Decode and Understand Your Paycheck

The first paycheck always comes with a mix of excitement and disillusion: excitement over the milestone of taking that first step towards independence; and disillusion with the realization that the government really does take a big bite out of our earnings.

There aren’t many people who understand their first pay stub, there are those who go through life without ever understanding quite how a paycheck works.  To the uninitiated, a pay stub is something that looks like it was actually written in a secret code.  If you take the time to really look your pay stub over though, you’ll find that a big amount goes to federal taxes and then to state taxes.  Apart from taxes and what you eventually take home though, some other things might be confusing.

Deciphering Your Pay Stub
Your pay stub is not as complicated as it seems.  Yes, there are a lot of factors that affect how much money you actually take home, but these factors fit into two main categories:  earnings and deductions.

The earnings portion lists your gross pay and everything that went into arriving at the final number: your hourly rate, the number of hours you worked; any overtime work you rendered and your corresponding overtime rate; any work you rendered during holidays and the corresponding rate for those hours; and finally, money for paid sick or vacation leave days that you consumed.

The deductions section can be divided further into two sections:  Statutory deductions and other deductions.  Statutory deductions are required and are regulated by the government.  Other deductions are usually for company provided benefits.

The bulk of your statutory deductions will go to taxes, federal and state taxes can be reduced if you take the time to study your W-4 form.  You can greatly reduce what you need to pay in taxes if you declare all allowances you are eligible for.  You should consult a CPA to be sure you don’t miss any possible tax breaks.  Take care though to not give any false information just to get a deduction.  This could get you into serious trouble.

There will also be smaller deductions listed under FICA (Federal Insurance Contributions Act).  These will be for Medicare and Social Security.  These deductions cannot be manipulated in any way.  In 2010, the Social Security deduction is 6.2% of your salary, or up to $106,800 a year; for Medicare it’s 1.45%.

Other Deductions
The other deductions portions is for your heath plans, dental plans, loan payments for company sponsored loans, and contributions to retirement funds.  These can be tweaked as well, you can kick up or lessen your retirement contributions, some companies give you the option to downgrade your health plan.  Bear in mind though that for the most part, contributions to retirement funds and HRAs (bank accounts for health related emergencies) are not taxed.  So despite the fact that getting access to cash now may seem more attractive, you are actually getting less money in total in the long run.  All tax exempted contributions in the other deductions portion are designated by an asterisk (*).

Non-Monetary Benefits
Most pay stubs will also list the non-monetary benefits you get from your company.  Regular employees at all companies must be given paid time away from work.  Some companies call it sick leave and vacation leave, other simply call is paid time off.  These are days when you don’t go to work, due to illness or simply to relax, and your company still needs to pay your salary.  Your pay stub will usually give you a running total of how much paid time off you are entitled to.

High Yield Checking Accounts are Still Solid

A little over a year ago, the market was nearly saturated with high-yield or high reward checking accounts.  Some of these offerings had us wondering if this was too good to be true, and how long it could be sustained.  We recently decided to take another look to see whether or not these rates have remained high over a year later.  What is surprising is that apart from one notable exception, the rates have remained high.  Yes, they have slid somewhat, but checking account interest rates have not fallen as much as the other account types.  They still yield more returns than the most attractive CDs (for more information on the various account types and how they are different from one another, you can refer to The ABCs of Rewards Checking).

The only bank that bucked the trend and cut its rates is Malvern Federal Savings Bank near Philadelphia.  In March of 2009, having a checking account there would have given you 5.01% APY, that figure has dropped substantially to 1.50% APY.  By contrast, the MAXimum Free account at Focus Bank, with 12 branches in Arkansas and Missouri, was and is now paying out a solid 4.51% APY.

In Oklahoma, AmericaNet and two jointly-owned banks were giving 5.25% APY last spring, and while they have cut this quite a bit, the current offering of 4.00% APY is still very good.   Until just recently, Bank of the Sierra, which has dozens of branches all over central California, was able to maintain a 4.51% APY, just a few months ago, they lowered it to 4.09% APY.  Union State Bank was at 5.01% APY last year, but has since cut its rate to 3.25% APY.  Union State Bank has 4 branches in Kansas.  In Tampa FL, Patriot Bank was at 4.01% APY last year, but is now down to 3.01% APY.  Apart from AmericaNet and Bank of Sierra, all of the banks mentioned now limit new accounts to their state or locality.

