Last week’s answers
WHAT IS CONSIDERED A “GOOD” APY?
A good APY, or Annual Percentage Yield, for a money market account (MMA) is one that lands somewhere between the rates provided on your savings account and those of a Certificate of Deposit (CD). You get a higher return from an MMA than from your savings account and have more flexibility with your money than in a CD. The rates for MMAs will vary depending on what is being offered at the financial institution.
WOULD IT BE MORE WISE TO DEPOSIT MONEY IN A MONEY MARKET ACCOUNT OR CONTRIBUTE TO MY 401K?
A 401k retirement account should be used to fund your future retirement. It is a long-term investment that will grow in value over the years through your contributions, dividends reinvested, economic growth and your company’s contributions. There are restrictions to access this account before retirement, so you should plan to not access this money until you retire.
Money market accounts are similar to a savings account and are good for short- and medium-term savings and liquidity needs. Depending on your financial goals, it is recommended to consult a financial adviser to help make a plan that will help build a savings, wealth and retirement account.
HOW DO MONEY MARKETS WORK? WHERE DO THE HIGHER EARNINGS COME FROM?
MMAs are a hybrid between a savings account and a checking account that allows you to save money in an account with a higher rate. Since the minimum deposit and balance requirements tend to be higher than savings or checking accounts, that larger account balance helps earn higher earnings as it goes through compounding interest at a higher rate. The combination of a higher balance and a higher rate is what provides higher earnings.
ARE THERE ANY RISKS TO MONEY MARKET ACCOUNTS?
A MMA opened at a credit union is usually insured by the National Credit Union Administration (NCUA) and at banks by the Federal Deposit Insurance Corporation (FDIC). Make sure that your credit union or bank is insured before investing into an MMA.
CAN ANYONE OPEN A MONEY MARKET ACCOUNT?
Yes! Anyone that meets a financial institution’s standard account-opening guidelines and has the minimum required amount can open an MMA. To see GECU’s account-opening guidelines and to learn how to become a member, go to gecu.com. Insured by NCUA.
ARE MONEY MARKET ACCOUNTS INSURED?
Yes, MMAs are insured at credit unions by the National Credit Union Administration (NCUA) and at banks by the Federal Deposit Insurance Corporation (FDIC) up to $250,000.
HOW ARE INVESTMENT ACCOUNTS DIFFERENT?
Investment accounts could provide a positive or negative rate of return. To find out which option is best for you, contact the GECU Investment and Trust Services* team to speak with a financial professional.
*Representatives are registered, securities sold, advisory services offered through CUNA Brokerage Services, Inc. (CBSI), member FINRA/SIPC, a registered broker/dealer and investment advisor, which is not an affiliate of the credit union. CBSI is under contract with the financial institution to make securities available to members. Trust services available through Members Trust Company, a federal thrift regulated by the Office of the Comptroller of the Currency. Not NCUA/NCUSIF/FDIC insured, May Lose Value, No financial institution guarantee. Not a deposit of any financial institution. CUNA Brokerage Services, Inc., is a registered broker/dealer in all 50 states of the United States of America.
ARE THERE ANY MINIMUM REQUIREMENTS TO GETTING A MONEY MARKET ACCOUNT?
The minimum requirements for opening a MMA is having the minimum opening balance and following the general guidelines for a financial institution when opening a traditional savings and checking account.
HOW WILL I BE ABLE TO ACCESS FUNDS IN A MONEY MARKET ACCOUNT? IS THERE A DEBIT OR ATM CARD?
MMAs generally allow for up to six withdrawals per month through transfers and varying drafts. Some financial institutions offer MMAs with debit card access.
HOW LONG DOES IT TAKE TO SEE GROWTH IN A MONEY MARKET ACCOUNT?
MMAs grow over time as the account balance continues to grow through deposits made and as the MMA goes through compounding interest. In general, account growth is structured through balance (dollar amount), rate and time.
Answers from 05/04
WHAT IS A GOOD PERCENTAGE OF MY INCOME TO PUT INTO SAVINGS?
Every situation is different depending on need, expenses and income. A general rule is that saving 15–20% of your income is helpful. Keep in mind that this percentage includes income directed toward retirement accounts as well. If the goal of putting money into savings is to save for an emergency, then the goal is to reach a set amount first and not necessarily to focus on the percentage. Setting a savings goal of $500–1,000 is a great starting point. Then, transition into a second savings goal, such as saving one month of expenses, and then increase it to a third goal of saving three months of expenses. You can continuously expand the goal to reach 6–9 months of expenses and eventually have a full emergency fund.
