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.

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

Do it Yourself Credit Repair

A credit report shows a person’s entire financial history from the date when they open their first credit card to present day. The report contains information including all open and closed credit accounts, mortgages, loans, etc. A credit score can suffer from late payments, unpaid credit card balances, and defaults. But, what if your credit report contained harmful information that was completely inaccurate? This is actually a more common occurrence than one would think. A 2004 study estimated that as many as 79% of credit reports contained some kind of factual errors.

A large percentage of these errors were less harmful things like the misspelling of a person’s name or an incorrect address. But overall 30% of all credit reports contained serious errors that might cause a consumer to be denied a loan or new credit. This makes keeping close tabs on your credit report an absolute necessity.

How Can You Check Your Report for False Information?

Consumers are constantly being barraged by “Free Credit Report” advertisements on television and the internet. Unfortunately for us, these services are not actually free. The marketing campaign serves ass a gimmick to get people to sign up for credit monitoring, then receive a credit report after purchase. Credit monitoring is a service that alerts people when new credit accounts are opened in their name, or other changes are made to a person’s credit history. This may be a helpful service if you are very concerned about identity theft, but some experts think that keeping tabs on your own credit report a couple times a year is sufficient. The costs for credit monitoring can rage from $5 – $30 a month.

The best place to check your credit report without having to pay a single cent is annualcreditreport.com. This is a website that was created in response to the Fair Credit Reporting Act. It is run by the 3 major credit bureaus and gives everyone free access to their credit reports once per year. This website is extremely simple to use and takes about 5 minutes to receive your information for the 3 bureaus.

Once you have access to your 3 reports, you can inspect them to see if the information is accurate and if any of them are negative credit items. Make sure all closed credit accounts correctly show up on your report as closed. Another error that was shown to be on reports was a double listing of accounts like mortgages or credit cards. Make sure all the data in each of the 3 reports reflect your true financial status.

What To do If You Find False Information

If you find information that you do not believe is correct, you can send a dispute letter to the offending bureau. This dispute letter should contain a copy of your report with a written letter that clearly states what errors are on the report. You should also include any documentation that supports your claim. This letter should be sent certified mail, so you have proof that it was received by the credit bureau. Your claim will usually be investigated within a month’s time and the company that is responsible for the specific credit account will be contacted. If the claim is found to be invalid, the company that made the claim has the obligation to contact all 3 bureaus and ask them to make the necessary changes.

Even though credit report errors are very common, there are ways to have these errors fixed. If you still arent quite sure how to handle the situation with credit report errors, the FTC provides a sample dispute letter here, along with some more detailed information to help you out.

The Wow Factor In Current Mortgage Rates

30-year mortgage rates have fallen for eight straight weeks now, and are now at the extremely low level of 4.49 percent. Still, the real wow factor in current mortgage rates can be found in 15-year mortgages.

15-year mortgage rates are at 3.68 percent, which is close to an all-time low. What's striking is that this is 0.81 percent below the level of 30-year mortgage rates.

Over the eleven previous years so far in this century, the spread between 15-year and 30-year mortgage rates has ranged between 0.31 percent and 0.66 percent, so the 0.81 percent spread between current mortgage rates is very unusual territory.

Even though the more compressed repayment schedule of a 15-year mortgage would result in significantly higher monthly payments than a 30-year mortgage, current mortgage rates indicate the anyone buying a house or refinancing a mortgage should at least consider the shorter option.

Over the long run, of course, the amount of principal involved in a 15-year and 30-year mortgage would be the same. However, the interest you would pay on a 15-year mortgage is considerably less. This is true in general because you would be repaying the loan in half the time, but it is especially true now because of that unusually wide spread between 15-year and 30-year mortgage rates.

While this is an opportunity for new home buyers to save a great deal of money over the course of a mortgage, the opportunity represented by 15-year mortgage rates should be especially compelling for anyone who is refinancing.

If you are several years into paying down a 30-year mortgage, you effectively no longer have a 30-year loan. Your remaining principal is spread over however many years you have left on the mortgage. For example, if you are ten years into a 30-year mortgage, you effectively have 20-year loan remaining. At that point, it might not be too big a stretch to refinance into a 15-year loan. The exceptionally low level of 15-year mortgage rates may mean the increase in your monthly payments is manageable, and in the long run your interest savings will be substantial.

