What are Senior Checking Accounts?

While some dread the idea of growing older, others are excited about the idea of aging — gracefully so — and look forward to the rewards they will receive upon reaching retirement age. There’s no doubt that whether you’re taking advantage of senior discounts at restaurants, or enjoying a low-cost movie, being a senior citizen has its financial perks.

But recent reports show that these perks aren’t always offered from banks. In fact, a recent study has found that senior checking accounts may not be beneficial at all.

Elderly Being Short-Changed With Senior Checking Accounts

Most senior checking accounts are not providing the same benefits seniors receive when taking part in other senior-based programs. In fact, a report released in August by the Pew Charitable Trusts reveals that many elderly customers are forced to pay more for comparable accounts.

In the report, Still Risky: An Update on the Safety and Transparency of Checking Accounts, the Pew Safe Checking in the Electronic Age Project took a look at checking accounts offered by the 12 largest U.S. banks and 12 largest credit unions.

Of the financial institutions in the study, five of them (four banks and one credit union) offered special checking accounts that were tailored for seniors. Simple senior checking accounts were found to be very similar to basic checking accounts at these institutions. But in some cases, seniors were actually being charged more for their senior-specific checking features.

According to the study, one of the biggest charges came from monthly checking account fees. The average basic checking account charged $12 per month when anywhere from $0 to $1,500 was maintained in a checking account. On the other hand, a senior checking account charged $25 per month for maintaining this amount in their account.

In fact, it took a balance of $5,000 for seniors to avoid paying a monthly service fees in most senior accounts. The dollar amount to avoid a monthly fee in the basic accounts? $1,500. That’s quite a difference.

AARP Education and Outreach Senior Project Manager, Sally Hurme, recommends that seniors seek out the best offers before opening a senior checking account.

“Wise consumers should shop around and compare senior accounts,” says Hurme. “Make sure your package is better than the one down the street.”

You may be wondering where exactly the perks are for seniors who acquire a senior checking account. Special features like earning interest on their accounts, as well as waivers of other fees are what entice seniors into taking on this type of checking account. But if seniors don’t take advantage of these perks, they are simply left with the responsibility of maintaining up to $5,000 in their accounts to avoid fees.

Bottom line - make sure you do your due diligence before opening a senior checking account. If you do want to open a senior checking account, make sure you are getting a better deal on the senior checking account than a standard checking account!

Do I Need Renter's Insurance?

What Is Renters Insurance?

Renters insurance is similar to homeowner’s insurance in that it provides coverage in the event of a fire or another catastrophe.

Most renter insurance policies also provide personal liability coverage so that you are protected should someone be injured on your property.

What Are My Renters Insurance Coverage Options & Cost?

There are two basic types of renters insurance policies that can be purchased: actual cash value and replacement cost.

An actual cash value policy is a basic policy that will pay you the value of the property at the time of loss. In other words, you will not receive the full amount that you paid for your possessions or the amount needed to replace them, but a smaller amount that takes depreciation into account.

Replacement policies pay the actual cost of replacing your possessions. For example, if you need to replace a ten year old stove that was damaged in a fire, you will be given the amount of money you need to purchase a brand new stove. Replacement policies tend to cost a little more than cash value policies but are often worth the extra when you have a lot of possession to replace.

Besides policy type, the two leading factors that will affect the cost of renter’s insurance are the amount of coverage you buy and the deductible on your policy. Obviously, the more coverage you buy, the more you can expect to pay. Fortunately, renter insurance premiums are usually relatively low since you are insuring possessions, not the building you live in.

Although you won’t be insuring your building, its location can affect the cost of renter insurance. If you live in an area that has a lot of crime, you will likely pay more than someone who lives in a safer neighborhood. The type of dwelling you live in can also have an impact on cost. Buildings that stand alone or are constructed with fireproof materials can net a discount for renter’s insurance. Discounts may also be available if you have a security system, smoke alarms, or other security features.

