As part of my continuing quest to find the best online savings account, I opened an account with E*Trade last night. In case you’re not familiar with E*Trade, they’re not only one of the best online discount brokers, but they also offer a full complement of banking services. This includes a high yield savings account with no minimum balance requirement, and no fees.

The signup process was very simple and straightforward. In the first couple of screens, they ask for all of the standard info: name, social security number, address, phone number, and driver’s license number. If you’re setting up a joint account, you’ll also need to enter this information for the joint account holder. After that, you need to choose your account type.

As you can see, we opted for the “Complete Savings” account, which is currently paying 3.30% APY. They also offer the opportunity to buy CDs of varying lengths, but the rates weren’t particularly compelling.

Next up, funding the account… I opted to fund it online, so I had to enter a bit of banking information. Note that you can do it via wire transfer or by sending in a check if you prefer.

Interestingly, they don’t make trial deposits for account verification. Rather, they just pull the funds directly out of your account. That being said, they limit your initial transfer from an unknown account to a maximum of $100, which is presumably designed to minimize their liability. As you can see below, they should initiate the transfer within one business day.

And finally, shortly after completing the process, we received the following e-mail:

We’ve received your application and will begin processing it immediately. As soon as all of your information is verified, we will open your account. You will then receive an email when your account is opened and visible online.

In the next business day, we will be also be initiating an electronic transfer totaling $1.00 to fund your account(s). In some instances, you may see funds going out of your existing account prior to depositing in your new account.

Until then, if you have any questions or need more information please call us at 1-800-ETRADE-1 (1-800-387-2331) from 7 a.m. to midnight ET, send a secure email to service@etrade.com, or visit an E*TRADE branch near you. Visit etrade.com/centers for a listing of locations near you.

We appreciate your business and look forward to serving your financial needs for many years to come.

And now, we wait… Our account should be up and running within a few days, and I’ll be sure to update when as things develop.

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According to Senate Majority Leader Harry Reid, the larger plan was slated to include unemployment benefits, auto industry help, aid to states and a large increase in infrastructure spending. The total package would have cost $61B to $150B. There was no mention of a second stimulus check.

Source: Mercury News

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On whether or not the US can maintain its position as a global economic leader…

Yes. There’ll probably be an evening out of the wealth somewhat. But I still think that the United States has so much momentum going for it. If we do the right things, there’s no reason we shoudln’t still be the global leader economically. You know, we had a great run on borrowed money for 30 or 40 years, but you can only go so long living beyond your means. And that’s what we’ve been doing.

On the $700 billion bailout plan…

When I was running CNN we never had any money and I never asked for a bailout. Where does it end? AIG, you know, they need $40 billion more and we only have them $100 billion last week, didn’t we? It’s just ridiculous. And now General Motors. They said we’re goin to give them $25 billion to retool. Retool what? They’ll run through that money so fast they’ll be back wanting more. We can’t keep every loser alive.

On whether or not “immense” wealth brings peace of mind…

When I did have it, I gave over half of it away. I lost 85%. And I’ve lost 12% of what was left in the last couple of months. But I never worshipped money. I started middle class. I didn’t finish college because I couldn’t afford to. I didn’t really have it for very long, because I made it real fast when CNN turned the corner, and that’s when I gave much of it away. Then right after that we did the AOL merger and it went down the toilet.

As far as our current economic woes go, I think he nailed it on the head. We’ve been living well beyond our means, and we’re just now starting pay the piper. As for the bailout, I likewise share his sentiment. It’s incredibly maddening to be put in the position off having to bailout bad businesses simply because their collapse would have catastrophic effects. What good will a bailout of GM do? While it would be nice if they turned the corner, it’s more likely that this will amount to little more than an expensive stay of execution.

In case you’re interested, Time.com has a full transcript of the interview, and AOL has the video.

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On the heels of last week’s revelation that Discover had brought back the $50 signup bonus on the Discover More card, I have even more good news… The $100 signup bonus on the Discover Business card is alive and kicking. Here’s the scoop:

Simply apply for the card and spend a total of $1000 within the first three months to qualify for the bonus. Other attractive features of this card include:

» 0% APR on purchases for 12 months
» Up to 5% cash back on select purchases
» No annual fee

And keep in mind that anyone can apply for a business credit card, so this deal is available to one and all. Simply enter your SSN if they ask for a taxpayer ID, and use your personal name as your business name.

