High Yield Savings Accounts

Everyone loves the idea of hitting a home run as an investor – buying the next Apple (APPL) when it’s at $10 a share and watching it climb to $100, then $200, then split, then climb to $300, $400, $500, etc.  That $10 investment can quickly become worth hundreds or even thousands of dollars. Unfortunately, for every home run you hit, you are just as likely to strike out. That is one of the inherent risks with investing. There are times when you can win big, and there are times when you can lose big.

But there are things you can do to mitigate your overall risk. For example, you can thoroughly research your investments. That won’t remove all of the risk, but it may help you reduce the number of clunkers in your portfolio. The other thing you can do is limit your exposure. And that is one of the greatest things you can do to ensure you don’t risk your retirement fund.

Playing with Mad Money – the 10% Rule for Investing

If you are the type of investor who wants to have a little fun and play your hunches, then don’t deny yourself the pleasure and the opportunity to make a nice return on your investment. But do it responsibly. Many studies have shown that a balance of index funds that mirror the major stock market indexes outperforms managed mutual funds over time. And of you go back and look at the greatest investors of all time, you will find that only a handful have been able to beat the markets for any sustainable measure. I know my investing skills aren’t as good as Wareen Buffet’s!

But even though I’m not Warren Buffet, I still want to try my hand at investing outside of the traditional index funds. For example, I would like to invest in day trading and Foreign Exchange (currency trading). I even opened a free demo account to learn more about Forex trading.

So if you feel like having fun or taking some risks with your investments, then consider maintaining a portfolio that is a balance of low cost mutual funds, bonds, and other “boring” investments that historically perform fairly well and are relatively hands off. But feel free to set aside around 10% of your portfolio as “Mad Money.” This is money you can use for whatever investments you feel like. The goal, is to limit your exposure to excessive risk and hurting your long term investment prospects. If you hit an investment home run, then your portfolio will grow and you can take some money off the table and place it in relatively safer investments. If you strike out on your investment, then you won’t lose too large a portion of your portfolio and you will be able to recover more easily than you would if you had staked a larger percentage of your portfolio.

It’s true that you may not earn as much money this way, but it is also true that you won’t lose as much either. And here is the kicker – you can use the 10% rule as a starting point. If you find that your Mad Money investments are paying off at a good clip, then you can consider letting the money ride in other investments, or adding a larger portion of your investments to your Mad Money portfolio. On the flip side, you might want to reconsider how much money you keep in your Mad Money section of your portfolio if you are consistently losing money on your investments.

In the past, banks could automatically enroll their customers into overdraft protection plans for checking accounts.  The protection plans typically allowed checks and debit card transactions to go through even if you’ve spent all of the money in your bank account.  If you overdrew your account, you would simply be charged an additional $25 to $35 per item overdrawn.  As of August 15^th, the Federal Reserve created new rules which require banking customers to “opt-in” (agree) to overdraft protection.  If you don’t opt-in for the protection, your debit card will be declined if you spend more than what’s available in your checking account.

Many customers have chosen to keep overdraft protection on their checking accounts, despite the hefty overdraft fees for each transaction that may go over their available balance.  For some, it happens so infrequently that the protection just saves them from a potentially embarrassing mistake where their card is declined in the store.  For others, they rely on the ability to overdraw their account just to make it through until the next payday and the $30 overdraft fee is well worth that convenience.

If you’ve declined overdraft protection, or you’ve chosen to keep it – you have options.  Here are some tips from a financial expert for not using overdraft protection and spending so much money in overdraft fees.

Connect Your Savings to Your Checking Account

Some banks will allow you to connect your savings account to your checking account.  If you accidentally write checks or swipe your debit card for more money than you have available, the bank can pull money to cover your transactions from your savings account instead of charging overdraft fees.

Most banks do charge for this service.  The average rate is around $10 each time the bank has to move money from your savings account to your checking account – but it is still less than paying overdraft fees.  Ideally, you’ll keep a close eye on your account balances though, and when you notice your checking account is getting close to being overdrawn, you can make a transfer from your savings account to your checking account yourself – without paying any fees.

Get a Line of Credit

A line of credit is a revolving ‘loan’ attached to your checking account.  It’s similar to overdraft protection in that the bank will pull from your line of credit to cover any purchases you make that go over your available checking account balance, but there is no overdraft fee associated with each transaction that gets overdrawn.  Instead of overdraft fees, you’ll pay interest on the amount of money you borrow from your line of credit.

