Archives for May 2018

Why Pursue Financial Freedom: Fulfilling Retirement Activity vs. Ideal Job

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retirehappy

How to Retire Happy, Wild, and Free by Ernie Zelinski continues to offer smart observations on retirement. For example, when people are working, their idea of leisure is often passive: watching TV, listening to music, shopping, or eating at restaurants. However, in retirement, they need to replace all the intangibles besides money that working provided.

The Academy of Leisure Sciences has 8 criteria for finding a good leisure activity in retirement:

  1. You have a genuine interest in it.
  2. It is challenging.
  3. There is some sense of accomplishment associated with completing only a portion of it.
  4. It has many aspects to it so that it doesn’t become boring.
  5. It helps you develop some skill.
  6. You can get so immersed in it that you lose the sense of time.
  7. It provides you with a sense of self-development.
  8. It doesn’t cost too much.

Did you know even know the Academy of Leisure Sciences existed? Another new tidbit from this book.

My observation is that these are also same characteristics of a good job. Think of your own job and read it again:

  1. You have a genuine interest in it.
  2. It is challenging.
  3. There is some sense of accomplishment associated with completing only a portion of it.
  4. It has many aspects to it so that it doesn’t become boring.
  5. It helps you develop some skill.
  6. You can get so immersed in it that you lose the sense of time.
  7. It provides you with a sense of self-development.
  8. It pays enough to support your lifestyle.

Of course, this brings you to why saving up money to reach financial freedom is a worthy pursuit. The list of things that satisfies the top 8 leisure criteria should be pretty long. It might take a few tries to find something that fits, but you could play any sport, learn to cook, speak a new language, and so on.

However, adding the criteria that it has to pay you makes the list much shorter, perhaps non-existent. Compare picking up cycling for personal enjoyment vs. getting paid as a professional cyclist. Learning how to smoke some decent backyard BBQ vs. getting paid as a professional caterer. Start to speak a new language vs. becoming an (adequately-paid) French teacher. I’m sure some lucky people out there really do have a perfect job where they are getting paid for something that they would “do for free”. However, most of us don’t, so that’s where financial freedom comes in to remove that money requirement.

My Money Blog has partnered with CardRatings and Credit-Land for selected credit cards, and may receive a commission from card issuers. All opinions expressed are the author’s alone, and has not been provided nor approved by any of the companies mentioned. MyMoneyBlog.com is also a member of the Amazon Associate Program, and if you click through to Amazon and make a purchase, I may earn a small commission. Thank you for your support.

eBay: Spend $150+, Get Free Google Home Mini ($49 Value)

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ebaymini

Google is offering eBay customers who spend $150+ in eligible items a free Google Home Mini ($49 retail). Eligible items exclude items from the Coins & Paper Money, Gift Cards & Coupons, and Real Estate categories. Expires 5/20/18 or while supplies last.

How to redeem your Coupon:

Include a Google Home Mini worth $49.00 direct from Google in your cart.
Shop for $150+ in Eligible Items. (See below for exclusions).
Enter the Coupon code in the redemption code field: PFREEMINI
Check out by 11:59 PM PST on May 20, 2018
Free Google Home Mini to arrive within 10 (ten) business days.

Not a bad deal if you were already considering such a purchase, or if something $150+ you wanted was a similar price on eBay. An alternative idea is to buy $150 worth of US Postal Service Forever Stamps.

Remember, you can also stack with cashback shopping portals like eBates ($5 new customer bonus), Mr. Rebates ($5 bonus), and TopCashBack ($5 right now, but varies).

My Money Blog has partnered with CardRatings and Credit-Land for selected credit cards, and may receive a commission from card issuers. All opinions expressed are the author’s alone, and has not been provided nor approved by any of the companies mentioned. MyMoneyBlog.com is also a member of the Amazon Associate Program, and if you click through to Amazon and make a purchase, I may earn a small commission. Thank you for your support.

Here Are 11 Reasons We Have An Umbrella Liability Insurance Policy

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Personal Umbrella Insurance is additional liability insurance, designed to pay out when your existing auto and homeowner’s/renter’s insurance policies are exhausted. For example, you may only have $300,000 in liability coverage on your car insurance. If you are in a car accident and found liable for $1,000,000, you would be on the hook for $700,000 yourself unless you had an adequate umbrella insurance policy. Here is a diagram explaining this from MSN Money:

umbrellahow

In addition, an umbrella policy can also fill in the gaps by providing coverage for other incidents like liability for rental properties or being sued for slander or libel. Imagine working and saving for decades, only to have all of it taken away with one incident.

Real-world examples of $300,000+ liability claims. Every time I read about one of these scenarios, I think of them as a reason to keep paying for my umbrella insurance policy.

