What Are The Alternatives To Savings Accounts?

Have you taken a look at how much interest you get on your savings account recently? If you have, the chances are that you are feeling pretty depressed. If you are very lucky, you may be earning over 1%, but the chances are you are getting considerably less. At these rates, you are actually losing money when you take inflation into account. There has to be some other way that delivers better returns.

Actually, if you are looking for a zero-risk investment – one that is federally insured – then you are going to struggle to find many other alternatives. For example, a certificates of deposit (CD) used to be quite an attractive investment. However, when you consider how Fed policy suppresses CD rates now, you are still only likely to earn around 1%. You may add a little bit more if you’re willing to make a long-term commitment – say 5 or 10 years – but locking up your money for that period of time may not be a good idea given that interest rates are at historic lows.

Another risk-free investment is treasury bonds. Provided that you are willing to make a long-term commitment, you can get 2.75% for a 10-year bond and 3.75% for a 30-year bond right now – which is a better rate than you would get with a savings account or a CD. However, the same issue applies as with CDs – you are locking up your cash for a long period of time. Actually, you can sell treasury bonds after you have bought them, so your money isn’t completely tied up. However, you are only guaranteed to get back your principal – the amount that you paid for the bond originally – when it expires. If you sell before that and interest rates go up – which is quite likely – then other investors will only buy your bond for a discounted price.

If you are willing to take a little more risk, then corporate bonds may be a better option than treasury bonds. You are likely to get a better rate, and your investment is still fairly secure provided that you buy bonds from blue-chip companies. However, remember that no corporate investment is completely secure – for example, General Motors went into bankruptcy in 2009, and IBM nearly went broke in 1993. As a minimum, try to invest in companies that have at least an AA rating, and steer clear of junk bonds entirely, unless you can take the risk.

As an alternative to corporate bonds, you could put your money into dividend-paying stocks. With these, the dividend can reach as high as 6% per year of the cash that you have invested. For example, AT&T is currently running at around 5.2%, and Verizon is at approximately 4.2%. However, remember that unlike corporate bonds, you have no guarantee that you are going to get your principal back in the future. You are exposed to ups and downs in the stock market, and while high-quality stocks tend to go up over time, you cannot automatically assume this is going to be the case. Furthermore, dividends are tied to earnings, so they are not guaranteed either.

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3 Reasons a Credit Union May Be a Smart Financial Decision for Your Family

Credit Unions Vs Banks

Although they may seem similar in many respects, banks and credit unions are definitely different. Although credit unions have most or all of the convenience of banks, they also have advantages that banks to not have. For instance, credit unions are often more flexible about approving loans than banks are. Credit unions also frequently have a “down home” feel – tellers and bank officers may greet you by name whenever you visit.

While banks are commercial institutions, credit unions are nonprofit organizations. Most credit unions belong to the National Credit Union Association, or NCUA. While you must be a member of a credit union to open an account, credit union eligibility is often easier to achieve than you think. Churches, companies and even cities have organized credit unions for their members, employees or residents. As a result, the odds are good that you are eligible to join at least one credit union in your area. Depending on your circumstances, opening a credit union checking account may make sense. 

A Stakeholder, Not a Customer

As a member of a credit union, you are a stakeholder in the organization, and not just a customer. Your account represents an ownership interest in the organization. Because credit unions are nonprofit organizations, they often have programs in place to assist their members financially.

For example, many credit unions offer short-term loans to represent alternatives to costly payday loans. Payday loans are often due within one or two weeks and feature interest rates exceeding 300 percent. By contrast, short-term loans offered through credit unions have longer repayment periods, and carry much lower interest rates.

Credit Card and Other Banking Conveniences

Deposits made to a credit union are insured by the NCUA, just like deposits made to banks are insured by the Federal Deposit Insurance Corporation, or FDIC. This means that your money is safe. In addition, many credit unions offer Certificates of Deposit and other investment instruments that carry competitive earning rates.

As a member of a credit union, you can open checking and savings accounts, much as you can with regular banks. If you are a business owner, you can often open business checking and savings accounts through your credit union. You an also obtain personal and business credit cards from a credit union. Credit unions also often offer lower interest rates on credit cards and loans for individuals and businesses than banks

Extensive Free ATM Networks

If you hate ATM fees, joining a credit union is definitely a smart move. Many credit unions belong to nationwide networks that offer free access to ATMs for their members. You can deposit, withdraw and transfer money for no fee at any one of the ATMs that operate within the bank’s network. In addition, if you frequently travel abroad, you may be pleasantly surprised to learn that the debit or credit card issued by your credit union carries no foreign transaction fees. This feature alone can translate into significant savings if you use your card to pay for your hotel or for a car rental.

Charles Talley is a credit union branch manager. He loves to write about the benefits of this type of financial account on personal finance blogs.

