As featured in The Wall Street Journal, Money Magazine, and more!

May 2009

Kerry K. Taylor, author of 397 Ways to Save Money and creator of financial blog Squawkfox joins Tom Dziubek today to discuss her book, currently available from Amazon.ca. Kerry explains how she paid off $17,000 of debt in six months and how to make drastic life changes. She also shares some of her favorite tips from 397 Ways to Save Money.

Deal of the Day: Earn 1.00% APY on an FDIC-insured savings account at Ally Bank.

To listen, use the player above (Adobe Flash required), download the podcast here, subscribe to the podcast RSS feed, or use the iTunes link. Note: open links in a new window (Ctrl-click or Command-click) to avoid interrupting the podcast.

[00:00] Introduction from Flexo
[00:39] Interview with Kerry K. Taylor of Squawkfox
[01:33] — Paying off $17,000 of debt in six months
[03:34] — Negotiating your first salary offer
[04:47] — Maintaining a student lifestyle and standard of living
[05:57] — Using any available tax credits and saving for retirement
[08:18] — Moving to an organic farm and making other drastic life changes
[11:36]397 Ways to Save Money
[13:55] — How renting an apartment can make you rich
[17:00] — How management fees deplete returns from your investments
[18:07] — Other surprising tips from 397 Ways to Save Money
[19:06] — Is the recent popularity of frugality just a fad?
[25:20] End

{ 6 comments }

A few years ago, General Motors was having trouble remaining in business, and its subsidiary that provided customers financing for automotive purchases, GMAC, converted to a bank holding company to take advantage of the Troubled Asset Relief Program (TARP), receiving $5 billion from taxpayers through the government. By this time, GMAC Bank, a division of GMAC, already offered retail banking, including savings accounts, certificates of deposit, and money market accounts.

In an attempt to distance itself from the faltering GM brand, GMAC Bank re-branded itself as Ally Bank, focused on offering a high-yield interest product, and began actively seeking new customers and depositors. Later, the bank’s parent company, GMAC, also re-branded itself to become known as Ally Financial. Today, Ally Bank offers some of the most competitive banking products.

Click here to apply for an account.

Opening an account with Ally Bank

Ally Bank - Online Savings, Better BankLast year, I decided to become an Ally Bank depositor. Before doing so, I wanted to be confident that my money would be safe amidst General Motors’ impending bankruptcy. Funds deposited with Ally Bank are insured by the FDIC up to the recently raised limits. I won’t come close to exceeding $250,000 in this account. The Treasury had recently provided an additional $7.5 billion to GMAC, so Ally Bank’s immediate parent company was well capitalized at that time.

Here are my experiences from the bank account opening process. As I visited the website to begin my application, Ally Bank warned me that I would need my driver’s license (or an alternate state or military identification number) in addition to my social security number to proceed.

Like some other banks, Ally performs a credit check to verify identity, but they may also reject your application if you are viewed to be a credit risk. The possibility of rejection based on credit history is unusual for banks, but considering this bank is owned by a financing company that later became a bank holding company and this type of structure might increase in popularity, requiring credit checks for bank accounts may be part a new reality.

It look less than two seconds once I submitted my application for Ally Bank to inform me my application was approved. Once inside this virtual gate, I was able to choose whether I wanted to receive paper or electronic statements. I always choose electronic to cut down on paper waste, and I wish more services would offer this option from the beginning.

Here’s another great feature. Like ING Direct’s sub accounts, I could create as many separate savings accounts, with their own account names and numbers, as I wanted. (Ed. note: ING Direct became Capital One 360 in 2013.) At this point in the initial set-up, I could also add money market accounts and certificates of deposit.

I set up two separate savings accounts, both to be funded electronically from my ING Direct Electric Orange checking account. Like configuring linked accounts at any other bank, I will be required to verify two small deposits to ensure I am the owner of the linked account. Options for a one-time initial deposit or a recurring automatic savings plan are available.

Ally Bank then required me to create my security settings for viewing my account information and activity online. The bank has combined most of the security features that have become commonplace over the past few years. I created a user name and a strong password, including mixed case letters and numbers. I selected some secret code words, an image I can expect to see each time I log in, and three security questions and answers. Ally also provides the option for registering the computer you mainly use for accessing the website to avoid repeated security questions at each online session.