Create Your “Own” Line of Credit

If you aren’t eligible for a line of credit through your bank due to credit reasons or because your bank doesn’t offer it, you can always create your own “line of credit”.  Deposit extra money in your checking account, but don’t include it as part of your balance on your check register.  If you overdraw your account, the money will be there to cover it.  No interest charges and no overdraft fees!  Keeping about $200 extra in your account should cover most accidental overdrafts, but remember if you do end up dipping into this reserve, you’ll want to replace it so that it’s available for the next time.

Aside from the obvious grieving period, the aftermath of the passing of a friend or relative can be a stressful period for another reason – namely, the process of dealing with any inheritance and the pressure of what to do with it once it is obtained. However, used wisely an inheritance can make a substantially beneficial impact on your finances and your future. There are a few things you can do with an inheritance that will ensure you are on a stronger financial footing in later life.

Take Your Time

Quite frankly, the first thing you should do when dealing with an inheritance is not rush into anything. You and your family need a period to grieve and making rash decisions can impact you negatively if you’re not careful. Take the necessary time to deal with the person’s passing before moving on.

Do Your Research

If you have a family solicitor, they should be able to help you make the necessary arrangements to deal with the deceased’s estate. The Government is a good source of information on this, offering detailed guides on what to do in the event of a received inheritance.

Pay The Government

The Government will want a cut of the inheritance in the form of an estate tax. The IRS works out what the deceased’s total net worth was and requires a percentage of that, which is often more than the relatives have hanging around in their bank accounts. One of the best ways to pay for inheritance tax is to sell unwanted properties, with ‘does-what-it-says-on-the-tin’ sites proving a viable resource when selling unneeded houses. Sites like these will often sell houses no matter what the condition, so don’t feel like you need to pay for repairs before trying to sell.

Erase Your Debts

Receiving a large windfall at an unexpected time is the perfect opportunity to clear your debts and improve your credit rating. Pay off any outstanding balances on credit cards or perhaps even your entire mortgage. Sorting out your debts will put you in a much better position for the future.

Invest Your Money

Research various bank accounts, ISAs and bonds that have increased interest rates and put your money aside into these. However, you should keep an eye on these accounts as interest rates constantly change – just because a particular account is a strong performer one year does not necessarily mean it will be so the next, so be prepared to move your money around.

Give To Family Members

Spreading the wealth amongst family is not only a great way to help those nearest and dearest to you, but will also help keep the memory of your deceased loved one alive. Giving the money away as gifts early will also mean the Government will have a smaller claim on your own estate in the future.

Enjoy Your Windfall

Whether you spend your money on more education to improve your career prospects or use it to buy stocks in a strong-performing firm, make sure you enjoy it – your deceased loved one would want you to.

Over the last few years, various people have been badly affected by the economic downturn. It has not been kind on many people’s finances, so a lot of people find themselves relying on overdrafts and credit cards to respond to rising living costs. However, a number of banks, as well as the British government, are now working on a new solution that could really help citizens avoid debt: jam jar accounts.

While the name may not ring any bells with a lot of people, jam jar accounts are an extremely clever way of working with money on a monthly basis, and ensure that all bases are covered – all the while working against the threat of debt. The “jam jar” element of these accounts is the way a single account is split into three distinct pots, dealing with personal spending, standing bills and savings. Limits on each one can be set by the bank or customer, depending on their circumstances.

The particularly clever thing about jam jar accounts is the automation involved between the three. A larger support framework keeps things balanced, so standing bills are always covered, prioritizing these above personal spending. Budgeting and bill payment behavior will be updated through low-balance alerts via text or email, notifying the account owner of automated fund transfers that are made between jam jars to avoid people going into the red.

On top of this, trained “money managers” are on standby at any time for people to speak to, and these experts give personalized budgeting advice as well as direct access to consumer services like the Citizens Advice Bureau, should further help be needed.

These accounts have received the backing and recognition of a number of organizations. Alongside ethical banking institutions – which naturally operate these offerings – the Fair Banking Foundation also promotes their usage. While trusted services such as local authorities are slow on the uptake, the issue is being brought up in parliament by MPs, with notable consumer rights champions.

Of course, this all comes at a small price, though not an excessive amount. Treasury-commissioned reports are currently pushing for prices of between £5 and £7 a month, which works out at an average of £1.50 a week. This effectively means that one snack or coffee a week is all a person would have to sacrifice for peace of mind.

