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Monthly archives "June 2014"

In your best interest: how to get the greatest return on your savings


It’s not the best time to be a saver. If, two years ago, Irish banks were willing to pay a premium for deposits to lower their loan-to-deposit ratios, a recovery of sorts means that those days are largely gone, while European rates remain on a downward trajectory, as evidenced by the latest decision from the European Central Bank.

But despite this, for many consumers security of capital is still more important than return, which is why so many still favour deposit accounts as a home for their money.

However, even if savers are wary of the stock market, they could still bring a little investment nous to how they structure their savings, and consider a portfolio approach to ensuring they get a spread across the various deposit account on offer.

The savings environment
The ECB may have introduced negative rates for lenders for the first time, but savers shouldn’t be alarmed.

“It’s important to remember that it’s for banks depositing at the ECB. It’s a way in which the ECB will try and incentivise banks to put money to work elsewhere or deposit in the inter-bank market. I don’t think we’ll get to the stage where we’ll see negative interest rates for savers,” says Dermot O’Leary, chief economist with Goodbody Stockbrokers.

What the move does mean is that with the ECB’s key rate now cut from 0.25 per cent to 0.15 per cent, there is “still further scope for Irish banks to bring down term deposit interest rates”.

“It will give banks further reason to go ahead and do that,” suggests O’Leary, adding he doesn’t expect rates to go up until Q4 2016 “and could be in to 2017”.

And it’s not just the ECB that’s disincentivising savers. Last October, the Minister for Finance raised the rate of DIRT to 41 per cent, and imposed PRSI at 4 per cent on those earning more than €3,174 in interest on their savings.

In addition, Irish banks are no longer willing to pay over the odds for deposits to boost their balance sheets. As O’Leary notes, AIB now has a 100 per cent loan-to-deposit ratio which means that it doesn’t have the same sort of pressure to raise deposit levels.

So for savers, low rates are likely here to stay for quite some time yet.

Long-term options
If you want to get the greatest return on your money, the best option is to typically lock away a lump sum for a fixed term. Remember, when comparing fixed-term bank accounts look for the AER or annual equivalent rate, as most providers will also give you the gross rate for the term – which may look more enticing but makes it difficult to compare like with like.

For example, if you were offered 3.39 per cent over 18 months, or 3.53 per cent over 24 months, which would you say is the better rate? It’s actually the former, with an AER of 2.25 per cent compared with 1.75 per cent for the latter.

Who has

the better rates? Permanent TSB offers 2.25 per cent on amounts from €5,000. So, if you put €50,000 into such an account you will have earned €2,190 (before DIRT) by the end of the term. It’s also an “interest first” account, which means you’ll get your interest within 30 days of opening the account.

Another option is KBC’s 12-month deposit account, which pays 2.05 per cent, so will give you a return of €1,025 on your money, while Ulster Bank pays 2.1 per cent on its six-month fixed term deposit.

If you fear negative interest rates, the longest product available runs for four years. KBC, Rabodirect, Ireland State Savings and EBS all offer savings accounts over this term. The best rate available is from EBS (2.06 per cent) and the worst is from Rabodirect (0.9 per cent). When you consider the impact of tax free savings, however, the 1.47 per cent rate from State savings also looks competitive.

You may incur penalties if you need to get access to your money early in a fixed rate account, so if this is a factor, you may – or may not – have to give up some of the return if you want to avoid penalties.

With EBS’s SureCertificate 48-month account for example, you’re allowed to make withdrawals on the six-month anniversary dates without incurring interest penalties. It pays a rate of 2.06 per cent.

Notice account
It’s hard to find a reason for a notice account these days. Developed on the premise that if you give the bank a certain amount of warning – seven or 21 days for example – the idea is that you will earn a higher rate on your money. However, given the competitive rates that are now available on easy access accounts it seems pointless to enter into such an arrangement.

AIB for example pays just 0.3 per cent on its seven day notice account, or 0.75 per cent if you opt for its online option.

The highest rate you can earn on a notice account is 1.75 per cent, and is offered by both Nationwide UK and Rabodirect, based on giving notice of 30 days.

So if you want a better return, without locking your funds away it may be best to opt for an instant access account.

Easy access
If you have significant funds languishing in your current account earning a negligible 0.1 per cent, it might be time to move them into an instant access account. You will still get immediate access to your rainy day funds without incurring a penalty, but you might just earn a little bit more.

