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Schwab Creates Low-Cost 401(k) Fund Choices

This article was written by Flexo in Investing. 10 comments.

I used to work for a company in the financial services industry. Another branch of the corporation I worked for is involved with institutional money management. This department manages institutional investments like company retirement plans and pensions. This is a service they provided to other companies of various types, much like Fidelity and Schwab offer 401(k) management and administration to companies. This could be considered an in-house service, so as an employee of the company, my 401(k) plan was managed by this branch of the same company.

You would think that given the company’s standing within the financial industry, the 401(k) plan would include smart investment choices. Unfortunately, most of the funds available are high-priced, actively-managed mutual funds and annuity funds. There is one stock market index fund available, but its expense ratio is significantly higher than those of the low cost index funds found elsewhere. Nevertheless, I wanted to take advantage of the company’s matching contribution — after all, that’s free money — as well as the tax savings, so I relented and participated in the plan.

401(k) plans — and 403(b) plans available to non-profit and educational organizations — suffer from poor investment choices. They are often significantly more expensive than the index funds you can find for IRAs. A fund’s expenses play a significant role in an investor’s ability to grow wealth over time. A low-cost fund could save an investor over a hundred thousand dollars over the course of a career when compared to a similar fund with above-average expenses. Even taking inflation into account, this will be a significant amount of money.

Schwab has announced that they are now offering a selection of new 401(k) investment choices designed to cater to investors who are keen on keeping more of their money in a program called Schwab Index Advantage. It isn’t clear from the announcement whether the available funds will match what’s currently available to retail investors, but if they aren’t the same funds, they should be similar in cost. The Schwab S&P 500 Index Fund has an expense ratio of 0.09%, lower than even Vanguard’s competing retail S&P 500 Index Fund with 0.17%.

The brokerage also offers companies the ability to provide employees with investment advice and planning tools for an unspecified low cost. The GuidedChoice system will help employees make ongoing decisions regarding their retirement investing, and this should help employees save more for retirement. It’s individualized advice, which isn’t common with retirement plans. Most employees are lucky if their retirement plan comes with a web application that helps them determine an asset allocation strategy; individualized advice could, if the advice is good, help investors grow their nest eggs in a way that’s most appropriate for their goals.

Are you satisfied with your 401(k) retirement plan, its choices, and its included advice?

Charles Schwab

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Schwab Invest First 2% Cash Back Card Officially Dead

This article was written by Flexo in Credit. Add a comment.

Now that the Schwab Invest First 2% Cash Back credit card is officially closed, consider one of the alternatives below.

Owners of the very popular Schwab Invest First Visa credit card, which offered 2% cash back on purchases deposited directly into a Schwab account, have started receiving word that their favorite card will be converted to another offer. The card has been closed to new applicants for some time, and when a card stops soliciting new customers, it’s usually a good sign that demise for current cardholders is imminent. Many Consumerism Commentary readers over the past few years have written in to sing praises about this card in comparison with other cash back credit cards.

Bank of America, the bank that has been operating the cards with the Schwab branding, is offering current cardholders a choice between the BankAmericard Privileges Card or the BankAmericard Cash Rewards Card. The Privileges Card offers bonus cash back when linked to a Merrill Lynch account, while the Cash Rewards Card offers up to 3% cash back in certain categories, with a maximum.

Cardholders will have until late October to make their decision.

If the Bank of America options do not interest you, after considering the effect to your credit score, you may want to replace the Schwab Invest First card with a brand new credit card. Today, a number of issuers are willing to pay bonuses for customers who switch.

Chase Freedom® Visa – $200 Bonus Cash Back. With the Chase Freedom Visa – $200 Bonus Cash Back Credit Card, cardholders can earn up to 5% cash back on rotating categories throughout the year.

The cash back bonus is subject to a maximum, but with a $200 bonus for signing up and spending $500 on the card during the initial three months, you could walk away with more cash at the end of the year than sticking with the two Bank of America choices.

Citi® Dividend World MasterCard®. Like the Chase card above, the Citi Dividend World MasterCard offers 5% cash back on rotating categories and 1% cash back on all other purchases. New cardholders who spend $500 during the first three months qualify for a $100 cash back bonus.

Check the Citi website for the latest categories qualifying for the 5% this quarter. Compare it with the Chase offer and your anticipated spending to determine which offer would result in the most cash back.

Here are reviews of the best cash back credit cards. The others don’t reward you for being a new customer, but they might have higher cash back categories such as 3% or 2%. If your expenses are focused in these categories rather than the categories that offer the 5% cash back in the above cards, you may be better off by taking advantage of that offer rather than the above.

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CNN Money’s 8 Least-Evil Banks

This article was written by Flexo in Banking. 23 comments.

Out of the eight “least-evil” banks, as ranked by a staff reporter for CNN Money, I am a customer of two. Everyone who makes financial transactions of a regular basis or handles money in any form should have a checking and savings account at a solid bank that doesn’t attempt to charge its customers exorbitant fees. Although free banking is slowly becoming extinct and there is a good chance that choices for free accounts will become more limited in the next few years, you can still find a good banking institution to work with now, even if that might be a credit union.

Here are CNN Money’s picks, with some of my thoughts.

1. Ally Bank. Last year, Kiplinger’s Personal Finance magazine declared Ally Bank as the the institution offering the best savings account. I’ve had accounts at this bank since May 2009, and I have not yet come across a problem. Ally was originally GMAC Bank, but the parent company, General Motors, undertook a major rebranding campaign that put Ally Bank in the spotlight. Open a High Yield Savings Account at Ally Bank.

2. ING Direct. There is nothing I can say about ING Direct that hasn’t been said. It is the gold standard of online savings banks. I’ve had accounts here for almost a decade, and my accounts include the Orange Savings Account, Electric Orange Checking with free bill-pay, and Business Savings. When I had a paycheck for direct deposit, the Electric Orange Checking served as the gateway to my savings. Now, most of my income is delivered directly to my business savings account at ING Direct.

I have limited experience with the remaining six accounts listed by CNN Money. If you have any thoughts on the evilness of these banks, let us know by writing about them in the comments below. For the rest of CNN Money’s picks, continue reading this article.

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