Comments on: Alternatives to High Yield Online Savings Accounts

By: Kevin

Kevin — Wed, 04 Mar 2009 03:00:23 +0000

I am weary of municipal bonds. I can’t imagine that a lot of communities are not going to go bankrupt in the near future.

By: Mike

Mike — Wed, 04 Mar 2009 02:36:06 +0000

Here’s a novel idea. Go back to school and prop up your resume. Maybe then you can get a higher paying job.

By: Slinky

Slinky — Tue, 03 Mar 2009 16:57:52 +0000

Great minds think alike?

I hadn’t considered a high interest checking or bonds. It turns out that there aren’t any places that have a good rate near me for the checking, and I’d rather stick with my local credit union anyway. Bonds just aren’t liquid enough for my tastes, at least not for my emergency fund.

I just moved my eFund from ING back to my credit union where I’ll be doing a cd ladder. The early withdrawal penalty is such that I’ll never lose my principle unless I pull the money out in the first 7 days. In other words, perfect for an eFund. If I don’t use it, I make money, if I do need it, it’s all there. The rates aren’t super fantastic right now, but even a 6 month cd beats ING’s current rates.

By: Jacqui

Jacqui — Tue, 03 Mar 2009 16:10:18 +0000

I was just having this debate with my husband last night. We have a rather large emergency fund – large enough we decide to give up some liquidity for a better return. Since CD rates are abysmal, and I bonds aren’t much better right now, we bought into municipal bonds (found some for re-sale in our state with a 2010 maturity).

By: DDFD at DivorcedDadFrugalDad

DDFD at DivorcedDadFrugalDad — Mon, 02 Mar 2009 17:00:28 +0000

Good post! Solid suggestions!

By: Kevin

Kevin — Sun, 01 Mar 2009 17:50:34 +0000

You have to really understand i-bonds to decide if you want to buy them or not and I am afraid the comments and the posting here does not cover it in depth. I am a big believer in i-bonds. Here is a summary of what you need to know:

1. yes, they are paying 5.64% and that will be for the first 6 months you own it. After that, my guess is there is a 99% chance it will pay 0% for the next 6 months. The fixed rate will get wiped out by the deflation/inflation portion and I doubt they will move the fixed rate to the 5% or so they would have to to make it pay out.

2. However, that is not all that bad. If you buy them at the end of a month (like March) that counts as 1 month even though you only had them for like 1 day. Then, sell them at the beginning of the final month and that counts as a full month. In essence you get an 11 month CD, tax deferred, government insured for about 3% interest. Not a bad deal.

By: Miss M

Miss M — Sun, 01 Mar 2009 17:24:12 +0000

I doubt I-bonds will go to zero any time soon, but yes I expect the rate on current bonds to drop in May. But even if we experience deflation, I doubt the actual government numbers will reflect it. People fear deflation, I think they’ll do what they can to hide it.

By: Funny about Money

Funny about Money — Sun, 01 Mar 2009 14:09:32 +0000

I’m still uncomfortable about paying off the small second mortgage on my house, even though the money is in the bank to do it. I just feel TOOOOO antsy about the economy to face the future without a serious emergency fund…and the amount I’ve saved to pay that $169/month debt would support me for almost two years in the event of a layoff. Since at my age I’m unlikely ever to get another decently paying job, the emergency fund will have to carry me through to full Social Security & Medicare.

Instead, I’ve been developing as many strategies as I can think of to cut day-to-day expenditures and save money out of cash flow while I still have a cash flow. If and when the economy improves, then I’ll pay off the loan. But until then, I’m clinging to every penny and keeping it in relatively safe investments (money market, credit union).

By: thomas

thomas — Sun, 01 Mar 2009 06:45:46 +0000

Paying off debt is great advice. Since rates are really low and your debt is probably much higher (talking interest here) you will save in the long run. Just make sure you keep some cash handy and don’t drain the emergency fund just yet.

By: Rich @ richlikeyou.com

Rich @ richlikeyou.com — Sat, 28 Feb 2009 19:32:11 +0000

My credit union (forum) offers a 4.75% no fees no min, checking account with a direct deposit, and 10 signature based debit card purchases per month. Midwest America Credit Union (www.midwestreward.com) offers 5.31%. Charter Bank (www.turbochecking.com) offers 5.01% rewards checking and is open to anyone in the nation on balances up to $25k with a direct deposit + 13 debit card transactions.