For example, both KBC and Permanent TSB pay 2 per cent on their instant access accounts. So, based on a lump-sum of €15,000, you can expect to earn about €300 on such an account. KBC accepts between €3,000-€100,000 for its account, while PTSB applies no such limit. However, to get this rate from PTSB you must be a customer of the bank and registered for its online banking service.

A point to bear in mind is that thanks to the advent of banking fees, it may actually pay to keep a certain amount in your current account – depending on the rate you can earn elsewhere. For example, if you are a client of Bank of Ireland, you will need to keep €3,000 in your account at all times to avoid banking charges. While you will still have to pay a €20 annual maintenance fee, you will avoid day-to-day banking charges by doing so – which could realistically set you back about €200 a year. As a result, this could be equivalent to earning a rate of 2 per cent on savings of €10,000, so it may make sense to simply keep the money in your current account.

Keep saving
You may have your portfolio of savings in place, but this doesn’t mean that your savings are complete. Saving a fixed amount each month can help grow your savings, as well as cover any unexpected bills. And luckily for you, there are still good rates available in this category.

Top of the bunch is Nationwide, which is paying 4 per cent on amounts of up to €12,000 over a 15-month term (5.04 per cent gross). You can put away between €100 and €1,000 each month, and two withdrawals are allowed.

Another option is KBC, which pays 3.5 per cent on its regular saver account on monthly amounts of between €100 and €1,000.

Remember that when the term of a regular savings product ends, you may need to move the balance to ensure you continue to earn the best return. For example, if the balance of your account with Nationwide exceeds €15,265, the AER rate drops to 1.05 per cent and applies to the total balance in the account.

Getting tax efficient
Since the move to push the rate of DIRT up to 41 per cent in last year’s budget, State savings have become more attractive, as you don’t have to pay tax on the interest earned. While at first glance, rates on offer may appear low, when you factor in the tax saved, the differential isn’t as great.

Take the three-year savings bond. It pays a rate of 4 per cent – AER 1.32 per cent – over the term on amounts of between €50 and €120,000. Provided you’re an Irish resident, you can earn interest tax free. This means that if you lock away €100,000 in this product, at the end of three years you’ll have accumulated €4,037.

Compare this with a product which pays an AER of 2.2 per cent over the same term. At the end of its life you would have earned €6,816 – but tax at 41 per cent will take away about €2,800 from this, leaving you with about €4,000. So, in effect, you would have earned slightly more had you opted for the State savings product, despite the lower interest rate on offer.

Spreading the risk
While it’s not so much of a concern anymore, another benefit of taking a portfolio approach to your savings is that you can spread your risk between various institutions.

The Deposit Guarantee Scheme protects deposits of up to €100,000, guaranteeing to repay your funds within 20 days in the event that a bank, building society or credit union is declared insolvent. So, if you have €100,000 in one institution, and €100,000 in another, you will be protected in full. Remember, the State savings scheme sold through An Post is not part of the scheme, as all your money is protected by the Irish government.

Foreign institutions not covered by the scheme, such as Rabodirect and Nationwide UK, are covered by schemes in their respective home countries, but the total amount may differ. In the UK for example, savings of up to £85,000 (€104,578 ) are protected by the government.

5 Ways to Win More Often Trading Forex


For many forex traders (or any type of trader, for that matter), long gone are the hopes of making millions of dollars overnight, and all they wish to do now is stop losing money and begin to turn their trading accounts around. There are many mistakes that traders make that contribute to getting themselves into this situation, and this article is going to cover the top five things traders can do to turn their accounts and performance around!

Pick a Trading Method and Perfect It

Traders who come to forex in most cases are looking to make a lot of money and do so very fast. To achieve this, they begin to chase the “Holy Grail” that will make them all their riches. Instead of looking for a method that will give them gradual success, they search for the latest fancy indicator that will do all the work for them. I am here to tell you that we all would be rich if this were possible!

If you are serious about making money in the forex markets, it is time you get rid of this mentality and settled into learning a method that you can use for the long term.

One method that can be used to trade the markets successfully is price action trading, which has been around for a long time and will be around for a long time to come. Price action trading will not stop working every time the market dynamics change.

Price action trading involves learning to read the raw price on a chart and focusing on high-probability price patterns that repeat themselves. Price action is a very simple method that most traders can get their heads around with a little help and the correct education.

