Wednesday, October 12, 2011

Choose the Best Savings Account for You


In a recent national study, nearly three in four Americans surveyed reported having a savings account, money market account or certificate of deposit (CDs). CDs do not allow for as easy access to your money as the other types of savings accounts since they require the deposit of a fixed sum of money for a specified amount of time and have penalties for early withdrawal. Savings accounts should do more than merely safeguard your money. They should also motivate you to save with convenience and compounded interest that adds to your savings.
Types of savings accounts
The typical savings account is a passbook account that offers a low interest rate and generally charges little or no fees or has balance requirements.
The second type is a high-yield savings account such as a money market account that offers a higher rate of interest but usually has restrictions regarding a minimum balance and the amount of withdrawals you can make.
For both types of accounts, the FDIC insures $250,000 of money deposited in one insured bank. Accounts kept in different banks, but not different branches of the same bank, are each insured for $250,000.
How to choose the best account for you
If you need easy access to your money and plan to make regular withdrawals, the restrictions of a high-yield account may discourage you from saving. Although it won’t pay as much interest, the low balance requirements and unlimited transactions of a passbook account may be a better fit for your needs.
It may not be worth spending the money on gas to drive across town to get a slightly better interest rate. Look for banks with branches near where you live or work. Some high interest banks are primarily online and you should be sure you know the process to make a transaction and the time it will take before completed.
While you can earn money with interest, you can lose it in fees. Be sure you understand and compare all the conditions regarding deposit, withdrawal and balance limits when shopping for a bank.
Some high-yield accounts offer higher rates during an introductory period and impose certain restrictions to maintain the rate. If you are saving with a long-term goal in mind, look for the account that will offer the best return over that entire period.
Three Ways to Save
  1. Ask for direct deposit at work if they offer it and money will go into your savings account automatically.
  2. Pay yourself first with any extra money you find by cutting back. If you decide to spend $25 a week less at work by bringing your lunch, avoiding the vending machine and not going out for coffee, plan to allocate $5 to savings.
  3. Stick to your spending plan and pay your bills on time. The money you may be spending on late fees for credit card payments or checking account fees would be put to better use earning interest in a savings account.

Wednesday, October 5, 2011

How Well Do You Know Your 401(k)?


Since the time which major corporations shifted away from defined benefit plans (pension plans) the responsibility and risk for retirement accumulation moved to the employee. 401(k)’s and other qualified plans or defined contribution plans have been the predominant vehicle for retirement accumulation for most Americans over the last 30 years.
In a recent article published by Forbes, these defined contribution plans, specifically the 401(k), were called into question regarding the fees that are charged to the account owner by third party service providers.
The article goes on to reference a new study by AARP that illustrates how in the dark most American are in regards to their 401(k) plans and the fees charged.
“7 in 10 participants reported that they did not pay any fees in their 401(k)…  and 62% said they are unaware of how much they are paying in fees for their plans.” – AARP: 401(k) Participants’ Awareness and Understanding of Fees
“The government has expressed concern that this widespread ignorance is causing significant financial damage.  High fees and hidden conflicts of interest are the culprits in causing 401(k) plans to under perform professionally managed traditional pension plans…, a U.S. Government Accountability Office report declared in January.” – Forbes
As a significant portion of the American population moves towards retirement it is all the more important to understand the vehicle in which you are relying on to sustain you in the later years of life. Don’t fall prey to ignorance or complacency…educate yourself today.
Resources and References:
AARP – Study of 401(k) Participants’ Awareness and Understanding of Fees
U.S. GOA – 401(k) Plans, Improved Regulation Could Better Protect Participants From Conflicts of Interest
BrightScope – Look Up a Company 401(k) – www.brightscope.com
Forbes.com Find the Fees