Smarter money

Getting results without much time or effort seems like a hallmark of human emotion. I always think of health ads on TV, usually promising results as fast as possible while making the work seem minimal. Or those "work at home" advertisements, showing people making huge $$ every week (yea, you can tell the type of TV I watch by the great advertisements I'm exposed to). I think (hope?) deep down, everyone knows these "get rich quick" schemes or "too good to be true" promotions are just that. We just wish they weren't. A recent article in the San Francisco Chronicle in the business section, not really having anything to do with this topic, made me decide to write down more sensible possibilities.

I think some people may overlook the fact that they can get modest results - in this case, financial ones - without doing anything at all and without taking on any risk. All it takes is to reorganize their finances, and put their money on autopilot. How?

In a nutshell, there are many risk-free bank accounts that offer considerably higher interest rates than your current bank. Here are a few (rates as of 12/4/06):
*ING Direct (4.5% APY)
*Citi e-Savings (5.0% APY)
*Emigrant Direct (5.05% APY)
*eTrade Complete Checking Account (5.05% APY)

Make sure you read all account details (including fee and rate schedules) before signing up. Also know that some of these accounts (like ING) give you $25 for signing up if a friend refers you, so take advantage of that if you can. These accounts have no annual fees (the Citi one will if you sign up after December 31, 2006), they are all 100% backed by the FDIC up to $100,000 (which means if the bank goes bankrupt, highly unlikely as it is, the US government will give you the amount in your account up to $100,000) and offer a lot more bang for your buck. Why? Simple middle-school math should be able to explain this. Say you have $5,000 in a no-fee free checking account, and for some weird reason, decide not to spend any money for an entire year. At the end of the year, you have $5,000, and thanks to inflation at roughly .8-2%, you've actually lost money thanks to the depreciating value of the money in your account. However, imagine you kept $500 in your checking account and transferred $4,500 to an ING Direct online account (which offers unlimited free electronic transfers in and out of the ING account). Suddenly you're $202.50 richer by the end of the year ($4,500 * .045, the interest rate of the account), and have not only beaten inflation but have a little extra on the side as well. You're always free to transfer the money back into your main checking account at any time from your ING account.

Remember this statement: free checking isn't free. That checking account you're paying no fees on but is giving you 0.0% interest? That's costing you income. It's not advisable to pay fees on accounts, especially if you have a rather low balance (like me, say under $50,000) where fees can eat up remarkably large percentages of your total net worth, but it is best to maximize the opportunities afforded you by other banks and use their offers that allow for unlimited free electronic transfers of funds.

Don't be afraid to try something new! I know many people who are fickle with their resources, but keep their finances in shambles. Consider not having decently organized finances (aka not earning appropriate amounts of interest) like gleefully burning up multiple $100 bills with a lighter. Not exactly a good idea, right? This isn't exactly rocket science here, and don't be afraid! This is simply reorganizing to take advantage of people offering you more money for the exact same product. Everything I list on this page, with the exception of index funds below, guarantee your return of principle and interest.

Another thing to check in to (shorter term, easier liquidity):
*Treasury bills (http://www.treasurydirect.gov/) You can purchase T-Bills online from the US Government, the going rate as of 12/4/06 was 5.21% for a 14 day bill. Again, guaranteed income.

For someone looking for a little more, check out:
*Index funds ("stocks" that are really a small piece of every stock on that exchange. The NYSE has the Wilshire 500 (wfivx), the Nasdaq has the Nasdaq 100 (qqqq). Unlike the other possibilities I listed on here, with index funds you are not guaranteed returns nor even the return of your principle investment.

More on this later. . .