Moving Back Into Demand Notes

The bank that we use for depositing paychecks and paying bills has a horrible interest rate.  It’s practically non-existent actually.  So, we’ve always had a savings account for our long term savings and emergency funds.

For the longest time, I’d been using a GMAC Demand Notes account.  Basically, that was a money market account that paid a higher interest rate than any other account I’d ever seen available.  There were two catches.

First, you had to be an eligible GM employee or relative to participate.  I come from an automotive family so this was no problem.

Second, the account is not FDIC insured.  So, it’s considered along the lines of a stock or mutual fund that it could be devalued at any time.  Traditionally, this wasn’t a concern, and so in the heydey of higher interest rates, I was more than happy to take a return of 5.5% or more on our long term savings.

Last year, when both GM and GMAC were in trouble, I started to worry about the possibility of GMAC defaulting on their demand notes.  So, I pulled a pretty sizable chunk out and moved it to a new ING Direct Orange Savings account.  At the time, ING was paying almost identical rates to the Demand Notes account, and was aggressively pursuing new customers.  We even got a $25 sign up bonus!   Since ING Direct is FDIC insured, we had the best of both worlds!

Since then, ING has cut rates a lot so that they are no longer what I consider a top-tier payer of interest rates.  They are currently paying 1.25%.  GMAC Demand Notes, on the other hand, is currently paying 2.15%.  That’s a 72% premium.

I have been watching everything closely, and I believe that the risk of GMAC Demand Notes defaulting is minimal.  GMAC has received government bailout funds a couple of times, so I believe that the government has no interest in letting them fail or default.  I also believe that they’ve strengthened their balance sheet and are on the road to recovery.

So, while I don’t think that GMAC is out of the woods, I believe that the risk has been minimized to the point where we are slowly increasing our balance in our GMAC Demand Notes account.  Basically, our strategy to date is to make payments out of our ING Direct account (our winiter property tax bill was the most recent payment) and make new contributions to the GMAC Demand Notes account.

As our ‘most afraid’, we had about 95% of our long term savings in ING Direct.  As of right now, we’ve lowered that to about 85%.  I’m not sure what blend I feel comfortable with.  At this point I don’t think I’ll ever be comfortable with 100% in an uninsured account again, but I could consider a 50-50 blend being reasonable depending on market conditions.  The extra interest income is sure nice as well as long as I believe the risk to be minimal.

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A Few Life Lessons From An Eight Month Old Who Is Learning To Stand

Our eight month old son is learning new things and advancing right before our eyes.  It seems not a day goes by that he doesn’t figure something new out. In the recent weeks, he has mastered crawling and the latest skill that he’s working to perfect is to pull himself up to a standing position.

Watching him learn and hone this new skill makes me realize that there are things he does in his learning process that we can apply to just about anything, whether it be saving money, getting out of debt, adjusting to a new job skill.

Here are just a few lessons that he is teaching or providing a refresher course on as he takes on the quest that is learning to stand:

  • Look for opportunities – Baby Beagle is always looking for new places that he can pull himself up.  At first, he started small using low objects like the sofa (with a cushion removed by mommy or daddy so he could reach), but once he got the hang of that, he went for the areas on the sofa that had the cushions in place, various toys, tables, whatever….
  • Practice makes perfect – Once he gets the hang of it, he’ll plop himself down and pull himself right back up.  He’ll do this over and over until he can get to his ‘new’ position quickly.
  • Know when to ask for help – Baby Beagle is pretty independent, so he likes to do and figure things out for himself.  Still, when he’s trying something new or going after something that he hasn’t attained yet (a higher pull-up for example), he’ll let you know when it isn’t going well, and will look for an assist.  This might be repeated a few (hundred) times until he catches on, but eventually he’ll master what it is your helping with and make it on his own.
  • Look for re-assurance when things don’t go as planned – Babies are babies and, just like in life, not every attempt works out as planned.  Though there have been hundreds of times where standing has worked out, there have been a few misses that have resulted in a bonk on the head or a face dive into an unyielding object.  The accompanying tears are a cry for re-assurance and comfort, a reminder that it’s not always possible to succeed 100% of the time, and to have people close by to help you during the times that success doesn’t come.
  • Take pride in your success – Very often, when Baby Beagle pulls himself up, he takes a second to look around, smile, and give a little cry of happiness in his accomplishment.  If you cheer him on, he’ll get even more excited often to the point where he topples over!  He celebrates and takes pride in his accomplishments, which gives him the motivation to repeat his accomplishments and to try for greater things.
  • When you fall, pick yourself up and try again – So many times, the first attempt doesn’t go as planned and the solution is just to try again and again.  Don’t give up.