Once a trader has picked the method that best suits their trading style, they need to give up on the idea of the “Holy Grail” and begin perfecting their chosen trading method. Chopping and changing trading methods only leads to confusion and frustration.

The only way to perfect your chosen trading method is to commit to it, and practice until you have perfected it!

Learn to Trade on Higher Time Frames

Many traders have the misconception that the lower the time-frame chart, the more chances they have to make trades, and thus, make money. While it is true that traders will get more signals on lower-time-frame charts, it is also true the lower the time frame, the more false signals there are and the harder it becomes to make money.

Traders can begin to turn their trading around by taking just this point on alone! The higher-time-frame charts are where most trading should be done for beginning traders.

One of the best reasons the daily chart is a lot more powerful than a lower-time-frame chart such as the one-hour chart is because of the time that goes into making the signals. An example of this is an inside bar.

If we see an inside bar on the one-hour chart, we know that price could not break out of the previous candle’s range for one hour. If, however, we see an inside bar on the daily chart, it means price has gone through all trading sessions including the UK and US sessions and has been unable to break out of the previous day’s range.

Obviously, a candle with 24 hours worth of information is telling us a lot more than a candle made up of only one hour, and because of this extra time that goes into making the daily chart signals compared to the lower time frames, the signals are much more reliable and powerful.

Stop Watching Charts All Day Long

Once a trader has committed to only trading the larger time frames such as on the daily chart, it is now time to get rid of one of the most widespread trading mistakes there is: Watching the charts all day.

This trading habit is a very serious mistake that many traders make. If traders were to watch the charts all day and not do anything, this would be fine, but from watching the charts all day, traders start to make mistakes like:

  • Entering trades when they shouldn’t
  • Taking trades off when they shouldn’t
  • Taking profits when they shouldn’t
  • Tightening stops when they shouldn’t

When a trader has committed to trading the daily charts only, they only need to look at their charts once a day. That is it!

When the market closes for the day, the trader should switch their charts on and look for possible trade set-ups. If there is a trade, they should set their entry, stops and targets. If there is no trade, they need to turn off their computer and walk away and do something else!

There is nothing more they can do. The market has to move, and it will do the same thing whether you are watching it or not. Walk away and let the market do its thing.

Only Trade with Money You Can Afford to Lose

In the forex market, scared money is lost money. A trader who is placing trades with scared money may as well just give it to a charity. The reason this is the case is because when a trader is fearful, they will make trading decisions that reflect that.

The trader who is playing with scared money will commit all types of psychological trading mistakes that will ensure that money is lost.

See also: 4 Trading Fears and How to Beat Them

The only money that should ever be risked in the forex markets is money that a trader can afford to lose. Traders should never risk money they need for their kids or to put food on the table! This rule is important.

Some people will be saying “But I only have $100 for a trading account.” This is fine. Many brokers offer mini and micro accounts that will let you trade while risking only a few dollars at a time and continue to use correct money management. Over time, you can keep adding money to your account from savings to build it up.

Work on Your Mind

One of the most overlooked areas in trading is the psychology side. Many traders concentrate day in and day out solely on their trading method or system. This is why many people fail in the forex business, and as long as they don’t work on their mind, they will continue to fail.

Many mistakes a trader makes are based on how they approach and think about the markets and their trading. Trading is a battle that is very much waged in the mind. If a trader doesn’t have the correct mindset and way of thinking, forex will forever be an uphill battle.

Traders need to focus on this aspect of trading and begin to learn all they can. Reading books and blogs from professional traders is a great way to pick up on skills you can implement into your own trading.

6 steps to get the best mortgage rate – Part 2


No. 3: Decide when you want to close. The length of your lock-in period will impact your mortgage rate, so discuss your target close date with each lender and ask about the charges for different loan-lock periods.

“Make sure you tell the lender when you expect the closing to be, because you want to lock in the interest rate for the right length of time,” says Richards. “Many lenders charge one-eighth percent more if you must lock-in the loan for 60 days. If you need a 90-day loan lock, your interest rate could be as much as one-third percent higher.”

No. 4: Ask about fees. The variation in fees associated with a loan are one reason why you shouldn’t comparison shop solely based on the best advertised interest rate. Sometimes a mortgage at a lower advertised rate can end up costing you more because of all the fees associated with it.

“Some lenders blend all their fees into a loan preparation fee, while others separate them out, so be sure to ask for the total amount it will cost to close the loan,” says Martucci.

