Off Topic Money question.

[TommyK]

My daughter and son in law had a bit of a windfall and asked my help in finding a place to put the money for a rainy day. First thing that came to mind was a Certificate of Deposit.

 

My local credit union, of which she and I are both members, shows return percentages paid on CDs. However they go on to indicate that the rates are for roll-over money from an existing CD with them which comes due and is being rolled into a new one. They are not selling CDs for new money.

 

Why is this? Wouldn't a money saving / lending institution want to have money on hand to lend? What am I missing here?

[ballcorner]

I understand your feelings about the bank seeming to refuse the funds, but you have to see it from their perspective: They are taking money from you and promising a specific rate of return. They are then supposed to lend the money to someone else, in theory, at a higher rate than they are paying you - this pocketing the difference.

 

Well, in these times when many people are walking away from their mortgages and debts, would you want to be the one lending the money and then having to promise a rate of return on the source of the cash?

 

Right now, if their windfall is enough, they might want to consider snapping up some under valued real estate as a rental property. Rental properties provide gain and income every month as they normally go up in value while building equity as markets climb. This will surely beat the rate of return on a CD.

[brians356]

To quote Johnny Burke: "Here's that rainy day." It's now, brother. And unless certain captains of the ship wake up, it's going to get a lot wetter.

[Red 333]

Here's something to consider: an HSA (Health Savings Account). Anyone with a health insurince deductable over $1100 (2,200 for couples) can put up to $2500 per year (it may be $300 this year) into a savings account to be used for health care. The money is TAX DEFERRED until age 65 (a big savings there), EARNS INTEREST (also tax deferred until age 65, I believe), can be invested, and can be withdrawn anytime with no tax charged as long as it's for a medical expense (including paying a deductable) FOR ANY MEMBER OF THE FAMILY. After 65, the money can be withdrawn for any reason!

 

The US Treasury has a site about this, as do many banks and lenders.

 

This is a great way to save on taxes, and save money to pay for likely expenses.

 

This is my layman's understanding of how this works. I'm not an insurance agent or specialist, so please seek out qualified advice.

 

Red 333

[brians356]

Sounds too good to be true. In other words, it is another IRA plan except you can't use it for non-medical before age 65. I need to look into this, as that's a great deal. There must be some catch, e.g. it can only be accessed through an insurance agent, and they take their fees, etc. And you probably have limited investment options, etc. Can't be as simple as it sounds - nothing ever is, it is is something dreamt up by the gummint.

[Todd Wilson]

I keep the rainy day fund in a simple savings account. The interest rate isn't a lot different. CD's while certainly safe, do not offer a big return on investment (ROI).

 

Therefore, I use a savings for the rainy day fund, and any extra I have I invest in Roth IRA, or various Mutual Funds that have long term track records. I don't invest money unless I'm in something for the long haul of 5-10 years or more. Hence, even with the market like it is, I'm not hurting too to badly.

 

Just what I do, I don't have any CD's or bonds.

 

 

Actually trying to learn a little right now reading various sources about putting funds in off shore accounts, over seas investments, etc. but have not jumped into that pool yet.

[Todd Wilson]

Here's something to consider: an HSA (Health Savings Account). Anyone with a health insurince deductable over $1100 (2' date='200 for couples) can put up to $2500 per year (it may be $300 this year) into a savings account to be used for health care. The money is TAX DEFERRED until age 65 (a big savings there), EARNS INTEREST (also tax deferred until age 65, I believe), can be invested, and can be [i']withdrawn anytime with no tax charged as long as it's for a medical expense[/i] (including paying a deductable) FOR ANY MEMBER OF THE FAMILY. After 65, the money can be withdrawn for any reason!

 

The US Treasury has a site about this, as do many banks and lenders.

 

This is a great way to save on taxes, and save money to pay for likely expenses.

 

This is my layman's understanding of how this works. I'm not an insurance agent or specialist, so please seek out qualified advice.

 

Red 333

 

What's the interest rate?

[Red 333]

 

What's the interest rate?

 

It depends on the bank or institution you have your account set up with. You have to shop around. I don't see this as growth vehicle so much, but it's a great way to save on taxes.