Do I Need Renters Insurance?

Although renter insurance is not required by law, it is a smart buy for most people.  Many people assume their landlord’s property insurance will cover them, but here’s the reality:

  • Your landlord’s property insurance will not cover your personal possessions if the house burns down or if the roof leaks on your television.
  • It will also not protect you from a lawsuit filed against you because someone slipped on the icy walkway you were responsible for clearing.
  • And it will not cover your living expenses if you are forced to temporarily live somewhere else because of a fire or some other peril.

A renters insurance policy will provide significant financial protection for all of the things mentioned above and then some.

Long Term CDs vs Short Term CDs

Should I invest in a long term CD with a better rate or a short term CD at a lower rate and hope rates increase in the short term?

You may be surprised to find that long-term CDs can be much better deals than short-term CDs even if you think interest rates will rise substantially in the next year or two. If interest rates stay low, the long-term CDs are better since the interest rates are much higher than short-term CDs. If interest rates rise substantially, you can close the long-term CD early. You'll be hit with an early withdrawal penalty, but for many banks and credit unions, the early withdrawal penalty is mild. With a mild early withdrawal penalty, the long-term CD closed early can return more than short-term CDs that you hold to maturity. It can also be better than just keeping your money in a savings account.

Two institutions which have competitive long-term CD rates and mild early withdrawal penalties are Ally Bank and Pentagon Federal Credit Union.

There are two risks with this long-term CD strategy:

  1. The bank refuses to allow an early withdrawal
  2. The bank increases the early withdrawal penalty on your existing CD

Education Savings Accounts - 529 Savings Plans

Many families find it tough to save for college while trying to take care of more pressing financial needs. One way to boost college savings is to sign up for a service that allows you to add funds to a savings account when you shop at various retailers.

Link to 529 savings plan

When you sign up with a service such as Upromise or BabyMint, you earn money when making purchases from various partners. The percentage you earn on each purchase depends upon the retailer. The cash you receive can be deposited into a 529 savings plan or you can choose to receive a check payable directly to you.

Savings from purchases

Signing up for these plans is free and there is no obligation to buy anything. You do need to link your credit cards or debit cards to your account to earn savings. You can also link your store cards from grocers, drugstores and other retailers to your account. While a Upromise or BabyMint account can help you grow your college savings account, it’s not a substitute for putting together a plan to save and pay for your kids’ educations.

What Does APR Mean and How Is It Calculated?

When you hear mortgage ads, apply for a mortgage, see a mortgage rate advertised, you will always see the APR right next to the interest rate.  Why is that, and what is the APR?

APR stands for Annual Percentage Rate.  The APR is a calculation that determines what your interest rate would be if you removed the fees from your loan.  The higher the fees the further your APR will be away from your actual interest rate.  The lower the fees the closer your rate and APR will be.

The Annual Percentage Rate is more a measurement of Fees than it is rate.

TIL or the Truth in Lending Law requires that the APR must be displayed with any advertised rate. This is so companies cannot advertise extremely low rates and then tack on high amounts of fees you would then be required to pay to get that rate.

Go ahead and look.  You will never see an add or hear a radio commercial for a mortgage rate without also getting the APR.  Just like you will never see someone in a television commercial actually drinking beer (or any alcohol for that matter), they cannot show the consumption of alcohol.  I guess that is a different article for a different blog though.  Back to APR.

How is APR Calculated?

APR is calculated by first determining the payment of your loan then removing certain fees like points, application fee, closing cost, processing fee, title fee, etc, from the total loan amount and recalculating a new rate from the remaining balance and original payment.

Here is an example.

Let’s say your loan looks like this

  • $100,000 Loan Size
  • 4% Rate
  • 30 year term

In this scenario your mortgage payment would be $477.42.

The closing costs included in the $100,000 were $1,500.

APR would be determined by first removing the fees from the loan size.