Do you drive a car? In a sever car accident, medical costs alone can exceed $100,000 per person easily. Now imagine if there were 2, 4, or even 6 people in the car. Here is one example from a NY Times article on umbrella policies:

One of Mr. Cox’s clients crashed into the rear of a car on a slick highway. A woman and a child were critically injured. After two years of litigation, his client settled the lawsuit for more than $5 million. The client had $15 million in umbrella coverage. The policy paid for the settlement and all legal costs. “Without the umbrella,” Mr. Cox said, “they would have been completely wiped out.”

Are you ever a parent chaperone? A high school field trip led to a $700,000 verdict for negligence:

Lauren Crossan, of Randolph, N.J., had traveled to Hawaii in 2004 with Susanne Sadler, Sadler’s daughter, and another New Jersey cheerleader to perform in the halftime show of the Hula Bowl. Within hours of her arrival at the Hyatt Regency Maui Resort, Crossan was seen drinking alcohol. Her body was found the next day on the hotel grounds.

An arbitrator determined last month that Sadler was partially responsible for Crossan’s death and ordered her to pay $690,000 to Crossan’s parents and her estate.

Do you have a dog? This Reuters article discusses the increasing number of dog-related claims. Here are two examples that didn’t even involve a bite:

State Farm public affairs specialist Heather Paul’s dog ran out through her open gate and scared an elderly neighbor, who fell off the curb and broke her ankle. The lady filed an insurance claim with Paul’s carrier, but the standard liability coverage of $100,000 was not enough for her bone reconstruction. Luckily, Paul had an additional umbrella policy, which kicked in and covered the rest.

A California woman went through a two-year lawsuit after her dog got loose and knocked over a postal worker. The dog did not bite anyone, but the worker claimed damages greater than the homeowner’s policy covered. […] This owner said she had no umbrella policy, and now she cannot get one. Her homeowner’s premium has skyrocketed.

More scenarios:

  • You leave a negative Yelp review about a company and the business sues you for defamation. Look what can happen with a mediocre 3-star Yelp review.
  • A man was asked to cut down a tree from his own yard. He refused, and later a hurricane blew the tree down and injured someone in the neighboring house.
  • Your child gets in a fight at school, and injures another student.
  • You have a pool, and a visitor hurts themselves.
  • A handyman or contractor hurts themselves on your property.

Have the insurance company lawyers be on your side. Forget even getting a large jury verdict against you. If someone simply sues you for a frivolous reason, you’ll have to pay for a lawyer to defend yourself. With an adequate umbrella policy, the money at risk will be the insurance companies instead of your own. That means the big corporate lawyers will be on your side, and your defense costs will be covered as part of the umbrella policy.

The premiums are relatively affordable. It cost us about $250 a year for $1 million in coverage for the both of us, including 2 cars and a house. That’s basically $10 per month per person. However, we did have to raise the liability limits of our auto and homeowner’s policies slightly to $500,000 each. So if you are only carrying the bare minimum required by law, your actual additional costs may be higher. If your net worth is higher, then you’d want to buy higher limits, but it should still be affordable on a relative basis.

It’s often easy to add to your existing policy. It was really simple to get as well; we had an umbrella policy added to our existing policies with just one phone call. We already had our homeowner’s and auto insurance at the same company. We didn’t have to fill out a long application or go through a credit check. If the cost is a shock, consider contacting an independent insurance broker and shopping around. You may find a better deal and get a multi-line discount.

But the low cost also means you may have to look out for your own interests. Something that involves a big commission like universal life insurance is more likely to generate interest from your insurance agent. On the other hand, selling you an umbrella policy results in a tiny commission. When I asked about it initially, all I got was a “yeah, I suppose that might be a good idea…” and they never followed-up. You need to take action on your own behalf.

One less thing to worry about. Peace of mind. Some people believe that you may be a bigger target for lawsuits if someone finds out you have a $1 million umbrella policy. Here’s how I look at it. If I really wanted to premeditate a lawsuit against someone, I’d pick someone who is worth a lot more than $1M. More like $10 million and up. In a big metro area like mine, multi-millionaires are a dime a dozen. Even if I was frivolously sued, again the whole point is that I’m still covered. To me, this argument is like saying you shouldn’t earn more money because someone will sue you for it.

Now, if you have a low or negative net worth, then perhaps there would be less incentive in getting such coverage. I certainly had no idea what umbrella insurance was in college. I would imagine lawyers are less likely to go after a big amount if you are “judgment-proof”. However, consider that your net worth may change quickly in the future, and if you did have an incident it may affect your future insurability.

Bottom line. Umbrella insurance gets to the core of the purpose of insurance. You pay money to share the risk with others and protect you and your family from a catastrophic event that could ruin your lives. In other words, you pay the premiums with the hope that you will never have to make a claim on it.

