Another Resource - BankRate.com

I’ve mentioned this website time and time again, so this shouldn’t sound new to you. Add www.BankRate.com to your toolbox of resources.

What is it?

BankRate.com is a non-biased resource on where to find checking accounts and CDs, savings accounts and money market accounts with the best rates around. Type in a product you’re looking for (e.g. “credit card”), and the website will ask you about the various characteristics you’d like on that product. It will then generate a list of products so that you can compare them. It’s a great research tool. I used it to find the credit card I have in my wallet currently.

It simplifies life a bit, as it allows you to make an objective decision among the choices available without hitting you with constant advertising.

Enjoy this resource!

Savvy with Certificates of Deposit (CDs)

In the last post, I mentioned using certificates of deposit as a way to save for either needed or wanted purchases. Certificates of deposit are just one of the tools you can use to invest your money.

What is it? It’s a time-based account offered by every bank that pays a slightly higher interest rate than do savings accounts or checking accounts. The only caveat with CDs is that they “lock” up your money for a certain amount of time. CDs can lock your money in for 3 months, 6 months, 1 year or even 5 years. Those are not the only time periods involved; they are simply examples.

Go to www.BankRate.com to find and compare CDs among several banks, states and credit unions. The rates are not as high as they used to be, but you’ll earn interest on your money nevertheless.

LearnVest.com has a great and easily-digestible article about CDs. Check out this website:

http://www.learnvest.com/money-tuneup/the-cd-a-users-guide/

Also, as LearnVest describes, there are often penalties for accessing your money before the “due date” (maturity date) of your CD. Investing in a CD means that you cannot access that money until the set due date. That fact makes CDs a less liquid investment. This means that you cannot easily access the cash that is in the certificate of deposit. A checking account is very liquid because you just go to an ATM and withdraw the amount of money you need from it at any given time. Not so with a CD.

Note: LearnVest, other financial websites such as Suze Orman’s YF&B, and I agree on one fact: You should not start investing until you have paid a serious amount off (or the entire balance off) of credit card debt AND have started an emergency fund. See earlier posts about the need for an emergency fund and what that fund entails.

So, at this point, you may find yourself saying, “I have some extra cash that I don’t mind locking up for a few months. I want to see how this CD thing works. But how do I do that?” You walk into your bank during normal business hours. You tell the teller, “I want to open a certificate of deposit.” The teller will most likely take you to a personal banker to talk about the CD, make sure you understand the rules and the fine print, and then will open up a CD for you. You write the check or transfer the cash from one bank account to a CD. Take the paperwork, file it away, and boom! You have just invested your money! Make SURE you have reviewed the bank’s investment fine print (available online) on your own. Come into the bank knowledgeable about the product. Make sure you read at least a few articles about CDs and go to BankRate.com to research the best interest rates offered on the market. Ready, set, invest!

Fun With Funds!

When I was in college, part of my financial aid package was that the school offered me a work-study job on campus. I could earn up to a certain dollar amount in an on-campus job. With my measly paycheck every two weeks, I decided to work on financial discipline. I went to a school where designer daddy-bought handbags were an everyday sighting. Haute couture was at every hallway’s turn. So one night while procrastinating school assignments, I went on a website that sold luxury handbags…just to look. I printed the picture and description from my favorite handbag on the website. I calculated the price of that handbag plus Los Angeles sales tax, and I taped that number to my desk in my room.

With every paycheck, I put a predetermined dollar amount away in a separate savings account which earned interest (albeit, not much). Once that account reached my calculated handbag total, I withdrew the entire amount and bought the handbag!

NOT!

I totally did not buy the handbag. I took the money and invested it in a 6-month certificate of deposit (CD). Then I went back to the handbag website and did it all over again. My friends called my crazy. My mother called me confused. I called it disciplined. Technically, I bought that handbag and several others! But I didn’t actually purchase the purse because purses in your closet do not produce income. Purses in your closet take up space. Certificates of deposit produce interest income and they gave me the same level of satisfaction as buying the handbag.

I don’t deprive myself now (because I work hard at a job and I let myself indulge at times). But those initial “experiments” helped me to develop financial discipline and to value interest-bearing investments rather than giving in to every fashion desire.

In one of the personal finance books I’m currently reading, Living on a Budget, the authors extol creating separate funds (savings accounts or CDs) that you set aside and pour small amounts of money into at regular time intervals. These funds help you to plan for and pay for future expenses – both necessities AND wants.

A good way to utilize a separate fund is to plan for property taxes. For example, put a pre-specified amount of money away each month for property taxes if you own your residence. Property taxes are calculated as 1.25% of the market value of your home. So when property tax time comes around, you won’t feel the hit or the drain on your paycheck or main savings account. You’ve planned for it, you’re ready for it and you can afford it without altering your lifestyle!