Don’t Feed the Alligators

A Personal Finance Blog from a Small-Scale Landlord’s Perspective

Archive for the 'Banking' Category

Money Market Accounts

Author: ScrapperMom
02.25.2009
Money Markets

Creative Commons License photo figure credit: pfala

A reader asks, “MITBeta often talks about money market accounts, can you tell me more?”

The simple answer is that a money market account offers you the flexibility to be able to write checks or make transfers, while having the benefit of earning interest like a savings account. All banks are different, but some things that make all money market accounts similar are as follows:

  • There is usually a limit to the amount of checks and/or transfers you can make. MITBeta pointed out that, with our accounts, you can only write three checks per month, but can make six transactions. So three of those can be checks, but you can also have all six be electronic if need be. Depending on the bank, this transaction limit can range from 3-6 per month.
  • The account is interest bearing, usually a higher yield than a regular savings account.
  • It typically has a higher balance requirement (typically $1000-$2500). 
  • Depending on your typical balance, your interest rate may increase.

Money market accounts are not for everyone, but if you typically have $1000+ in your checking account you might want to consider having a money market account. Our money market account is the main catchall for all our income. All monies get deposited into the money market (direct deposit of pay checks, our rental income, etc) and then MITBeta makes a couple of transfers per month to fund our regular checking account, which pays all the bills.

Money market accounts seem to be, in my opinion, a good stepping stone before opening a CD. The difference is, with a certificate of deposit (CD) your money is tied up for a certain term (6mos - 5 yrs typically) and the rate is based on the length of the term. Longer term = Higher rates.  There is also a penalty for early withdrawal. In order to make good use of the high rates available with a CD you can start a CD ladder.

Money market accounts can generate more interest for you, if you feel up to the challenge of limiting the transactions that come out of the account and also if you can carry a high enough balance. Take a look at what your current bank offers for rates and let us know. Do you think it would be a good idea to open a money market account and take advantage of higher interest rates? For more information on money market accounts you can visit “How Stuff Works.”

Christmas Tree

Creative Commons License photo figure credit: SleepingBear

This week ScrapperMom and I started and finished our Christmas shopping.  This was rather easy given that we don’t have many for whom to shop, we budgeted for Christmas just after LAST Christmas, and we already had the money set aside for these gifts.

Several years ago, we agreed with our adult siblings that we would all concentrate our buying efforts on the children in the family.  Prior to this point, we, like most families, would simply trade a bunch of items that we thought others would like.  Sometimes a hint or two may have been dropped over a Labor Day barbeque or Thanksgiving dinner, but for the most part we were left to guessing.  As a result, we all often ended up with well intentioned gifts, most of which never quite lived up to their full potential.

Some might argue that the whole point of gift giving is to know enough about the person to whom your are giving the gift to give something that will truly be appreciated.  This is a great idea in principle, but my experience is that it rarely happens in real life.  Others might argue that it’s not about the gift itself, but rather the thought that counts.  This is also a nice sentiment, but results in a pile of “stuff” that may create guilt on the part of the recipient and resentment on the part of the giver.  Instead, we prefer to share experiences: watching the kids open their presents, sharing a nice meal, and just being all together.

A few years back, we also started setting a pretty strict limit on what we would spend per gift recipient.  The obvious and immediate reason for this is that it limited how much we could spend in total and kept us from going into debt to finance Christmas.  The longer term reason, however, is that it allows us to anticipate how much money we’re going to need to cover Christmas all year long.  Knowing this allows us to begin saving for Christmas next year almost as soon as Christmas is over this year.

Christmas Club” savings accounts are not a new concept, but have fallen out of favor lately with the more prevalent use of credit cards.  Christmas Clubs are simple savings accounts that allow you to allocate a certain dollar amount per paycheck, week, month, or some other period.  The key to the success of this type of account is that the money is automatically deducted from your regular income stream and set aside in an account that is relatively difficult to access.