WHAT’S THE BEST WAY TO APPROACH PAYING DOWN DEBT?
Make a list of all the debt that you have. By making a list, it will make it easier to manage when you see all of it. Look into the loan with the highest interest rate and work yourself down the list by paying the loan with the higher interest rate first.You can also make it easier by paying off the loan with the lowest balance to highest balance.Determine which installment or revolving loan you want to target. Then, make minimal payments on the ones that you are not targeting. Once paid off, continue to the next debt and add the payment from the previous debt to the next one.
WHEN AND HOW SHOULD I GET STARTED ON SAVING FOR MY CHILDREN’S EDUCATION?
If sending a child to post-secondary school is a family goal, saving money as soon as possible is helpful. Tuition costs continue to rise and though financial aid might be an option for some, it will be helpful to save for the future. Look up the annual cost of tuition (room and board if it’s outside of the city), so that you can have an idea of how much you will need to save. If saving for the full amount of a four-year degree is too much, a good goal is to save for 1–1.5 years of that tuition. Knowing how long you have until you need to access the funds can help you select a high-yield account where you can save for this goal by opening a savings account, a certificate of deposit or a 529 plan.*
*Certain tax implications and contribution limitations apply to 529 accounts. Consult your tax advisor for details
WHAT’S MORE IMPORTANT, PAYING OFF CREDIT CARDS OR PUTTING MONEY INTO SAVINGS?
With the average interest rate of credit cards being close to 20%, it’s important to pay off credit cards after a $500–1,000 emergency fund has been established. Once the emergency fund goal has been reached, you should set a goal of clearing high-interest credit cards. Once the credit card debt has been cleared, that income can help you build other saving goals. By paying down credit cards, you will likely see an increase in your credit score.
WHAT IS THE BEST WAY TO PROTECT MY FAMILY’S RAINY-DAY FUND?
The best way to protect the family’s rainy-day fund is to make sure that the account holding the funds is federally insured, has guaranteed returns, that the money is readily accessible, and that the account is not tied into a primary expense account (checking account) to avoid the temptation of using the funds as an overdraft option. Also, make sure that the account does not have monthly fees attached to it. Otherwise, the fees might offset the account gains. You should also set up an automatic deposit to help the account grow.
HOW DO I IMPROVE MY CREDIT SCORE?
The best way to improve your credit score is to make your payments on time all the time. You can improve credit by using the snowball effect or avalanche effect for paying off debt by paying more than the minimum. You may also work on it by consolidating debt into one through a consolidation loan. A helpful tip that may also help improve your credit score is to limit your credit card use to less than 30% of the limit. Also, limit the amount of times you or a lender requests to check your credit score. This can lead to your credit score going down.
Answers from 4/15
IS NOW A GOOD OR A BAD TIME TO BUY A HOME?
Depending on the consumer’s current situation, whether it is a good time or not will vary. With rates being at an all-time low, now is a great time to buy for consumers with the stability to purchase or refinance. For consumers who have lost their job or have had hours cut due to COVID-19, it might not be the right time currently and they might want to wait until their employment stabilizes. Consumers who do not feel comfortable to purchase now will still be able to find the right loan product when they are ready. Everyone’s situation is different and it is recommended to speak to GECU Community Development by calling 774.2160.
ARE INTEREST RATES FOR HOME LOANS LOW RIGHT NOW?
Interest rates vary from product to product, especially as we are in a fluid interest environment.
WHEN IS IT A GOOD TIME TO REFINANCE YOUR HOME?
Depending on the product that you are looking for, now could be the perfect time to refinance. Conventional interest rates are at an all-time low. But there are several factors to consider such as how long you have owned your home, how much equity you have and how refinancing will benefit your financial situation. In many cases, a refinance can help lower the rate, lower the payment or lower the term.
WHAT IS A REVERSE MORTGAGE?
A reverse mortgage loan is available for homeowners who are 62 years old or older and have considerable amount of equity in their primary homestead. A reverse mortgage allows the homeowner to borrow against the value of their home and have the option of receive the funds in a lump sum, fixed monthly payments, or through a line of credit depending on the lender. The loan becomes due and payable when the borrower passes away, permanently moves out of the home or sells the home. Reverse mortgages may benefit certain consumers, depending on their current needs. If you are considering this option, consult your financial adviser before taking this route.