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As I noted previously, the big advantage of a site like this is the increased granularity over a general site like Digg. In fact, Tip’d has 12 different finance-related categories, so it’s easy to focus in on specific sub-topics. The targeted nature of this site also selects for a more finance-savvy audience, resulting in more effective filtering of the articles that get submitted.

Anyway, Tip’d is now out of beta, and is officially launching today, complete with the following feature improvements:

• Published stories get direct links. No redirects, and no ‘nofollow’ directives
• Two new categories - ‘business’ and ‘entrepreneurship’
• The ‘Topple’ functionality (for down-voting) has been overhauled
• You can now subscribe to receive published articles via e-mail
• Upcoming stories can be sorted chronologically or by popularity
• More effective duplicate submission detection
• Better spam handling

At the time of this writing, Tip’d has over 1700 members who have submitted thousands of articles. It’s a pretty active place, so if you’re into that sort of thing, you should definitely check it out.

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Earn 3.50% on your FDIC-insured savings at FNBO Direct. You pay just $1 to open an account with no maintenance fees and no minimum-balance requirements. You can link the account to as many as three others, including FNBO’s bill-payment account. Use electronic transfers to move your funds and your ATM card to withdraw cash.

A couple of notes on this… First off, you don’t technically pay a dollar to open your account. Rather, you have to deposit a minimum of one dollar, though there’s no minimum once the account has been established. Second, that interest rate is a bit out of date. Following a decrease in the federal funds rate, they decreased their rate to 3.25% APY, which is still near the top of the heap.

Anyway, as you might recall, we opened an FNBO Direct account a few months ago, and we’ve been very happy with it. The signup process is a snap, the online interface is very clean and streamlined, and you even get an ATM card for accessing your cash in a pinch. What’s not to love?

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While these companies happen to be in particularly downtrodden industries, and thus might not be a harbinger of trouble on the retirement front in general, you know what they say… Past is prologue.

Looking back to the 2001-2003 recession, the Vanguard Group estimates that 5% of the company retirement plans that they manage suspended their matching retirement contributions, though most reinstated them within 2-3 years. Apparently these contributions represent an average of 11% of a companies profits, so they’re an attractive cost-cutting target.

The ability to freely reduce these sorts of benefits is one of the things that makes 401(k)-type plans more attractive to employers than traditional pensions. Unfortunately, the suspension of these sorts of benefits is akin to a pay cut for affected employees. Sure, they can’t touch that money until retirement, but it’s still their money.

Imagine how you’d respond if you received a memo saying that you’ve been targeted for a salary reduction. A cut in retirement benefits should be interpreted in exactly the same way.

Source: IndyStar.com

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While the IRS hasn’t yet released their official numbers, these numbers serve as a good approximation of how things will look next year. There is, of course, an additional variable in the mix this year: the recent Presidential election. So… Keep in mind that these projections apply to current marginal tax rates, which could be changing in the coming year(s).

2009 Federal Income Tax Brackets

The following graphic gives you the projected tax brackets for married couples filing jointly as well as single filers. As you can see, the numbers increased across the board. In other words, if these numbers hold up, your effective tax rate will drop a bit in 2009 thanks to our good friend, Mr. Inflation.

How much can you expect to save? The numbers vary with the particulars of your situation, but a married couple with a taxable income of $100k can expect to pay $312.50 less in federal income taxes in 2009. Again, this ignores the possibility of any major changes to our tax laws.

Other projected tax changes

In addition to changes in the tax brackets, the following changes are expected as a result of inflationary pressures:

• The standard deduction will increase from $10,900 to $11,400 for married couples, and from $5,450 to $5,700 for single filers.
• The personal exemption will increase from $3,500 to $3,650.
• The gift tax exclusion will increase from $12,000 to $13,000.

Oddly enough, it appears that IRA contribution limits will be staying the same even though these numbers are also pegged to inflation. Of course, we’re still waiting on official word from the IRS, so it’s possible that these will end up changing, as well.

