Savings accounts

[burundi]

We want our savings to be fairly liquid at this point, so my husband and I have a money market account through our credit union. It’s not got a great rate (3.43%) right now, but it beats the rate at a regular savings account and it’s easy to get at if we need it.

@ivylass

I have an HSBC account. It’s paying 3.03% right now. When I opened it it was 4.75%, IIRC. Whenever the Fed cuts interests rates to “stimulate the economy” what people sometimes forget is that it also means savings accounts interest also gets cut.

It’s a bummer. I feel like the ants who work and save and live within their means are being screwed so the grasshoppers can get themselves further into debt.

[jharvey963]

@nd_n8

Ah crap, I converted 1000 Euros instead of USD.

This I say, this is why I don’t play the currency game.

That, plus, now I’m wondering what constitutes “Austrailian Resident”. Perhaps I could get a P.O. Box for under $42 per year and still pull in a profit, as well as a boatload of coupons for vegemite or Ginger beer or something.

I don’t know what the forwarding fee from the AU P.O. Box to the states would be, but again, if the whole package came in under $42 USD I’d be golden.

Sittin’ back, raking it in.

It doesn’t sound like you’ve really understood the “currency risk” involved. The conversion rate of the Australian VS US Dollar varies significantly, MORE than enough to negate the little bit of extra interest you get. Take a look at this chart of the AUS to US dollar for the last year.

http://finance.yahoo.com/currency/convert?amt=1&from=USD&to=AUD&submit=Convert

The rate has varied from about $1.24 to $1.06. This is about a 15% fluctuation over the last year. Your 6.99% interest rate will probably be swamped by the currency fluctuation. If you’re lucky, for the good – but just as likely for the bad.

Also, don’t forget that you have to convert your US Dollars to AUS dollars, which isn’t free. It could cost you 1/2 to 1% each way, further reducing your gain.

J.

[Richard_Pearse]

@nd_n8

Ok, so other than the fact that I am sitting smack dab in the middle of Indiana, what is stopping me from opening an account in Australia? My $1000 USD turns into $1689 AUD and then I start drawing 6.9% interest instead of 2.7% (with my current bank)? I’m not real sure how the whole compound interest works but just looking at the numbers it looks like an extra 4.2% or $42 USD per year just for piddling around online and writing a few letters. What am I not seeing?

Your Australian ING account must have another Australian bank account (not ING) linked to it. This is the account that is used to transfer money into and out of the ING account. I suspect it would be difficult setting up this feeder account without physically being here.

As mentioned above the exchange rate can change a bit, and with the Australian dollar being quite strong right now, it’s probably not a good time to convert USD into AUD. A better time would’ve been a couple of years ago. But a couple of years ago the US financial market wasn’t in crises and you didn’t need to look around for better interest rates anyway.

If you want a better return for just piddling around on the internet and writing a few letters, put your money into shares or something.

[InLucemEdita]

@SlickRoenick

Where can i put money for savings that has a better interest rate than savings?

Does your employer have a tax deferred savings plan (401/403/457)?

If so, bump up your contributions to the max so your take home pay is as close to nothing as you can get it. Then use the $5000 to pay your bills until it runs out.

You make 20% (or whatever your income tax rate is) almost instantaneously.

Of course you’ll have to remember to bump the contribution back down when the money runs out so you can pay bills like normal, but that’s not too hard.

Your money will also be earning interest (or growing in value hopefully) until your retirement in that account. If you have a medical emergency or want to buy a first home you’ll be able to withdraw that money without penalty (but will have to pay tax on what you withdraw). You may also be able to take loans against that money if necessary and pay yourself back.

The money won’t be quite as liquid as it would be in a taxable cash account but hey, if you want $1000 that would otherwise go to Uncle Sam…it’s hard to beat it.

[SlickRoenick]

@InLucemEdita

Does your employer have a tax deferred savings plan (401/403/457)?

I work for a hospital so 403b is my option. I’ve had it for 5 years now since i started working here and there is a shitload in there. It would be nice if it was easier to manage the way savings account is.

If you have a medical emergency or want to buy a first home you’ll be able to withdraw that money without penalty (but will have to pay tax on what you withdraw).

I understand the tax part since the money goes into the 403b from my paycheck before it gets taxed. When you say “without penalty” what does that mean? Or rather, how would someone get penalized for withdrawing their own money?

Side question: How do i actually get the money from 403b once it is withdrawn–check? electronic transfer?

[Trunk]

I always recommend t-bills.

You can lend money to the government for 28 days, 3 months, 6 months, or longer depending on how liquid you need the money to be.

You should be able to turn your $5000 into $5015 or so if you don’t need it for the next month.

You can now buy t-bills in multiples of $100, I think. So, if you need $500 over the next month, and want to protect the rest, buy $4500 worth of t-bill.

treasurydirect.gov

[InLucemEdita]

@SlickRoenick

I work for a hospital so 403b is my option. I’ve had it for 5 years now since i started working here and there is a shitload in there. It would be nice if it was easier to manage the way savings account is. I understand the tax part since the money goes into the 403b from my paycheck before it gets taxed. When you say “without penalty” what does that mean? Or rather, how would someone get penalized for withdrawing their own money?