CAN I USE A HOME EQUITY LOAN TO PAY OFF A HIGH CREDIT CARD BALANCE? WHAT WOULD BE THE REPERCUSSIONS?
A home equity loan is a good option to pay off high-interest-rate credit cards and any other debt with high monthly payments. This helps pay off accounts that would otherwise take years to pay off if only the minimum payment were to be made. Home equities tend to have higher rates than traditional mortgages but home equity rates tend to be lower than credit card rates. With a home equity loan, the home is collateral so if payments are not made, the home can go into foreclosure.
HOW MUCH MONEY DO I NEED TO PUT DOWN TO BUY A HOME?
There are many options for a consumer when it comes to a down payment. The biggest determining factor is the buyer’s credit score and loan program. There are down-payment assistance programs which help with a percent or all of the down payment. Down-payment assistance may be a good option for some but may not benefit others. The down payment requirement ranges from zero to 20%, depending on the product.
WHAT CREDIT SCORE DO I NEED TO HAVE TO QUALIFY FOR A HOME LOAN?
The higher your credit score, the more likely you will be offered a lower interest rate. Each lender has a different credit score requirement. Many lenders have programs that accept credit scores as low as 580. Some lenders may accept even lower scores. To find what credit score you need, contact your local mortgage lenders like GECU Mortgage* to guide you through your options. *GECU is an Equal Housing Opportunity Lender. All loans subject to credit qualification and approval. The property must be located in the United States, within a 150-mile radius of El Paso County, to include Hudspeth County. Certain fees and conditions apply. Membership-eligibility requirements apply.
IF I GO INTO FORBEARANCE ON MY MORTGAGE, WILL IT HURT MY CREDIT RATING?
During forbearance, credit bureau reporting is turned off to prevent damage to the credit score.
WHEN WILL I HAVE TO START PAYING MY MORTGAGE AGAIN IF I GO INTO FORBEARANCE?
This will vary on a case-by-case basis. The forbearance being offered by Fannie Mae and Freddie Mac is for a 12-month period. We ask for members to make half of the payments for one to six months if they need it and have the remaining six months to make up the missed payments. We also remind our members that escrow needs to be made up by November of this year for it not to increase their payments for the following year.
WILL MY MORTGAGE LOAN AUTOMATICALLY DEFAULT INTO FORBEARANCE IF I DON’T MAKE MY PAYMENT THIS MONTH?
No, you will need to contact your mortgage lender and provide the documentation needed for the forbearance.
WHAT IS THE BEST WAY TO SAVE FOR COLLEGE FOR MY KIDS?
The best way to save for college is to have a plan and commit to it. The sooner you start your plan to save money, the better position you will be in once you need those funds. Consider looking into a 529 plan that will have tax benefits for you. Speak to a financial adviser to help you decide what is the best route.
IS IT WISE TO PULL MONEY OUT OF 401K PROGRAMS CONSIDERING THE EFFECT COVID-19 HAS HAD ON THE STOCK MARKET?
Everyone’s situation is different and it is important to take your risk tolerance and time horizon into consideration. General advice is to have a well-diversified portfolio and stick to it. During market downturns, emotions kick in and most people are tempted to get out of the market. This causes a permanent loss and takes away the opportunity of you missing out on market upturns that help get your portfolio at where it was before this pandemic. There have been many downturns in the economy over our lifetime and the market continues to recover and grow. Be diversified in your holdings and don’t chase the latest trend in investing.
IS THERE A WAY TO INCREASE YOUR SAVINGS WHEN THEY ARE IN THE BANK?
Yes. There are many options available to you and different investment vehicles that can help increase your savings. It is important that you speak to a financial professional to discuss your specific situation and all options that are available to you.
SEVERAL EXPERTS THROUGHOUT DIFFERENT NATIONAL NEWS OUTLETS ARE EXPECTING A RECESSION IN THE COMING WEEKS/MONTHS. SHOULD I EMPTY ALL OF MY SAVINGS AND CHECKING ACCOUNTS FROM MY BANK?
No, don’t panic. Make sure your credit union or bank is financially strong and stable. Most credit unions and banks are FDIC or NCUA guaranteed.