Banking tips to help you cash in
Your cash is parked. Do you know if it’s making or losing you money? For instance, letting it sit in a non-interest-bearing account is a waste of earnings potential. It’s actually losing money if you factor in inflation! Here are some ideas to help you make the most of your banked cash:
Understand your bank accounts. Not all bank accounts are created equal. Interest rates, monthly fees, minimum balances, direct deposit requirements, access to ATMs, other fees and customer service all vary from bank to bank and need to be considered. Start by digging into the details of your accounts. There may be some things you’ve been unnecessarily living with like ATM fees or monthly account charges. Once you have a handle on your current bank, conduct research on what other banks have to offer.
Know your interest rates. As a general rule, the more liquid an account, the lower the interest rate. Checking accounts offer the lowest rates, then savings accounts, which yield lower rates than CDs. Maximizing your earnings is as simple as keeping your cash in accounts with higher interest rates. The overall interest rate earned between all your accounts should be higher than the inflation rate, which is generally around 2 percent.
Make smart moves. There are a couple of things to take into account when making transfers. First, federal law allows for only six transfers from savings and money market accounts per month. Second, if you invest in longer term investments like CDs or bonds, there are penalties for withdrawing funds before the maturity date. So make sure you can live without the funds for the duration of the term.
Stay diligent. Putting together a cash plan is just the start. The key to success is to be persistent. Besides losing out on potential earnings, mismanaging your cash can result in hefty overdraft fees. The more attention you devote, the more your money will grow.
The Social Security Administration is now doing a better job in sending out earnings reports by mailing paper statements to workers every five years beginning at age 25. The reports are also available online at https://www.ssa.gov. These reports recap historic earnings and contain an estimate of potential benefits.
When you receive your report, spend a few minutes reviewing the statement. Here are some suggestions on how to do this.
- Review your earnings history – Towards the back of the report is a recap of your earnings record. This should accurately reflect reported earnings on your tax return. This number is a summary of all your earnings subject to Social Security as reported by your employer on your W-2 forms. But if you are self-employed or have many employers, you must make sure that the income properly reflects what you earned.
Action: Employees: Pull out your W-2s and make sure the totals match. Self-employed: Pull out your tax return and confirm totals match. Review history: Review historic figures as well. Your Social Security benefits use your full work history to calculate future benefits.
- Review your potential retirement benefits – The Social Security statement will provide you with an estimate of your benefit amount using current dollars and current work history. The value of your benefit will show three benefit amounts. One for the minimum retirement age of 62, one for the maximum amount if you start your benefits at age 70, and one for your full retirement age between the ages of 65 and 67.
Action: Consider these monthly benefit amounts in terms of your retirement plan to help create a realistic picture of what you will have available to you when you retire.
- Note other benefits – Remember, Social Security is not just about your retirement benefits. There are also estimates presented for disability and surviving family benefits. Please review these estimates to understand the potential benefits these programs may provide.
- Remember current benefits are just estimates – The benefits noted on this statement are estimates. Actual benefit amounts rise with inflation, change with tax laws, and adjust with your future earnings. Your benefit statement will show you the assumptions used in creating your estimated amounts.
Action: Review the assumptions used by the Social Security Administration. Pay special attention to the future earnings used by them to create the benefit amounts. If you do not think they are accurate, you may need to create revised estimates with more accurate assumptions.
Should you find any errors in the statement correct them immediately. The last page of the statement provides a means for doing this.