SavvySugar

Ask Savvy: Should I Apply For a Personal Loan?

SavvySugar — Tue, 07 Oct 2008 12:30:51 -0700

Dear Savvy,

I've been meaning to take a $5,000 personal loan. However, as you may know, my bank WaMu was bought by JP Morgan Chase. I'm not sure what kind of effects this would have on me or my bank. Should I hold off or go to different banks? Also, since we are in economic crisis, will it harm me in the future if I do consider going through with this?

See my answer when you read more.

The fact that you've been meaning to take out the loan, and aren't in desperate need of the money, tells me that a personal loan might not be the best option for you. Also, there is one major detail that hangs unanswered: It isn't guaranteed that you will be approved for the loan. Banks have been tightening their credit and have heightened their lending standards, meaning they are lending less and only to borrowers with excellent credit.

Borrowing money affects your personal credit, no matter the state of the economy. The loan will appear on your credit report and any late payments will negatively affect your credit score. You only want to take out a loan if it's absolutely necessary because you are paying interest on the loan - $5,000 is only the principal loan amount and does not take in to account any interest owed.

If you decide to pursue a loan of any kind, it's necessary that you shop around to make sure you're getting the best interest rate. The fact that JP Morgan bought WaMu simply means that JP Morgan would be your lender, not WaMu. Instead of borrowing the money, I would recommend saving up for whatever it is you need. Open a high-yield savings account and put away as much as you can each month.

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Washington Mutual Raises Online Savings Account Rates

SavvySugar — Tue, 23 Sep 2008 15:30:18 -0700

Because so many of you bank with Washington Mutual, I wanted to give you a heads up about its most recent promotion. Today the bank raised its online savings rate to four percent, which is higher than most interest rates I've seen lately. Most of you who use WaMu are sticking with the bank despite its troubles, so why not take this opportunity to start that savings account you've been putting off? As long as your account is less than $100,000, your funds are insured by the FDIC.

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Money Tip: Pay Your Bills on Pay Day

SavvySugar — Wed, 27 Aug 2008 08:00:36 -0700

When I was a fresh college graduate earning my first real paychecks, I quickly saw how living in a city like San Francisco isn't made for entry-level salaries. Exploring the city and all of its nighttime gems were certainly priorities, but the biggest priority was to keep myself out of debt while not depriving myself of enjoying my new surroundings.

I struck a balance by forming the valuable habit of paying all of my bills on pay day. That practice, coupled with automatic 401(k) savings and automatic transfers to a high-interest savings account, can allow for a relatively low-stress financial life. Once in a while we may make money mistakes that can throw us off track and unexpected expenses inevitably come up, but forming the habit of paying your bills as soon as you are paid will keep you out of serious trouble.

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Savvy ATM: What Is an ING Savings Account?

SavvySugar — Thu, 03 Jul 2008 06:26:27 -0700

Building up savings is one of the best ways to set ourselves up for financial success, and the amount of questions coming in lately about ING accounts tells me that you're all on your way! There are a number of online banks out there, meaning they don't have actual branches you can physically walk in to and speak to customer service in person, but ING is a particularly appealing choice to many savers for a few key reasons. Find out what they are when you read more.

The three biggest draws are their no fee policy, high-yield interest rates, and they do not require a minimum account balance. It's harder to build your savings when fees eat up the interest you earn, and many savings programs mandate that you keep a minimum balance that is sometimes thousands of dollars in order to get a high interest rate or avoid fees. At ING, your $500 account is treated to the same high-yield interest rates as someone else's $10,000 account.

The actual product they offer is called the ING Orange Savings Account, and they make it easy to set up automatic transfers from your checking account at your existing bank to your ING savings account. The interest you earn on your savings is variable according to market rates, so if the Fed raises interest rates your savings account rate should go up, too.

Do any of you have an ING savings account or prefer one of their competitors?

Play Hard to Get With Your Money

SavvySugar — Tue, 04 Mar 2008 08:27:11 -0800

This credit crisis we're in must have been on the minds of neuroscientists who recently completed a study on why it's so tough to not be lured by the spell of instant gratification. Researchers found that we don't seem to be cut out for the waiting game when it comes to cash - the possibility of receiving a slightly bigger reward tomorrow doesn't arouse the brain as much as a smaller gain today.

When offered a payout today of $20, the studies discovered that the average person's brain will justify waiting three weeks for a higher reward only if that amount grew at an annualized rate of about 4,800 percent. They attribute this rationale to our hunter-gatherer days when food wasn't always available, and the size of a future feast would have to justify choosing it over eating now.

Playing hard to get with your money is the best way to protect yourself against your urges prompted by the desire for instant gratification. Set up automatic transfers from your checking account to your savings account so you're not tempted to spend, and set up automatic deductions from your paycheck to deposit money in to your retirement savings account.

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Three Bank Accounts Might Be Better Than One

SavvySugar — Fri, 05 Jun 2009 12:00:01 -0700

Is three the magic number? Money magazine is encouraging its readers to find a budget style that sticks, and one of the options is a bank account trifecta. The accounts include two checking and one high-yield savings. Here's the gist of the "bucket budget" way of managing your money, as suggested by Money.

"Figure out how much of every paycheck you want to put toward savings. Have that automatically sent to the savings account."
"Send the rest of your paycheck to checking account No. 1. From this you'll pay monthly fixed expenses, such as mortgage and utilities; set up automatic bill payment online."
"Figure out your monthly surplus in this account after recurring bills, divide by four, and set up a weekly automatic transfer for that amount to checking account No. 2. This is for variable expenses like groceries, entertainment, and eating out."
"Two rules: You can't transfer more money over until the next week, and you can't use credit cards."