My Money Blog has partnered with CardRatings and Credit-Land for selected credit cards, and may receive a commission from card issuers. All opinions expressed are the author’s alone, and has not been provided nor approved by any of the companies mentioned. MyMoneyBlog.com is also a member of the Amazon Associate Program, and if you click through to Amazon and make a purchase, I may earn a small commission. Thank you for your support.

Urbanr: Pay Rent With Credit Card – 1.5% Transaction Fee

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urbanr0Urbanr is an apartment rental website that allows renters to pay rent to landlords using a credit card. Urbanr accepts all Visa, MasterCard, and Discover credit and debit cards. The 1.5% transaction fee can be paid by renter, paid by the owner, or split evenly between them (owner pays 0.75% and the renter pays 0.75%). The owner/landlord must sign up on the service first to accept payments (direct deposited to their bank account).

Urbanr wants to make it so that everyone pays rent with a credit card, and they claim that they are not losing money on the transaction fees. If so, they must be very good negotiators. You’ll need both parties interested for this to work. That means renters perhaps with a 2% cash back credit card or similar miles/points card, and an agreeable landlord (easier rent collection?).

My Money Blog has partnered with CardRatings and Credit-Land for selected credit cards, and may receive a commission from card issuers. All opinions expressed are the author’s alone, and has not been provided nor approved by any of the companies mentioned. MyMoneyBlog.com is also a member of the Amazon Associate Program, and if you click through to Amazon and make a purchase, I may earn a small commission. Thank you for your support.

Principles by Ray Dalio – YouTube Summary For Short Attention Spans

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dalioPrinciples: Life and Work by Ray Dalio is a bestselling book by the billionaire investor and founder of Bridgewater Associates. The book outlines both his personal development and investment philosophies and has been on my reading list for a while. If you’re like me and haven’t quite gotten around to reading it, you might be in luck.

Mr. Dalio just released a series of animated YouTube videos where he breaks down his “Principles for Success” into 8 videos at about 4 minutes each. Instead of reading a review or even paying for an “executive summary”, you can get a 30-minute version straight from the source. Here’s the trailer (embedded below) and first episode:

The YouTube channel also contains a few other longer videos dealing with the book content.

My Money Blog has partnered with CardRatings and Credit-Land for selected credit cards, and may receive a commission from card issuers. All opinions expressed are the author’s alone, and has not been provided nor approved by any of the companies mentioned. MyMoneyBlog.com is also a member of the Amazon Associate Program, and if you click through to Amazon and make a purchase, I may earn a small commission. Thank you for your support.

Auto Insurance: How Much Will An Accident Claim Increase Your Premium?

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Here’s an infographic from HowMuch.net that charts how much your annual auto insurance premium will go up after just one claim:

Auto insurance companies portray themselves as friendly and forgiving in television commercials, but they are less friendly than you might think. After filing just one claim, car insurance premiums increase by an average of 41.81%, according to an annual study by insuranceQuotes and Quadrant Information Services.

autoinsaccident

I was somewhat surprised at how much the initial premiums and subsequent hikes varied state-by-state. On average, the annual premium is $842, but after a single $2,000+ accident claim, it goes up by $352. The source article also states that you should expect rates to remain high for three to five years, depending on the severity of the claim. Ouch.

I didn’t see similar data about smaller claims like a dented bumper. I keep my collision deductible at $1,000 because I’d rather self-insure below that amount, pocket the premium savings, and avoid any rate hikes if I did make a claim. In general, I always try to only pay for insurance when an incident would cause significant financial difficulty (your number may vary).

My Money Blog has partnered with CardRatings and Credit-Land for selected credit cards, and may receive a commission from card issuers. All opinions expressed are the author’s alone, and has not been provided nor approved by any of the companies mentioned. MyMoneyBlog.com is also a member of the Amazon Associate Program, and if you click through to Amazon and make a purchase, I may earn a small commission. Thank you for your support.

Non-Financial Retirement Planning: List 10 Retired Activities

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retirehappyEver notice that every book on “How to Retire” is really just about how to accumulate a big pile of money? I’m currently in the middle of How to Retire Happy, Wild, and Free by Ernie Zelinski, which contains absolutely nothing about mutual funds, real estate, or safe withdrawal rates. Instead, it deals with the non-financial aspects of retirement. What does that mean? Well, many retirees spend at least some time being quite unhappy. They haven’t solved the other retirement problems:

  • How will you create meaning for yourself?
  • What activities will you keep your mind and body in top shape?
  • Who will you spend your time with?
  • Where is the best environment to live?