  • 100,000 – 1,500 = $98,500

Now calculate a new rate (the APR) using

  • $98,500 Loan Size
  • $477.42 payment
  • 30 year term

The rate calculated here is 4.1257% which would be your APR.

So the whole scenario would be

  • Loan Size: $100,000
  • 30 Year Term
  • $477.42 payment
  • 4% rate with a 4.126% APR

This is how you can see the APR is more a measurement of fees than it is rate.

You can use this information to help determine what advertised loans are better than others.  If you see a 3.5% rate with a 4.5% APR compared to a 4% rate with a 4.2% apr you know which loan is going to be much cheaper and probably the better deal.  Even though option one may have had a lower rate.

Are You Paying for Checking?

More than half of bank customers pay nothing to maintain their accounts. A survey by the American Bankers Association (ABA) found that 53% of bank customers pay no monthly fees and 14% spend $3 or less for fees for services such as access to ATMs or checking account maintenance. The survey also found that 9% pay $4 to $6 a month, 5% pay $7 to $9, and 14% pay $10 or more.

“Bank customers today are getting one of the best deals around - checking and savings accounts for minimal or no cost. And these survey results show consumers are getting better than ever at managing their finances to keep service fees low,” according to Nessa Feddis, ABA vice president, senior federal counsel and retail banking expert.

Although many bank customers can find checking accounts without monthly maintenance fees, they are being hit in their pocket from other services. Overdraft fees at many banks have continued to rise, and some customers pay as much as $35 per overdraft. However, consumers can take more control over fees charged by banks by opting out of overdraft services or even switching accounts. Make sure you shop around to find the best checking accounts available!

What is an FHA Loan?

What is an FHA loan and what are the benefits and cons of one?

FHA loans are insured by the Federal Housing Administration (FHA).  There are some certain rules and benefits that come with FHA loans.

Here are the details you will need to know about an FHA loan.

Benefits of an FHA Loan:

  • Low Down Payment – FHA only requires 3.5% down payment on purchases.  Compare this with 5% on conventional loans. (5% if you are lucky, most likely the down payment will be no less than 10%.)
  • Lower Closing Cost Fees – This is one of the rules for the broker. There are certain fees that cannot be charged into an FHA loan which makes your closing costs less expensive.  Now most brokers and banks will try to make this up somewhere else so they do not have to pay those fees.  This is okay because those fees need to be paid, but you can ask them where they are making up the money for the fees that cannot be covered.  It will either be more points on the front or in the YSP.
  • Lighter Credit Requirements – This means your credit score can be lower and still qualify for a FHA loan.

Cons of an FHA Loan:

  • Up Front Mortgage Insurance – FHA loans charge an upfront mortgage insurance fee of 1.5%.  You will have to pay this on the front of your loan making it more expensive than a conforming loan.  The fees cost less but mortgage insurance ads more.
  • PMI – Most people that opt for an FHA loan do so because of the 3.5% down payment.  This means you will have to pay a monthly mortgage insurance.  For mortgages with terms 15 years and less and with Loan to Value ratios 90 percent and greater, annual premiums will be canceled when the Loan to Value ratio reaches 78 percent regardless of the amount of time the mortgagor has paid the premiums.

If you are in the market for a mortgage be sure to ask your broker about an FHA loan. An FHA Loan could be the answer you are looking for.

Investing in Foreign Savings Accounts

You can often find some of the best savings rates in foreign market savings accounts. Researching savings rates on the global market can be a bit intimidating, but it’s one of the best ways to capitalize on strong currencies. Here, we’ll take an in depth look at foreign currency savings accounts.

How Foreign Currency Savings Accounts Work

You’ll probably have to do a bit of searching to find a bank that offers foreign currency savings accounts. Usually, large multinational banks will offer accounts denominated in foreign currencies. Keep in mind that a foreign currency savings account is very different from a foreign savings account.
A foreign currency savings account is simply a domestic account held in a foreign currency. An example: You live in the U.S., your bank is in the U.S., but you have a savings account denominated in Euros.

