Tuesday, November 15, 2016

Saving account, annual percentage yield (APY)

Saving is for short-term goal that you hope to reach within 5 years or so
Investing is for the long term. You save for the down payment on a house that you hope to buy in a few years. You invest for ur retirement in a few decades
  • look for free saving account, charge no fee
  • depending on where you open a saving account: at a bank, a mutual fund company, at a brokerage firm
  • restrict on the number of withdraws you can make or a minimum withdrawal amount
  • money you need to have for emergency (unexpected meidcal bills, lay off, split off ) belongs in a saving account where you can earn money
  • should cover at least 8 months of living expenses
  • if you and your partner have a common saving account (family fund), you also need to have your own saving account, 50/50 rule--if you have $200 to save every month, $100 goes into your own saving account, another $100 goes into the family fund
  • force yourself to save, save on autopilot ---authorize the bank where you have your checking account to automatically transfer money each month from the checking account into a saving account or money market account, it doesn't have to be at the same bank; you can choose the auto-pilot option when you sign up for a saving account
  • sign up for automatic deposits into ur saving account 
  • you don't need to use a bank that is in ur state
annual percentage yield (APY), get the highest APY
  • APY floats, rather than fixed. A financial institution can offer any APY, the rates can very widely from bank to bank. 
  • But all banks tend to follow the lead set by the Federal Reserve (US government's bank); Fed meet 8 times a year and decide if they want to raise, lower, or lever unchanged a key interest rate (Federal Funds Rate). 
  • Banks follow the Federal Reserve's lead. When the Federal Funds Rate rises, you typically see interest rates on saving/money market account rise. When the Federal Funds Rate falls, so will the interest rates on saving/money market account . Some financial institutions react instantly, others may make the adjustments monthly or quarterly. 
  • You need to know what the Federal Funds Rate is. Thus, a good saving rate should be right around that rate.
  • if your saving account interest rate is more than 0.75% below the  Federal Funds Rate, you should move your money to an account with a higher interest rate
  • for example, if Federal Funds Rate is 5.25 %, then a good saving account interest rate should be between 4.5% and 5% 
  • http://www.bankrate.com/  click "checking and savings" search for the best bank deals in your area, click on the "compare rates"
  • as of late 2006, internet banks offer the highest APY:
 https://www.emigrantdirect.com/EmigrantDirectWeb/index.jsp
HSBC  www.hsbcdirect.com
ING direct www.ingdirect.com

  • APR適用於信用方面的金融商品, 例如貸款, 扺押, 信用卡, 預借現金等, APR可以讓你比較金融商品所收取的利率, 及比較金融商品所收取的手續費用, 故當你要借錢時, 你應選擇APR最低的金融商品
Annual Equivalent Rate, AER
  • 為提供給儲蓄帳戶的選擇, 讓客戶可在相同的儲蓄商品之間, 選擇以年利率或月利率計息
  • 若你選擇的AER是一樣的, 那麼不管是年付或月付, 你所獲取的利息都是一樣的
  • 若你要儲蓄, 那你需要的是AER, 而非APR
the type of safe investments appropriate for ur savings are called-- CD, MMDA, money-martket mutual funds
CD and MMDA are offered by banks and credit unions

certificates of deposit (CDs)
  • available as banks, mutual funds companies, brokerage firms, FDIC insured
  • only insured up to $ 250,000 per person per bank (FDIC limit), after 250,000, u are exposed to a single bank's ability to pay u back  


money market mutual funds (MMMFs), Money market funds (MMFs)
  • mutual funds that invests in the same sort of low-risk short-term securities as a CD or MMDA
  • You have don't have FDIC insurance
  • if u stick with a reputable mutual-fund firm, the odds of running into any trouble are extremely low
  • MMF can be a terrific option if u don't have $1000 or so that many banks require to open a CD or MMDA
  • many mutual-fund company will let u open a money-market fund account with an investment as little as $ 50
  • u must sign up for automatic investing plan (AIP), where u agree to have a certain amount of money directly invested in the account each month, it can be just $ 50 or so
  • TIAA-CREF mutual fund company and T. Rowe Price both offer MMF
  • available as banks, mutual funds companies, brokerage firms, not FDIC insured, not insured by National Credit Union Administration
  • an open-ended mutual fund that invests in short-term debt securities such as treasury bills and commercial paper (corporation's short term debt)
  • poor structure of MMFs, don't have any reserve to take the occasional and inevitable losses, no insurance behind MMFs
  • by regulation, an MMF is insured typically by hundreds of underlying, highly rated (A1-P1, see below) corporations' short-term debt from the highest-rated companies and governmental entities. So, if a MMF loses a small portion of its principal, due to the failure of one or some of the short-term paper (see below) of those highly rated companies, in almost all cases, it is unlikely that most of the other companies and institutions represented in the portfolio would be in trouble as well.
  • Standard and Poor has a rating system for short-term debt instruments ranging from A1+ to D
  • Moody's has a rating system for short-term debt instruments ranging from P1 to NP
  • Rating from A1+ to A3, or P1 to P3 are being considered investment grade
  • Financial statement typically with original maturities of less than nine months are considered short-term paper. These instruments are typically issued at a discount and provide a low risk investment alternative.
  • periodically check the contents of ur MMFs to make sure there it not too much single industry concentration
  • Warning sign: if the yield in ur fund is much higher than competing funds--MMFs are all pretty much buying the same paper, so if the yield in one fund are much higher, the fund management company may be taking more risk in ur MMF than u would like

money market deposit account (MMDA)-- FDIC insured, open with a brokerage firm, an account within an account (you first open a brokerage account, within it is a place to hold and save your money), the brokerage account that houses the money market account provides you with more options than just saving--you can buy various investments, eg.., stocks, bonds, mutual funds, CDs, or even gold

  • in MMDA, u earn less interest than with a CD, but the money is never tied up
  • u can write checks on ur account, there is typically a minimum of 250 or so per check
  • one nice benefit of CD and MMDA is that if ur bank is a member of the Federal Deposit Insurance Corporation (FDIC), ur investment is insured up to $ 100,000 max

money market account -- open with a brokerage firm, an account within an account (you first open a brokerage account, within it is a place to hold and save your money), the brokerage account that houses the money market account provides you with more options than just saving--you can buy various investments, eg.., stocks, bonds, mutual funds, CDs, or even gold 

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