For Better Interest, Choose Savings Bonds Over Traditional Savings Rates

If you’re earning around one percent interest in savings rates, you may want to put your money where it will grow more powerfully. Savings bonds are conservative investments that pay good interest rates. Read on to learn more about savings bonds and how they can help you increase your assets.

What Are Savings Bonds?
The federal government of the United States issues several interest-bearing bonds that are referred to as savings bonds. These bonds are non-transferable when you purchase them, and are tied directly to the competitive marketplace of governmental finances.

You will often be able to purchase savings bonds at a far lower price than their face value. This is partially what allows them to accrue interest over time. Since these investments are linked to debt and finance obligations that governments carry, they usually come with very little risk. You can invest in savings bonds knowing that your money will be safe.

Watch the Interest Rate Environment
You will notice a fluctuating and vacillating rate of return on savings bonds. These rates fluctuate based on the interest rate environment. Inflation also has a powerful effect on the rates of return of savings bonds.

You may not know this, but the American government initially created savings bonds to help finance expenses that came about as a result of World War I. Generally, investors can purchase two types of savings bonds: Series EE or Series I bonds. Series EE bonds will pay a rate that is equivalent to 90% of the average yield on five year Treasury securities over the past six months, although this rate will fluctuate.  Some bonds will also offer a fixed interest rate.

The Federal Reserve’s website will present a table of prevailing interest rates. You will notice that these rates are very competitive when it comes to safe investments. Sure, you won’t get the returns that you might get when investing in high-risk stocks, but with bonds, you don’t have to trade in too much security. Your investment will be largely safe.

Tax Benefits of Savings Bonds
Also, savings bonds are subject to a variety of tax benefits. First of all, you won’t be required to pay periodic interest subject to income tax. You can actually wait until you cash in the bonds and then report the income you have made. This reduces the amount of income tax you have to pay.

You can also exclude the income you earn from savings bonds if you use the earnings to pay for higher education. The federal government does establish certain regulations that pertain to income limits and types of expenses.

The income earned from savings bonds is not subject to local and state income taxes. You get to keep the bulk of what you earn from savings bonds.

The Risks Are Low
You also minimize your risk, because the default risk on savings bonds is very small. This is due to the fact that they are backed by the full faith and credit of the U.S. government.

Remember, you can’t cash in savings bonds within six months, or sometimes 1 year, of the date which the bond was issued. However, once you do redeem your bond, you’ll gain a significant amount of profit from the accrued interest.

Always try to wait to cash in your savings bond until five years have elapsed, and you won’t have to pay a penalty.

Savings bonds are great low-risk investments that pay off fantastically for most investors.

Take Advantage of Sallie Mae’s High-Yield Savings Accounts

Federal loan giant Sallie Mae has recently entered the retail banking sector, and they’re offering competitive rates on high-yield savings accounts. Here, we’ll do a brief rundown of Sallie Mae’s high-yield savings accounts.

Powerful Interest Rates
Sallie Mae’s current High Yield Savings Account is offering an interest rate of 1.34%, though this figure might fluctuate. Here are some details regarding the account.

Important Details
*If you wish to link other bank accounts to your Sallie Mae account, it’s quite easy to initiate this process.
*Don’t ask for paperwork, as you’ll have to pay $5 for a hard copy of your bank statement.
*You receive free monthly electronic statements.
*Your account is insured for up to $250,000 by the Federal Deposit Insurance Corporation.
*You can easily establish Direct Deposit.
*Sallie Mae will compound your interest daily but credit to you monthly.
*In compliance with federal law, Sallie Mae permits only a maximum of 6 withdrawals per your statement cycle before you have to pay a penalty.
*If you make any withdrawals beyond the original six, you are required to pay a $10 penalty for each withdrawal.
*Don’t allow deposits to get returned, because you’ll have to pay a $5 fee.