Do you think this budget style would work for you?

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What's the Rate on Your Savings Account?

SavvySugar — Wed, 09 Jan 2008 10:16:01 -0800

I have friends that have admitted to signing up for a savings account without even considering shopping around for a better rate.

If it were a one-time thing (say purchasing those beautiful Marc Jacobs pumps on impulse without checking online for a better deal) I might not be so devastated, but not seeking out a high yield savings account means money lost every single month.

I think the problem lies in the fact that most people don’t realize what their rate or yield is. Our friends at WaMu offer a high yield savings account with 4.75 percent APY*. Do you have any idea what yours is?

Thank you to WaMu for sponsoring this post.

*Annual Percentage Yield (APY) effective 1/09/2008 on Online Savings account tiers $0-$9,999 and $10,000 and above. Interest rate and APY may change at bank's discretion after account opened. WaMu checking account must be linked at opening. $1 minimum opening deposit on both savings and checking. Fees may reduce earnings. Restrictions apply. Total Deposits at Washington Mutual are FDIC insured.

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Let Your Savings Do the Work

SavvySugar — Tue, 29 Jan 2008 10:27:41 -0800

You work hard for your money. Did you know your money can work hard for you, too? Your savings can grow with a savings account with a great interest rate, so you can afford to pile on a few fancy accessories?! How can you let your savings do most of the work for you?

I suggest you take a look at the rate and yield you’re getting with your bank to make sure you’re not missing out on extra savings. Some banks offer high-yield savings, while other banks offer little more than tiny one-percent savings yield.

We all know we should save, but sometimes other things get in the way and we have racks of shoes to prove it. Paying yourself first means you won't be tempted to spend the money you need to be saving. Tricky, eh? Saving now ensures you're never caught in a sticky situation without the cash to help you through it. Think of it like that umbrella you keep in your trunk for a rainy day - you hardly realize it's there until you really need it.

Your savings can really grow with one of WaMu's high-interest savings accounts. Total Deposits at Washington Mutual are FDIC insured. Thank you to WaMu for sponsoring this post.

Ask Savvy: Should I Invest in a Roth IRA or CD?

SavvySugar — Tue, 06 May 2008 06:48:57 -0700

Dear Savvy,

I'm a college freshman and I took Economics about 2 years ago and I vaguely remember my teacher advising we should invest some money into a Roth IRA or CD. I don't have a job right now, but this summer I'm definitely looking to work for as long as I can. How would this affect my financial aid eligibility in school? What is the difference between the two and the pros and cons? Lastly, What should I do?

To see my answer just read more

Before I get answering, pat yourself on the back for thinking about investing at such an early age. A lot of young adults (some of my friends included) talk about investing but don't actually do anything because it becomes confusing and therefore frustrating. So, in order to keep your investor momentum going I'll answer your question regarding which investment is best for you. As for the summer job affecting your financial aid, that's one question I cannot answer and it's best to discuss any concerns with your school's financial aid office.

Roth IRAs and CDs are two very different investment / saving vehicles and choosing which is best for you depends on your goals. Roth IRAs are generally used for retirement savings, and the funds in a Roth can be withdrawn tax-free and without penalty if they're used toward purchasing your first home. A Roth IRA is an account composed of other investments, while a CD is an investment in itself.

CD, which stands for Certificate of Deposit, is a generally low-risk investment that is guaranteed by the bank. Think of it as a savings account that forces you to leave the money where it is for a certain period of time (unless you want to pay an early-withdrawal penalty) and earns a set interest rate for the term of the investment.

You'll be eligible to invest in a Roth IRA once you start earning a paycheck, but some banks require minimum initial investments or minimum contributions. There are typically minimum investments for CDs and the interest rates vary according to the term of your investment - generally the longer the term, the higher the interest rate.

In your situation, if you don't already have an emergency fund worth about three months living expenses, I'd open a high-yield savings account and build some readily available savings first. And if you have any credit card debt you should try and pay off those bills with your summer income before you even think about investing. Once you have those things squared away, a Roth IRA is probably the smartest place for you to start investing but you need to weigh your options carefully and consider your individual financial needs and goals.

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Ask Savvy: Should I Pay Off My Loans or Save For a Home?

SavvySugar — Fri, 21 Mar 2008 08:19:51 -0700

Dear Savvy,

My fiancé and I are thinking about buying a house in the next year or two, and are starting to put aside savings for a down payment. I have quite a bit of money in student loans (about $35,000), and we're not sure if would be more beneficial to be putting any extra money into a fund for a larger down payment or paying off a larger portion of my loans. Which would be better when we are ready to buy our home?

To see my answer just read more

When considering a financial plan of action, the most important factor to look at is the interest rates on your debt. If you have any debt that comes with high interest, like credit card debt or private student loans, you should pay that off before you start full force saving for your down payment.

There's not much of a benefit to accelerating student loan repayment if you'd be sacrificing saving for your goal, unless of course your loan comes with high interest. If you have more than one federal student loan, consolidating your loans could be an option for you to lower your monthly student loan payments. That would make it easier to manage your student loan debt while paying off other higher interest debt (if you have any) and saving more for your down payment.

And since it's tax season, just a reminder: If you meet the income requirements you can deduct up to $2,500 in student loan interest, and the deduction applies every year for the life of your loan. Happy saving, and remember to use a high-yield savings tool for your down payment fund.

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