Generally, a mortgage with higher fees should have a lower interest rate, says March.

If you’re refinancing, use HSH.com’s Tri-Refi Refinance Calculator to compare your options for paying closing costs. Experiment with the options to find out if you should you wrap the closings cost into the loan amount, pay them in cash or choose a “no-cost” mortgage.

No. 5: Consider whether you should pay points. One of the largest expenses can be the points attached to a particular loan. Each point is equal to one percent of your loan amount.

“You need to make sure you discuss with each lender how the loan will be structured in terms of whether you are paying points or not,” says March.

If you intend to stay in the home for the long term, such as 10 years or more, you may want to pay points to keep your interest rate as low as possible for the life of the loan. If you plan to sell in a few years, paying a lot of cash upfront to pay points may not be worth it, says Richards. A lender can show you the difference in interest and monthly payments to help you decide whether worth it to pay points.

No. 6: Call lenders on the same day. Because mortgage rates fluctuate constantly, you should call lenders as close to the same time as possible on the same day to compare rates, says Martucci.

“If possible, call within the same timeframe, because a bond rally could mean that mortgage rates have dropped dramatically from the morning to the afternoon,” he says.

After you have organized your financial information, follow the six steps above to ensure that you get the best mortgage rate available.

6 steps to get the best mortgage rate


If you’re in the market for a mortgage, chances are you’ve been instructed to shop around for the best rates. But just because you’ve been told to shop around doesn’t mean you know how.

First, you’ll need to contact a lender to get your credit scores. Craig March, a personal mortgage consultant with Inlanta Mortgage in Janesville, Wis., says you should share your credit scores with other lenders rather than letting each one you contact pull your credit history, because multiple inquiries could lower your scores.

“There are so many different credit score models that the score you see as a consumer may not be the same as the one a mortgage lender sees, so it’s important to get your score from a lender,” says Mark Richards, a senior mortgage loan officer for TD Bank in Washington, D.C.

Brian Martucci, a mortgage lender with GetLoans.com in Washington, D.C., says every borrower must be prepared to answer the following questions before a lender can provide an accurate mortgage rate quote:

How large is your down payment? Interest rates vary according to your loan-to-value ratio.
Are you buying a single family home or a condominium? Martucci says a borrower purchasing a condominium with a loan-to-value ratio above 75% will pay a one-quarter percentage point higher interest rate.
Are you refinancing or purchasing? Interest rates may be higher on a refinance, especially if you are taking out cash, which could raise your rate by one-eighth of a percentage point.
If you intend to waive escrow and pay your taxes and insurance yourself, your mortgage rate could be one-eighth of one percentage point higher because that’s considered a riskier loan, says Martucci.

Your plan for the best rates

No. 1: Establish a baseline. Get a referral from someone you trust and contact the recommended lender to obtain your credit scores and discuss your loan options. Your lender can help you compare Federal Housing Administration and conventional financing, as well as various loan terms, so you can make an informed decision on which loan program and terms you want before you contact other lenders

No. 2: Contact a mix of financial institutions. Interest rates fluctuate constantly for a variety of reasons, including the occasional promotion of a particular loan product by a financial institution. For example, some lenders who are eager to generate more purchase loans might offer the best mortgage rates for homebuyers but not for refinancing homeowners, says Martucci. Sometimes a credit union or bank will introduce a new loan product and offer better mortgage rates in order to entice borrowers, says March.

“It’s best to diversify and try a mix of places, such as a direct lender, a regional bank, a credit union, a community bank and a national bank,” says March.

Where should I save?


A savings account can help you have access to cash when you need it the most. But which is right for you? Below is a run through of the different types of accounts designed for saving.

Cash ISA

ISA stands for Individual Savings Account and is the name of a Government scheme to allow people to save money without having to pay tax. This tax year, the total ISA allowance per adult is £11,280.

Interest rate: shop around for the best rate. You will find both fixed rate and variable ISAs, but both have the benefit of being tax-free.
Minimum amount to open: Varies, usually only £1
Best for: If you received a lump of cash from friends or family and you want to save it for a rainy day. Also good for long term savings, although some ISA’s allow for instant access.

Instant access

These accounts allow you access to your savings instantly or within a few days without a penalty.

Interest rate: As the account is so flexible, a lower rate will usually be offered than other savings accounts.
Minimum amount to open: £0
Best use: Good as an emergency fund, or a chance to start saving yet still allowing you access to the cash should you really need it.

