Opened A True Free Checking Account

It dawned on me over the weekend that my checking accounts with two different brick and mortar banks are not truly free since they require automatic deposits.

Although I survived the most recent round of layoffs, I'm not sure how much longer I'll be employed. In the event that I'm laid off, my automatic deposits will stop and my brick and mortar checking account will start charging me a fee.

Of course, I have the option of transferring some of my savings money to my non-interest bearing checking accounts so that I can meet the minimum balance at which the banks will waive the monthly fee. Screw that.



I currently have an automobile loan and a muy pequeno savings account with a local credit union. (The majority of my savings are with online banks like ING and DollarSavingsDirect.) I decided to open a checking account with my credit union since it offers free checking (minus cost of paper checks) with electronic statements. Sweet!

But in order to open an account, the credit union ran my credit report. Uhhhh... Not so good. I was recently so happy about increasing my FICO score to 712. Bummer. This'll take a hit.

With my new checking account number in hand, I tried to link it electronically to my ING savings account. Unfortunately, I was stumped by ING's security questions. I clearly got one or all of the questions wrong. For example, it gave me a list of phone numbers and asked me to choose the number I've had in the past. Are you serious? None of them looked familiar. Does anyone really remember the phone number they had during college?

[Sigh.] I'll now have to order paper checks and send a voided copy to ING to link my account. What a hassle!


While we're on the topic of ordering paper checks, in this age of online banking, I surprisingly have occasions where I still need to write paper checks (e.g., my rent, linking online banks). So I usually purchase my paper checks from Checks in the Mail. When ordering, I always check to see if anyone has posted any discount codes on the web. Sure enough, I found a couple: "couponcraze" (save $1 off check order) and "save20" (save 20% off check order). Cha-ching!

Once this is all complete, I'm also considering opening ING's Electric Orange checking account and making that my primary checking account since it offers an interest rate of 1.5% APY. ING is currently running a $50 bonus promotion right now to those who have an existing Orange Savings Account. (Reference code: EM227). The only problem with this offer is that you'll have to activate your Mastercard debit card and make 3 signature-based purchases within the first 45 days the account is open.

Maybe my goal next year should be simplifying my banking. This is getting out of control!

Opened a Dollar Savings Direct Account With 4% APY

I love my ING Savings Account. But on 10/9/08, ING decreased its APY from 3.0% to 2.75%. It's still much better than the 0.1% interest rate I'm getting from my bricks-and-mortar banks (I'm talkin' about you, Wells Fargo and Bank of America!), but it's not as good as the 3.5% APY I'm getting from Citibank's Ultimate Savings Account.


I recently learned that Dollar Savings Direct is offering a 4.0% APY with a $1,000 minimum balance.

Dollar Savings Direct is the online banking division of Emigrant Bank. In a time where banks are dropping like flies, I checked the soundness of Emigrant Bank and found that it was either rated 2-stars or 3-stars.


Not the resounding endorsement that I was hoping for, but it appears that the bank is stable and capitalized well enough for me to try it out. And hey, since I'm depositing less than $250,000, my money will be FDIC insured.

I expect completing the whole process will likely take about a couple of weeks since I've opted to mail in my initial deposit of $1,000. In order to do so, I'll have to transfer money from my ING account (about 3 business days), snail mail my check (about 2 business days) and probably another 2 business days for processing. Pretty ironic that setting up an online bank account takes longer than opening an account at a bricks-and-mortar institution. :-P

On a related topic, this article provides tips on how to speed up money transfers with online banks.

Anyhow, have a Happy Halloween everyone!!

I Opened a Treasury Direct Account!

No, I'm not running for the hills... Yet... (I joke! I joke!) But, the recent stock market crash did give me some food for thought.

Why Buy Bonds?
Investing in bond funds is safer than investing in stocks but this recent stock market crash made me sufficiently concerned that bond funds alone are an insufficient means of providing income as well as capital preservation in retirement.

Suze Orman's book, The Road to Wealth, defines a bond as

[A] debt security, or IOU, issued by a corporation or government agency in exchange for the money you lend it. In most instances, bond issuers agree to repay their loans by a specific date and to make regular interest payments to you until that date. ... With most bonds, the issuer must give you your investment money back, at face value, on the maturity date of the bond.

A bond fund, on the other hand, is

[A] mutual fund that is made up entirely of bonds. Bond funds come in all shapes and sizes, just as bonds do, but the interest rate on a bond fund is not fixed, as it most often is on a single bond. Bond funds pay income every month, however, and investors like knowing they can rely on that check. ... Bond funds do not have a maturity date. ... Because bond funds don't have maturity dates, you can't be sure how much of your original investment you will get back when you sell your shares.

So, in essence, bond funds have the advantage of being more liquid than individual bonds but they don't guarantee the return of your principal.

My bond fund (PTRAX) in my 401k demonstrates this perfectly. PTRAX (PIMCO Total Return/Intermediate-Term Bond Fund) pays dividends regularly, but as of October 18, my cost basis for the fund is $15,848.59 but the current value (including the reinvested dividend) is only $15,107.25 (or, -$741.34, or -4.68%). (Of course, the loss in this bond fund is nothing compared to the losses in my equity funds!)