Closing thoughts

As they say, nothing is certain but death and taxes. Regardless of what the income tax brackets look like next year, you should start planning now to minimize your tax hit. Be aware (and take advantage) of the most common income tax deductions as well as those tax deductions that people commonly miss. Adopt tax efficient investment strategies. And be sure to take advantage of perks at work like a flexible spending account (FSA).

Source: WSJ.com

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Funding our FSA

In the past, we’ve always erred on the side of caution due to the use-it-or-lose-it nature of FSAs. Thus, we’ve typically spent out our account well before the end of the year, and have thus (effectively) left money on the table in the form of tax breaks that we didn’t take. For 2008, we tried to be a bit more aggressive, but still ended up spending it out by the end of summer.

This time around, we’re pulling out all the stops. The maximum allowable election for 2009 is $5k, and that’s exactly what we’re doing. The primary reason we’re being so aggressive is that our oldest son is slated to get braces in January, so we’ll spend a major chunk of our FSA right off the bat. As for the remainder, we’ll easily blow through that over the course of the year.

Now it’s your turn… Use your FSA

If your employer offers an FSA, you really should consider participating. While the extent of your savings depends on the amount you set aside as well as your income tax bracket, you can easily save hundreds of dollars on your tax bill. And if you’re looking to reduce your taxes even further, be sure to check out my list of common income tax deductions.

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While it remains to be seen whether or not such an idea would gain traction given the recent (and dramatic) drop in energy prices, it’s still listed on Obama’s website. It was also listed as one of the energy-related agenda items on Change.gov as recently as last Friday, though all of the agenda items (not just energy-related) have since been removed.

What do you think of this idea?

I have to admit that it’s not entirely clear to me how this is an energy issue. Sure, it would be done in the name of high energy costs, but it really wouldn’t be any different than a second stimulus check. And besides, wouldn’t you expect the oil companies to simply pass the added cost of the windfall tax on to the consumers?

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Checking it out

Setting up an account was dead easy, but you should be aware that they’ll ask for some fairly sensitive information, including your SSN. This should come as no surprise, as they need this info to access your credit records, but I just wanted to forewarn you. The good news is that they never ask for a credit card number, so there’s nothing to cancel. Ever.

Once I had confirmed my e-mail address, I was in. The actual “product” that Credit Karma deliver is pretty simple. It’s a three digit number designed to reflect your credit score (see below).

As I understand it, this isn’t a “real” FICO score, but it is based on real information from your TransUnion credit report. They also recently changed their algorithm to make their scores more comparable to FICO scores. For the sake of comparison, I recently checked my FICO credit score via Equifax and learned that it’s 798.

Advantages of Credit Karma

Two real strengths of Credit Karma are that they offer a plethora of statistics that let you know where you stand in a relative sense (see below), and they allow you to track your score over time such that you can see trends, and perhaps spot anomalies that might be signal negative information on your credit report. Oh, and one more thing… They’re free.

Disadvantages of Credit Karma

There’s not much to say here. The biggest downside of this service is that, as I mentioned above, they’re not providing you with a “real” FICO score, but rather a reasonable facsimile of one, but… As I also noted above, this is still a very useful tool for tracking trends and figuring out where you stand relative to others.

The other point is that the site is fairly ad-intensive. That’s understandable, however, as they’re offering this service for free, and they need to make a buck somehow. The good news here is that the ads don’t reduce the usability of the site. Indeed, it’s still very easy to find everything that you need.

Alternatives

If you’d rather get your real credit score, and you don’t mind having to call back to cancel before you get charged, then you should check out TrueCredit or MyFICO. Both offer 30 day free trials that give you access to your credit reports and your credit score. See also my earlier article on how to get your credit report for free.

But, if you don’t want any headaches, Credit Karma is definitely worth a look.

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Regulators shut down Houston-based Franklin Bank and Security Pacific Bank in Los Angeles on Friday, bringing the number of failures of federally insured banks this year to 19… The FDIC said all of Franklin Bank’s deposits will be assumed by Prosperity Bank of El Campo, Texas… Meanwhile, all of Security Pacific’s deposits will be assumed by Pacific Western Bank of Los Angeles… The FDIC will retain the remaining assets of the two banks for eventual sale.

