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Nickelless
Administrator
USA
5580 Posts |
 Posted - 07/22/2008 : 17:28:33
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Just saw this on Yahoo...
By Terry Savage
Monday, July 21, 2008
provided by TheStreet.com
The bank safety scare of the past two weeks has sent depositors scrambling to check the rules for FDIC insurance of banking deposits, but many people are left wondering where else they can put their money so that they can sleep well at night.
This column is about the "chicken money," money you can't afford to lose. For many people it's all the money they'll ever have, and at their age or stage in life they can't afford risk of loss. For others, it's a safety stash that gives them courage to stick with long-term stock market investments, knowing a portion of their nest egg is safe and secure. Others merely need to sock away cash, say from the sale of a home, for a short period of time.
The top priority for chicken money is safety, and a certain degree of liquidity. Chicken money won't earn a lot of interest, and you can certainly get higher returns elsewhere. The interest you receive will barely keep up with inflation -- or you may actually fall behind after taxes are paid on your earnings.
But the mantra of the chicken money investor is: "I'm not so concerned about the return on my money, as I am about the return of my money!"
Here are some alternatives to bank deposits, and one clever way to increase your deposit coverage.
Treasury Bills
These are short-term IOUs from the Federal government, which borrows billions of dollars each week at regular auctions, to pay off maturing debt -- and to pay the government's bills as it falls farther into debt! At this time, the world considers these short-term IOUs from the U.S. government to be the safest investment of all.
You can buy Treasury bills in $100 minimums, online through the Treasury Web site.
When you get there, click on the section for individual investors. You'll immediately see instructions on how to open an account. You'll need your name, address and Social Security number, plus your bank account number and routing address.
Your Treasury purchases are made by debiting your bank account. The interest you earn will be deposited back into that same account automatically. You can purchase as little as $100 of Treasury bills, or millions of dollars, using this service. It's all done electronically.
For liquidity, you'll purchase bills that mature in four or 13 or 26 weeks, but you can purchase Treasury securities that mature in two years to 20 years as well.
If you have large sums to invest, you may want to stagger your purchases so they mature on a regular schedule. At maturity, the funds can be deposited back into your bank account, or you can give instructions to have your investment roll over into newly issued Treasury bills. You should plan to hold your investment at least until it matures, as there are costs to getting your cash early.
What's the interest rate? That's set by the large institutions who bid competitively to buy huge amounts of these securities. Individual investors agree to accept the average rate set at the auction. But you can be sure the market has determined the most acceptable rate of interest.
Treasury Money-Market Mutual Funds
Money-market mutual funds are not FDIC insured, but if you choose a money-market fund that purchases only short-term Treasury securities, you're at the top level of financial safety. Some money-market mutual funds purchase short-term commercial paper or other top-rated short-term securities.
Theoretically, this is a very fine distinction, since no modern money-market mutual fund has ever "broken the buck" or lost money. That is, the value of one share of a money-market fund is $1 -- and in no case in modern history has that been breached.
But Treasury-only money-market mutual funds add an extra degree of safety in their internal investments. You can find them at the major mutual fund companies. The one I have personally used for the longest time is Capital Preservation Fund at AmericanCentury.com.
Certificate of Deposit Account Registry Service (CDARS)
Banking experts -- including the former Comptroller of the Currency, Eugene Ludwig, as well as Alan Blinder, former Federal Reserve Vice Chairman, and Mark Jacobsen, former FDIC chief of staff -- have devised a system of spreading the risk of bank CDs by electronically distributing your deposits to a large group of participating banks.
If your bank is part of the CDARS network, it will use the network to distribute portions of your cash -- in smaller chunks to stay under the insured limit -- to other bank members of the network. This saves you the time and trouble of running around town to open different accounts at different banks.
But every time your bank buys a CD for you, the other bank in the network simultaneously deposits the exact same amount back into your bank in separate accounts, where it will fall under the $100,000 insurance limits. So, in effect, the money never really leaves your bank, but now it is all insured.
The receiving bank does not know your name or have any other personal identification. You're still a customer of your own bank. All of the accounts at the other banks are in your account number, and all earn the same rate. You get one IRS 1099 form for the interest you've earned. And it's all completely confidential.
While you can't direct that your money to go to a specific bank, you can veto use of any bank before the money is distributed. And the service checks, by using your Social Security number, to ensure that it doesn't distribute your deposit to another bank where you may already have an account.
There are so many banks participating in this network that you could actually have $25 million in insured deposits spread through this banking network.
For more information, and to find a bank that is a participant in this network, go to CDARS.com.
One final thought: If you've read this column, it's because you're concerned about the safety of your money. So don't overlook that other insidious thief that already has access to your accounts: inflation!
At the current 5% rate, it would cut your spending power in half in 14 years. Now, that's something to worry about. And that's The Savage Truth.
Copyrighted, TheStreet.Com. All rights reserved.
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jadedragon
Administrator
Canada
3788 Posts |
Posted - 07/22/2008 : 17:42:08
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Great article. I learned how to buy T-bills from it (never learned that in business school).
Also of interest-I learned yesterday that paypal will sweep your funds into a money market fund and pay 2.3% on them. No minimum, no fees, everything operates exactly the same way as it does now except it credits your acct with the extra money. To enroll log into paypal directly and look under the products and services area for the money market fund.
It did not allow me to enroll (or did not indicate it enrolled me), just put me back to the main page. Might be because I'm Canadian based. I am curious if anyone else is using this option and how it works for them. |
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Nickelless
Administrator
USA
5580 Posts |
Posted - 07/22/2008 : 18:09:33
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I'm not sure very many of us here would be willing to lend money to a government that is causing that money's purchasing power to rapidly decline. Great idea in theory, but not given the government's balance sheet.
quote:
Originally posted by legacypac
Great article. I learned how to buy T-bills from it (never learned that in business school).
Also of interest-I learned yesterday that paypal will sweep your funds into a money market fund and pay 2.3% on them. No minimum, no fees, everything operates exactly the same way as it does now except it credits your acct with the extra money. To enroll log into paypal directly and look under the products and services area for the money market fund.
It did not allow me to enroll (or did not indicate it enrolled me), just put me back to the main page. Might be because I'm Canadian based. I am curious if anyone else is using this option and how it works for them.
|
Visit my new preparedness site: Preparedness.cc/SurvivalPrep.net
--Latest article: Stocking up on spices to keep food preps lively
---------------
Be prepared...and prepared to help: http://www.survivalblog.com/charity.html
Are you ready spiritually for hard times? http://www.jesusfreak.com/rapture.asp |
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scooter
Penny Pincher Member
240 Posts |
Posted - 07/23/2008 : 23:34:34
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| nickless nailed it . B I N G O |
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kavajava
Penny Collector Member
USA
490 Posts |
Posted - 07/25/2008 : 00:12:32
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| Yeah--a few years ago I probably would have been very happy to give it a try--now...I am trying to put most of my actual savings into real money--silver and gold... |
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Lemon Thrower
1000+ Penny Miser Member
USA
1588 Posts |
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pencilvanian
1000+ Penny Miser Member
USA
2209 Posts |
Posted - 07/30/2008 : 19:24:32
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How easy or hard is it to get your money out of T bills?
If you choose to cash in a T bill do you have to wait for a check to be mailed to you or does the government electronically deposit the money into a bank account?
Slightly off topic-
I recently cashed in a few EE bonds and had to wait as the bank tellers calculated the interest and print out the 1099 form showing the accrued interest. Much like anything the government does involving money, it is easy to get into EE bonds but getting out is another story altogether.
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