Both Series EE savings bonds and I savings bond are safe, low-risk savings products issued by the U.S. Treasury. The biggest difference is the how the interest rate you receive on the bonds is derived. EE bonds earn a fixed rate of return while I bonds earn a combined fixed rate and added adjustment rate based inflation rates.
More technically, EE bonds issued May 2005 and after earn a fixed rate of interest. Since these bonds earn a predetermined fixed rate of return, you know what the bonds are worth at all times. The fixed rate is determined by adjusting the market yields of the 10-year Treasury Note by the value of components unique to savings bonds, including early redemption and tax deferral options.
Interest rates for new issues of the EE bonds are adjusted each May 1 and November 1, with each new interest rate effective for all bonds issued in the six months following the adjustment. The present rate for this six month cycle of EE bonds can be found on the U.S. Treasury’s financial services website, TreasuryDirect which is located on the web at www.treasurydirect.gov.
I bonds have an annual interest rate that reflects the combined effects of a fixed rate and a semiannual inflation rate. The bonds earnings rate is a combination of a fixed rate of return, set at the time of purchase, plus a variable rate that is based on the semiannual inflation rate established on CPI-U changes announced in May and November.
These bonds are very similar to TIPs or Treasury Inflation-Protected Securities. The key difference between I bonds and TIPS is that they are non-marketable securities which means they cannot be bought or sold in secondary securities market like TIPS can. I bonds are registered in names of individuals or, for paper bonds only, their fiduciary estates. These bonds are an accrual-type security. They increase in value monthly as bond interest earned is added to the bond monthly and is paid when you redeem the bond or cash the bond.
EE bonds purchased in paper form are sold at half the face value which means you would pay $25 for a $50 bond. EE bonds purchased electronically via TreasuryDirect are sold at face value; i.e., you pay $25 for a $25 bond. The paper bond purchases will take time for the bond to reach maturity because it is dependent on the interest rate.
The EE bond minimum term of ownership is one year and the interest earning period is for 30 years. There is an early redemption penalty that stands at a forfeit of three of the most recent months’ interest if redeemed before 5 years, with no penalty if held for five years or more
I bonds are sold at face value, if purchasing a $50 bond you would pay $50. As with EE series bonds, if you redeem the bond within the first five years, there is a penalty that is forfeiture of the three most recent months interest. After five years there is no redemption penalty.
Check 21 is the informal name for an act created by Congress in 2003 to help modernize the check processing system with the use of digital imaging. Many banks now clear checks with just digital images of the checks instead of the checks themselves. These reduces check processing costs for financial institutions and significantly speeds up the transfer of funds. Since the digital images are used, the actual checks may not be returned to the customer with their bank statements. For those individuals who write checks and drag their feet before they make a deposit to cover the check, the faster processing may catch these individuals with no sufficient funds in their accounts much quicker.
Most financial institutions recommend that you change your password regularly so that your account is absolutely secure. This is especially the case if you use and easily guessed password that may be ascertained by individuals illegally peering through your discarded data or if you frequently sign on at a computer that you share with others or is easily exposed to others.
Laddering of CDs is a way to obtain high interest rates by purchasing long maturity CDs but at the same time building in a significant amount of flexibility so that you can adapt to market conditions. It involves a strategy that involves multiple CDs maturing in consecutive years. You start the ladder by buying several CDs at one time but with different maturity dates, for example, one year, two year, three year, four year, and five year CDs. Every year one of your CDs will mature and you can roll it over into a new CD with a longer term (if rates are high) and higher rate.
Emergency funds are a necessity for financial safety measures because they give you resources to fall back in times of financial emergencies such when you become very ill or disabled and can’t work, or if you or your spouse lose your job, incur large medical bills, or have an unexpected large bill such as a major car or home repair. Without an emergency fund, many individuals are forced to incur excessive credit card debt that could take you many years to pay off and end up costing you much more in the long run. Often, the lack of emergency funds force individuals to make decisions that complicate and deepen an issue that may have been more easily rectified had some short term funding been available.
Having an emergency fund of savings and investment in CDs should certainly alleviate any problems with short term unexpected cash needs. With an emergency fund in an account that does not penalize early withdrawal would certainly make it highly unlikely you would need to cash out a long term CD for unexpected short-term money requirements. However, short-term financial problems aren’t the only reason to withdraw early from an investment in a CD. Suppose you purchased a five-year CD three years ago when interest rates were very low; is it worthwhile to take the early withdrawal penalty and use the proceeds to buy a new CD at today’s much-better rates? That will take some analysis on your part, but it’s definitely worth the time.
