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Personal Finance From a Biblical Perspective

How to Create Your Own CD Ladder

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Lots of people are really disappointed with the rate of return they are getting on their savings. That’s even causing a lot of people choose not to save. After all, the alternatives are a lot more exciting. Instead of putting your money in the bank, you can spend it on things that you like, or take a chance at higher returns by investing in the stock market.

Both outcomes are the exact purpose behind the super low interest rates we are seeing. If you are out shopping and/or investing your money in stocks, you are doing exactly what policymakers want you to do with your money. But what if that’s not quite what you want to do?

If you like having money in the bank, and you want to get better interest rate returns than you are getting in money market funds and savings accounts, you may be interested in building your own CD ladder.

CD Ladder Strategy

What is a CD Ladder Strategy?

A CD ladder is a portfolio of certificates of deposit (CDs) with varying maturity dates. The best way to explain this is with an example. Let‘s say that you have $12,000 that you want hold in your savings. You want to invest it in CDs because they pay more than savings accounts or money markets. But at the same time, you don’t want to tie all of your money up in one CD for six months or a year.

You can create a CD ladder by investing $1,000 each month in a one year CD. Since you have $12,000, you can purchase one $1,000 CD each month for a year. After one year you will have a portfolio of CDs, with one renewing every month.

In effect, you will have created your own high interest rate money market fund, complete with FDIC insurance. Since you will have a CD renewing every month, you’ll be able to take advantage of higher interest rates as they become available. Should rates drop (which is hard to imagine considering how low they are right now) you will still have a large number of older CDs drawing higher interest rates.

Why Should You Want To Build One?

The reason for building a CD ladder is simple: money market funds and savings accounts are paying interest rates that are a low fraction of 1%. Because they are time deposits, CDs have higher interest rates. By laddering several CDs you avoid tying your money up in a single security.

Using A CD Laddering Strategy For Liquidity

In the example above, we described a CD portfolio in which one CD will be up for renewal every month. That will enable you to have access to at least some of your cash each month, with more coming available with every passing month. This will enable you to earn higher rates of return than you will get in savings accounts and money market funds, while still preserving some measure of liquidity.

If you want to increase the liquidity of your CD ladder, you can always invest in short-term CDs. You can build your ladder using three months or six months CDs, rather than one year CDs. That will improve your liquidity but it will also cut down CD rates of return, since shorter-term securities pay lower rates of interest.

CD Ladder Strategy For Interest Rate Return

You can also extend your CD maturities in order to increase the rate of return. You can do this either by investing in longer-term CDs, such as 18 month or two year CDs, or you can build a portfolio of CDs with various maturities.

As an example, you can make a CD ladder that includes maturities of six months, one year, two years and five years. Longer-term CDs will generally pay higher interest rates, while the shorter-term CDs pay less. The blending of the various maturities will create an even higher rate of return than you will get on a ladder composed entirely of short-term CDs. But with the longer term CDs you will also be losing liuidity, since longer maturities also mean slower renewals.

How Complicated Is It To Develop A CD Ladder Strategy?

Building your own CD ladder isn’t that complicated. In fact once you get it going it’s a completely passive undertaking. You can set up your CD ladder, then authorize your bank to automatically roll the CDs over as they mature. Typically, you will have them rolled over into CDs of the same term.

You can purchase CDs out of your savings account or bank money market fund. You can make your monthly purchase, or purchase a portfolio of CDs with varying maturities, either of which is a simple process. There will be little to do, and higher interest income to collect.

It will be like creating a high interest money market fund, but one that you control.

photo credit: Freedigitalphotos.net

The Treasury Department’s New Regulation To Protect Social Security Benefits

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Recently, the United States Treasury Department put a new rule into place that seeks to protect those the garnishment of Social Security benefits. When you are collecting, and depending on, Social Security benefits, it can be extremely difficult to deal with debt collectors. To then have your bank garnish your Social Security benefits, can put you in a position where you have very few options.

