The ABCs of CDs
CDs differ from traditional savings accounts in that you are committing to keep a sum of money put for a set period of time. Known as the “term length,” these periods generally range from as short as three months to up to 10 years.
In return for your commitment, you should get a higher interest rate than you would by keeping the money in a standard checking or savings account. Generally speaking, the longer the term, the higher your interest rate. The amount you deposit also has a bearing on the rate you will receive.
CDs are protected at financial institutions that have federal backing. For banks, that's the Federal Deposit Insurance Corp.; for credit unions, it's the National Credit Union Administration. Some state-chartered credit unions may operate with private insurance. In the event your bank or credit union fails, your CD deposit is insured for up to $250,000.
Again, this is a commitment between you and the bank or credit union, and if you break it by withdrawing money from a CD before the end of the term, it will cost you. The penalty may be a flat fee, a specified number of months' worth of interest or some combination of the two. If you think you might need the money before your three-month, one-year or five-year term is up, best not to put it into a CD. Any extra interest you earn might be canceled out by the early withdrawal penalty.
The CD menu
Most CDs offer a fixed rate for a fixed term, but some institutions offer variations. Here are some common types:
- Variable-rate CDs: These may be tied to a market index, or they may let you take advantage of future rate increases.
- Low/no penalty for early withdrawal: Also called liquid CDs, these allow greater access to your money, but as a trade-off usually come with lower interest rates and may require you to maintain a minimum balance.
- Callable CDs: These allow the bank or credit union to shorten the terms as they wish.
- Jumbo CDs: Basically the same as a regular CD, but with the reward of even higher rates in exchange for even higher minimum deposits, typically on the order of $100,000 or more.
- IRA CDs: These are held in a tax-advantaged individual retirement account, or IRA.
The ladder principle is built on the idea of climbing to higher earnings by depositing money into multiple CDs that come due, or mature, at different times. This approach might appeal to the consumer with, say, $10,000 in savings who (a) wants to earn more than she would from a traditional savings account and (b) doesn't want to lock it all up for five years.
So instead of putting it all in a five-year CD, you could split it among five different CDs, with maturity dates of one, two, three, four and five years. As each certificate matures, you reinvest the money in a new five-year CD. You're enjoying the highest possible interest rate, and you're still freeing up some money every year.
Overall, CDs are a safe form of savings that keep things simple, with the caveat you have to keep your hands off your funds for some amount of time. You could call them a comfort investment to reduce the drama of personal finances.
© Copyright 2016 NerdWallet, Inc. All Rights Reserved
Financial Tips for College Students
With college move-in days right around the corner, students living away from home for the first time may need to brush up on some financial dos and don'ts as they prepare for the college experience. Here are some basic reminders on how to avoid financial pitfalls during the transition from high school to college.
Create a budget before you leave home.
Before you get to campus, establish what your income will be each month, whether that's from a work-study stipend, part time job, etc. Then, subtract all your debts, including what you'll need to spend on housing, food, gas (if you're driving), and loan payments. Once you have a good idea of how much you can spend each month, set aside a portion of that for an emergency fund. Be sure to update and adjust your budget monthly according to your actual spending. Your budget won't help you control your spending if you set aside $100 per month for groceries but regularly spend $200. Set yourself up for success with a realistic monthly budget based on your actual spending habits.
Look for student perks.
Take advantage of your status as a student! Many restaurants and stores have special discounts for students with a college ID. Leverage these extra opportunities to save money. Renting your textbooks or buying them used can also save you hundreds, and many booksellers offer discounts for college students. Most college and university campuses also offer free or inexpensive entertainment options, too. Look around and see what you can find to keep your monthly expenses down.
Use credit cards wisely.
Credit cards aren't evil and they don't automatically trap the people that use them under a mountain of debt. In fact, it's a good idea for students to use a credit card regularly in order to help build a credit history. Without that evidence of on-time payments and available credit on their credit report, students may have a difficult time renting once they leave student housing. Many credit cards also offer tech-friendly budgeting tools that can help college students keep track of their spending. However, using credit cards only works in your favor if you pay off the full balance each month and never use the credit card to buy something you couldn't buy that same day with cash. That approach will keep you from using credit to live beyond your means, while still helping you establish a good credit score.
Finally, make sure you protect yourself against fraud. Keep your online banking information secret and monitor your accounts frequently. One convenient way for college students to monitor their accounts, which are often at a financial institution in a different city from where they're attending school, is to use online bank statements and mobile banking alerts. Ask your local banker for more information about these products and services.
Source: WBA Consumer Column E-Newsletter
5 Financial Tips for Fall
Fall means dreams of pumpkin spice lattes, turkey dinners and a cozy holiday season just around the corner. Here are five ways to make sure you're financially well-equipped for the last stretch of the year.
1. Tackle back-to-school shopping wisely
Whether you're shopping for your kids or yourself, approaching back-to-school sales with a clear focus can ensure you're spending on the right things. It might be tempting to buy something just because it's on sale. To guard against impulse buys, make a list of what you need, not what you want. Set a budget and stick to it. If you must make large purchases such as laptops, look for reliable models that should last through several school years.
