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The Secret Catch to Bank of America's "Keep the Change" Program
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Bank of America's Keep the Change (background) program has a big, big catch to it.
The savings account where your money is likely going has a pitiful .2% APY.
Yup, for real. From the fine print:
Savings accounts eligible to receive matching funds include, but are not limited to, Regular Savings, which requires a minimum opening balance of $25 and pays a variable Annual Percentage Yield that was 0.20% as of 08/28/08.
0.2% APY means your money is not working for you. When you could open an online savings account that offers upwards of 3.75% APY (Dollar Savings Direct, WaMu), there's no reason you should be using BofA.
Still not convinced? Look at the other requirements:
- $300 minimum balance, or
- Automatic monthly transfer of $25
- $3 withdrawal fees if balance is under $2,500 and more than 3 monthly
Considering that the best online savings accounts have no minimums, no fees, and no requirements, you should not be keeping your money with Bank of America.
It's great that BofA is helping people automate their savings — it's the easiest way to start pocketing more of your own money — but customers still aren't getting a good deal.
(Yes, you do get matching funds from BofA of up to $250 in one year, but you could get the same by smartly opening certain savings accounts. And you could move the money into a money market account, but the requirements for that are even worse.)
Saving your money smartly means making it work hard for you. If you want your money to make you money, open an online savings account now.
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How Tax Cuts and Consumption Affect America's Jobs
It has been common in politics to hear that tax cuts in the higher income tax brackets will be good for the economy because the wealthy and the well-to-do will be able to save and provide funds for capital investment spending and jobs.
Americans must have jobs. Large scale unemployment in an urban society guarantees untenable social, economic and political conditions. It is total spending that generates jobs, which includes the investment spending generated by our savings, but also consumption spending including government spending.
In the last two posts I quoted from Alan Greenspan, who told us there are not enough investment opportunities for our savings since the year 2000. Creating hedge funds or other speculative financial investments does not create many jobs: mostly financial advisors and lawyers.
Since financial investment speculation does not create enough jobs, America must rely more on consumption spending to keep ourselves employed.
The consumption spending America needs the most is for domestic services. Consumption spending that goes for luxury products imported from abroad creates foreign jobs, but not American jobs.
The growing importance of consumption spending for creating jobs makes credit card spending a necessity. Given the wages and taxes for millions of Americans, keeping up spending requires credit card borrowing. For those of us who save and read savings blogs, it is sobering that so much of our savings supports credit card spending.
It would be better if it helped pay for long-lived physical assets, but at least we can have an interest return knowing our savings support jobs and the economy.
The growing importance of consumption spending brings us back to the politics and tax cuts I mentioned above. If America is going to have enough jobs, the well-to-do must see to it that all of their income goes back into the spending stream.
They can only save if it helps create jobs, otherwise they must consume.
Washingtonian Magazine published an article over a year ago describing the proper things to buy for the well-to-do lifestyle. They included landscaping, flowers, dog walkers, sports tickets, club memberships, personal trainers, spa memberships, dining out and charity events. For those with kids, include coaches' fees, soccer camp, piano lessons, college consultants and live in nannies.
Perhaps the editors at Washingtonian were celebrating conspicuous consumption or encouraging the wealthy to do their duty and create jobs. That I cannot tell, but tax cuts to the wealthy pose a threat to jobs and economic growth unless they go into consumption. Like it or not; that's a fact.
Fred Siegmund covers America's jobs as part of work doing labor market analysis and projections for a client base of recruiters, trainers and counselors. Visit him at www.americanjobmarket.blogspot.com
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Alan Greenspan on the Turbulence of Savings
In his recent book, The Age of Turbulence, former Federal Reserve Chairman Alan Greenspan discusses savings.
"The shift of shares of world Gross Domestic Product since 2001 from low saving developed countries to higher saving developing countries has increased world saving so much that aggregate growth of savings world wide has greatly exceeded planned investments," he writes. "Or to put it another way, the supply of funds looking for a return on investment has grown faster than investment demand."
His tenure as Federal Reserve Chair began in 1987, so there is also some saving and lending history that he writes about. Speaking of banks in 1987, he says "[they] were in serious trouble."
And what was their problem? "… [Too] much speculative lending; in the early eighties, the major banks had gambled on Latin American debt, and then, as those loans went bad, like amateur gamblers trying to get square they'd bet even more by leading the whole industry into a binge of commercial real estate lending."
Amateur gamblers? Too much real estate lending? Isn't that what we have just been having?