A recommended exercise is to write down the 10 favorite interests and activities that you would like to pursue in retirement. At the same time, write down how much time you are presently spending on these activities. If you are not spending any time pursuing these activities before retirement, the experts say that you are unlikely that you will spend much time on these activities after you quit work. Many people are surprised when their retirement is completely different from they imagined. They may become bored, aimless, lonely, and/or depressed. A surprisingly large number go back to work!

You need to develop activities as part of your retirement planning, BEFORE you retire. Here’s my list of favorite activities, along with time currently spent.

  1. Time with kids. Chasing bugs and jumping in muddy puddles. Learning new things with them. (Almost enough)
  2. Cooking at home. Becoming a better cook. Know what I’m eating. (4-6 hours a week)
  3. Time with spouse. Enjoying their company. (Not nearly enough)
  4. Play tennis. Social interaction and physical exercise. (3-6 hours a week)
  5. Keep learning about investing and finance. (Enough)
  6. Entertain friends at house. Cook for them. Socialize. (Very little)
  7. Read books. (2-3 hours a week? A little each day)
  8. Build an off-grid shed. Power from solar PV. Tinker with batteries and wind turbines for fun. Water catchment. Composting toilets? (None)
  9. Raise fish and/or chickens. I like to read about chicken tractors and backyard fish farms. (None)
  10. Travel. So much left to see out there. (Few weeks a year)

Right now, most of our non-work time is spent on toddler childcare, so many of these activities are being neglected. This list is a good reminder that I need to work harder on maintaining good relationships my wife, family, and friends. Once all the kids are in pre/school, we’ll see if I actually get around to the rest. Maybe the experts are right and I’ll never build that self-sustaining tilapia farm…

My Money Blog has partnered with CardRatings and Credit-Land for selected credit cards, and may receive a commission from card issuers. All opinions expressed are the author’s alone, and has not been provided nor approved by any of the companies mentioned. MyMoneyBlog.com is also a member of the Amazon Associate Program, and if you click through to Amazon and make a purchase, I may earn a small commission. Thank you for your support.

Completed Sample IRS Form 709 Gift Tax Return for 529 Superfunding / Front-Loading

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529Updated for 2018. Let’s say you are fortunate enough to be able to make a large contribution to a 529 college savings plan, perhaps for your children or grandchildren. You read from multiple sources that you are able to contribute up to $75,000 at once for a single person or up to $150,000 as a married couple (2018), all without triggering any gift taxes or affecting your lifetime gift tax exemptions. (From 2013-2017, these numbers were $70k/$140k). What you are doing is “superfunding” or “front-loading” with 5 years of contributions, with no further contributions the next four years.

Those are pretty big numbers, but any contribution above $15,000 will require you to file a gift tax return because that is the annual gift tax exclusion limit for 2018. ($14,000 for 2013-2017.) You’ll need to fill out IRS Form 709 [pdf], “United States Gift (and Generation-Skipping Transfer) Tax Return”. The instructions are quite long and confusing. You ask your accountant and they suggest talking to your estate lawyer. You may wish to avoid paying the $400 an hour or whatever it will cost as the form should be pretty straightforward.

So how do you fill out form 709 for a large but simple 529 contribution? Here are the resources that I found most helpful:

(Note that I have found what I consider minor errors and/or inconsistencies in some of the sample 709 forms above.)

Here’s a redacted version of my completed Form 709. Let me be clear that I am not a tax professional or tax expert. I am some random dude on the internet that did his own research to the best of his abilities and filled out the form accordingly. This is what my form looks like. It could be wrong. You’ll need to make changes to conform to your specific situation. Feel free to offer a correction, but please support your statement.

For my version, I am assuming that you and your spouse contributed the maximum $140,000 together. (I didn’t actually contribute that much.) The 2014 form is shown below, but I just did this for another kid using the 2017 form and I couldn’t find any differences. Note that you’ll need to file two separate gift tax returns, one for you and one for your spouse. Mail them to the IRS in the same envelope, and I like to send them certified mail.

f709_generic1_ediated

f709_generic2

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Here is my Form 709, Schedule A, Line B Attachment

Form 709, Schedule A, Line B Attachment

– Donor made a gift to a Qualified State Tuition Program (a 529 plan).

– Total amount contributed $140,000 in 2014.

– Donor elects pursuant to Section 529(c)(2)(b) of the IRS Code of 1982, as amended to treat the gift as having been made equally over a 5-year period.

– The gift was made jointly by the taxpayer and the taxpayer’s spouse on January 1st, 2014 and will be split equally in half.

– Election made for $140,000 over 5 years is equal to $28,000 total per year, or $14,000 per person per year.

