expectancies. Whether it is because of the health care, the environment or something else, states with short life expectancies should be less attractive to retirees.

Add your take on retirement locations

These objective criteria are food for thought before you decide on a retirement location. Ultimately, your own opinions matter, so we invite you to share your opinions.

Join the discussion by commenting on this blog. Before we release the 10 worst places to retire, get your thoughts in early. What do you think are the worst states for retirement, and why?

When our list of the worst states for retirement is published next week, tell us what you think. What redeeming features do these states have? What terrible places for retirees did we overlook?

Posted in: Miscellaneous

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Bank customers choosing savings and money market accounts over CDs

September 14, 2010

By Barbara Marquand | Money Rates Columnist

Amid the tough economy, consumers are keeping more of their cash liquid and less of it tied up in CDs, according to Market Rates Insight, a San Anselmo, Calif. market research firm for banks and credit unions.

Although total security deposits dropped in the second half of 2010, deposits in money market accounts, savings accounts and checking accounts actually rose by $171 billion, or 3.2 percent, the firm said. Time deposits like CDs dropped by $200 billion, or 8.5 percent.

The biggest increase in deposits was seen in money market accounts, which gained $138 billion. This was followed by other types of savings accounts, which were up $76 billion, and checking accounts, which were up $43 billion, according to Market Rates Insight.

However, the company's latest National Pricing Indicators report showed that deposits overall are decreasing for the first time in 20 years.

Balances dropped by $29 billion in the first half of 2010, finally showing some sensitivity to low interest rates. Prior to that deposit balances had been on the rise since the first quarter of 1992, when balances totaled $3.26 billion. They peaked in fourth quarter of 2009 at $7.69 billion, then fell 0.4 percent to $7.66 billion in the first half of 2010, Market Rates Insight said.

Best CD rates beat highest interest rates on money market accounts

Best CD rates for one-year CDs are about twice the rates for money market accounts and savings accounts, but interest rates on all deposits are so low that savers may figure that the extra earnings from a CD aren't worth locking away money for the term. Also, savings and money market accounts give easier and faster access to cash, and with these accounts there's no early withdrawal penalty. With traditional CDs, however, you forfeit three months of interest if you cash them in early.

Interest rates on CDs and money market accounts aren't expected to improve anytime soon - not with the lackluster economy and national unemployment at over 9 percent. The best that savers can do is compare bank rates online to get the highest rates possible, however low they may be overall.


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Will money market rates be a victim of the Fed (again)?

September 13, 2010

| Senior Financial Analyst, CFA

Some very prominent investment experts are forecasting additional moves by the Fed to lower interest rates. If they are right, you would want to close your money market accounts and savings accounts, and put the money into long-term CDs before rates drop further.

Before you do that, though, you'll want to consider the value of those forecasts.

Goldman Sachs, PIMCO and Bank of America all expect the Fed to get even more aggressive about buying bonds to drive down market yields. The idea is that driving down yields will lower borrowing costs and provide stimulus to an economy that seems to be teetering on the brink of a relapse into a recession.

What to do if you buy the hype

The national average rate on savings accounts is 0.18 percent, according to the FDIC. Money market rates average 0.26 percent. At those levels, there isn't much room to fall, so don't expect Fed policy to drag savings account and money market rates down too much further.

However, the best CD rates in the five-year range are still up around 3 percent. If the analysts are right, 10-year bond yields could be pushed down to around 2 percent, which would probably mean those long-term CD rates would fall as well. This would argue in favor of locking up CD rates at today's levels.

A contrary view

On the other hand, there are reasons to take those high profile predictions with a grain of salt:

  • Recently, there have been signs that the economy might be coming around without further intervention.
  • Investment firms sometimes have a way of hyping certain trends. Goldman Sachs, for example, made headlines a couple years ago by predicting that oil would reach $200 a barrel. As a leading bond manager, PIMCO wouldn't have much incentive to promote a bear market for bonds.
  • When an outcome is widely expected, it is already reflected in market prices. In other words, bond yields have already fallen a long way on the expectation of a weak economy. They may not have much further to fall.