When we save and earn an interest return, we entrust banks and financial intermediaries to use our savings wisely. The best loans for an economy create long lived physical assets.
On the news, I often hear that America's infra-structure needs improving. The levees in New Orleans and now on the Mississippi river need expensive capital improvements.
If banks use loanable funds as amateur gamblers when America needs levees, then it's not just banks that are in serious trouble as Mr. Greenspan mentions.
Remember savers, the more our savings are used to produce new products and new technologies, the more valuable your savings in the future.
Fred Siegmund covers America's jobs as part of work doing labor market analysis and projections for a client base of recruiters, trainers and counselors. Visit him at www.americanjobmarket.blogspot.com
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Savers Beware: What Are Your Underlying Assets?
There was a time when it was common for corporations to create long lived assets with borrowing. It may take several years to build a steel mill or a power plant before there is something to sell, but loan or bond payments will come from revenues and the economy will have more steel, more electricity and more assets.
Banks, or financial intermediaries as they are called now, are still happy to make loans for plant and equipment. Trouble is there are more loanable funds to loan than borrowers willing and able to borrow for long lived assets.
As a result, banks make more consumer loans that support consumption spending like credit card debt. Loans that support consumption helps support jobs and the economy and provide an outlet for savers looking to earn interest income. However, credit card purchases like vacations, housewares and clothing have little value as security for credit card balances.
The home mortgage should be a secure loan because a home is a long lived asset. It used to be that Savings and Loans would make mortgage loans at 6 or 7 or 8 percent interest and the home would be the asset in case of default.
Lenders with home mortgages on their books could sell their mortgages if they needed to raise cash but they would tend to hold them to maturity, earning a steady income. In case of selling a mortgage it would usually be sold to another financial institution such as the Federal National Mortgage Association.
That changed when adventurous money managers started to buy thousands of mortgages and bundle them for resale into something like to a bond that pays interest on invested principal. They call them collateralized mortgage obligations (CMO) or collateralized debt obligations (CDO). In that way, mortgages could be resold to smaller investors who would not normally be willing or able to buy individual mortgages.
What is important to notice though is that repackaging and reselling mortgages does not create new assets. Reselling mortgage credit means more transactions that allow money managers to charge management fees and potentially make money with price fluctuations in CDO prices.
Bear Stearns held collateralized debt obligations in their hedge fund, but apparently so many of the underlying mortgages were to people who were sub prime borrowers that defaults set off a chain reaction. Since Bear Stearns borrowed money to buy collateralized debt obligations for their investors, they defaulted on their loans and threatened the solvency of major banks.
With so many new ways for money managers to attract savers, it is more important than ever to notice the underlying assets and ability to pay.
Did Bear Stearns investors know so many of the underlying assets were sub prime loans? Savers beware!
Fred Siegmund covers America's jobs as part of work doing labor market analysis and projections for a client base of recruiters, trainers and counselors. Visit him at www.americanjobmarket.blogspot.com
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U.S. Households See Net Worth Drop $1.7 Trillion
Americans $1.7 trillion poorer — CNNMoney.com
Americans saw their net worth decline by $1.7 trillion in the first quarter - the biggest drop since 2002 - as declines in home values and the stock market ravaged their holdings.
Meanwhile, the amount of equity people have in their homes fell to 46.2%, the lowest level ever.
The net worth of U.S. households fell 3% to $56 trillion at the end of March, according to the Federal Reserve's flow of funds report, which was released Thursday.
Wowzas, right?
Some of this is obviously inflated, since falling housing prices (which were off the scale during the bubble) made up $305 billion of the decline. But the news isn't that encouraging.
At the same time, there are now more than 1 million homes in foreclosure.
Are you a part of the net worth decline? Even if your home value has dropped, is your net worth (outside of real estate) doing the same?
Leave a comment and tell us.
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Automate Your Finances, Feel Comfortable
One of the biggest reasons you should put your finances on autopilot is for the sheer comfort of it.
Literally.
When your bills are getting paid automatically, your savings is being fed without you touching it, and your paycheck is going straight into your checking account, you don't have to worry about them. It's the biggest weight off of your shoulders.
You don't need to find the time to head to the ATM. You automatically pay yourself first. You don't have to worry about the post office losing your check in the mail.
The only bill I still pay by check is my credit card, and every other day I forget exactly when it's due and, therefore, when I need to send it in. It's weighing down on me.
So much about money management is mental. Am I saving enough? Should I save for the long run or the short run? Do I really need that thing I want?