Investing in Foreign Savings Accounts

A foreign savings account is a foreign account held in a foreign country. You can open direct bank accounts in foreign countries, as long as you qualify. Some foreign banks require that you establish citizenship or residence before opening a bank account. Others welcome foreign investment. Either way, it’s very important to familiarize yourself with a country’s banking laws before you invest there.

It can be advantageous to hold either type of foreign account. If you are concerned about the devaluation of the American dollar, then investing in a foreign currency is a great way to protect your money. You have to be careful that you don’t invest in a foreign currency that will tank, however. It’s important to be extra careful when investing in foreign currencies or foreign accounts. If you educate yourself, you can significantly increase your earnings through foreign currency savings accounts or foreign savings accounts.

What are Adjustable Rate Mortgages (ARM)?

Many people are unaware that taking on an adjustable mortgage rate can significantly lower mortgage rates. These loans, otherwise known as ARMs, are basically special types of mortgage loans. Often, homeowners can find lower rates on mortgage payments in the beginning years of their loans.

Fixed Rate vs. Adjustable Rate Mortgages

Most mortgages operate as fixed rate mortgages. This means the interest rate stays the same for the duration of the mortgage. You’ll pay the same amount every month on your premium, unless you refinance or pay off your loans early.

The interest rates on ARMs will change depending on prevailing interest rates. Many adjustable rate mortgages are tied to the LIBOR index, the Treasury Securities Index, the Cost of Funds Index, or a variety of other indexes.

Term Fluctuation
Your rate will adjust depending on the terms of your adjustable rate mortgage. These rates are adjustable every six months, every year, or even every several years.  Adjustable rates are usually good for people who are paying off a condo or a short term home - if you plan to keep the home for 5-10 years you can refinance once and pay back the loan when you sell the house. This allows you to pay a lower interest rate throughout the life of your loan while not incurring the higher interest rate that kicks in after the initial 5 years.

A Good Short Term Option
Remember that adjustable rates will benefit you in the short term, but if interest rates rise, you could end up paying more than you bargained for.

Analyze all your options to determine if a fixed rate mortgage or an adjustable rate mortgage would be better for you.

What are Health Savings Accounts (HSA)?

A Health Savings Account (HSA) is a new form of consumer directed health coverage pairing a high deductible health plan with a tax-free savings account. Designed to reduce healthcare insurance costs for employers and employees, the high deductible policy provides protection against major medical expenses - the HSA is used to pay for day-to-day medical expenses.

The savings product offers individuals an alternative method of paying for their health care. HSAs enable individuals to pay for qualified medical expenses on a tax-favored basis. Contributions are tax-deductible and eligible contributions are tax-free.

Individuals control the money in their HSA. Decisions on how to spend the money are made by the individual without relying on a third party or a health insurer. Funds not spent can carry forward to future years and be used penalty-free after age 65 for any purpose seen fit.

Advantages of Heath Savings Accounts:

  • Security-High deductible insurance in conjunction with a Health Savings Account protects against high or unexpected medical bills.
  • Affordability-Lower health insurance premiums by switching to health insurance with a higher deductible.
  • Flexibility-Utilize funds to pay for current medical expenses, including expenses that an insurance policy may not cover, or save the money in the account for future needs.
  • Savings-Earn interest on money in an HSA for future medical expenses and grow your account year after year, just like an IRA. There are no "use it or lose it" rules for HSAs.
  • Control-Make all the decisions about how much to put into the account and how to spend the money.
  • Portability-Accounts are completely portable. Keep and HSA in the event of a job change, medical coverage change, become unemployed, move to another state or change marital status.
  • Tax Savings-An HSA provides triple tax savings: tax deductible contributions, tax-free earnings and tax-free withdrawals for qualified medical expenses.