If Ally Bank does not recognize the computer you are using to log into your account, they will send you an email with a single-use password to further confirm your identity. I have not seen this feature implemented anywhere else.

Using the Ally Bank savings account

Once logged in, I was impressed with the clean look of the interface.

Ally Bank interface

Ally Bank supports Intuit Quicken and Microsoft Money through Web Connect, which means you can log into the bank’s website and download your activity. At this time, you cannot automatically download your Ally accounts’ activity through Quicken directly (“Direct Connect”). If you like Excel for reconciling your account, Ally offers a flat comma-separated values spreadsheet for download.

Transfers among your Ally accounts and to and from your linked bank accounts are free, but keep in mind that savings accounts and money market accounts are limited to six withdrawals per period by the government.

Ally Bank charges no account maintenance fees and there is no minimum balance. If you exceed the six withdrawals mentioned above, Ally will charge a $10 fee. Cashier’s checks and wires carry an additional cost. A returned deposit item, if a check you send bounces or if you don’t have funds in an external account to cover a transfer, will cost $7.50.

The bank is also drawing attention to their 24-hour customer service availability and the plain language used throughout their website. I have not yet worked with Ally’s customer service, but I will be sure to report any future frustrations.

Conclusion

ally1

Opening my account with Ally Bank was painless and quick, and I like how the website operates so far. After my initial deposit is transferred, I will have a better idea of how quickly funds are available and can be transferred back to external accounts. I will return with more information at that time.

The main question I have moving forward is how long Ally Bank will be able to maintain their position as one of the highest among high-yield savings accounts. Bank have long used high interest rates to lure new customers only to drop the rates when they become confident in their position as leader, like ING Direct, or when the bank changes ownership, like Washington Mutual.

The American Bankers Association (ABA) sent a letter on May 27, 2009 to the FDIC requesting that Ally Bank be forced to lower their deposit interest rates, citing the bank’s unfair competitive advantage. It is unfortunate that the ABA would take this stance with savers forced to settle for interest rates that will not reach the rate of inflation going forward. The ABA has since removed the letter from the organization’s website.

Like I said above, I am not concerned with risk to the liquidity of my deposit despite Ally Bank’s association with GMAC and General Motors. If the worst happens to General Motors, Ally Bank should remain relatively unaffected.

If you are interested, apply for an Ally Bank savings account here and let me know about your experience by commenting below.

{ 93 comments }

Well, I sold my first stock. I agonized over when would be the right time, but then I just pulled the trigger, anyway.

Earlier this year, I started using the “free money” I was getting from this credit card to buy some stocks.

In March, we paid our tax bill of over $3,300 using that card, so the 2% rewards were higher than normal. I asked a friend of mine who knows a lot more about the stock market than me what stocks were catching her eye, and on her unofficial recommendation I bought 60 shares of CAR, the Avis car rental people.

That was April 17th. The stock price was $1.50. With a $9.95 commission at Sharebuilder, I ended up “spending” a total of $99.95.

And then I watched as the stock price just rose and rose and rose.

Avis stock performance since Apr 17th

On about May 20th I started wondering if I should sell my proceeds. We’ve had rather more pet problems than usual and I was a little worried that our upcoming vacation might suffer as a result. The “overall return” on that investment, according to Google Finance, was hovering around 200%, which is a heck of a lot more than the 7 to 9% we’re taught to expect from long-term investments.

So I sold it on May 27th. I was a bit alarmed to see that there was yet another commission of $9.95. To me, that’s like paying a toll over a bridge going in each direction.

Stock proceeds: $282.24
Minus original investment of $99.95: $182.29

Now, if I’m reading this Capital Gains Tax table correctly, we’re going to be hit with a 25% of the “cost basis” come next April. If the cost basis is the amount I spent on the investment, that’d be the $99.95 number again, which means a tax of about $25.