Make an Educated Decision
Despite all of these details, the powerful 1.34% interest rate is attracting many investors. This is a very motivating factor for people who are looking to put their money in an account that actually has growth potential. Sallie Mae’s reputation as a federal loan giant is also attracting many investors to these bank accounts.
If you’re looking for a high-yield savings account, then Sallie Mae might work very well for you.

Search Globally for the Best Savings Rates

You can often find some of the best savings rates in foreign market savings accounts. Researching savings rates on the global market can be a bit intimidating, but it’s one of the best ways to capitalize on strong currencies. Here, we’ll take an in depth look at foreign currency savings accounts.

How Foreign Currency Savings Accounts Work
You’ll probably have to do a bit of searching to find a bank that offers foreign currency savings accounts. Usually, large multinational banks will offer accounts denominated in foreign currencies. Keep in mind that a foreign currency savings account is very different from a foreign savings account.
A foreign currency savings account is simply a domestic account held in a foreign currency. An example: You live in the U.S., your bank is in the U.S., but you have a savings account denominated in Euros.

Investing in Foreign Savings Accounts
A foreign savings account is a foreign account held in a foreign country. You can open direct bank accounts in foreign countries, as long as you qualify. Some foreign banks require that you establish citizenship or residence before opening a bank account. Others welcome foreign investment. Either way, it’s very important to familiarize yourself with a country’s banking laws before you invest there.

It can be advantageous to hold either type of foreign account. If you are concerned about the devaluation of the American dollar, then investing in a foreign currency is a great way to protect your money. You have to be careful that you don’t invest in a foreign currency that will tank, however. It’s important to be extra careful when investing in foreign currencies or foreign accounts. If you educate yourself, you can significantly increase your earnings through foreign currency savings accounts or foreign savings accounts.

Joint Savings Accounts and If You Should Have One

The purpose of a savings account is to store money in a place where it accrues small amounts of interest. Banks, money market funds companies, and credit unions offer such checking and savings accounts to customers. Savings accounts are safe places to store money as they are insured up to $250,000 by the Federal Deposit Insurance Corporation, not to mention that customers earn interest on the deposits. This insurance is in place should the financial institution declare bankruptcy or have mismanaged funds.

At one time, banks would offer higher interest rates than credit unions, though presently credit unions have competitive rates. Money market funds’ rates fluctuate based on the stock market. It is wise to shop around for the best incentives prior to opening a savings account.

Savings accounts are profitable for financial institutions because the customer is lending the money to these institutions who then loan out that money to other customers with a higher interest rate, some of which goes back to the lender-customer. As such, both the financial institutions and the original lender-customer profit from the savings account.

Savings accounts generally require a minimum deposit of $100, though most banks allow for certain circumstances. Children can open savings account with $5. Savings accounts are also advantageous should the customer not plan on spending money for a few months. Whereas checking account pay less interest and may charge the customer bank fees for using the account, savings accounts generally have higher interest rates and do not penalize customers for failing to access the account in a given time.

Joint Savings Account
Joint savings accounts are established to benefit multiple individuals. Often, married couples establish these accounts to build financial security; other groups such as domestic partners, friends, and even minor children have joint accounts for short term projects or long term financial security. Joint savings accounts are less volatile than most other investments strategies, as their interest returns, though nominal, are consistent and secure. As such, these are good strategies for those who do not care for aggressive and risky forms of investing.

Joint savings accounts have other advantages too. If both parties on the account are employed, then they can apportion some of their wages to the account, which makes it easy to grow savings without the burden of manual deposits. Also, joint savings accounts can be very beneficial should an account holder dies. In this situation, the assets of the account will be available to the other account holder; otherwise, the assets would be frozen until the will specifies who receives what. Because the account will not be frozen, the surviving account holder will still have some, if not, full access to his funds, though this may depend on the jurisdiction. It is important the account holders understand the local rules that apply in addition to trusting their fellow account holders.

Finally, one can utilize joint savings account to fund checking accounts, which can prevent potential overdrafts should the account holder face an unexpected situation.

