EXPERT'S ADVICE: TODAY'S ULTRA-LOW INTEREST RATES MAKE PAYING YOUR DEBTS BEST SAVINGS PROGRAM OF ALL
EXPERT'S ADVICE: TODAY'S ULTRA-LOW INTEREST RATES MAKE PAYING
YOUR DEBTS BEST SAVINGS PROGRAM OF ALL
COLUMBUS, Ohio, Sept. 22 /PRNewswire/ -- Now that interest rates on passbook savings accounts and certificates of deposit are at record lows, where can investors turn?
Credit unions, tax-free money market funds and corporate bond funds are good investment options, but debt repayment is an even better move, said Jim Budros, a principal with Budros & Ruhlin, Inc., a financial planning firm located in Columbus, Ohio.
"You can make a guaranteed 18 to 21 percent on your savings if you just pay off your credit cards!" Budros said. "It makes no sense to keep money in a savings account earning three percent while you owe money on revolving charge accounts which charge exorbitant interest rates. If you haven't paid off your credit cards because you're afraid you'll need the cash in the savings account later, remember that if you get desperate you can always take out a cash advance on your Mastercard or VISA."
In the same vein, Budros recommends using savings to pay off other loans which carry higher interest rates than you're currently earning on savings. The home equity line of credit is one example. "Since you get to deduct the interest, an 8 percent home equity loan has a real, after- tax interest rate of about 5.5 percent," Budros noted. "But you have to pay income tax on your savings account interest, so that three percent rate becomes only two percent after taxes!"
Aside from debt repayment, there are still some higher-interest savings options, Budros noted.
-- Credit unions often offer interest rates one to two percent higher than bank rates.
-- Tax-free money market funds usually offer higher after-tax yields than taxable funds. Both Fidelity and Vanguard offer money market accounts which are tax-free for federal and also many state income taxes.
-- Short-term corporate bond funds can be a good investment if you're willing to put up with a slight amount of principal fluctuation. Two options include the Vanguard Fixed Income Securities Short-Term Corporate Fund (5.36 percent effective 30-day yield as of Sept. 2) or the Vanguard Limited-Term Municipal Bond Fund (5.08 percent taxable equivalent yield in the 28 percent tax bracket.)
The current low interest rates pose an investment challenge, but by revising the way money is handled, investors can maximize their savings potential.
Budros & Ruhlin is a 15-year-old Columbus-based financial planning firm which works on a no-commission, fee-only basis.
/CONTACT: Kathy Baird of Baird Communications, 614-457-8909, for Budros & Ruhlin, Inc./ CO: Budros & Ruhlin, Inc. ST: Ohio IN: FIN SU:
SM -- NYPFNS2 -- 1949 09/22/92 06:47 EDT