According to an article on Market Watch:

Before the new rule, when debt collectors pursuing an unpaid debt secured a court-ordered garnishment, the bank often would simply freeze the money in the debtor’s account, whether or not it included federal payments, such as Social Security benefits, said Margot Saunders, an attorney with the National Consumer Law Center.

The easiest thing for a bank to do in this instance is to freeze the entire account, regardless of the source of the deposits. The problem with that type of response, is that it can leave the recipient – oftentimes an elderly person – with no way to pay for basic living expenses.

There are actually rules and exemptions in place, which govern when and how a debt collector can garnish Social Security benefits, but as Saunders points out, “It’s very, very difficult for an elderly person to step through the hoops that are required for exemptions… In the meantime, while they’re going through that process, they have no money.”

Having all of your money frozen at once can lead to financial disaster for someone in a social welfare program.

A New Rule For Banks Ordered To Garnish Social Security Benefits

In an effort to help beneficiaries avoid undue hardship, the Treasury Department will now require banks to verify whether the money in the accounts came from an automatic deposit of federal benefits (including Social Security). If so, the bank is required to leave two months’ worth of federal benefits in the account untouched, so that they can be used to cover living expenses.

However, if the benefits were deposited more than two months in the past, or if they were deposited by check (no matter how recent), then the bank is free to freeze the entire account. The recipient will then have to follow the normal procedure for claiming an exemption in their state.

You may not think that there are a lot of people who are affected by this, but the National Consumer Law Center says otherwise:

NCLC estimates that more than 1 million federal-payment recipients annually had their benefits garnished in a bank account. That estimate is based on “the number of complaints and concerns we get from lawyers around the country,” Saunders said. She said legal-aid lawyers cite such garnishment as among the most significant consumer problems, second only to mortgage-related issues.

This new rule will be a welcome relief to many who were already struggling to make ends meet, and pay off debt at the same time. Whether they be dealing with student loan repayments, credit card debt, or medical debt, they will now be given a little bit of breathing room while they consider their options.

Garnishment Of Your Social Security Benefits By The Government

Keep in mind that this new law only governs court orders directed at banks (after the benefits have been paid). It is still possible to have money withheld from your payments at the Federal level, before you receive a disbursement.

According to the Social Security Administration, here are a few common circumstances in which the Federal government can garnish Social Security benefits:

  • To enforce child support or alimony obligations under Section 459 of the Social Security Act;
  • Internal Revenue Service (IRS) can levy against benefits to collect unpaid Federal taxes according to Section 6334(c) of the Internal Revenue Code;
  • IRS can collect taxes due by levying up to 15 percent of a monthly benefit until the debt is paid;
  • IRS allows beneficiaries to have a portion of their check withheld to satisfy a current year Federal income tax liability according to Section 3402 (P) of the Internal Revenue Code;
  • Other Federal agencies can collect money from benefits to pay a non-tax debt owed to that agency according to the Debt Collection Act of 1996 (Public Law 104-134); and
  • Under the Mandatory Victim Restitution Act, certain civil penalties provide the right to garnish benefits under 18 USC 3613.

This list looks similar to the circumstances in which your tax refund can be garnished. This is why it is so important to take care of all debt before you retire, and never become a cosigner for a loan.

It is much easier to deal with these issues when you have a lot of options, instead of waiting until bankruptcy and debt are all that you have in front of you.

photo by DonkeyHotey

Need To See A Doctor? Go Rob A Bank!

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According to a recent article by the Gaston Gazette, James Richard Verne decided to rob a bank in order to receive free medical care. My first thought when I read about this was, “who robs a bank in order to get medical care?”, but the question became a little more clear as the story unfolded.

On June 9th of this year, James Richard Verone walked into a random bank in Gaston, N.C., and handed the teller a note demanding $1 and medical attention. He then told the teller that he would sit down and wait for the police to show up.

Growing Medical Ailments

The purpose of him “robbing” the bank, was to get medical care. He actually has a part-time job as a convenience store clerk, but apparently doesn’t have medical insurance.