Before you start getting nervous, just keep in mind that FDIC insurance limits were recently increased to $250k per depositor per insured bank.

Source: AP News

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Assuming that you buy only what you can afford, you can pay off your purchases with a 0% credit card, stash the money in a high yield savings account, and then collect interest for the better part of a year. Just keep making your minimum payments, and be sure to pay off your balance before the 0% promo period ends.

With that said, here’s the list… Note that all of these cards offer 0% APR on purchases with no annual fee, and some also offer 0% balance transfers. Oh, and don’t let the business cards scare you off — anyone can apply for a business card.

Discover 0% Credit Cards

• Discover Business Card - $100 signup bonus!
• Discover Business Miles Card

Chase 0% Credit Cards

• Chase Platinum Visa Card
• Chase Freedom Credit Card
• Chase Platinum MasterCard
• Chase TravelPlus Visa Card
• Chase Flexible Rewards Platinum Visa

American Express 0% Credit Cards

• Clear from American Express
• Blue from American Express
• Blue Cash from American Express

Capital One 0% Credit Cards

• Capital One No Hassle Miles for Travel & Gas*
• Capital One No Hassle Miles Rewards (Excellent Credit)*
• Capital One No Hassle Points Rewards (Excellent Credit)*

Citi 0% Credit Cards

• Citi Diamond Preferred Card
• Citi Platinum Select MasterCard

HSBC 0% Credit Cards

• HSBC Weekend Card
• HSBC Platinum MasterCard w/Cash Back Rewards

*0% on purchases through October 2009.

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The silver lining here is that the cutoffs for making Roth IRA contributions and for deducting Traditional IRA contributions have increased 2009.

Roth IRA Contribution Thresholds

If you’re married and filing jointly, you can make your full Roth IRA contribution as long as your modified adjusted gross income (MAGI) is below $159k, and your ability to contribute phases out entirely at $169k. For single filers, the thresholds are $101k and $116k.

Traditional IRA Deduction Thresholds

If you’re married and filing jointly, you can make deduct your full Traditional IRA contributions as long as your modified adjusted gross income (MAGI) is below $85k, and your ability to deduct contributions phases out entirely at $105k. For single filers, the thresholds are $53k and $63k.

Deadlines for Contributing

Remember, you can make 2008 contributions all the way up to April 15, 2009. As for 2009 contributions, you can start as early as January 2nd, 2009 with a deadline on the back end of April 15, 2010.

Source: IRS.gov*

*IRS.gov does not yet list the $5k limits themselves, just the thresholds. However, I have found these same limits for 2009 from multiple reputable sources. For example, here and here (among many others).

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This is just a quick note to say that Discover has brought back the $50 signup bonus on the Discover More card. Simply apply for the card, get approved, and make $500 in purchases (within the first three months) to get your bonus.

If you’re not familiar with the Discover More card, it’s widely considered to be one of the best reward credit cards available, paying up to 5% cash back on purchases. In addition to the $50 signup bonus, other attractive features of this card include a 12 month 0% balance transfer, 0% APR on purchases for 6 months, and no annual fee.

Also note that they’re running a promo where you can get a $20 gift card for every $200 spent at participating malls. ‘Tis the season to profit from credit cards.

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That begs the question…

What would you do with a second stimulus check?

According to a recent consumer poll, just 39% of respondents say that they would spend it, with 38% saying they’ll save it, and 18% saying they’ll use it to pay down debt. Of those who envision spending it, 21% said they would spend it on holiday gifts, whereas the other 18% would spend it on themselves and their families, but not on holiday gifts.

What about the first stimulus check?

Well… 33.5% of respondents reported spending it, whereas 29.3% said they saved it, and 37.1% said they used it to pay down debt.

Source: Dallas News

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Guess what? I recently, I received an e-mail from TradeKing saying that they had extended their $50 signup bonus to run throughout the month of November. So… If you missed it in October, you have a second chance at grabbing some free money. Simply open an account, fund it with at least $2,500 within the next 30 days, and then make a trade within the next six months. Note that there’s also a Sharebuilder $50 signup bonus offer going on right now.

