Finding the Equivalent Bank Interest Rates For Savings Bonds

One perk of U.S. Savings Bonds (USSB) and Treasury Bills is that they are exempt from state and local income taxes. For comparison, what would be useful is a quick way of comparing those tax-advantaged rates with the regular interest rates from a bank savings account or CD. So let’s do that. To start, we agree that we want find the equivalent bank rate that gives us the same after-tax return.

AfterTaxReturnBank = AfterTaxReturnUSSB

RateBank * (1 – Fed Tax Rate – State/Local Tax Rate) =
RateUSSB * (1 – Fed Tax Rate)

This gives us:
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U.S. Treasury Bills: Possible Worthwhile Investment

I was snooping around the U.S. Treasury website looking up stuff on potentially laddering I-Bonds, when I came across Treasury Bills again. Treasury Bills are short-term investments (from 4-26 weeks usually) that common folk like us can also buy at TreasuryDirect.gov. The minimum investment is $1,000, and you buy them at a discount to their face value. In their example, you might pay $970 for a $1,000 T-Bill. I’ve never really bothered to learn much about them though, since their yields recently have beem much lower than online savings accounts like EmigrantDirect. For example, a recent rate for a 29-day T-Bill is 3.696%.

But, one key thing is that interest earned from T-Bills are exempt from state and local income tax. For example, if you were in the 28% federal tax bracket, and in a 10% marginal state income tax bracket, that’s 3.696% turns into 4.29%!!
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Laddering Bank CD’s: Is It Worth It?

I have most of my cash in a high-yield savings account making 4.12% APY. However, in previous days when the yield curve wasn’t so flat, a technique called laddering along with certificates of deposit (CDs) was pretty popular.

For example, let’s say you had an emergency fund of $5,000. You want to keep that pretty liquid and safe, but you also don’t want it sitting there getting eaten up by inflation. So, you put $1,000 in a savings account, $1000 in a 1-Yr CD, $1000 in a 2-Yr CD, $1,000 in a 3-yr CD, and $1,000 in a 4-Yr CD. You would end up with better overall interest rate, and take an interest hit if you needed to take out more than $1,000 in a year by breaking the older CDs. Now, when the 1-Yr CD matures, you go out and buy another 4-Yr CD, keeping the ‘ladder’ intact (The old 4-Yr CD now has 3 years to go, etc). For a while, the increase in interest by doing this was not worth the loss in liquidity. Let’s check again:

I’ll use INGDirect as an example since they are OK in the interest rate department, and their CDs are very flexible since you can open them with any amount. You could make a small $600 CD ladder with their savings account and 1,2,3,4, and 5 year CD in $100 increments. There are definitely many banks with higher rates out there.

So, if you kept $5,000 in their Orange Savings Account (OSA), you’d currently get 3.40% APY, or $170 in a year.

Let’s look at if you make the following ladder with the current rates:

$1,000 OSA at 3.4% APY
$1,000 1-Yr CD at 4.2%
$1,000 2-Yr CD at 4.5%
$1,000 3-Yr CD at 4.65%
$1,000 4-Yr CD at 4.7%
—————————
$5,000 Ladder earning 4.29% APY

That’s an increase of 0.89% annual interest. Equivalently, you’d get $214.50 in a year, an increase of $44.50 or 26%. Not bad if you do have money at ING.

Remember that you are giving up liquidity by doing this. ING charges a penalty of 6 months interest for breaked a CD with a term longer than 1 year. Be aware that if you break in less than 6 months, you’ll actually be losing money! But, it may be worth it. Now I need to see if I can find a bank with consistently high rates to open a up a ladder with better rates. It would have to be all at one bank, otherwise it’d be a pain to keep track of.

You can do alot of different things with laddering – make the time increments longer, shorter, wider apart, closer apart, and so on. Many people also use this technique with marketable bonds and savings bonds.

Renting Rambles

I’m still a bit in shock over getting kicked out, with countless thoughts zipping around in my head. Here’s my attempt to put them on virtual paper.

Buying. Just not going to work. With 20/20 hindsight, yes, we should have bought a place when we moved here initially a bit over a year ago. House values have have increased 30-50% and we wouldn’t be faced with being kicked out. But now, we have less than 2 years left in this city, not enough time to even make the 2 years needed to make any capital gains tax-free. Also, with only one income now getting a loan would be very difficult. I’d probably have to go back to work again, at least long enough to get the loan.
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Buy, Rent, or Get Kicked Out

So I get a call from my landlord saying she just put up a bid for some beachfront property and may have to sell the house I’m renting to pay for it. Another “heads up” that we may have to move again in less than 9 months. I’m getting really. tired. of this crap. I almost want to buy a house just to not have to worry about it. Back to Craigslist I go, there are a lot of comparable houses that rent in the same price range. Maybe we can even save some money…

Buying Savings Bonds Now or Later? Two “Experts” Collide

I guess the word has spread about the great I-Bonds rates, as is shown by this recent USA Today article. Unfortunately, this article does not help me at all, since the key to buying now or later is the upcoming fixed rate, and these two so-called experts can’t even agree on it. One says it may go down to 0.5%, the other one says 1.3-1.5%. Gee, thanks guys.