2. Winterize your home: Save energy, save cash
As temperatures drop, home heating bills rise. But properly sealing and insulating a house can save an average of about 11% a year on energy costs, according to the Environmental Protection Agency. Keep your expenses to a minimum by sealing gaps and cracks in windows and doors with weatherstripping or caulk. Clean and inspect your furnace to ensure it's running as efficiently as possible. Also consider increasing your insulation. Though your wallet will take a hit for the season, you'll probably get more than your money's worth in a few years.
3. Start your holiday gift hunt
We all know that the sale to beat all sales — Black Friday — comes on the heels of Thanksgiving. But don't forget about the little guys: Labor Day, Columbus Day and Veterans Day usually mean smaller but still significant discounts. As the year winds toward its close, expect sales on appliances, cookware, clothing and electronics. Beat the winter rush and get started on your holiday shopping.
4. Traveling in December? Book your trip now
If you're flying for the holidays, now is the time to book if you haven't already. Follow your favorite airlines on Twitter or Facebook, or sign up for their email announcements for deals. This is also a great time to cash in your travel credit card miles, especially if your earned perks are due to expire at the end of the year.
5. Check your flexible spending account balance
If you've been putting money aside in a health care flexible spending account, or FSA, make sure you spend it before your money effectively disappears at year's end. Book yourself a dentist or eye appointment, or get an annual physical.
And check with your company to see whether there's any wiggle room. Your employer might allow you to roll over up to $500 to the next year or give you a few months' grace period.
With a little planning in the fall, you can save enough money to get through the long (and often pricey) holiday season that's just ahead.
© Copyright 2016 NerdWallet, Inc. All Rights Reserved
Security Q-Tip – Scam of the Week: Phishing & Ransomware Basics
It seems like every week there is a new threat that needs to be confronted. We have all become accustomed to viruses and malware, but phishing and ransomware are the new norm.
Phishing is an attempt to obtain sensitive information via electronic mail by masquerading as a trusted entity. I’m sure you’ve seen it yourself. You receive an email seemingly from someone you know. It may ask you for sensitive information or try to trick you into opening an attachment or clicking a link.
Ransomware, which is often delivered via a phishing message like that described previously, is malware that installs on a computer and invokes malicious software code that encrypts all the data it can reach. In doing so, files you use every day are no longer accessible and you are presented with a pop-up that tells you your data has been encrypted and in order to regain access to your data, you have to pay a ransom.
So how can we prevent these attacks???
Best Practice Tips to Avoid Phishing Attacks
It's important to remain skeptical at all times. If in doubt, ring the supposed senders of the email and ask them to confirm whether it was them who sent it. Make sure you use the phone number on the official website, not one given in the email. As well as being skeptical, remain vigilant and check the details. Here's a quick recap of what to look out for:
- Email is not encrypted by default. For that reason, it would be extremely rare and irresponsible for a reputable company to ask for private information - passwords, credit card numbers, etc.
- Don't trust display names. A display name is the reader-friendly title of a person or company that appears in your inbox. Check the actual email address first. If you don't like the look of it, don't open it.
- In the email address, look for fake domains. The domain is whatever comes after the '@' symbol in the email address. A scammer's address will have a slight deviation in spelling from the real one.
- Look for a logo. Counterfeits are usually copied from an authentic site but have been altered or appear in low resolution. Check it against the organization you usually deal with; look at their website and compare.
- If you notice anything suspicious about the links in an email, don't click on them. It sounds abundantly obvious, but sometimes we're in such a rush we don't think before we click on a link.
- Fake emails are notorious for bad spelling. If you see some obvious spelling mistakes and appalling grammar, then your inner alarm bell should be ringing.
- Check the subject header - Spelling mistakes, a sense of urgency and fear
- Salutation - Strange type greetings, or completely impersonal out-of-character ones
- Dodgy links - Don't open them
- Email addresses - Check them. Do they seem legitimate? If not, don't click.
- Poor spelling and grammar - A big giveaway.
Investment Corner: Redefining Retirement in the 21st Century
When a man retires and time is no longer a matter of urgent importance, his colleagues generally present him with a clock.
- R.C. Sheriff
The days may be over when a gold watch is a somewhat ironic and less-than-useful gift for a retiree. If the experts are on target, retirement in the next century will scarcely resemble the conventional image of lazy days spent on cruise ships and golf courses. You might plan to open a business of your own. Or perhaps you'll return to school for that graduate degree you never had the chance to complete. Of course, you'll probably still find time to sit back and put your feet up.
Creating a New Life Cycle
At the turn of the 20th century, the average life expectancy was 47 years. Today, the average American newborn can look forward to about 78 years of life. What's more, the average life expectancy for today's 65-year-old has increased to 84, according to the National Center for Health Statistics.
What's behind this trend? Some causes are obvious, such as improved health care, both early on in the form of preventive medicine and during the later years of life. Medical advances, including hypertension drugs and hip replacements, allow older Americans to remain active. Healthier lifestyles are also a contributing factor.