Should CDs Be in Your Portfolio?

Even though bank CD's are delivering historically low interest rates, investors should not ignore them as part of an overall investment plan. If one of your goals in your investment plan is diversification and safety then some cd's in your portfolio can provide this.

Maybe your as old as me and remember the days when cd's had rates as high as 15%. This occurred back in the days when Jimmy Carter was our president and inflation was rampant. I owned CD's at those rates and thought this is not to bad. Fast forward to today when the average cd's interest rate is one percent. Ouch! Why even bother?

According to Bankrate.com, the best six-month CD is paying an annual yield of just over 0.75% and one-year CDs are averaging 1%. These kinds of rates have turned away many previous owners. Many of our retired people used CDs exclusively because they were a hedge against inflation and also gave a nice return you would be able to live on. But today if you factor in inflation, you may even be experiencing "negative real yield" according to the Wall Street Journal. This is why people stay away from them. Why lock in your money for low or even negative returns.

The Benefits of Bank CDs

Is there a silver lining to CDs? One thing is for sure, they are definitely a safe investment. They are guaranteed by the Federal Deposit Insurance Corp. (FDIC) up to $250,000 per depositor, per bank. 

If you want to keep your money in a safe place that is guaranteed other than CDs you can look into U.S. government bonds that offer similar safety. Only problem with government bonds is that they average around 0.17%. For safety, CDs offer a guaranteed return and investment safety. For the small investor CDs provide an easy to understand way to make a small return on their savings.

The Uses for Bank CDs

Cds are about as simple as it comes to a safe interest bearing investment. Part of an overall investment portfolio strategy is having some money in a 100% safe investment vehicle. CDs perform this task well. If you are putting away cash for a future purchase and want it in a safe place then CDs are the way to go. You could be saving for a down payment on a home or a child's education. Long-term savings plans can use CDs as a tool to save for a particular amount of time. The longer the better. CDs can be the place you keep the part of your portfolio that you don't want to expose to market risk. 

Emergency funds can also be kept in CDs. By staggering the maturity dates over the next few years you always will be having one CD maturing. You can either take the money and use it for some emergency situation or re invest it. This technique called the "CD Ladder" allows you to constantly have money coming available for your emergency needs. Having the money this way helps you avoid the need to sell some stock investments in time of need. If you didn't have this easy way to access your cash you would be forced to sell some of your stocks or mutual fund investments. Quite possibly when you need money the most, your stock or mutual fund will be at an all time low. One of the best places to keep idle cash is in a CD.

One place that is offering very generous interest on CDs is CIT Bank. If you want CDs to be a part of your diversified portfolio, they offer some of the highest paying CD interest rates available today. 

Click HERE to view more details or sign up for a CIT CD account and 1.75% APY !

4 Ways to Make Money with Certificates Of Deposit

Certificate of Deposit is the safest and the surest way to earn money by way of investment. It offers you more interest than the savings account and is devoid of the risks involved in stocks. You can open the Certificate of Deposit in any bank or financial institution of your choice. Given below are 4 ways in which you can earn money with Certificates of Deposit -
Invest In A Long Term CD

The easiest way to ensure that you earn money from your certificate of deposit is to invest in a long term CD than a short term one. CDs will require you to keep your money for certain duration before you can withdraw from it. This period can vary between six months to five years. It is known that the CD, which is valid for a longer period of time, earns you high CD interest rates than a CD that is valid for a few days or months. For example, a six-month CD can give you 3% interest as compared to a 5 year CD that gives you 5% interest.
High Yield CDs Are Not Always Beneficial

The U.S Exchange Commission warns investors from being influenced by CDs that have a high yield. Also, be wary of CDs that have variable interest rates. These CDs usually depend on the stock market and this can affect how much you earn from the Certificate of Deposit. CDs with low rates of interest usually have less risk since they do not depend on the financial market.

You should also make sure if your CD has a call feature. The banks terminate CDs with call features when the financial market dips and this can stop you from earning the full potential of the CD. This feature is usually present in high yielding CDs.
Let Your CD Mature

You should never withdraw from your CD before it matures if you want to earn from it. Access it only to withdraw money after its maturity. If you withdraw money from the CD before it matures, you may end up losing interest earned in the prior months. If you haven’t earned enough interest to pay the penalty, the bank will then deduct the amount from your principal. Thus, you end up losing more than what you would have earned.
Be Clear About How You Will Earn The Interest

When you open a certificate of deposit, the bank will give you a disclosure document that will state the features of your CD, the rate of interest that you would earn and how you will receive the payment. It is better to have the interest amount electronically transferred to your bank account rather than opting to receive a cheque.

If you want to earn money from the CD, keep in mind that it is best to invest in long-term schemes and not to touch your CD before it matures. Be clear about the rates you earn and the mode of payment.

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