Don’t Take Out a Loan From Your 401(k)

As a very last resort, employees with active 401(k) retirement accounts have an option to take out a loan against their future. Borrowing money is never a good position to be in, but if you’re borrowing money from yourself, you ease the pain. 401(k) plans permit borrowing at interest, and paying interest to yourself can help improve your finances in retirement.

The existence of a 401(k) account is often used as an excuse for not creating an emergency fund; if a loan is available at any time, why settle for low high-yield savings accounts when your money could be put to better use? This isn’t a valid argument as elucidated by the dangerous drawbacks of 401(k) loans.

Most people who take out 401(k) loans stop contributing new earnings to their 401(k) plans. Not only is the withdrawn loan not earning more or increasing value in your retirement account, you’re not adding new investments.

One of the most popular emergencies requiring more cash is the loss of a job. If you lose your job, you won’t be able to take a loan from your 401(k). Additionally, if you already have a 401(k) loan when you lose your job,it will be due within 60 days or less. At the same time you need cash, you’ll need to pay back your loan or suffer income taxes plus a 10% penalty. According to a recent study by Aon Consulting, 70 percent of workers who lose their jobs while having an active 401(k) loan default on that loan.

Even if the 401(k) loan is paid back in full, there’s another drawback. The interest on the loan is considered income, and therefore taxed, twice. When you pay interest back to the 401(k) account, it is paid with your regular income, which would be included on your tax return as taxable income. Once that interest is in your 401(k) account, it is mixed in with the before-tax contributions, if your loan was from the before-tax portion of your 401(k). When you retire and you withdraw your funds, the full amount of your before-tax contributions and their earnings will be subject to income tax. You could also argue that the principal portion of the loan payback amounts are taxed twice as well, because a 401(k) loan payback is not considered tax-advantaged and does not reduce your taxable income like a 401(k) contribution.

Congress is currently mulling legislation to limit 401(k) loans. If the law passes as it currently stands in bill form, employees could only take three loans against their 401(k) at a time. Repeated borrowing just sounds like trouble. The law would allow employees to continue contributing to 401(k)s while a loan is outstanding. I would think if any extra money is available, it would be better served paying off the loan rather than making new investments. I suppose it could be more tax efficient this way, but paying off debt should be a priority, even if the borrower is the same individual as the lender. Third, the law would ban 401(k) accounts from issuing debit cards that allow investors to use retirement funds as a transaction account. This sounds reasonable.

Some 401(k) plans might be more restrictive than the law. In most cases, borrowing from a 401(k) is just a bad idea. It’s tempting in emergencies, though, particularly for households that have not been able to create an emergency fund. A 401(k) loan should be a last resort. If you get stuck and are unable to pay the loan, the government takes a big chunk. On a $10,000 loan, assuming 25% federal taxes, 5% state taxes, and a 10% penalty, you’ll only be able to keep $6,000.

Have you or would you borrow from your own 401(k)?

Money Smart Kids Allowance Tips

SVDCU wants to share tips for teaching children good habits about money management. The information was originally published in Smart Parenting - Money Smart Kids.

Allowance

Experts agree that the very best way to teach money- management skills is to give your kids cash, along with control over how it's handled. Allowances provide hands-on, real-world experience in managing money and teach kids about decision-making, budgeting and the value of saving. 

When and How Much

Start giving an allowance by age 6 or 7. Some parents start even earlier, as soon as their kids learn the different values of coins and bills. Children ages 6 and up, however, usually have a better understanding of money and responsibility. The amount of the allowance should be enough to give your kids practice in spending—but not so much that they won't have to make choices. Some popular weekly formulas are $1 or $.50 for every year of age, or $1 for every year of school (e.g. $3 for a second-grader).

The Chore Debate

Most money experts agree that an allowance should not serve as payment for doing chores. Chores are part of kids' responsibility as members of the family. However, consider paying your kids for extra, more demanding tasks, such as cleaning out the garage. If it's a job you would pay others to do, such as baby-sitting, house painting or washing the car, hire your kids instead. 

Allowance Tips

ü  Pay it regularly and on time, such as every Friday evening.

ü  Give younger kids a weekly allowance, but consider paying teens on a monthly basis to reinforce budgeting skills.