[Red 333]

Sounds too good to be true. In other words' date=' it is another IRA plan except you can't use it for non-medical before age 65. I need to look into this, as that's a great deal. There must be some catch, e.g. it can only be accessed through an insurance agent, and they take their fees, etc. And you probably have limited investment options, etc. Can't be as simple as it sounds - nothing ever is, it is is something dreamt up by the gummint.[/quote']

 

Yeah, it's like a medical IRA.

 

You access the funds through a debit card--no insurance company. It's your money to use as you want as long as it's a medical expense. That's how it was explained to me. I'm just researching this myself this week, so don't take my word alone. But do look it up. Seems there are a lot of advantages!

[Rosewoody]

I have one of these plans, but it is company sponsored. Every year it can roll over and thus accumulate. BUT it is my understanding (misunderstanding) that some of these plans are use-it-or-lose-it, such that any money in the plan at year's end is lost. I don't know about this, just what I remember hearing somewhere. It's worth making sure.

[Red 333]

I have one of these plans' date=' but it is company sponsored. Every year it can roll over and thus accumulate. BUT it is my understanding (misunderstanding) that some of these plans are use-it-or-lose-it, such that any money in the plan at year's end is lost. I don't know about this, just what I remember hearing somewhere. It's worth making sure.[/quote']

 

There are some use-it-or-lose-it plans (my sister has one, and is running around this week trying to spend last year's contribution before she loses it!), but these are not true Health Savings Accounts. An HSA belongs to you, and your contributions (which by the way, are voluntary each year) accumulate and earn tax deferred interest. At age 65, you can withdraw all your money for any reason. The funds are always available to you tax free when you withdraw them for medical expenses, though. If you make an early withdrawal for a non-medical expense, you pay taxes and a penalty (just like an IRA).

 

Check out the US Treasury site about HSAs. It's not as concise or organized as well as some bank sponsered HSA sites, but it's got all the official info. Just google HSA, and it should be one of the top choices.

 

Red 333

[Todd Wilson]

 

Yeah' date=' it's like a medical IRA.

 

You access the funds through a debit card--no insurance company. It's your money to use as you want as long as it's a medical expense. That's how it was explained to me. I'm just researching this myself this week, so don't take my word alone. But do look it up. Seems there are a lot of advantages![/quote']

 

It's definitely interesting! Have not heard of it before.

 

 

I guess my question would be, would my tax savings be enough to justify it over 12%-14% I get in mutual funds over 5 year periods? But the mutual fund isn't actual accessible per se, as you both are saying this account is.

 

Regardless, I'm still feeling the check I gave Sam last year, but this year shouldn't be bad, might be posting on this again, after I do a little more looking.

[Todd Wilson]

I have one of these plans' date=' but it is company sponsored. Every year it can roll over and thus accumulate. BUT it is my understanding (misunderstanding) that some of these plans are use-it-or-lose-it, such that any money in the plan at year's end is lost. I don't know about this, just what I remember hearing somewhere. It's worth making sure.[/quote']

 

 

A company I use to work for had a similar plan, but to their credit (one of the few things it did well) it tried to educate the employees as best as possible ....... and we had some left over virtually every year, and it was distributed in Christmas bonuses for hourly employees. Usually about $200 bucks just before Christmas.

 

Salary employees were just factored into their bonus, but our plan was separate.

[zeebee]

In response to the original PO:

Financial Instituition (FI's) can borrow dirt cheap from their respective governments right now (check the overnight bank rates in your country). That is why they have no interest (no pun intended) in your money. If FI's can borrow for 0.5% from the Gov't....why would they pay you any more for your cash....its that simple. When rates go backup they will be once again be interested in your $ but not until then.

[TommyK]

In response to the original PO:

Financial Instituition (FI's) can borrow dirt cheap from their respective governments right now (check the overnight bank rates in your country). That is why they have no interest (no pun intended) in your money. If FI's can borrow for 0.5% from the Gov't....why would they pay you any more for your cash....its that simple. When rates go backup they will be once again be interested in your $ but not until then.

 

Ah... I figured the gov't was in there somewheres.