The less you have to worry about, the better off you are. Don't let your finances overwhelm you.
Automate today and feel more comfortable.
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How Saving Fuel is Costing Jobs
According to the Washington Post's "A Switch on the Tracks: Railroads Roar Ahead," rising fuel costs for 18-wheeled trucks has generated a rapid turnaround in rail traffic with freight rail tonnage and rail ton-miles surging ahead.
The article cites a 3 to 1 fuel advantage for rail over trucks, but the fuel advantage also means less environmental pollution in an eco-conscious society.
Using less fuel to transport a ton-mile of freight represents a physical savings of resources that potentially benefits many because fuel costs are reflected in grocery store prices and for just about everything else we buy at stores.
Savings that lower costs should always be good, but because even though a higher share of freight traffic could go on the rails, changing modes of transportation will affect jobs.
Trucks have been dominating freight traffic measured by value and tons. The latest commodity flow survey data published by the Bureau of Transportation Statistics and Federal Highway Administration compiles domestic freight shipments.
It shows that trucks haul 70 percent of freight measured by value and 60 percent of freight measured by tons.
Rail, on the other hand, has only 3 percent of freight measured by value and a little over 10 percent measure by tons. Truck traffic measured in value of shipments is bigger than rail by a ratio more than 20 to one. In tons of freight, trucks are bigger than rail by a ratio of 6 to 1.
Freight measured by ton-miles, or tons multiplied by miles, shows the relative advantage of rail as a bulk carrier. Trucks haul 34 percent of freight measure by ton-miles compared to 31 percent by rail. In ton-miles, trucks are about even with rail by a ratio barely above 1 to 1.
However, the ratio of tractor trailer and heavy truck driving jobs to locomotive engineering jobs tells a different story. Heavy and tractor trailer drivers have 1,860,000 jobs compared to 46,600 jobs as locomotive engineers and operators.
Heavy truck driving jobs outnumber rail engineer jobs almost 40 to 1. Those totals count only heavy and tractor trailer jobs. There are a million additional light and delivery service trucking jobs.
Efficiency sounds so much like something we should like, but saving energy and reducing air pollution by shifting to rail and away from trucks will eliminate thousands more jobs than it will create.
If America wants efficiency, we may need to think of some new ways to share their work.
Fred Siegmund covers America's jobs as part of work doing labor market analysis and projections for a client base of recruiters, trainers and counselors. Visit him at www.americanjobmarket.blogspot.com
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Do It Yourself and Save Big Bucks
In today's economy, we need to remind ourselves we can save without saving by using do-it-yourself production.
Suburban homeowners might employ a lawn service to take care of their yard or join a health club or gym with a personal trainer to take up a program of planned exercise. Do-it-yourselfers will get their exercise mowing the grass and avoid the lawn service and the health club altogether.
One of the often overlooked advantages of owning a home over renting an apartment is the opportunity to save with do-it-yourself production. Apartment renters lose the tax deductions for property taxes and home mortgage interest, but their rent has to cover all of the landlord's landscaping and maintenance costs.
Renters pay out of pocket each month while the homeowner can choose a few, or many, do-it-yourself savings from lawn care, painting the shutters, replacing faucet washers, or flashing the roof vents.
Condominium owners get property and home mortgage tax deductions, but lose some do-it-yourself opportunities since condominiums often provide landscaping and exterior maintenance in common as part of a monthly fee paid with after tax dollars.
Take just $60 a month out of a condo fee for landscaping and the savings are $8,835 for 10 years at just 4 percent interest.
Remember too that cost of living increases come as a percentage of gross income. If you have a $50,000 salary and a 3 percent cost of living increase, it will be $1,500 more in gross income. Before you get a dime, 7.65 percent goes to social security, at least 15 percent goes to the federal income tax and probably 5 to 8 percent goes to a state income tax. That's before you buy anything, which will also be taxed.
With heavy taxation and the loss of at least a third of gross income, do-it-yourself savings of only $800 or $900 will be equal to $1,500 of gross income. It is something to think about in a stagnant economy.
In the United States, nearly every transaction that can be recorded is recorded, then it's counted and taxed. In the mayor's office, or the county commissioner, or the state legislature, or the federal Congress, they want transactions. It is their bread and butter, so to speak.
Do-it-yourselfers have another idea.
Fred Siegmund covers America's jobs as part of work doing labor market analysis and projections for a client base of recruiters, trainers and counselors. Visit him at www.americanjobmarket.blogspot.com
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