Here is what the article had to say about his work situation:

Verone worked for Coca-Cola for 17 years. He prided himself on keeping his nose to the grindstone. Don’t make enemies. Sell the product. Make your deliveries and stick to your schedule.

When his career as a cola delivery man ended some three years ago, Verone was knocked out of his comfort zone.

He hopped back in the saddle driving a truck. But that employment didn’t have near the longevity, and Verone found himself jobless.

He lived off of savings and sought a part-time job.

Many people in this country work either full-time or part-time jobs with no (or inadequate) health insurance coverage, and do just fine. However, Mr. Verne had a host of ailments that made him want to take desperate action:

But the bending, standing and lifting were too much for him. The Gastonia man’s back ached; problems with his left foot caused him to limp. His knuckles swelled from arthritis, and carpal tunnel syndrome made daily tasks difficult.

Then he noticed a protrusion on his chest.

Strapped for cash, Verone looked into filing for disability. He applied for early Social Security.

The only thing Verone qualified for was food stamps. The extra money helped, but he felt desperate. He needed to get medical attention, and he refused to be a burden on his sister and brothers.

“The pain was beyond the tolerance that I could accept,” he said. “I kind of hit a brick wall with everything.”

Verone is 59 years old, and has a host of medical problems. The article doesn’t tell us what steps he took in order to get medical care, so we can’t say anything about injustice or unfair treatment by the “system”.

The Solution: Rob A Bank!

I am not sure how much time and energy he spent seeking more traditional avenues, but his actions show that he spent time planning this move!

He considered turning to a homeless shelter and seeking medical help through charitable organizations.

Then he had another idea: commit a crime and get set up with a place to stay, food and doctors.

…Verone sold and donated his furniture. He paid his last month’s rent and gave his notice.

He moved into the Hampton Inn for the last couple of days.

The article didn’t say why he only “considered” seeking medical help through charitable organizations, or free clinics. I know many people who don’t have insurance either due to being unemployed or part of the contingent workforce, but they still find ways to get medical treatment when they need it.

It can be easy to feel sorry for this guy – and in a way, I do – but, there seems to be a large part of this story that is missing. Maybe he could have simply gone into debt, trying to pay for treatment. Then his choices would have been to either pay off debt, or file for bankruptcy.

He could have shown the determination that the parents of Michael Bibbo (a young man who is suffering from Primary Lymphedema <–click to read his story and donate to the cause) are showing! His potentially life-saving surgery will cost over $90,000 and is not covered by insurance. Instead of sending him off to jail, they are trying to raise money, and are even willing to borrow whatever they don’t raise, in order to save his life!

From The Mouth Of Verone

To make sure that his intentions were clear, Verone mailed out a letter to The Gazette  on the day that he robbed the bank (but before he committed the crime). He even listed his return address as the Gaston County Jail:

“When you receive this a bank robbery will have been committed by me. This robbery is being committed by me for one dollar,” he wrote. “I am of sound mind but not so much sound body.”

“I knew that a felony would not hurt me. I cannot work anymore,” he said. “That felony is going to hurt my reputation.”

Unless I were to receive more information – showing that he was denied medical care because he didn’t have insurance – I am compelled to believe that he didn’t explore all of his options!

He doesn’t feel bad about his decision, and says that he will do it again if his sentence isn’t severe enough for his liking!

photo by Ben Goff/The Gazette

What Do You Think?

I have a habit of being hard on people in situations such as these. Besides considering how ridiculous and wrong this is, I can’t get passed the fact that (based on the information we have) it doesn’t seem as if he exhausted all of his options. I know (and have known) plenty of people who didn’t have health insurance, but still managed to get health care when needed – even if that meant incurring debt!

So, I want to hear what you all have to say about this story.

  1. Based on the information that we are given in the article and his letter, do you think that he made the right decision?
  2. Would you be willing to go into extreme debt in order to seek medical help?
  3. Would you be willing to go to jail in order to get medical care?
  4. Considering the fact that he wasn’t facing a life or death situation, if you were in his position, what would you have done?

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