Basic Types of Checking Accounts

Should a person want to establish a checking account, he should do some research and look for attributes such as no hidden, ATM or bank service charges, what the minimal fees are for over-withdrawing, are there free lifetime checking and savings accounts, and if there is free online access.

Overdrawn Checking Accounts
Checking accounts are overdrawn when account holders issue checks of a higher face value than the balance of the account.  Banks will then charge overdraft fees.  Sometimes, banks will cover the checks and debit the amount on the account; other times the banks will reject the checks outright.  Unless the account holder has overdraft protection from the bank, he will likely have to pay a fee.  A holder may be overdrawn due to poor record keeping, where the holder may forget or delay to deduct the check amounts from his check register.  The chances of being overdrawn would then go up over time.

Account holders also make the mistake of anticipating their deposit will be posted prior to issued checks making it to the bank.  To ensure a holder as the funds to draw against his checking account, the banks institute some heavy fees that can be costly.  In fact, not only does the holder pay overdraft fees but also the recipient of the check at times.  Those who repeatedly write bad checks can even be arrested.  As such, it is wise to contact one’s bank should an account holder accidentally overdraw his account and make sure not to repeat this mistake.

Joint Checking Accounts
Two people can share a joint checking account.  Partners, couples, parents and children are normally the ones who choose to commingle these funds.  Both participants have equal rights to the account, and they can deposit or withdraw funds.  Should one participant begin bouncing checks, this fund may be accessible, thus affecting the other holder as well.  However, there are benefits to have join checking accounts.  They are cheaper than having one single account.  Additionally, should one party become incapacitated, the other will have full access to the funds without legal obstacles.  Joint accounts are popular for those considering marriage and partnership, though it is wise to earlier discuss how finances will be commingled.

There are, however, some arguments against having this type of account.  Those with considerable debts, if sued, end up costing the other participant because their account could be accessible to the creditors.  Both participants may also have very different spending habits. Sometimes individuals should not have joint checking accounts as, for example, if two co-habitants decided to acquire one, there would be few legal protections should one person decide to transfer all the money from the account into another.

High-Yield Checking Account
There are high-yield accounts that pay relatively high interest rates.  Here, depositors must meet certain requirement or else they will only earn a base rate of under 1%.  The conditions vary by bank; in some, balances no less than $25,000 are required for a high yield.  Financial institutions benefit from such accounts, which attract new customers.

What is a Savings Account: Savings Account Basics

Savings accounts are a safe place to keep money that is not immediately needed. Though they are not as liquid as checking accounts, the money is still fully accessible. Presently, there are two kinds of basic savings accounts. First, a customer can receive a passbook account, where the bank gives a person a booklet used to record withdrawals, deposits, and interest. There are few fees, low interest rates, and virtually no minimum balances. Second, a customer can acquire a high yield savings account, where the higher the balance, the higher the interest rate. Here, a customer cannot use checks with this savings account though he can link the two for deposits and withdrawals.

When keeping savings in mutual funds or stocks, a person will likely have to pay tax penalties to access the money. Savings accounts have no such tax penalties, though there may be some fees for closing the account or withdrawing a certain amount.

Time Deposit
Savings accounts are a common examples of time deposits, which are a form of savings where the depositor has restrictions when withdrawing funds. These accounts are usually set with a fixed term where the depositor may not withdraw funds until a certain time. Time deposits also benefit the depositor, as the restrictions on accessing funds result in the bank customer being inhibited from frequently drawing out small amounts from his savings accounts.

Health Savings Accounts
Health savings accounts are medical savings accounts that taxpayers who are enrolled in a High Deductible Health Plan can utilize. When the funds are not spent, they roll over and accumulate every year and are also not subject to federal income tax when deposited. Deposits are rolled over for either future medical expenses, or they can used to reimburse expenses qualified under health savings account plans from years before. The fund owners can withdraw them for qualified medical expenses without any tax liability, though expenses withdrawn for non-medical needs can incur penalties. Like any other investment, health savings accounts are subject to market risk as there are potential upsides and the possibility of downsides and capital losses.