By: kitty

kitty — Sat, 28 Feb 2009 17:10:45 +0000

@CK – one thing to keep in mind about I bonds. The current rate is only valid until end of April. After April they will have new inflation numbers, so the inflation portion will be different. I.e. if you buy now, you’ll get same .7% fixed rate but different inflation portion. I don’t know what this will be – they look for inflation immediately preceding February of this year, and during these 6 months, the inflation was very low, we may have even had deflation. In which case the inflation portion will be negative, so the rate may even be 0.

If you buy in May, you’ll get different fixed portion of the rate. We don’t know what it’ll be, it could be higher or lower.

Regardless, keep in mind that given the current deflationary environment, the composite rates will be very low in the near future. If we get inflation in a couple of years as many believe, I bonds’ rate will be higher.

Personally, I am waiting for May before I buy more I bonds. I managed to buy my 10K in March last year when I got 1.2% fixed rate. I don’t see much reason to lock in .7% fixed rate. But… If this goes down I might regret it.

By: GREENI$BLACK

GREENI$BLACK — Sat, 28 Feb 2009 04:46:59 +0000

I have been watching my HSBC Online account decline for about six months now. It’s pretty annoying. I am constantly struggling with your “Consider Paying Off Debt” point. I don’t have a lot of money in my emergency fund, but I am financially stable. I am considering borrowing half of it to put towards my debt, which will switch from a 0% interest rate to over 15% in June. Do you think it would be worth it to tap my funds and pay myself back, in the interest of getting rid of debt faster?

By: nickel

nickel — Fri, 27 Feb 2009 21:50:48 +0000

Thanks, g. Beat me to the punch. Yes, you have to calculate the “composite” rate (I edited the post to clarify what we’re talking about).

By: FlatGreg

FlatGreg — Fri, 27 Feb 2009 21:40:22 +0000

Ah, thanks. Didn’t see that the inflation rate was semiannual.

By: g

Fri, 27 Feb 2009 21:24:04 +0000

to FlatGreg:

The rate you receive is not just the addition of the fixed and inflation rate. It is slightly more complicated:

Composite rate = [Fixed rate + (2 x Semiannual inflation rate) + (Fixed rate x Semiannual inflation rate)]

In the link you posted, scroll all the way down.

By: FlatGreg

FlatGreg — Fri, 27 Feb 2009 20:13:24 +0000

Where do you see the 5.64% on I Savings bonds? I’m looking here but it might be the wrong place:

http://www.treasurydirect.gov/.....dterms.htm

It shows 0.70% fixed rate and 2.46% inflation rate for a total of 3.16%.

Thanks for the link to checkingfinder – I see some nearby for 4-4.5%.

By: Jon

Jon — Fri, 27 Feb 2009 17:39:35 +0000

At CK:
Something to keep in mind about I bonds, you cannot redeem them for at least 12 months (11 months +1 day if you buy at end of month). Then after 12 months to 5 years you loose 3 months interest if you cash in.

http://www.treasurydirect.gov/.....redeem.htm

That being said, I still like them and the potential tax advantaged use for education expenses. It will be interesting to see what happens to them if the CPI goes way up due to all of the cash that will flood the market to pay for the “stimulus” spending.

By: Stephen

Stephen — Fri, 27 Feb 2009 16:21:48 +0000

I’m on the high-yield checking bandwagon. We can open 2 accounts for our household and each can make 5.01% on up to $20,000. There are several others in our area that make anywhere from 3.5% to 4.5% as well. The requirements aren’t that difficult to meet either. I’m done with all the online savings accounts with the exception of ING for some specific purposes.

By: Noah

Noah — Fri, 27 Feb 2009 14:18:26 +0000

Have you seen checkingfinder.com? They have high yield checking accounts with minimal stipulations to qualify for the rate.

By: Chris

Chris — Fri, 27 Feb 2009 14:11:16 +0000

You could also consider doing energy savings projects in your home (replacing windows, old furnace, boiler, adding insulation, roof – the list goes on). Many of these things not only will pay you back much better than a savings account, but now with the government incentives, it makes it even more attractive. I am an Energy Engineer for a major pharmaceutical company and have done some typical projects that have 3 year or better paybacks. That equates to over 25% return on your money. And that also does not take into consideration the escalation costs of natural gas or electric. You can start by having an energy audit done on your home for a couple of hundred dollars and follow the recommendations. While home projects may not have this great of return, just as long as you beat the rate of return that your currently getting, it makes sense. Remember to treat is as an investment.

By: CK

CK — Fri, 27 Feb 2009 13:31:48 +0000

So with the I-Bonds. So if you take them out after 3 months there is no risk to losing any of your initial principal? And if you take the money out after 1 month (just worst case scenario here) what happens?

I guess what I’m asking is 5.6 is a great rate, is it still worth it to keep money in there for a year maybe two or so knowing your going to be incurring the 3 month penalty?