Tampa Bay Times from St. Petersburg, Florida on March 10, 2019 · D7
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Tampa Bay Times from St. Petersburg, Florida · D7

St. Petersburg, Florida
Issue Date:
Sunday, March 10, 2019
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What’s the best rate out there? The online bank or credit union offering the best rate changes from week to week — but any of the top contenders will earn your bal- ance much more than it would get at most brick-and-mortar banks. Look for a savings account that pays a greater than 2 percent annual percentage yield. The best — including CIT Bank and Citizens Access, an offshoot of Citizens Bank — are returning above 2.30 percent these days. Marcus by Goldman Sachs, Synchrony and Barclays also pay consis- tently high rates. You might be able to earn more if you’re willing to put your money away for awhile. Citizens Access is currently offering 2.85 percent on a one-year CD. If you can part with your balance for three years, PurePoint will pay you 3 percent. For a five-year commitment, you can earn above 3 percent at institutions like Popular Direct, Alliant Credit Union and Capital One 360. Is that rate permanent? Savings rates are variable, meaning they can increase or decrease. Rates have been rising, but that won’t last forever. That said, online banks and credit unions typically pay better returns than brick-and-mortar ones. Most CDs lock in your rate. Some allow you to adjust it once or twice during the term, but you can choose not to if rates decline. How much money can I save? If your balance is $20, an account paying 2 percent APY won’t make you a millionaire. But the higher your balance, the more of a difference higher rates make — and each time you receive interest, it’s computed based on your contributions, plus all the pre- vious interest you’ve earned. At $1,000, a 2.3 percent account will earn you about $23 in a year. At $10,000, that’s about $230. And the next year, you’ll earn based on $10,230 — as well as anything else you’ve saved. CDs often require more money to open and their returns are more predictable. For example, if you put $5,000 in a five-year CD that earns 3.10 percent, you’ll end up with over $800 more than you put in. Shouldn’t I just invest in the stock market instead? According to Rick Vazza, a certified financial planner and president of Driven Wealth Management in San Diego, a good invest- ment strategy includes both investments and savings. The latter money is “designed to be boring, with low expected return, but available when life throws something unex- pected at us,” he says. How much to put away? It depends on your living expenses, but experts often suggest setting aside three to six months’ worth of funds. Invest- ing does have its place. It can help you reach longer-term goals — such as funding your retirement — because your money has more growth potential in the market. Once you’re saving for emergencies and are investing enough for retirement to get any matching funds your employer may offer, you can consider branching into CDs. Weigh your options, and make sure the return you’ll get is worth giving up access to your cash for a time, Vazza says. Are there any downsides to online accounts? Online banks and credit unions are just that — online. Most don’t have brick-and-mortar locations. Dugan sees this level of accessibility as a perk — he says he’s not tempted to touch his balance — but it can take longer to with- draw money when you do need it. “I always encourage clients to maintain a local checking account that they can then link their high yield savings account with. Having this link will make getting access to your funds a lot easier,” Vazza says. Interest on savings is also taxable. You won’t have to report it if you’re just earning pen- nies, but if you open a high-yield account, you’ll likely receive a form from your bank at tax time. Many people are also used to banking with well-established brands, such as Chase or Wells Fargo. But Dugan says consumers concerned about stability don’t need to worry. As long as an online account is backed by the FDIC — and most are — it’s “as safe in one of these as it is in any other bank,” he says. Alice Holbrook is a personal finance writer at NerdWallet. Her work has been featured by USA Today, Money and the Christian Science Monitor. With interest rates going up generally, the amount you can earn in a basic savings account is going up as well. By ALICE HOLBROOK | NerdWallet Shutterstock SITTING IDLE I f your savings are earning 0.01 percent or so, talk of rising interest rates probably seems like a fairy tale. It sounds nice, but you might sooner meet a talking animal or two. If you look online, though, you’ll find the Federal Reserve’s rate hikes translating into something tangible: cash in your account. Sean Dugan, a Wash- ington, D.C.-based government affairs consultant, opened a high-yield online account when he grew frus- trated with the 0.04 percent his credit union savings offered. That’s “just nothing,” he says. Dugan chose the account offering the best rate at the time, and says that the bank has hiked his rate twice in the last month alone. When you’re ready for your savings to pay off, here’s what you need to know. YOUR MONEY ISN’T Bloomberg As seats shrink and fees multiply, it’s hard to find value from an airline these days. Except when redeeming frequent- flier points. The six largest U.S. carriers grew more generous from 2013 to 2018 as they sought to encourage mileage redemp- tion. The average price, in loyalty miles or points, for a domestic rewards ticket declined 13.5 percent over that time, according to data compiled by IdeaWorksCompany and CarTrawler. “Airlines are recognizing that in order for the loyalty program business to be sustainable longer term, consumers have to stay engaged and continue to want to earn this currency,” said Joe DeNardi, a Stifel analyst who tracks reward travel. “One way is to allow them to use it more effectively.” To entice travelers to use rather than hoard their miles, some airlines have decreased the number of miles needed to book a ticket, increased the numbers of seats per plane available for rewards travel, and enhanced the buying power of each mile. The prices to redeem miles have also declined in tandem with