The Fed Funds rate is the interest rates that banks loan to one another. It is the rate that banks loan each other to meet Federal Reserve requirements. Some banks will have excess funds to loan out, other banks will need funds to borrow. The Fed Funds Rate is the primary tool that the Federal Open Market Committee uses to influence interest rates and the economy. When the Fed expands reserves, the Fed Funds Rate has a supply facto pushing it down. When the Fed contracts reserves, the supply is restricted and the rate generally heads higher. Changes in the Fed Funds Rate have far-reaching effects by influencing the borrowing cost of banks in the overnight lending market, and therefore the returns offered on bank deposit products such as certificates of deposit, savings accounts, and money market accounts. Changes in the Fed Funds Rate also dictate changes in the Prime Rate, which is of interest to borrowers. The Prime Rate is the rate influencing rates for most credit cards, home equity loans and lines of credit, auto loans, and personal loans. Normally the Prime Rate is approximately 300 basis points higher than the Federal Funds Rate. So, if the Federal Funds rate is 4.5%, the Prime Rate will be 7.5%.
Not necessarily, as a drop in the Federal Funds rate also affects the Prime Rate on which investments as well as debts are based. While a drop in the Prime Rate may be good for adjustable rate mortgage payers and credit card holders, interest rate sensitive investments will also be affected. If you are about to roll over a Certificate of Deposit or make a change in some other money investment, check to see what direction rates are moving? If the Fed cuts rates, most all-future investments that pay interest will pay a lower rate including CDs. In addition, the Fed is trying to maintain an economy with stable prices and growth. If a low rate puts increased demand pressure on the economy, it is likely to heat up too quickly, prices are liable to rise and an increase in the general level of inflation will most likely be the result.
Some banks still return the physical check, but it is not likely to last much longer. As banking moves online, so have your cancelled checks. Most large banks now will show you scanned copies of your checks within days of when they clear. Digital images of checks reduces processing time and reduces the cost of check clearing. It isn’t old school, but it is the way that banking will ultimately be done – paperless.
More and more banking takes place in real time. This doesn’t mean that your paychecks will clear and be available the minute you deposit them, but it does mean that if you deposit the check at an ATM you may very well see a record of that deposit online by the time you get home. Banks traditionally update accounts overnight while most people sleep but online banking means that you can even see pending changes to your account on the day before it actually changes.
No, it isn’t. The Prime Rate was initially established as the interest rate banks set for the most credit worthy clients to lend at, hence it is the “Prime” rate. It no longer carries that connotation; loans are often pried below or above prime for the lowest risk clients. Each bank in accord with other rates arbitrarily sets the Prime Rate. Some banks set their Prime Rate 300 basis points above the Federal Funds Rate. Some base it on the market with other interest rates such as the LIBOR rate. Some banks update on the day of a change in the Fed Funds rate. Others wait a few days or longer. The rate is often adjusted very closely between large banks, soon after rates change it is common to see all large banks offering the same prime rate. So, the Prime Rate isn’t one thing for all institutions, but it does not differ much from one to another.
Credit Unions don’t have the full range of services that a bank may have, but that’s a good thing. By having lower costs credit unions are able to charge lower rates for loans and pay higher rates on deposits. If you are thinking of buying a home or a car in your new location you may get a better deal by joining your credit union. You can still have an account at a traditional bank if that’s what you are used to.
A wire transfer is an electronic payment service for transferring funds by wire (such as, through the Federal Reserve Wire Network or the Clearing House Interbank Payments System).
The International Bank Account Number (IBAN) is the international standard for identifying international bank accounts across national borders. These identifying account numbers were established to facilitate transactions within the European Union. At the present time, the United States does not participate in IBAN. When sending wire transfers to countries that have IBAN numbers, you should include those numbers in your wire transfer documentation. To obtain an IBAN number of a bank check that banks website or contact that bank directly to obtain the information.
SWIFT is the acronym for the Society of Worldwide Interbank Financial Telecommunication. It is a cooperative that operates a secure financial messaging network for its members. SWIFT enables its clients to automate financial transactions and messaging it does not specifically handle the financial transactions.