It just goes to show that as much as we teach babies and help them learn, there is a lot that they can teach us as well!

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Our Rule Of Twenty Five (Percent)

One of our biggest financial goals is to get out of all non-mortgage debt.

Thankfully, we don’t carry any credit card debt and our cars are both paid for, so the only thing we have at the moment is student loan balances.

When my wife was working, we were able to dedicate big chunks on a pretty regular basis, and the balances dropped quite a bit. My wife left the work force last year to take care of Baby Beagle, and coincidentally, her paychecks stopped.  Sadly, this reduced our ability to pay extra in most months.

(In all seriousness, we realized this going in and were fine with the trade-off)

Even so, we still want paying down debt to be a priority, so we now have a rule of twenty five percent.  That simply means that any ‘extra’ income we come across, twenty five percent will automatically go towards paying down debt.

At the moment, our extra cash inflows are pretty much limited to tax refunds.  We haven’t gotten our return yet, but we did ‘hold back’ some money from each of my paychecks last year that we knew would be refunded to us if we’d let the government withhold more.  We have that amount available to us now.

We’re also anticipating an actual refund.

As a one time thing, you may remember last year when I announced that my grandmother had passed away.  She left us some money, and we will be applying the same rule towards the money we receive from her.

With these three items, we’ll be able to reduce our student loan debt about 20% from it’s current level.  Our goal is to have these loans completely paid off by the end of 2012, and this will keep us on track.

I like the rule of twenty five percent, because it makes the application of the money towards the loans almost automatic.  We know we’re coming into a little bit of cash, and we automatically take that twenty five percent out of any discussion of what we want to do with it, as my wife and I know that it will be going directly toward paying down debt.

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How Citibank Paid For Our New TV

Read the title of this post and you might think that Citi got generous and sent us a new TV.

Unfortunately, the generosity of Citi isn’t quite to that level.  However, it was the next best thing in my book.

Both my wife and I have been using our Citi Dividends cards for over three years now.  Citi Dividends is a cashback rewards card that currently has no annual fee.  Since we pay our credit cards off every month, I pay little attention to what the interest rate is.

The Citi Dividends card pays at least 1% cash back for all purchases.  They pay an extra percent (total of 2%) for certain categories of purchases including those at grocery stores, gas stations, convenience stores, drugstores, and utilities.  I believe that there are others as well.  You accumulate reward cashback every month, and when your balance hits $50 you are eligible to request a check.

My wife and I have both been putting purchases for all of the 2% categories on our card, as well as most ‘bigger ticket’ items, figuring that 1% is better than nothing.  When we get a check, we have been banking it in our long term savings accounts (currently split between ING Direct and GMAC Demand Notes).

Last year, around the holidays, I found a Slickdeal on a TV for our kitchen.  We previously had a small tube TV, but it was bulky and took up a lot of room on our countertop, which is often in high demand.  The deal was a nice 19″ LCD HD TV for $129.99 including shipping, plus we received a couple bucks back through Bing’s cashback program.  When it came time to pay for it (and it went on our Citi card, of course), I simply removed the money from our earmark and paid it off.

My wife and I have decided that we want to use that money for more ‘luxury’ purchases rather than to pay bills or pay down student loan debt.  I think we have both agreed that we’d be using this for electronic type purchases, so additional TVs, computers, etc. would be funded completely or in part with this ‘free’ money that we earn just by using our credit card.

We make sure that we don’t buy things unnecessarily, so it’s not like it’s costing us money to use the card via unnecessary purchases.  As I mentioned, we also pay it off every month, so there’s no offseting interest charges for us to worry about.

I know that there are other cash back cards out there.  In fact, I think that Citi no longer even offers this particular card for new customers, but I know that they have other cash back cards out there, so I’d recommend shopping around in the event that you don’t have a cash back rewards card but are interested.

Citi has had the same level of rewards for a few years now, and I’ve never ‘chased’ other rewards cards for fear that as soon as we got new cards paying a little more, they’d end up cutting the rewards anyways.  So, until one comes out that has a deal too good to pass up or until Citi cuts their rewards or raises their rates, they have at least two loyal customers.

Customers that like ‘free’ TVs, too!

Note: This is an unsolicited post; I was not paid or asked by Citi to write this post.

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