"People are treating their bodies with greater respect," said Dr. Sanford Finkel of the Buehler Center on Aging at Northwestern University. "They're giving up smoking, learning to eat right, and exercising regularly. Inevitably, these trends lead to healthier, longer, more productive lives."
The result is a new way of thinking about age. In her best-selling book, New Passages, Gail Sheehy argues that the "mid-life passage" generally thought to take place at age 40 now occurs a decade later. The period between ages 45 and 65 is no longer middle and old age, according to Sheehy, but a "second adulthood." Psychologist Ken Dychtwald, chief executive officer of Age Wave Inc., a California-based consulting firm, also sees new lines being drawn. Using his model, ages 25 to 40 represent young adulthood, while ages 40 to 60 comprise a new stage known as "middlescence." Next comes late adulthood (60 to 80), followed by old age (80 to 100), and very old age (100+).
But perhaps more important than the categories is the effect that longer, healthier lives may have on the traditional life cycle of education, work, and retirement. It will be replaced by a less linear cycle, according to Dychtwald, who predicts short-term retirements, followed by any combination of career shifts, part- or flex-time work, entrepreneurial endeavors, and continuing education peppered with occasional "mini-retirements."
Plan for the New Retirement
So what does this redefined retirement mean to you? There is no one answer. In the coming decades, "retirement" will mean something different to each of us. Regardless of your decision, you'll need to design a financial plan suited to your specific vision of the future.
Retirement Income -- A good starting point might be to examine your sources of retirement income. If you pay attention to the financial press, you've probably come across at least a few commentators who speak in gloom-and-doom terms about the future for American retirees, decrying a lack of savings and warning of the imminent growth of the elderly population.
True, there is widespread concern about at least one traditional source of income for retirees -- Social Security. Under current conditions, Social Security funds could fall short of needs by 2033, according to the Social Security Administration. But the reality is that Social Security was intended only to supplement other sources of retirement income. In fact, Social Security benefits account for only 36% of the aggregate income of today's retirees, according to the Social Security Administration.1
Even pension plans, once considered a staple of retirement income, only account for 18% of the retirement-income pie. In recent years, employers have been moving from traditional defined benefit plans based on salary and years of service to defined contribution plans, such as 401(k) plans, funded primarily by the employees.
This shift makes it even more important for individuals to understand their goals and have a well-thought-out financial plan that focuses on the key source of retirement income: personal savings and investments. Given the potential duration and changing nature of retirement, you may want to seek the assistance of a professional financial planner who can help you assess your needs and develop appropriate investment strategies.
As you move through the various stages of the new retirement, perhaps working at times and resting at others, your plan may require adjustments along the way. A professional advisor can help you monitor your plan and make changes when necessary. Among the factors you'll need to consider:
Time -- You can project periods of retirement, reeducation, and full employment. Then concentrate on a plan to fund each of the separate periods. The number of years until you retire will influence the types of investments you include in your portfolio. If retirement is a short-term goal, investments that provide liquidity and help preserve your principal may be most suitable. On the other hand, if retirement is many years away, you may be able to include more aggressive investments in your portfolio. You will also need to keep in mind the number of years you may spend in retirement. Thirty years of retirement could soon be commonplace, requiring a larger nest egg than in the past.
Inflation -- Consider this: An automobile with a price tag of $20,000 today will cost $29,600 in just 10 years, given an inflation rate of just 4%. While lower-risk fixed-income and cash equivalents may play an important role in your investment portfolio, if used alone they may leave you susceptible to the erosive effects of inflation. To help your portfolio keep pace with inflation, you may need to maintain some growth-oriented investments. Over the long-term, stocks have provided returns superior to other asset classes.2 But also keep in mind that stocks generally involve greater short-term volatility.
Taxes -- Even after you retire, taxes will remain an important factor in your overall financial plan. If you return to work or open a business, for example, your tax bracket could change. In addition, should you move from one state to another, state or local taxes could affect your bottom line. Tax-advantaged investments, such as annuities and tax-free mutual funds, may be effective tools for meeting your retirement goals. Tax deferral offered by 401(k) plans and IRAs may also help your retirement savings grow.
Prepare Today for the Retirement of Tomorrow
To ensure that retirement lives up to your expectations, begin establishing your plan as early as possible and consider consulting a professional. With proper planning, you can make retirement whatever you want it to be.
Points to Remember
- As people live longer and healthier lives, retirement begins to take on a whole new look.
- You'll need to develop a financial plan suited to your specific vision of the future.
- Under current conditions, Social Security funds could fall short of needs by 2033.
- You will need to rely on your own personal savings and investments for the majority of your income in retirement.
- Keys to determining your financial plan are time, inflation, and taxes.
1Source: Bureau of Labor Statistics, November 2009. (Most recent available data.)
2Past performance is no guarantee of future results.
Stock investing involves risk including loss of principal. No strategy assures success or protects against loss. The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.
Because of the possibility of human or mechanical error by Wealth Management Systems Inc. or its sources, neither Wealth Management Systems Inc. nor its sources guarantees the accuracy, adequacy, completeness or availability of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information. In no event shall Wealth Management Systems Inc. be liable for any indirect, special or consequential damages in connection with subscriber's or others' use of the content.
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