air- fares. To be sure, not every flight has seen these generous changes, and air- lines tend to offer better prices on off- peak flights where they won’t sell as many seats. Carriers have also shifted the method of awarding miles from distance flown to a ticket’s price. Delta Air Lines Inc. and United Continental Holdings Inc. swapped to revenue-based mileage accrual in 2014 and American Airlines Group Inc. followed two years later. That put all three legacy carriers in line with the accrual method both Southwest Air- lines Co. and JetBlue Airways Corp. have used for years. Airlines are broadening how loyalty miles can be used, with Delta accepting them to upgrade a fare even after pur- chase — an option being used by about 1,000 passengers a day, the airline said in January. The carrier has increased the number of SkyMiles “Flash Sales” and has introduced one-way tickets starting at 5,000 award miles. Carriers no longer care “whether they sell a seat with dollars or miles,” said Jay Sorensen, IdeaWorks president. “His- torically, it was negative from a revenue standpoint if they sold a seat with miles in general. Now airlines are recognizing that these loyalty programs are tremen- dously valuable.” United’s overall redemptions have increased and the average price of awards both domestically and across its route system has decreased, mostly over the past 16 months, said Maggie Schmer- in, a company spokeswoman. In 2018, more than 250,000 of United’s Mileage- Plus members chose awards for 15,000 points that previously would have cost 25,000, she said. Program members also booked 10 percent more of the airline’s most affordable rewards option last year than in 2017. American Airlines cut prices in some award categories starting in 2016, and the following year increased available awards in its AAdvantage program, including those that could be used on connecting flights. Last year, 13 million awards were redeemed, the company said, up 18 percent from 2017. The IdeaWorks/CarTrawler study used booking queries for a party of two at frequent-flier program websites dur- ing March, looking at 280 specific travel dates from June through October. The average mile or point statistics refer to the lowest rate found. The study did not include interna- tional travel, an area where mileage redemption bargains have become far more elusive, said Adam Morvitz, the founder and chief executive of Juicy Miles Travel Services Inc., a New York- based service that books airline award trips. Most foreign travel on U.S. carri- ers’ international partners remains subject to fixed mileage charts, and those itineraries have gotten more expensive. Airlines want you to burn up your miles They are rolling out new incentives for fliers to redeem reward points. C ertified financial planner Jill Schlesinger has seen smart people make some pretty spectacular money mis- takes. One client who repeatedly refused to buy disability insur- ance later developed multiple sclerosis. A doctor she knew put off writing a will and left behind a six-figure tax bill. A tech- nology com- pany engineer balked at her suggestion to sell some of his stock options, only to watch their value and his retirement plans evapo- rate when the market plunged. Schlesinger, a CBS News busi- ness analyst and author of The Dumb Things Smart People Do With Their Money, admits to financial missteps as well, includ- ing waiting for “just the right moment” to invest and missing a big jump in the stock market. “We’re emotional animals, not just rational ones,” Schlesinger says. “So even otherwise intelli- gent people are stymied by their emotions — usually fear and greed — and their cognitive bias- es.” Embrace pessimism Most of us don’t like to dwell on what could go wrong and many of us believe we’re better at predict- ing the future than we actually are. Overconfidence, excessive optimism and the conviction that the recent past will continue into the future mean many of us don’t adequately protect ourselves. The client who wouldn’t buy disability insurance, for exam- ple, thought he wouldn’t need it because he was healthy. The stock option guy didn’t want to sell a winning investment, not under- standing how vulnerable he was to a downturn. The doctor just didn’t want to think about dying. The antidote to this kind of thinking is to stop trying to calcu- late the odds of something going wrong. Focus instead on how much you or your loved ones have to lose if the worst happens. If you can’t easily absorb that loss, then buy the insurance, diversify your investments and write your will. Slow down A common sales tactic is to try to create a sense of urgency so people will act. But we tend to make mistakes when we rush. If you feel pressured to buy a prod- uct, sign up for a service or invest in something, take a step back. Schlesinger recommends ask- ing these five questions before making investments, but they could easily apply to other finan- cial decisions: • How much will this cost? • What are the alternatives? • How easy is it to get my money out and what fees or pen- alties will I pay? • What tax consequences will this carry for me? • What’s the worst-case scenar- io I face with this? Seek out, and listen, to expert advice Most financial advisers aren’t required to put your interests ahead of their own. They can sell you an investment that costs more or performs worse than an alternative, simply because it puts more money in their pocket. A do-it-yourself approach may actually be appropriate when you’re getting a handle on the basics: paying off credit card debt, starting to save for retire- ment and building an emergency fund. You still would be smart to seek out an expert if you’re con- fronting a situation that’s com- plex or out of the ordinary, she says. If the IRS is auditing you, you need a tax pro. If you’re being sued by a creditor, you need a lawyer. If you’re about to inherit a large sum — more money than you’re accustomed to dealing with — you should talk to a fee-only financial plan- ner who agrees in writing to put your interests first. This column was provided to the Associated Press by the personal finance website NerdWallet. Liz Weston is a columnist at NerdWallet. Money mistakes we can all make LIZ WESTON NerdWallet Your PocketBook >

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