Bored Money: e-Rewards is my NetFlix Alternative

Next up in the Bored Money arena is e-Rewards. It’s similar to MyPoints in that the make you fill out a big long profile and then pay you to receive e-mails, sign-up for offers, and fill out online surveys. They differ in that instead of Points and gift cards, e-Rewards uses e-Rewards dollars (not actual cash) and gives out some pretty random stuff. It’s pretty easy to earn money though, sometimes I get $5-$10 in one day.

For $25 in e-Rewards dollars, examples of what you can get include: 500 American or Northwest Airline Miles, $25 off any purchase at FTD.com, or 1,000 Hilton Honors points. However, my favorite reward is $25 for 6 free Blockbuster rentals – you get one movie free each month for six consecutive months. Here’s how I use it instead of NetFlix:
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Savings Bonds Purchased, $5 Oops, More on Partial Redemptions

My $5,000 I-Bond online purchase looks like it went off today without a hitch at Treasury Direct. Well, almost. I didn’t pay attention to my BillPay along with my checking account balance and I ended up going below the $1,000 minimum on my Presidential checking account. Doh! At least it’s only a $5 low-balance fee and not a bounced check.

There was also a good question about partial redemptions of Savings Bonds – If you withdraw any of it early (less than 5 years), will you be paying a penalty on all future withdrawals, even if you wait more than 5 years? I e-mailed them (they don’t seem to have a phone number?), and the answer I got was no. Here’s my e-mail and their response:
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Bored Money: Pinecone Research Online Surveys

Pinecone Research is a consumer opinion research group that polls people via online surveys and occasionally by actually sending you out product samples to review. In exchange for your feedback, they mail you a $5 check for each online survey you complete for them. Each survey takes about 15 minutes. It has a homegrown-feel to it, so I try to answer all the questions honestly (although I still don’t give out my home phone number).

The catch is that they are usually closed to new members, so it is really hard to join their panel. But this week happens to be Open Recruitment Week, so sign up right now if you’re interested! I’ve probably gotten around $100 from them, the $5 checks seem like nothing but you get one about every two weeks and it adds up! I’ve also received a bunch of free food items to review.

Bored Money: MyPoints Rewards For Getting Spam

I’ve decided to add a new category called Bored Money. Be forewarned that these are not an efficient use of most people’s time. But if you have a desk job or any job with some downtime and internet access (or are just bored), why not eek out a little money?

The first one I’ll talk about is MyPoints, since it has been around for a while and has always delivered the promised goods. First, you sign up and give up all your personal information. Well, that’s the idea. I actually have an entire separate alias for all these Bored Money sites. The only thing you have to get correct is your name and address (use a fake phone number, they never check). I also use a free Yahoo e-mail.

You’ll get ‘Points’ for filling out surveys. I recommend having lots of interests. Accordingly, you’ll get the equivalent of requested spam in your e-mail box. You click on a link in each of them, most of which give you 5 Points. I get about 3-5 a day. When you accumulate enough Points, you can redeem them for gift certificates to various places like Wal-Mart, Red Lobster, and JC Penney. You can also get Points directly on their website for signing up for trial offers, buying things through their shopping mall, or signing up for clubs or mailing lists. I only do the free stuff, though.

So what’s a Point really worth? I usually redeem my Points for a $10 Target Gift Card, which is 1,500 Points. A $10 Starbucks Card is 1,350 Points. So that’s 0.67 cents a points. Or 3.3 cents an e-mail. Like I said, not a very efficient use of time. But I keep on doing it, because it’s mindless and lots of times you can sign up for sweepstakes, etc. for extra Points. The points actually add up really quick if you pay attention to it, I get about $10-20 in gift cards every couple months. I’ve earned 25,000 Points since joining according to them, worth about $165, without spending a dime. No telling how much time I’ve wasted on it, though. Shrug.

Gambling: I Have No Dental Insurance

Every since I quit my job in July, I have had no dental insurance. I just had x-rays and a cleaning in June, so I figured I was good at least until the end of the year. As Open Enrollment is here, I have decided not to be added onto my wife’s dental plan again for 2006. Here are my reasons why:

» It costs an additional $45 a month (pre-tax). So that would be about $540 pre-tax or $390 a year post-tax.
» I have never had a cavity (knock on virtual wood) or any other tooth issue, floss and brush, and I get regular cleanings.
» I am still going to get the semi-annual cleanings and maintenance stuff. If I pay cash, my dentist (who I like and want to stay with) says it will cost about $200 a year. Not a bad annual savings.
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Applied for HSA Health Insurance Today

I finally got around to applying to an HSA-eligible high-deductible health insurance plan today on eHealthInsurance. (Please see my previous posts on getting quotes and HSA pros and cons). I kind of dropped the ball, as Open Enrollment for my current insurance ends on 10/31, and I may not get my decision until after that. I was trying to get a State Farm-brokered plan from Assurant (only $65/month), but they don’t take applications that far ahead of time (I need to start 1/1/06). I don’t have any medical problems except for elevated cholesterol, but that might have raised my rate significantly, and I didn’t want to take that chance. At least it is a no-committment application.