Benefits of HSAs
Health Savings Accounts can help make individuals more responsible for their own health care by encouraging savings for future health care expenses. The premiums are generally less than those for conventional health insurance, and there is more flexibility to pay on a pretax basis for qualified medical expenses such as vision, dental, and non prescription medications, which are often not covered under traditional health insurance. Accounts can also accrue considerable assets that can be used for health care tax free or used for retirement on a tax-deferred basis.

HSA Drawbacks
Some consumer organizations claim health savings accounts only benefit healthier, younger people while proving costly for everyone else. People who generate little income likely do not earn enough for the tax breaks to be effective, and there is some concern that those who cannot fund these accounts may forgo the necessary medical care due to the relatively high deductibles.

Checking Account Basics

Checking accounts allow individuals and businesses to deposit and withdraw funds from federally-protected accounts at banks, credit unions, savings and loans, and other financial institutions.  Checking accounts are a safe and efficient way to pay bills and deposit money though savings accounts pay more interest.  Most checking account holders can use checks to pay debts and use debit or ATM accounts to make cash withdrawals.  Some banks require a minimal initial deposit and proof of identification when creating a checking account.  Some states grant lifeline checking account options for low income customers and the elderly.  These checking accounts usually waive fees, including surcharges for ATM usage and service fees for low balances.

While banks will send accounting statements, owners of the account must keep track of their available funds.  If a check-writer writes a check for a higher than available balance, he may have to pay overdraft fees and there may be legal action.  While some banks protect checking account holders by notifying them when an overdraft occurs, most recoup losses through heavy service charges.

Banks have various ways that allow customers to check their balances.  Banks send monthly statements of debits and deposits to account holders.  Account holders can contact banks electronically – online or by phone – to receive real time updates of their checks and balances.  Even ATMs offer an option to check the balance.  Owners should also record their deposits and withdrawals in check registers and compare the two to ensure there are no disparities.

Advantages
There are numerous reasons to own a checking account.  First, the Federal Deposit Insurance Corporation insures them, which grants the holder the security of knowing his money cannot be lost.  Second, employers can make direct deposits, which save the holder time and effort from having to deposit the money on his own.  While this is a convenient method, the holder should still look at the check to ensure there are no mistakes.  Third, checks are more secure to send by mail than cash.  When receiving a check as paid, the owner has a receipt of payment.  Should he suspect someone stole the check and it hasn’t arrived to its destination, he can even stop payment on a check or report this indiscretion to the bank for a small fee.  If cash is stolen, however, there are no like remedies.  If a check is stolen, the owner can easily change the account number as well to prevent future theft.

Fourth, online banking is very convenient and most banks presently offer this service.  Online banking benefits those who had had issues balancing accounts in the past, as they allow holders to download information in order to balance accounts.

Fees
There are some small fees to holding checking accounts, though more and more banks offer free lifetime checking accounts.  Some, in fact, offer money on every ATM purchase the holder makes.  There are also interest bearing checking accounts, which require the holder to maintain a minimum balance.

Checking Account Terms

Checking and savings accounts are some of the most basic staples to a person’s financial picture. While checking and savings accounts can provide us with a way to make everyday payments and purchases, they can also earn us interest. Understanding some of the basic checking and savings account terms can help us to make better financial decisions on a daily basis.

ATM Surcharges- These charges are one of the easiest ways to lose money, as they are small and often go unnoticed. An ATM surcharge is a fee that is charged by one bank to an individual who withdrawals cash from their ATM if they are not a bank member. This is common, as of course an individual’s bank may not be always convenient. It is important to notice your habits and how often you are being charged $1-2 per withdrawal. Why this may not seem like a significant amount of money, these small charges can become significant over the course of a year.

Debit Card- A debit card from a bank can often be used to not only make ATM withdrawals, but if they have a credit card logo, can be used at merchant establishments to make payments. The debit card will be linked to either your savings account or checking account and will withdrawal the amount you charged immediately, just as if you were paying cash.

Interest Bearing Checking/Savings Accounts- It is important to know that not all checking and savings accounts will pay the owner interest. When possible, consider searching for an interest bearing account so that you can take advantage of small interest amounts on your money over the course of a year.