Side question: How do i actually get the money from 403b once it is withdrawn–check? electronic transfer?

Well, it is complicated and you should check with your Human Resources person, your tax advisor, or perhaps your 403b plan administrator.

That said, the first thing to keep in mind is that if this is $5000 that you are truly saving, and want to save it for retirement, and want to reap the large tax benefits of saving for retirement, then you should NOT be planning to withdraw it early. Early is usually before age 59 and 1/2. How old are you? Roughly?

But it doesn’t hurt to think about what the consequences would be if you did withdraw early, or had to for a true emergency. So, here’s SOME RULES for one plan.

I’ll highlight a few things…first the penalty:

Even if an employer’s retirement plan allows cash withdrawals, your clients can’t take distributions before age 59½ as long as they’re still working for that employer. Those who leave their employer and take distributions before 55 will be subject to an additional 10 percent tax penalty in addition to regular income taxes.

Then how to avoid the penalty:

Hardship Withdrawals
Clients with severe financial need may be able to make withdrawals from their accumulation before reaching age 59½ through a hardship distribution. A withdrawal will qualify as a hardship distribution if it meets two criteria. First, the withdrawal must be made to meet an immediate and heavy financial need such as medical expenses; post-secondary education expenses for the client, his/her spouse children or dependents; or preventing foreclosure or eviction. Second, the client must establish that without the withdrawal it will not be possible for the need to be met.

And often you can borrow against your account as well…but be careful…if you don’t pay it back you’ll have to pay the penalty for early withdrawal.

Fundamentally the government is giving you an enormous tax break to encourage you to save for retirement. If you break your end of the deal by taking the money out they charge you a penalty. Your money isn’t locked up tight in a vault forever, you can get it without penalty in times of true need, (medical, college, foreclosure), but you can’t get it without penalty if you only want to take a vacation to Puerto Vallarta. But you might be able to get a loan against it for the vacation…not that I’m recommending that.

[SlickRoenick]

@InLucemEdita

How old are you? Roughly?

Roughly i’m 26, more precisely i’m 26 ½ if that matters at this age.

The whole reason i asked about savings account at all was to find out how ot get the most of my money. I want to move out of the parents’ house. And houses out here in rural Carroll County have disgusting prices. Even surrounding counties are just as bad. People say housing prices are coming down, but i’m not seeing this happen any where within 30 miles of the hospital.

Thanks for all the info far everyone!

[InLucemEdita]

@SlickRoenick

Roughly i’m 26, more precisely i’m 26 ½ if that matters at this age.

The whole reason i asked about savings account at all was to find out how ot get the most of my money. I want to move out of the parents’ house. And houses out here in rural Carroll County have disgusting prices. Even surrounding counties are just as bad. People say housing prices are coming down, but i’m not seeing this happen any where within 30 miles of the hospital.

Thanks for all the info far everyone!

I know a friend who just took a withdrawal from a 401 in order to use it for a first-time home purchase, and was able to do so without paying the penalty, although he did have to pay tax on it, of course. However, you MUST check with your plan to see if that is an option. If it is not an option, and you intend to use this money to buy a house in the near future, then putting the money into your retirement account may not be for you, and you should take some of the other good advice in this thread.

Good luck.

[iamthewalrus_3]

@The Controvert

I really don’t understand why anyone would care about the savings rate. First of all, the $50 bonus for new customers obliterates the tiny difference between 3%, 1%, 5%. Second, if you have any substantial amount of money to invest, it should not be sitting in a savings account. Mutual funds, bonds, CDs, etc. are all much better investments, depending on your timeframe. If you have more than a thousand dollars in savings, you might want to look into a money market account.

I try to keep several months of expenses in a savings account as an emergency fund. I could use a money market account, but they’re only marginally better rates than good online savings accounts, and they’re a bit more risky. Since this is my “Oh my god I lost my job and my car was stolen” money, I want it to be as liquid and risk-free as possible.

[msmith537]

@The Controvert

I really don’t understand why anyone would care about the savings rate. First of all, the $50 bonus for new customers obliterates the tiny difference between 3%, 1%, 5%. Second, if you have any substantial amount of money to invest, it should not be sitting in a savings account. Mutual funds, bonds, CDs, etc. are all much better investments, depending on your timeframe. If you have more than a thousand dollars in savings, you might want to look into a money market account.

THANK you. Finally someone offering some legitimate advice other than stupid scams that won’t work or will at best give you about $100 return on hours of time invested.

My bank offers a no-risk CD that’s paying about %2.5 APR. Not great, but it’s better than a savings account and you can take out your money at any time w/o penalty. So $5000 would become $5125 in a year.

Stocks can be risky, but long term, no-load index funds and money markets are relatively safe.

The general rule, however, is the higher the return, the greater the risk. So you are not likely to find that safe investment that will return %20 annually.

@InLucemEdita

I know a friend who just took a withdrawal from a 401 in order to use it for a first-time home purchase, and was able to do so without paying the penalty, although he did have to pay tax on it, of course.

Did they take out the money or just borrow against it?