Many banks and credit unions still offer Christmas Club (and Vacation) savings accounts.  Our Christmas Savings account resides at ING Direct as one of our sub-accounts.  This is not truly a traditional Christmas Club account, and it has some advantages and disadvantages.  The ING account allows us to make it automatic.  Every month, ING automatically transfers 1/12 of our total Christmas budget for the year to the Christmas account.  The ING account also pays interest, which many Club accounts don’t.  Many Club accounts also restrict access to the money in the account, forcing you to leave the money alone or pay a penalty.  This is good for forcing you to save, but bad if you really need to get access to the money for a dire emergency.  The ING account allows me year round access to my money, but since it does not sit at a bank that is involved in our day to day financial business, the temptation to tap into it is very low.

This year we budgeted $800 in total for Christmas, and deposited $66.67 per month at ING.  By early December we had $800.04 sitting in our account, ready to be spent.  We used our new reward card of choice, the American Express Blue Cash card, to make all of our purchases, and will pay off the balance in full when the bill arrives.  Since we actually came in a bit under budget, we will probably not adjust our budget for next Christmas, and will begin paying for it in early January.

How do you pay for Christmas?  Do you take on debt to do so, or are you a Christmas Club user?  Do you set a Christmas budget or spend as the mood strikes?  We’d like to hear about it in the Comments Section below.

Lunch

Creative Commons License photo figure credit: kevincole

The last several weeks have been tough and/or busy for us in several ways: the passing of our dog, Thanksgiving, a 4 day business trip combined with ongoing busyness at the office, the hustle and bustle of preparing for Christmas, and — as if that wasn’t enough — preparations for the soon-to-be imminent arrival of Child #2.

So, for my trickle of posts at this space over the last couple of weeks, I apologize.  I give a lot of credit to all the bloggers out there with bigger families than mine who are posting something every day — sometimes on multiple topics and several blogs.  In any event, I want you all to know that I have neither forgotten about, nor abandoned my desire to write about personal finance topics.  So while the near-term schedule really doesn’t show any signs of lightening up, I pledge to at least post more often than I have been.

Now, to get back into the swing of things, I would offer links to several articles that I have been collecting over the last few months:

Juan’s Happy Wife posts here about the economics of home schooling.

Here’s an interesting article that claims an inverse relationship between the age of retirement and ultimate lifespan.  Yikes… I think I’ll retire next week!

Yesterday Boston.com had an analysis that was right up my alley in determining whether it made more sense to borrow from a 401k for a down payment on a house versus paying Private Mortgage Insurance (PMI).

J.D. had a guest post about The Irritation Threshold as it relates to Lifestyle Inflation.

The New York Times had an article on why it’s temping to want to switch to cash, but that risks remain in that strategy.

Lastly, the Wall Street Journal ran a story banks that pay credit card holders to pay off their balances.

Rushing to get it all done

Creative Commons License photo figure credit: booleansplit

In the original post on this subject, I outlined the almost comical amount of difficulties I faced in trying to move approximately $44,000 out of our Money Market fund at Vanguard and into our checking account so that we could pay the balance on our Chase Freedom card.  You may also recall that the reason why our balance was so high is that we were exploiting a 0% interest rate on purchases for one year — otherwise known as a form of arbitrage.

Picking up where I left off, the plot gets thicker before finally thinning out for good:

The good news is that the payment from the Vanguard check arrived at EverBank on September 8th.  The bad news is that I didn’t even consider the fact that it could take days before the check cleared.  Because of the very large amount of the check, the bank cleared it in increments: I got a $100 credit on day 1, a $5000 credit on day 4, and the total was credited on day 7.  Each day, starting on September 10th, I had to move my online bill payment from that day to the day after the final schedule payment in hopes that the check would clear the next day.

After doing this for 3 days straight, I discovered that the Chase website has an option for making payments online.  This option requires you to enter your bank’s routing number and the account number from a check.  “Great!”, I thought.  But there must be a catch to this also.  I emailed customer service and asked what the fee was for this, what the maximum amount I could pay at any time was, and how long it took to post to my account.  I was told that there was no fee, the only limit to the amount I could pay was the total of my credit card balance (in other words, I could not overpay my account), and that the payment posted on the same day as long as it was made before 4pm.

At this point, I canceled all of the scheduled billpay payments and went about setting up the payment on the Chase website.  Wouldn’t you know that I discovered another catch?  The website, contrary to the information from customer service, limited me to a payment of $25,000.  Additionally, I could not set up another payment until 3 days after the first payment.  Luckily, I still had time.  The first payment was set up for the 13th of September and the second payment was set up for the 16th.  Both payments executed properly, and I met the September 17th deadline to get the entire balance paid off by the due date.