In short, you should think about bond market trends when making decisions about your deposit accounts, but don't necessarily believe everything you hear from Wall Street.

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President Obama's jobs program a mixed bag for savings accounts and money market rates

September 8, 2010

| Senior Financial Analyst, CFA

Whatever your politics, you probably have something in common with President Obama: you have an interest in seeing the economy create more jobs.

For anyone whose job security and income is affected by the employment market, stronger job creation would be a big help. For the President, job creation would improve his party's chances in the upcoming mid-term election. For anyone with money in savings accounts, money market accounts or other deposit vehicles, growth in employment may be the key to getting money market rates and other bank rates up from near-zero levels.

So what should you make of the President's latest jobs program?

Jobs program: Good intentions, serious flaws

A jobs program has obvious appeal as a means of addressing what ails this economy. It certainly makes more sense than the Fed's program of driving interest rates down to unnatural levels. Unfortunately, the Obama jobs program also has serious flaws:

  • It creates tax breaks by closing tax loopholes for oil companies. As easy as it is to beat up on the oil companies right now (or anytime, for that matter), it's important to remember that those companies are employers too. Taking money out of their pockets could take jobs out of the economy.
  • Tax breaks are a form of borrowing against the future. The deficit already threatens to be a drag on future economic growth. Lowering taxes always sounds good, but when the budget is running a deficit, we all pay for it eventually.
  • This jobs program may not pass in time -- or at all. We've seen from the stimulus program that it can take a long time before government programs have an impact on jobs. With the passage of this program complicated by the upcoming elections, any near-term impact on the economy is doubtful.

All in all, the jobs program seems well-intentioned but flawed. The economy seems as though it will have plenty of time to try to cure itself before we find out whether this jobs program was a good idea or not.

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Do you track your checking account with your cell phone? Most consumers remain wary.

September 7, 2010

By Barbara Marquand | Money Rates Columnist

Although a growing number of consumers are taking advantage of mobile banking, most have yet to use their cell phones or PDAs to manage their checking or savings accounts.

The two biggest reasons, says an August report by Javelin Strategy & Research in San Francisco, are concerns about security and a "lack of a compelling value proposition." In other words, many question, what's the point?

Javelin, which says 19 of the 30 largest U.S. financial institutions now offer mobile banking, rates USAA Federal Savings Bank "best in class" for the second year in a row. Other banks with the most robust mobile banking offerings are Bank of America, JPMorgan Chase, Citibank and Wells Fargo, all of which provide multiple modes for mobile banking, including text banking, access to websites created for mobile banking and smart phone applications.

Opening a checking account, transferring money and making deposits with a smart phone

Still, banks are missing opportunities. Just over one-third of top financial institutions have Android-based applications, compared to 80 percent that have iPhone apps, even though Android owners now outnumber iPhone users and half of them are mobile bankers, the research firm says. Additionally, other opportunities to increase functionality lie ahead, according to Javelin, including adding money movement, remote deposit and account opening capabilities to mobile banking.

Meanwhile, results of a recent survey by KPMG LLP, an audit, tax and advisory firm, show that almost one in five U.S. consumers has conducted a banking transaction on a mobile device, compared to only 9 percent when KPMG completed the survey 18 months earlier.

Young people ages 16 to 24 are the most likely users, with a third reporting they had banked on a mobile device. Among U.S. respondents who had never banked via cell phone, roughly half cited security and privacy as the primary reasons.

Those who said their were comfortable with mobile banking grew to 16 percent, up 6 percent from the last survey. Those who weren't comfortable dropped to 55 percent, an 11 percent decline, according to KPMG.

Still, U.S. consumers are behind much of the world when it comes to mobile banking. KPMG says in the new survey that about one-third of consumers globally say they are comfortable making financial transactions such as accessing their checking account on a mobile device.

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