CDs VS. Savings at ING

I looked at putting the $2000 or so that I've got in my ING savings account into a CD instead, but the ING CDs are only making 3.3% interest vs. the 3.0% interest.

The difference comes out to just a couple of dollars after the six months are up.

Even though part of my philosophy is to keep our money in the highest earning account possible. The other part is 'while keeping it as liquid as needed'. The two to three dollar difference isn't enough of a difference to get paid for the loss of liquidity I would get hit with.

There's also a chance that the savings account interest rate would go up. Several other banks recently upped their savings rate slightly. If ING ups their savings rate to 3.2 or something, the money locked in the CD would be even less beneficial. (Of course, the interest rate could go down too.).

Credit Card Reasons Revisited

Anonymous Says No To $350

Or, How To Miss Out On $29.20 a Month By Not Using Credit Cards

I recently listed 8 reasons to use a Credit Card which caused someone under the bravery of 'Anonymous' to call my advice crappy.

I understand that Credit Cards can be trouble for some people and I have no problem with people disagreeing with me. I did however take issue with these two segments of his response:

Why not keep the money in a high interest account and transfer it online,free, to your checking account as needed. problem solved
...
Rewards,benefits. Virtually useless. For most people the rewards/benefits do not outweigh the risks with credit cards

Great idea! And if one wasn't using a Credit Card at all, I'd agree. However, I found the line 'Virtually useless' rather suspect. I decided to run an analysis and see for myself (and for you, dear reader) what exactly is the financial benefit of using a Credit Card in the manner I use it.

Remember, our financial plan says to use the Credit Card wherever possible (and to pay it off on time, every time).

My analysis involves the following three scenarios:

Scenarios Under Analysis

Checking Account Only

• One 0% interest, $0 fees checking account


• Salary goes in, checks come out

Checking Account and a 3% APY Savings Account

• Salary goes into Savings


• Money is transfer ed over as needed

3% APY Savings Account, 1% Cash Back Credit Card

• Salary goes into Savings


• All expenses go onto Credit Card


• Credit Card is paid off at the end of the month

The Results!

With a monthly salary of $3,013.26 and monthly expenses of $2,187.50 using a 1% cash back credit card and a 3% APY savings account I will make $29.20 more a month than if I were just using a checking account. I will make you $24.96 more a month than if you I were using a checking and savings account (but no Credit Card).

See the whole sheet for a more detailed look including assumptions I made to simplify the calculations.

Table: Monthly Difference Between the Three Scenarios

Blog Sized Excerpt	Checking Only	Checking and Savings	Savings and Credit Card
Vs. Checking Only	$0.00	$4.24	$29.20
Vs. Checking and Savings	-$4.24	$0.00	$24.96
Vs. Savings and Credit	-$29.20	-$24.96	$0.00

A Partial List of Flaws

• Not everything can be paid for with a Credit Card.


• Expenses aren't actually evenly distributed throughout the month


• It is possible to get an interest bearing checking account


• Using multiple savings accounts will give you finer grained control over transfers to the checking account


• Some people really really really hate credit cards, so this won't work for them


• Some limitations may apply to 1% cash back purchases


• Carrying a balance even once will wipe out months of returns

Conclusion

I stick with my recommendation to use a Credit Card. I realize that my numbers are rough estimates, but I believe that they are strong enough and close enough to show that there is a clear financial benefit to using a Credit Card.

Using a Credit Card isn't for everyone, and I respect that, but just because they don't work for you doesn't magically make them crappy for everyone.

8 Reasons to Keep Your Credit Card

Are Credit Cards Evil?

Credit Cards catch a lot of flack in the personal finance blog world and deservedly so. Many people have fought or are fighting mountains of credit card debt and feel that credit cards are unsafe.

Brack over at Goliath Debt, David Income is one of those people fighting back from debt. He is working on paying off "$68,000 in credit card debt, student loans, and a car loans". He recently asked if he should Cancel the Card? Or Be Prudent?.

Despite the risks of credit card use I still think they are a great too. I can't imagine having to carry cash or a checkbook everywhere so I am going to assume that the decision is between Credit Cards and Debit Cards. I think that keeping a Credit Card and being prudent with it is the best choice.

Eight Reasons To Use a Credit Card

Liability

The most you can be liable for a stolen credit card is $50 (if you report it correctly). With a debit card the limit is your bank account balance (plus overdraft!). See http://www.ftc.gov/bcp/conline/pubs/credit/atmcard.shtm

Built in Overdraft Protection

You have $50 left in your bank account and you're getting paid tomorrow. You buy $100 at the grocery store. With a credit card, there's no problem. With a debit card you will very likely have an overdraft charge.

This is assuming that you don't blow your credit limit of course. That kind of use wouldn't be prudent though.

Self control

As you use your CC wisely, you will improve your overall self control. This will benefit you in your financial life and in other areas of your life.

Earn Interest

It's seems silly to me to keep hundreds or thousands of dollars in your checking account when it could be earning money in a high-yield savings account or a money market account.

I put my paycheck into an ING savings account earning 3% APY. I pay off the credit card a few days before it's due. That gives me 25 or so days a month to have $1000 or more extra dollars in my savings account making me money. If that money was in my checking account, I'd make zilch.

Rewards

As I posted a few days ago, I am currently getting 1% cash back with my credit card. I'm not aware of any debit card that offers rewards, but if you are, please tell me!

Credit Score

If you have large loans in your immediate future, you probably want everything in your favor for a lower rate. If keeping even an unused no-annual fee credit card open will keep my credit score higher and make it easier to get a lower interest rate on my mortgage, you can bet I'm going to do it.

Benefits

Some Credit Cards offer benefits like car rental insurance. This can save you money if you use these services anyways.

Emergencies

If you do have an emergency, you will have the Credit Card to fall back on. No, it's not idea and yes you should use your emergency fund first, but debt is better than homelessness, missing meds, or other urgent situations.

Prudence is a Virtue

Essentially what you need to do is treat your Credit Card like a Debit Card. You can even write DEBIT on it with a sharpie if it will help you be responsible.

I come from a town where hunting is quite popular, but there's still a lot of controversy over guns. It seems that feelings among personal finance bloggers are similar, and I take the same position I do on guns:

They are useful tools if you use them right. If you use them incorrectly they are incredibly dangerous. If you or someone in your home can't use them safely, get them out. If everyone who will be using them can be safe with them, then by all means keep them around.

ING Direct

I finally set up a savings account at ING Direct today. As you know, part of our plan is to move money to the highest interest rate account it can go in, while being as liquid as it needs to be. We had accrued $2500 in our Money Market account, so it was time to move some of that into a higher interest account.

Since we have to pay rent tomorrow, and we have $318 on the credit card which is due on the 25th, I decided to only put in $1000 into the ING account for starters. In a week or two when rent is paid and we're closer to our next paycheck, I'll transfer another $500 in.

How accessible will our money be? From what I've read, a transfer from ING takes about 5 business days. At my credit union, I can cash in the CD at any time, and I only lose the last 60 days of interest on the CD. So, I'm exchanging urgency in an emergency situation (where I could use my credit card anyways) for lack of penalties really.

Depending how well I like the ING Savings account, I will probably open an Electric Orange checking account as well. We use an average of 5 checks a month. Any of those things which couldn't be paid with a check from ING could be paid with cash, and then we wouldn't have to worry about changing our bank account whenever we move.