Notice Accounts

These require plenty of notice to be given before withdrawals can be made, usually between one and three months. However you can sometimes access the money instantly if you are willing to pay a penalty.

Interest rate: Higher than instant access accounts, variable.
Minimum amount to open: It depends, but you will probably need at least around £100.
Best use: Trust funds, inheritance, larger sums of cash that you want to build up but don’t need to get your hands on easily, such as a mortgage down payment.

Bond or Term Accounts

These pay much higher rates of interest because they do not allow any withdrawals until a set date.

Interest rate: Fixed at a competitive rate
Minimum amount to open: Around £1000.
Best use: Inheritance or similar, such as money to pay for college fees or a big wedding.

Regular savers accounts

These require a commitment to invest each month, encouraging regular savings rather than lump sum investments. Access varies from instant to fixed term.

Interest rate: Variable.
Minimum amount to open: A minimum and maximum investment per month is often required; these vary from between £10 – £20 min and £100 – £2000 max.

Best for: Easy savings where you put aside a small amount from your pay cheque each month. It may only seem like a small saving, but it all adds up.

Saving Money vs. Investing Money


Before you begin on your journey to building wealth and finding financial independence, it’s important you understand a few basics. One of the big keys is that saving and investing are two related, but independent, processes that you shouldn’t confuse. A disciplined investor could find himself with dozens of real estate rental properties but unable to pay his bills if he didn’t appreciate the balancing act between the two foundations of success.

Perhaps the best place to begin for new investors is to define the difference between saving and investing.

Saving is the process of putting cold, hard cash aside and parking it in extremely safe, and liquid (meaning they can be sold or accessed in a very short amount of time, at most a few days) securities or accounts. This can include FDIC insured checking accounts, savings accounts, short-term certificates of deposit, or United States Treasury Bills. It can even include FDIC insured money market accounts (but not money market funds, which are not insured). The highest goal for these funds should be captial preservation, with a secondary goal to keep pace with inflation, if possible.

Investing is the process of using money (called “capital”) to buy an asset that you think will generate a safe and acceptable return over time, making you wealthier with each passing year. An investment can include anything from a small business to fine art, rare wines to gold coins, comic books to stocks, mutual funds, bonds, real estate, and antiques, just to name a few. It can also include song rights, patents, trademarks, or other intellectual property, as it is often called. Good investments are the soundest way of growing wealthy but can take time, perhaps even years, to work out because we live in an uncertain world.

How Much Should I Save Versus How Much Should I Invest?
Saving always comes first. Think of it as the foundation upon which your financial house is built. The reason is simple – unless you inherit a large amount of money, it is your savings that will provide you with the capital to feed your investments.

There are two primary types of savings programs you should include in your life. They are:

As a general rule, your savings should be sufficient to cover all of your personal expenses, including your mortgage, loan payments, insurance costs, utility bills, food, and clothing expenses for at least six months. That way, if you lose your job, you’ll be able to have sufficient time to adjust your life without the extreme pressure that comes from living paycheck to paycheck.

Any specific purpose in your life that will require a large amount of cash in five years or less should be savings-driven, not investment-driven. The stock market in the short-run can be extremely volatile, losing more than 50% of its value in a single year. Purchasing a home is a great example as we discussed in Best Places To Invest Your Down Payment Money.

Only after that these things are in place, and you have health insurance, should you begin investing (this really is vital – for more information on why, read Investing in Health Insurance – One of the First Lines of Defense for Your Portfolio. The only possible exception is putting money into a 401(k) plan at work if your company matches your contributions. That’s because not only will you get a substantial tax break for putting money into your retirement account, but the matching funds basically represent free cash that is being handed to you on a silver tray.

More Information About Saving Money

For more information about how you can begin saving money, read The Complete Beginner’s Guide to Saving Money. It is filled with articles, resources, essays, and lessons about how to save money, how to invest money, and how to get started on the road to wealth. It may seem daunting now, but every successful self-made person had to begin by earning money, spending less than they earned, taking those savings, and putting them to work in projects that threw off dividends, interest, and rents. They are no better than you are. If you learn the same thing, and can act as rationally so as to manage your money with discipline, you can enjoy the rewards of success, just as they did. In the end, saving money comes down to simple math. It really is as fundamental as 2+2=4.