Profit minus upcoming tax: $157.29

So I spent $99.95 and got $157.29, a real profit of 157%. Not the nearly 200% that Google Finance was teasing me with, but not shabby, either.

The other way to look at it is that since the $99.95 was free money in the first place, I made a profit of infinity dollars.

More importantly, when we take our vacation next month, we’ll have $157 that we otherwise wouldn’t have had. That’s one fancy dinner with some very good wine. I’m looking forward to it.

{ 10 comments }

The latest data show again that you shouldn’t expect to make more money from buying and selling the house you live in than you would from investing in stocks. In fact, you could do better with government-issued inflation-protected bonds. This isn’t just a result of the recent decline in home prices, 19% over the past year. The long term figures show that real estate barely beats inflation.

This doesn’t consider the annual expenses you pay to maintain and live legally in your home, like insurance, association fees, and taxes. In order to compare return from the sale of your home with that from a sale of any other investment, you need to consider the total cost, including the above as well as closing costs, broker fees, and the amount you pay the people who stage your house with fake furniture when you sell. People I have talked to like to take their selling price, subtract their buying price, and state that as their real estate profit, ignoring all the costs they wouldn’t have had if they hadn’t purchased their house.

Your house isn't a good investment

Gurus have long touted real estate as the best method for “getting rich,” but this concept does not compute if your only purchase is the home in which you live unless you get quite lucky. And unless you rent when you sell your house or downsize to a smaller house or a less expensive location, you won’t be able to enjoy the profit, if any.

Rather than looking at your own home as an investment, consider it a cost center that you should try to reduce as much possible to make the most of your purchase.

Is Your Home A Good Investment?, Brett Arents, Wall Street Journal, May 27, 2009
Case-Shiller shows slowing in home-price decline, Reuters, May 26, 2009
Photo credit: jblyberg

{ 47 comments }

How Much of Your Portfolio Should Be in Stocks When You Enter Retirement?

by Luke Landes

March 9, 2009 was a bad day to retire. On that day, the Dow Jones Industrial Average hit its bottom of 6,547, a low not seen since 1997. If you followed mass-market retirement investing advice, you may have entered retirement with a portfolio 100 percent invested in a stock market index, like the S&P 500, whose […]

7 comments Read the full article →

Personal Finance Advice: One Size Does Not Fit All

by Luke Landes

It is human nature to search for Truths that describe the world we live in. This is one reason why personal finance gurus are so popular amongst a group of individuals that listens. Many of the more popular authors, seminar leaders, and cult favorites stick by their mantras, Grand Unifying Theories, such as “credit cards […]

8 comments Read the full article →

Podcast 5: Pursuing Your Passion and a Dual-Income Budget

by Luke Landes

Today’s podcast features an interview with J.D. Roth from popular blog Get Rich Slowly. J.D. talks with Tom Dziubek and me about how he was inspired to begin writing about personal finance and his decision to leave the corporate world behind and take his passion to the next level. Tom also speaks with Bryan J […]

5 comments Read the full article →

Movies Are New Again With Fan-Made Commentaries

by Smithee

When DVDs (and before them, Laserdiscs) were new, I really used to enjoy listening to the commentary tracks. Granted, some were better than others, but I couldn’t seem to get enough of the “behind the scenes” talk, and to hear the cast and crew telling funny stories about each other. Those don’t interest me as […]

5 comments Read the full article →

Compare Your Company’s 401(k) Retirement Plan

by Luke Landes

While researching companies for possible career moves — an occasional hobby of mine before all of my extracurricular time was spent working on Consumerism Commentary — it has been difficult to find reliable information about one of the biggest benefits companies can offer, the 401(k) retirement plan. As an outsider to the company, you cannot […]

9 comments Read the full article →

Congress Passes Credit CARD Act of 2009, Now What?

by Luke Landes

Yesterday, the House of Representatives voted on and passed the Credit Card Accountability, Responsibility, and Disclosure (CARD) Act of 2009, the Senate’s alternative to the Credit Cardholders’ Bill of Rights. Here are some of the provisions, taking effect in February 2010: Credit card companies must give 45 days notice before raising interest rates. Under current […]

26 comments Read the full article →
Page 1 of 3123