To take advantage of TradeKing’s offer, you’ll need to click one of the special links in this post. When you reach the signup page, you should be greeted by this image:

In case you’re not familiar with TradeKing, they’re widely considered to be one of the best online brokers, and were rated #1 in customer service by SmartMoney. They also have dirt cheap commissions, with equity trades costing just $4.95/trade.

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Sadly, the state of Georgia has outlawed such tomfoolery:

“Any person who gives or receives, or offers to give or receive, or participates in the giving or receiving of money or gifts for the purpose of registering as a voter, voting, or voting for a particular candidate in any primary or election shall be guilty of a felony.”

In light of such laws, Starbucks has extended the offer to all customers. I’ve heard that you still have to wear your “I Voted” sticker for the others, though, so you might actually be guilty of felonious donut eating in some locations if you take part. Yikes.

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“Taking account of inflation and the rising cost of living versus the projected direction of the economy in the coming decade, I told Mr. Hutchinson that he could significantly reduce his spending by simply living less,” Dalton [a fictional financial planner] said. “After looking at his investments, I calculated that he really shouldn’t live a day over 62—or 59 if he wants a funeral.”

Obviously, this isn’t a particularly attractive path, so… Instead of following their advice, I suggest that you first get a handle on whether or not you’re saving enough for retirement. If not, kick things into gear and start saving more. And finally, you might want to consider creative solution for stretching your savings once you hit retirement age.

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What were we thinking?

When it comes to CDs, the longer the term, the more you (usually) earn. Of course, the tradeoff here is that your money is tied up for a longer period of time. The good news is that you can typically break your CDs early, subject to an early withdrawal penalty. So… We rolled the dice.

We locked in our money at a higher yield knowing that we might have to forfeit a portion of the interest if we had to tap into it early. The primary reason that we did this is that we ran across a screaming hot deal on five year CDs back in early 2004.

At the time, interest rates even for the best online savings accounts were near an all-time low due to repeated rate cuts by the Fed. While we could’ve laddered our CDs, shorter term yields were paltry compared to what we were able to get by committing to a longer term. In fact, even after factoring in the early withdrawal penalty, we’d come out well ahead by locking our money away and forfeiting a portion of our interest on the off chance that we’d need to access the money.

In other words, it was a no-brainer.

Minimizing our downside risk

The only real risk that we faced in structuring things this way was that we might have to break into the money and pay that early withdrawal penalty. In our case, however, the penalty was just three months interest and, as noted above, we’d still come out ahead as long as we didn’t need to tap into that money within the first six months or so.

In order to further minimize our risk, we decided to split our money up and buy five identical CDs in parallel. By doing this, we minimized the penalty that we’d face if we only needed to access a portion of our emergency fund. In other words, if we only needed to access 20/40/60/80% of the money, we could just break 1/2/3/4 CDs and let the balance keep chugging along.

In the end, we were fortunate in that we never needed to touch that money. It comes up for renewal in January 2009, at which point we’ll consider our options. However, we’re in a much more stable position now, and have other resources on which we can draw.

Things to watch out for

If you’re considering this approach, here are a few things to keep in mind:

• Make sure you can get your hands on the money. An emergency fund is only useful if it’s accessible for use in case of an emergency. If you can’t get same-day access to the money, then you’d be well advised to keep some portion of your emergency cash on hand in a local bank.
• Double check the early withdrawal penalty. The lower the better. Forfeiting three months of interest is probably the best you can hope for. Many banks charge substantially more.
• Consider your situation. The more stable your situation, the less likely it is that you’ll have to break into those CDs. Also, the larger your emergency fund, the more (in terms of absolute dollars) you will benefit from seeking out a higher rate of return.
• Consider your alternatives. If the spread between prevailing interest rates and what you can get with a longer-term CD isn’t sufficiently large, this might not be worth the trouble.

The bottom line

While this approach might not be for everyone, you can squeeze a good bit more performance out of your money if you’re willing to think outside the box. Sure, it takes a bit of additional work, but there’s no real risk as long as you know what you’re getting into. If you’d prefer a more traditional approach, you might consider building a monthly ladder for your emergency fund instead.

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