Why Savings Bonds?
My recent attempt to invest in a short-term California muni-bond was thwarted by the minimum purchase amount. My Scottrade account also has a prohibitive minimum amount of $5,000-$10,000 (and $1,000 increments thereafter) to purchase various bonds.

Sigh... what's a small (and I mean small) investor like me to do?

According to CNN Money's site, U.S. Treasurys are the safest, most liquid investments on the planet next to cash. Per Suze Orman, the U.S. Treasury's Series I Bonds are perfect for non-retirement account money:

1. that you want to keep safe and sound,



2. don't need current income from, and



3. will not need to withdraw for at least 5 years.

Series I bonds have a variable interest rate (4.84% through October 31, 2008) that is tied to the consumer price index (CPI) and thus provide protection against inflation. If inflation goes up, so does the interest rate on these bonds (theoretically).

Many talking heads on CNBC are flappin' their gums about a deflationary economy. But I'm betting that we're headed more towards a '70s-style stagflation. But what do I know? Notwithstanding my bachelor's degree in Economics, I clearly can't read economic tea-leaves (and I still have quite a ways to go to fully fund my emergency fund), so my preference is to only invest a small amount.

The beauty of Series I bonds is that you can purchase the bonds electronically in $25 denominations at TreasuryDirect's website.

Another advantage of the Series I bonds is that the interest on the bonds are tax-deferred until I redeem the bond. Even when I do redeem the bond, I will only have to pay federal tax (all I-bonds are exempt from state income tax, with some exceptions).

For those with little ones, interest earnings on the I-bonds may be excluded from Federal income tax when used to finance education.

The drawback of I-bonds is that I can't redeem the bonds for at least 6 months and I will get penalized with 3 months' interest if I redeem in less than 5 years.

(Please note my disclaimer on the sidebar.)

My Plan
I've been living one pay raise behind this year. Rather than increasing my discretionary spending by the amount of my raise, I've been funneling my raise (approx. $30/paycheck) into my savings. I'll just start investing $25/month in the Series I bond instead.

This will give me some inflation protected income in the future. Perhaps I can use some of the proceeds from the I-bonds as a down payment for my first house. :-D

A Tweak In My Snowball Debt Reduction Plan

I'm reading Dave Ramsey's book, Total Money Makeover, and I've already come to the conclusion that I'm only going to have a partial money makeover. (A topic I will discuss in detail later.)

One example: My debt snowball plan is not exactly as Dave prescribes since I'm paying the same amount ($265) on my credit card every month although the minimum payment amount on my credit card goes down every month.

For those who are unfamiliar with Dave Ramsey's Snowball Debt Reduction Plan, I am supposed to pay the maximum amount possible on the debt with the smallest balance and pay the minimum due on the remaining debts. Once I pay off the debt with the smallest balance, I roll the amount I was paying on that debt to the debt with the next smallest balance, so on and so forth.



In my case, my car loan has the smallest balance. When the minimum payment on my credit card goes down, I'm supposed to funnel the difference to my car loan to pay it off faster. Alas, I have not been doing that.

The minimum balance on my credit in June 2008 was $265. Now, it's down to $250. I figured the extra $15/month isn't going to make much difference on my car loan payoff date, so I've kept paying the same amount on my credit card. (Another reason is because my credit card has a higher APR by 1.24%.)

This month, I think I'm going to do something a bit different. The idea was given to me by My Debt Blog's earlier post where he recommended paying credit card bills on the billing date rather than on the due date to save on the additional interest accrued. This makes total sense! Why didn't I think of this?

So starting this month, I've tweaked my plan as follows:

The next billing date on my credit card is likely to be October 6 with a due date of October 26. I'll pay the extra $15 a couple of days before the billing date. This should reduce the balance on the bill immediately.

Pay the minimum due around October 6 rather than a couple of days before the due date on October 26.

Repeat the process the following billing cycle

Hopefully by doing so, I'll save some money on interest payments on my dreadful credit card!

The Evils of Negative Amortization

Lately I've been addicted to reading other people's PF blogs like Sallie’s Niece or My Debt Blog. Like me, they are also struggling to pay down onerous student loans. It's a bit depressing that I'm 10 years older than these bloggers but I haven't made any more progress than they have in eliminating my debts.

Where did I go wrong? Ahhhh... I fell for the easy lure of student loan forbearances. After graduation, I sought (and received) many forbearances and the interest kept accruing.

I'm truly embarrassed to admit that I never understood the concept of "negative amortization" despite the fact that I graduated with an Econ degree. (I graduated from undergrad in 1994. Yes, readers, I'm a slow learner.)

Just to illustrate, I graduated from a second-rate law school in 1998. (All of my student loans are from my legal education.) My original balance on my private loans in 1998 was $47,325. What's my current balance? $49,136.14 as of 7/31/08!! Although it's been 10 years since I graduated, I'm $1,811.14 over the original balance due to negative amortization.

Since I kept shoddy records, I'm not sure how much I'm behind in my Federal Student Loans. But I'm sure it's also in the thousands.

Don't get me wrong. There were times when I REALLY needed the forbearance, like when I was laid off in 1999. But other times, I just wanted to free up money to play. The bottomline is, I should have used the forbearance option sparingly and only in emergencies. I didn't and as they say, I'm paying the piper and robbing myself of financial security. One of the many life lessons I had to learn the hard way. Sigh....