Whew!  In total, I paid a lot for this in stress, as well as the $20.71 FedEx overnight fee to get the check from Vanguard as soon as possible.

Lessons learned and next actions:

  • We are going to fill out the form that would have allowed us to transfer the money directly from Vanguard to EverBank.
  • Never trust what a customer service person tells you — even if you get it in writing.
  • Plan ahead!
09.04.2008
Bill Payment Box

Creative Commons License photo figure credit: brendaj

I have written before about our experiment with credit card arbitrage.  This is where you borrow money at a very low rate (preferably 0%) and stash it in a high interest savings account.  Since we have come to the end of the 1 year period on our Chase Freedom card, I got set up to make a large payment to pay off the card — $44,061.30 to be exact.

I know that the payment is due on September 17, so I decided to play it safe and get all my ducks in a row in plenty of time.  Last Friday, August 29th, I logged into my money market fund account at Vanguard to make the transfer to my checking and billpay account at Everbank.  I got the Sell order all set up only to find that “electronic transfer” to my checking account was not one of the options for cashing out our money.  The next day, I called Vanguard to find out why.  It turns out that since this is a joint account, Vanguard needs to have a signature card on file for ScrapperMom before it can let me transfer money from a joint account.  It didn’t matter that the checking account is also a joint account.

The only option available to me was a check.  I started doing the math in my head — the market doesn’t reopen until Tuesday, September 2, they can’t sell the money market funds on my behalf until the end of trading, the earliest they could cut a check would be the 3rd.  First class mail would likely get the check to me by September 7, then I have to turn that around and mail it to Everbank, which is another 3-5 days until it hits our account.  Now we’re up to Sept. 12.  A payment sent on that day should arrive at Chase on time.

After explaining the situation to Vanguard, and not wanting to cut it too close, they offered to overnight the check to us.  This will incur some fee, of course, and I don’t know what that is yet.  I’m assuming that it will be in the $20 to $30 range, but the representative could not tell me when I set up the order.

Fast forward to last night: I logged into Everbank to set up the bill payment.  I entered the full amount in the payment box, set the payment date for Sept. 10, and clicked PAY.  The bank came back with an error saying that I could only pay $15,000 in a single payment.  Okay, I thought, I’ll just set up 3 payments to take care of it — no problem.  So I reduced payment number one to $15,000.  Then I set up payment 2.  The bank thought it was smarter than me, and decided that this was a mistake — a duplicate of a payment that I already set up.  So I tried $14,999 instead.  Then the bank told me that the daily limit on bill payments in total is $15,000.

This was starting to get frustrating!  Eventually I ended up setting up 2nd and 3rd payments for the total amount due on the 11th and 12th.  According to the bank, a payment made on the 12th will arrive by the 16th.  How’s that for calling it close?  Usually the payment gets sent on the 10th, and usually gets credited to my account on the 13th.  So this should still work out.

Today I received the check from Vanguard and we immediately turned it around and mailed it off to Everbank.  There is the off chance that the check will arrive at Everbank and be credited to our account earlier than the 10th.  That will give us a little more breathing room if true.  Another option we now have through the billpay service with Everbank is to expedite a payment by sending it electronically or by overnight check.  As you might expect, these options are not without cost: $4.95 for the expedited payment, and $14.95 for the overnight check.

What are the consequences of a late payment?  I’m not really sure, but my expectation is that since the interest rate for purchases is 14.99%, the interest for one month at that balance would likely be about $500.  So it certainly behooves us to do everything possible to make sure the payment gets made on time.  It’s not as bad as it seems, since I estimate that we made over $700 on the arbitrage over the last year.

Lessons learned:  If you have to move large sums of money from one bank to another, make sure you know in advance what the limitations of the system are.  It’s also a good idea to understand what the limits of your bank’s billpay system is also.  We’re not sure yet what this means for future credit card arbitrage… but we’ll be sure to let you know soon how the whole thing turns out!

Have you ever experienced a close call with a payment or a problem moving money from bank to bank?