– The contribution is for

Juniper Doe
Daughter
1234 Main St
New York, NY 10001

When to file Form 709. When taking the 5-year election, you must fill out the gift tax return (Form 709) by April 15th of the year following the year in which in the contribution was made. So if you make the contribution in 2018, you must file Form 709 by April 15th, 2019. If you make the upfront contribution in the first year and then make no future contribution in the next four years, you do not have to file a gift tax return after the one you did for the first year.

What if you’re late? Well, you should file the Form 709 as soon as possible. If you did not exceed the limits then technically there is no gift tax due, and there is no penalty that I could find for late filing when there is no taxes due. Still, I would file ASAP.

The tax information set forth in this article is general in nature and does not constitute tax advice. The information cannot be used for the purposes of avoiding penalties and taxes. Consult with your tax advisor regarding how aspects of a 529 plan relate to your own specific circumstances.

My Money Blog has partnered with CardRatings and Credit-Land for selected credit cards, and may receive a commission from card issuers. All opinions expressed are the author’s alone, and has not been provided nor approved by any of the companies mentioned. MyMoneyBlog.com is also a member of the Amazon Associate Program, and if you click through to Amazon and make a purchase, I may earn a small commission. Thank you for your support.

Marriott Rewards Premier Plus Card Review

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The Marriott Rewards Premier Plus Credit Card is the new co-branded card from Chase and the newly-merged Marriott/Starwood/Ritz-Carlton rewards program. The current bonus is 75,000 bonus Marriott Rewards points after spending $3,000 in 3 months. Here are the card highlights:

  • Earn 75,000 bonus points after spending $3,000 within the first three months.
  • 1 Free Night Award (valued up to 35,000 points) every year after account anniversary.
  • 6X points per $1 spent at participating Marriott Rewards & SPG hotels.
  • 2X points for every $1 spent on all other purchases.
  • Automatic Silver Elite Status each account anniversary year.
  • Get upgraded to Gold Status when you spend $35,000 on purchases each account year.
  • 15 Elite Night Credits each calendar year.
  • Free in-room, premium internet access while staying at participating Marriott Rewards® and SPG® Hotels.*
  • No foreign transaction fees.
  • $95 Annual Fee.

Note the following:

The product is not available to either:

(1) current cardmembers of the Marriott Rewards® Premier or Marriott Rewards® Premier Plus credit card, or
(2) previous cardmembers of the Marriott Rewards Premier or Marriott Rewards Premier Plus credit card who received a new cardmember bonus within the last 24 months.

The Marriott and Starwood merger is now complete, and you can use these points at either Marriott properties (Ritz-Carlton, Renaissance Hotels, Courtyard, Residence Inn, Springhill Suites, Fairfield Inn & Suites) or Starwood Properties (Westin, Sheraton, The Luxury Collection, Four Points by Sheraton, W Hotels, St. Regis, Le Méridien, Aloft).

Here’s the new award chart information:

You could use 70,000 points on two free nights at a Category 5 hotel like the Courtyard Waikiki Beach in Hawaii on a standard date, or you could get 4 free nights at a Category 3 hotel like the Residence Inn Austin Arboretum.

You can still turn your points into airline miles with a bonus. 60,000 Marriott points = 25,000 airline miles. Similar to the old Starwood bonus structure, they will add 15,000 points for every 60,000 points you transfer to airline miles.

Finally, Marriott points are also convertible to gift cards, but it takes 60,000 points to redeem for a $200 gift card for Marriott or retailers like Best Buy, Home Depot, or Nordstrom. That ratio isn’t all that great so you’ll definitely get the most value via hotel night redemptions or airline miles transfer.

After your account anniversary and paying the $95 annual fee, you’ll get an Anniversary Free Night Award automatically deposited into your account within 8 weeks. The Anniversary Free Night Award is valid for a one night hotel stay at a property with a redemption level up to 35,000 points. Getting $95 value out of hotel night is pretty easy to achieve, as long as you use it before it expires after 12 months.

Bottom line. The Marriott Rewards Premier Plus Credit Card is an updated version of their Premier card and is currently offering 75,000 bonus points after spending $3,000 in 3 months. As with all hotel cards, the value is dependent on your unique travel preferences. If you stay at Marriott/Starwood properties regularly, the free annual night award should easily cover the annual fee. If you have the old card you may be able to get a bonus for upgrading.

My Money Blog has partnered with CardRatings and Credit-Land for selected credit cards, and may receive a commission from card issuers. All opinions expressed are the author’s alone, and has not been provided nor approved by any of the companies mentioned. MyMoneyBlog.com is also a member of the Amazon Associate Program, and if you click through to Amazon and make a purchase, I may earn a small commission. Thank you for your support.