Are you considering opening a savings account? These tips can help you find the best savings account for your needs, regardless of whether you are a financial pro, or if you are just starting your path to savings.

For beginners

The savings account landscape – both in Australia and across the rest of the world – offers more choice than ever before. And it is doubly important to get your savings in order as the world deals with being in the grip of such severe financial upheaval. Australia has dodged the worst of this, of course, meaning that the interest rates of our savings accounts are not as grim as they might be.

So the rewards that can be had from a good savings account remain potentially very good. But with the sheer number of banks and other financial institutions on the market, anyone not familiar with the details and possibilities of a savings account can be overwhelmed with information, jargon, offers and options. Nowadays of course, the savings account market is largely dominated by online banking.

So with taking care of your savings, and maximizing them if possible, such an imperative part of personal financial planning, here are some basic things to consider when confronted with the decision over which account and which bank to go with.

Interest rate

This will be the deciding factor for many. A good interest rate is essential for maximizing your savings, and should be the first thing you look for. At the present time, a reasonable rate in Australia would be between 5.2% and 5.5%, and a good one over 5.6% for a straightforward online savings account.

An additional, vital factor affecting interest is how often it is paid out on your account. Some institutions pay interest monthly, perhaps others daily. This will affect your broader savings strategy, and the timing of your deposits into your account.

Bank

Be sure to check on a bank’s history, reviews and financial standing before taking up one of their savings products  – particularly in the current financial climate.

Some of the bigger, more established banks may therefore be the safer option, such as UBank, NAB or the other major institutions.

Your situation

There are many reasons you could be saving money, such as for a home, car, big holiday, education or whatever. In these cases, a high-interest savings account would be a good option.

However, you may be a student or a first-time saver. If so, you are a major target for many banks. Students may need a good deal of flexibility in their savings account and preferably no costs or fees.  Students, as well as first-time savers, may well also be eligible for special offers, deals and indeed interest rates as first-time customers.

Incentives

Many major banks offer good incentives for your savings. Be sure to keep an eye out for additional interest paid if you make regular deposits, or indeed waiving of certain fees if you place a certain sum in the account. You may also be eligible for higher interest rates once you reach a certain balance. Introductory rates are also a common option from banks, though always be aware how much lower the rate will be once the introductory period expires.

Access

You must decide how easily available you want your savings to be. If your savings account features mobile or online banking, you can transfer your money straight over to your current account. The convenience of this may be an attractive proposition for some, though the temptation to access savings may make this an unwise option. An over-the-counter savings account or perhaps a term deposit might be worthwhile for those who do not want easy access to their savings.

Remember when you were ten years old and you started a savings account and had your very own pass book? You put your allowance or paper route money into the account and earned seven percent interest. You thought it was so cool that after a year your fifty dollars became $53.50. Of course, at that time your parents were paying eighteen to twenty percent on their mortgage, or more.

What to Consider in Choosing an Account

If your concern is maximizing your savings returns in today’s day and age of prime at 3.25 percent, you have to be studious and determine which type of account best suits your needs. You have to consider the following:

• Rate of return
• Liquid or fixed?
• Minimum balances
• Monthly fees
• Federal regulations on type of account

Account Types and Their Characteristics

Most savings accounts pay interest in basis points instead of full percentages. There are minimum balances to consider, as well, and monthly fees that are far greater than the tiny interest they pay. Money Market accounts are similar to savings accounts but are designed for much larger sums of money. They usually pay between two and three times the interest of a straight savings account, depending on your principal. Smaller sums pay less interest. Savings accounts and Money Market accounts are liquid assets, which means you can access the money any time you want.

Regulation D, however, controls the number of transactions you can have on these types of accounts in a month. These are not Demand Deposit Accounts, or DDAs, where you have unlimited transactions. If you go over six transactions of certain types in a calendar month, your account could suffer consequences ranging from removal of interest to closure of the account.

You also have the option of certificates of deposit, or CDs. These are fixed, non-liquid assets where the money is tied up for a predetermined period of time. There are penalties for early withdrawal. CDs generally pay the same as Money Market accounts, and sometimes much more. You will never have the returns of a high risk mutual fund portfolio, but savings type accounts offer unparalleled safety. Peace of mind is worth a lot.

As a rate comparison, remember that savings accounts offer the least growth. Money Markets and CDs offer more interest, but come with different stipulations. Check around and you will find what you need.