ü  Clearly explain what the allowance is expected to cover. Are your kids supposed to buy school lunches with it? Purchase clothes and gifts? Or is it just for personal entertainment and treats? The amount you provide should realistically cover the anticipated expenses.

ü  Give out the allowance in small denominations. For example, if it's $2, give a $1 bill and four quarters. This teaches young kids money equivalents and helps them divide their income into savings and charity.

ü  Provide guidance, but leave decisions about how the money will be spent up to your kids (except if the proposed purchases are unhealthy, unsafe or contrary to your family's principles).

Allow your kids to make mistakes. These can be powerful learning experiences.

You can teach your children how to save money by partnering with SVDCU. Open an account today with a minimum deposit of $10.00. They then become a member of the "Very Important Kid" Club.

Research and Planning are Keys That Open the Door to Homeownership

Call Sterling Van Dyke Credit Union at 586.264.1212 for an appointment to discuss ways we can help you with homeownership.Purchasing a first home can be one of the most exciting experiences in life. But, if you’re not familiar with the home buying process, the experience can be akin to doing a belly flop into the middle of the ocean. So, whether you’re considering a modest starter home or a five-bedroom house in a posh neighborhood, you’ll do well to familiarize yourself with the ins and outs of buying a home.

Ask plenty of questions. Begin by quizzing your friends and family who have recently bought a home. Did they do something they shouldn’t have; should they have done something they didn’t? Besides offering some good general information, they can provide you with real estate agent and lender referrals.

Call your financial institution to learn of possible home buying seminars, or look in your local newspaper for sessions hosted by community groups. These educational sessions are usually offered for free or for a nominal cost. And they often feature a speaker with a financial background who can, in addition to explaining the home buying process, offer strategies for budgeting and improving credit scores.

Your local book bookstore is always a good resource. If you’d rather learn about the process from your desk, consider online sources such as the U.S. Department of Housing and Urban Development’s Web site, which offers information geared toward the first time homebuyer.

Understand your finances. So the handsome colonial you’ve been admiring for the last year has been put on the market. Before you put your big toe over the threshold, calculate how much you can spend on a home. Shopping for unaffordable homes is an exercise in futility and a real spirit dampener. By learning how much house you can realistically afford, you can pour your time and energy into finding the ideal home in your price range.

The rule of thumb says your house payment shouldn’t exceed 28 percent of your income. In other words, if your annual household income is $70,000, your monthly house payment shouldn’t be any more than $1,633. This amount should not only include your mortgage, but your property taxes, homeowner’s insurance and private mortgage insurance (providing you have less than a 20 percent down payment), and any association fees. You’ll also want to figure in the cost of yearly maintenance, which is about 3 percent of the home’s total value.

Phone your local property appraiser’s office for an estimate on property taxes on the homes in your price range. When you phone an insurance company to inquire how much it will cost to insure the home, have details ready such as the address, square footage, and the distance to the nearest fire department.

Even though your yearly income will grow over time, you may wish allot a smaller percentage of your income to your housing expenses, if, for instance, you plan to have children, or you’re late on paying into your retirement fund and want to increase your contributions to make up for lost time. You can reduce your monthly mortgage payments by putting a substantial down payment on your house, or by buying a more modest house until you’re financially ready to shoulder a large mortgage.

Order your credit reports. About the same time you figure out how much you can spend on a house, you’ll want to order copies of your credit report from each of the three credit reporting bureaus (Equifax, TransUnion, and Experian). Examine your report for things like accounts that belong to someone else and closed lines of credit that are still being reported as open.

If your credit has some blemishes, you may want to put off purchasing a home until you clean up your credit rating. Making your car payments on time for at least three consecutive months and paying down credit card debt will help demonstrate to creditors that you’re responsible enough to take on the responsibility of a mortgage. With an improved credit standing, you’ll have a better chance of qualifying for a reasonable interest rate.

Lenders like to see a debt-to-income ratio of less than 36 percent, depending on the lender. That means that no more than 36 percent of your pretax income should go to paying your mortgage, credit cards, alimony, student loans, and auto loans.(You still may qualify at a higher debit to income ratio, but you’ll likely feel financially squeezed.)

From LoveMyCreditUnion.org