Open University: UK-Based, Regionally US-Accredited Online Bachelor’s Degrees

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ou200If you are interested in online college education, definitely read How Open University Works: An Insider’s Perspective by Manoel Cortes Mendez. The Open University (OU) is a public, nonprofit UK university that was founded in 1969 with a focus on distance-learning. I was not familiar with the OU at all before reading this.

In this article, I retrace my steps at the OU, from enrollment to graduation. The goal is twofold: first, to give you a sense of what it’s like to study with the OU; second, to highlight particular aspects of the OU experience that aren’t readily apparent from the outside, but that every prospective student ought to know.

The author earned a Bachelor’s degree in Computer Science from the OU, spending a total of $18,000. He is now halfway through the Online Masters in Computer Science from Georgia Tech.

Unlike most Open University (OU) students, who are usually in their mid-thirties, I joined the OU in my early twenties. I chose the OU over a brick university because I had started working full time after high school, and I wanted to continue working during my university studies. Furthermore, I lived in Belgium, but I envisioned my career in the US. So I wanted to study in English and my degree to be recognized internationally. As it happens, the OU is one of a handful of UK universities to be fully accredited in the US. That settled my choice.

Here’s how that was possible:

Despite its unconventional mode of delivery, the OU is on paper a university like the others. More precisely, it’s a recognized body in the UK, which is british legalese for fully accredited. And it’s one of the few UK universities to also be regionally accredited in the US. So if after your OU degree, you want to pursue further studies in a brick university, you can. And this includes prestigious universities. For instance, one of my OU classmates went on to study a master’s degree in computer science at Oxford University.

In other words, a degree from Open University has a certain level of respect and reputation for high-quality education (at least in the UK) that is not present at many for-profit US universities. Would it be possible for there to be an equivalent institution in the US? How many US residents have gotten undergraduate degrees at Open University? I bet they would get more foreign applicants if they renamed it to something that sounds traditional like “London-Bletchley University”.

My Money Blog has partnered with CardRatings and Credit-Land for selected credit cards, and may receive a commission from card issuers. All opinions expressed are the author’s alone, and has not been provided nor approved by any of the companies mentioned. MyMoneyBlog.com is also a member of the Amazon Associate Program, and if you click through to Amazon and make a purchase, I may earn a small commission. Thank you for your support.

Barron’s Best Stock Brokerage Rankings 2018

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barrons2018Barron’s has released their 2018 online broker rankings. The considerations include trading experience/technology, usability, mobile trading, range of offerings, research tools, customer service, and cost.

The Barron’s list always comes from the perspective of their subscriber base – high-net-worth active investors – which may or may not describe you. The overall winner this year was Interactive Brokers. Last year’s winner Fidelity Investments was pushed back to #2. Thankfully, Barron’s also supplied separate rankings for novice investors, long-term investors, and those that value in-person service:

Top 5 Brokers for Novice Investors

  1. TD Ameritrade.
  2. Fidelity
  3. Merrill Edge
  4. Charles Schwab
  5. Ally Invest

Top 5 Brokers for Long-Term Investing

  1. TD Ameritrade.
  2. Fidelity
  3. Charles Schwab
  4. Merrill Edge
  5. E-Trade

Top 5 Brokers for In-Person Service

  1. Merrill Edge.
  2. Charles Schwab
  3. Fidelity
  4. TD Ameritrade
  5. E-Trade

Commentary. A few thoughts on the rankings and other overlooked brokers:

Interactive Brokers is hard to argue against for very active traders. Their average account made 476 trades last year! However, they have a minimum commission of $10 a month for accounts under $100,000, or a minimum commission of $20/month under $2,000. You must pay them $120/$240 a year no matter what. That doesn’t work out for me, as some months I don’t trade at all. IB is not for newbies.

TD Ameritrade recently showed a lack of commitment to their commission-free ETF list and went for quantity over quality. The free ETF list is still decent, but that move didn’t scream “long-term” in my book. I think the customer service is solid, and some people may feel better knowing that they merged with Scottrade and their physical branch network. (E*Trade ate OptionsHouse. Schwab ate OptionsXpress. TD Ameritrade ate Scottrade. Ally ate TradeKing, now Ally Invest.)

Vanguard was included this year for the first time in recent memory, and they were promptly knocked to the bottom for being the most expensive broker due to their high trading costs on non-Vanguard ETFs and mutual funds. Vanguard doesn’t court active traders, and active traders probably won’t like it at Vanguard.

Robinhood was ignored again this year, despite the fact they have free trades and recently added a web interface for trading and free options trading. They probably would have also ranked low due to limited feature set.

M1 Finance is another free investing app that just popped on my radar. It lets you pick a customized basket of individual stocks (or ETFs) and then lets you buy them with zero commission. I used to worry that Robinhood was alone, but now there is competition. Maybe Barron’s will notice one day.

I keep most of my long-term assets directly at Vanguard along with a Solo 401k at Fidelity. My (much more modest) individual stock trading is done through Merrill Edge. I’m happy with them so far. If you have $50,000 in assets across Merrill Lynch, Merrill Edge, and Bank of America accounts, you get 30 free trades per month. That’s already more trades than I need, but $100k in combined assets gets you 100 free trades per month.

Disclosure: I am now an affiliate of M1 Finance and TD Ameritrade, and may be compensated if you click through my referral link and open a new account. I am not an affiliate of Interactive Brokers, Fidelity, Merrill Edge, or Vanguard.

My Money Blog has partnered with CardRatings and Credit-Land for selected credit cards, and may receive a commission from card issuers. All opinions expressed are the author’s alone, and has not been provided nor approved by any of the companies mentioned. MyMoneyBlog.com is also a member of the Amazon Associate Program, and if you click through to Amazon and make a purchase, I may earn a small commission. Thank you for your support.

Best Interest Rates on Cash – May 2018

My Money Blog has partnered with CardRatings and Credit-Land for selected credit cards, and may receive a commission from card issuers. All opinions expressed are the author’s alone, and has not been provided nor approved by any of the companies mentioned. Thank you for your support.

cream225Interest rates are rising. Rate-chasing is becoming more worthwhile again. Here is my monthly roundup of the best safe rates available, roughly sorted from shortest to longest maturities. Check out my Ultimate Rate-Chaser Calculator to get an idea of how much additional interest you’d earn if you switched over. Rates listed are available to everyone nationwide. Rates checked as of 5/1/18.

High-yield savings accounts
While the huge brick-and-mortar banks rarely offer good yields, there are a number of online savings accounts offering much higher rates. Keep in mind that with savings accounts, the interest rates can change at any time.

  • Popular Direct is at 2% APY with a $5,000 minimum opening deposit. SalemFiveDirect is at 1.85% APY, albeit for new money only/not valid for existing customers. DollarSavingsDirect is at 1.80% APY (no min). CIT Bank Money Market is at 1.75% APY (no min, $100 to open).
  • My “hub” bank account is the Ally Bank Savings + Checking combo due to their history of competitive savings/CD rates, 1-day external bank transfers, and overall user experience. The free overdraft transfers from savings allows to me to keep my checking balance at a minimum. Ally Savings has been raising their rates, but it still lags a bit at 1.50% APY. I’ve been keeping more money in no-penalty/short-term CDs.

Money market mutual funds + Ultra-short bond ETFs
If you like to keep cash in a brokerage account, you should know that money market and short-term Treasury rates have been rising. The following money market and ultra-short bond funds are not FDIC-insured, but may be a good option if you have idle cash and cheap/free commissions.

  • Vanguard Prime Money Market Fund currently pays an 1.82% SEC yield. The default sweep option is the Vanguard Federal Money Market Fund, which has an SEC yield of 1.58%. You can manually move the money over to Prime if you meet the $3,000 minimum investment.
  • Vanguard Ultra-Short-Term Bond Fund currently pays 2.23% SEC Yield ($3,000 min) and 2.33% SEC Yield ($50,000 min). The average duration is ~1 year.
  • The PIMCO Enhanced Short Maturity Active Bond ETF (MINT) has a 2.12% SEC yield and the iShares Short Maturity Bond ETF (NEAR) has a 2.22% SEC yield while holding a portfolio of investment-grade bonds with an average duration of ~6 months.

Short-term guaranteed rates (1 year and under)
I am often asked what to do with a big wad of cash that you’re waiting to deploy shortly (just sold your house, just sold your business, legal settlement, inheritance). My usual advice is to keep things simple. If not a savings account, then put it in a flexible short-term CD under the FDIC limits until you have a plan.

  • CIT Bank 11-Month No-Penalty CD is at 1.85% APY with a $1,000 minimum deposit and no withdrawal penalty seven days or later after funds have been received. The lack of early withdrawal penalty means that your interest rate can never go down for 11 months, but you keep full liquidity. Full review. You can open multiple CDs in smaller increments if you want more flexibility.
  • Several banks have 12-month CDs at 2% APY and above. Watch the early withdrawal penalties. For example, MidFirst Direct has a 2.25% APY 12-month CD, but the early withdrawal penalty is a fixed 1% of the amount withdrawn + $25. Meanwhile, Ally Bank has a 9-month CD at 2% APY and a 12-month CD at 2.10% APY with $25,000 minimum deposit and early withdrawal penalty of 60 days interest.

US Savings Bonds
Series I Savings Bonds offer rates that are linked to inflation and backed by the US government. You must hold them for at least a year. There are annual purchase limits. If you redeem them within 5 years there is a penalty of the last 3 months of interest.

  • “I Bonds” bought between May 2018 and October 2018 will earn a 2.52% rate for the first six months. The rate of the subsequent 6-month period will be based on inflation again. More info here.
  • In mid-October 2018, the CPI will be announced and you will have a short period where you will have a very close estimate of the rate for the next 12 months. I will have another post up at that time.

Prepaid Cards with Attached Savings Accounts
A small subset of prepaid debit cards have an “attached” FDIC-insured savings account with exceptionally high interest rates. The negatives are that balances are capped, and there are many fees that you must be careful to avoid (lest they eat up your interest). The offers also tend to disappear with little notice. Some folks don’t mind the extra work and attention required, while others do.

  • Insight Card is one of the best remaining cards with 5% APY on up to $5,000 as of this writing. Fees to avoid include the $1 per purchase fee, $2.50 for each ATM withdrawal, and the $3.95 inactivity fee if there is no activity within 90 days. If you can navigate it carefully (basically only use ACH transfers and keep up your activity regularly) you can still end up with more interest than other options. Earning 3% extra interest on $5,000 is $150 a year.

Rewards checking accounts
These unique checking accounts pay above-average interest rates, but with unique risks. You have to jump through certain hoops, and if you make a mistake you won’t earn any interest for that month. Some folks don’t mind the extra work and attention required, while others do. Rates can also drop quickly, leaving a “bait-and-switch” feeling. For example, Northpointe Bank was mentioned for several months here but later dropped to 1% APY. That’s just how it goes with these types of accounts.

  • Consumers Credit Union offers up to 4.59% APY on up to a $20k balance, although getting 3.09% APY on a $10k balance has a much shorter list of requirements. The 4.59% APY requires you to apply for a credit card through them (other credit cards offer $500+ in sign-up bonuses). Keep your 12 debit purchases small as well, as for every $500 in monthly purchases you may be losing out on 2% cashback (or $10 a month after-tax). Find a local rewards checking account at DepositAccounts.

Certificates of deposit (greater than 1 year)
You might have larger balances, either because you are using CDs instead of bonds or you simply want a large cash reserves. By finding a bank CD with a reasonable early withdrawal penalty, you can enjoy higher rates but maintain access in a true emergency. Alternatively, consider a custom CD ladder of different maturity lengths such that you have access to part of the ladder each year, but your blended interest rate is higher than a savings account.

  • Synchrony Bank has a 14-month CD at 2.35% APY ($2,000 min). Live Oak Bank has an 18-month CD at 2.35% APY and a 24-month CD at 2.50% APY ($2,500 min). Early withdrawal penalty for both banks is 90 days of interest.
  • Ally Bank has a 5-year CD at 2.60% APY ($25k minimum) with a relatively short 150-day early withdrawal penalty. For example, if you closed this CD after 2 years you’d still get a 2.07% effective APY even after accounting for the penalty.
  • Mountain America Credit Union has a 5-year Share Certificate at 3.00% APY (minimum deposit varies). Anyone can join via a partner organization for a one-time $5 fee, usually right on the online application. However, note the early of withdrawal penalty of 365 days of interest. You can also find a 5-year non-callable brokered CD at 3.20% APY from both Vanguard and Fidelity. More info below.

Longer-term Instruments
I’d use these with caution due to increased interest rate risk, but I still track them to see the rest of the current yield curve.

  • Willing to lock up your money for 10+ years? You can buy certificates of deposit via the bond desks of Vanguard and Fidelity. These “brokered CDs” offer FDIC insurance, but they don’t come with predictable fixed early withdrawal penalties. As of this writing, Vanguard is showing a 10-year non-callable CD at 3.25% APY (Watch out for higher rates from callable CDs from Fidelity.) Unfortunately, current CD rates do not rise much higher even as you extend beyond a 5-year maturity.
  • How about two decades? Series EE Savings Bonds are not indexed to inflation, but they have a guarantee that the value will double in value in 20 years, which equals a guaranteed return of 3.5% a year. However, if you don’t hold for that long, you’ll be stuck with the normal rate which is quite low (currently a sad 0.10% rate). I view this as a huge early withdrawal penalty. You could also view it as long-term bond and thus a hedge against deflation, but only if you can hold on for 20 years.

All rates were checked as of 5/1/18.


CIT Bank No-Penalty CD

My Money Blog has partnered with CardRatings and Credit-Land for selected credit cards, and may receive a commission from card issuers. All opinions expressed are the author’s alone, and has not been provided nor approved by any of the companies mentioned. MyMoneyBlog.com is also a member of the Amazon Associate Program, and if you click through to Amazon and make a purchase, I may earn a small commission. Thank you for your support.