It’s Been A While

Dear readers,

It has been a long while but MUYF is back and just in time for summer!  Unfortunately, our other site was hacked and so we have returned to using this one, so come back and check often for updates.

Cheers,

Emy and Kathy

Saving for Retirement through a Credit Card? Not So Fast.

Two weeks ago, the WSJ published an article on credit cards that offer cash back or points that can be used to fund your retirement or another investment account.  As the article explains:

Instead of redeeming earned points for the typical airline tickets or gift cards, users of these cards receive cash that they can then deposit into an individual retirement account or another investment or savings account.

This seems like a reasonable deal, and may in fact be useful to those who need some help remembering to move some of their savings into their retirement account.  But beware of the conditions and reward rates.  Here, we review the cards mentioned in the WSJ article:

  • Ameriprise: Ameriprise has 5 credit cards – 2 for only members of its Achiever Circle Elite program.  Its rewards program is like many others, awarding one point per dollar spent on most purchases (and varying bonuses depending on the card).  Points can then be redeemed for a range of things, including travel, gift cards, and funding into an Ameriprise account, including savings and investment accounts.  Points for funding Ameriprise accounts can only be redeemed in increments of 10,000, which are converted into $150 – effectively, a 1.5% reward return.  Two of the cards have no annual fee, while the fees for the other three cards range from $125 to $450 after the first year.
  • Edward Jones: The rewards program for the Edward Jones Personal Credit Card is very similar to Ameriprise’s, offering a variety of options for which points can be redeemed.  One of them is funding into an Edward Jones account, such as an IRA or 529.  However, points can also be redeemed for cash at exactly the same point exchange rate.  For example, for 2,500 points, you can get either $12.50 in your account or as a cash reward check, and for 50,000 points, you can get $500 in either form too.  The reward rate is also relatively low, as it ranges from 0.5% when redeeming 2,500 points to just 1% for redeeming 50,000 points.  There is no annual fee for this card.
  • Fidelity Investments: Fidelity offers 4 different credit cards, all of which transfer your rewards straight into your Fidelity account.  There are 3 American Express options, which post 2% of the value of your purchases into a Fidelity Investment, IRA, or 529 accounts, respectively.  The Visa card, on the other hand, gives only 1.5% on the first $15,000 you spend per year on the card, and 2% thereafter.  All 4 cards do not have annual fees.

The WSJ article also warns about interest rates, but even readers who pay their balances in full every month should think carefully before signing up for one of these retirement or investment cards.  These cards require that rewards be deposited into an account opened at their respective financial  institutions.  Further, their reward rates are quite low, and you are likely better off getting a good cash back card – such as Discover or CitiForward – and, if you want, depositing some or all of your returns into an investment account or IRA of your choice.

The Alternative to Car Ownership

If you are an urban dweller, Zipcar offers you an alternative option to buying a car – sharing a car with everybody else in the city.  You can join the Cambridge-based company, which started with the vision of lowering pollution and the number of cars on the road, on either an Occasional Driving or Extra Value Plan.  The cost of reserving a vehicle is $9.25-14.50 per hour, depending on the model of the car and whether it is a weekday or weekend.  With the Occasional Driving Plan, you have to pay a $25 application and a $50 annual fee, but there is no monthly commitment.  Zipcar also offers four Extra Value Plans, differing on the the level of monthly commitment ($50-250), but the annual fee is waived and you get an additional 10-15% driving discount.  There are also daily rates under both plans (you are automatically given the lowest cost between the hourly and daily rate when you make a reservation), and there are no extra charges for gas or insurance regardless of the plan you choose.

Further, depending on your school, work, or even residential building affiliation, Zipcar may lower or waive the annual and application fees and even give you a lower hourly rate (in the application page you can search for affiliations which might get you the discount).  And if you know someone who is already a Zipcar member, you can also ask him/her to refer you, and Zipcar will give $50 in driving credit, which can be split between the two of you whichever way you want.  And if you sign up today or next Friday, you can get another $10 in driving credit – just use promo code DCFRIENDS.*

If you only need a car a few times each month, being a zipster would be a huge cost savings measure.  Instead of paying $200-300 in financing or leasing payment, and another $100-200 for car insurance, parking, gas and routine maintenance each month, you will only be paying for the hours you are using the Zipcar (plus the application and annual fee, if any).  And as a bonus, Zipcar has a variety of vehicles to choose from, so you could be driving a Volvo one week and a Mini Cooper the next.

Look chic, save money and save the planet?  Sounds like a smart idea to me.

* This is from an email I got from Zipcar: “On any Friday in July, if you refer your friend to Zipcar and they sign up that same Friday, you both receive $60 in driving credit instead of $50. In order to get $60 in credit for referring a friend, he or she needs to use the promo code DCFRIENDS when filling out our online application. After that, email our marketing coordinator, Lauren  (lsherman@zipcar.com), with your full name, your friend’s full name, and your Zipcard number. Just let Lauren know that your friend is applying, and she’ll make sure that everything is in order.  This cannot be combined with our standard referral offer, and it cannot be applied retroactively.

New Legislation That Will Affect Your Wallet

I’ll be honest. I hadn’t been paying much attention to the new credit card legislation. I figured it wouldn’t actually affect me that much, since I always pay my credit card bill on time and in full (which everyone should do in the first place as paying 18% interest on credit card debt really is not the best use of your money).

The big piece of good news is that credit card companies are required to inform me of any major changes in my rewards programs. Besides that, what this new legislation means to us, never-late-full-balance-payers, is still unclear. The WSJ reasoned, along the lines of the threats coming from the credit card companies themselves, that rewards programs will have to be trimmed down to compensate for the loss in revenue due to the new legislation. Personally, I recently noticed that Discover raised the minimum amount of accumulated cash back that I can redeem for a check or credit from $20 to $50 (that is, my accumulated cash back will sit with them for longer until I can actually get a hold of it).

According to NY Times, however, the new bill might also lead credit card companies to focus more on their rewards programs to get people to spend more money. This also makes perfect business sense, since I am the best kind of customer. I help them collect revenue from vendors by spending money on my card and I am never behind in my monthly payments. Hopefully, they’ll keep that in mind when they think about their rewawrds program. The legislation will not kill competition between cards, and if my card’s rewards program goes dry, I could always take my spending elsewhere.

Welcome!

Money Under Your Futon was first conceived during a lunch break at TGIF at Tyson’s Corner. After a long day of swiping our credit cards, our conversation inevitably got to personal finance – namely, taxes. It was tax season and we had talked about different forms, deductions, and credits several times over the last few months, much to the amusement of our friends.

When we graduated, we were befuddled by the many personal finance decisions we suddenly had to make, from the simple, such as opening a bank account that had ATMs beyond campus borders, to the more complicated, such as 401k versus Roth IRAs. We found there was no single comprehensive source for people who had just started working – either they were catered towards adults balancing retirement and paying for their children’s college or they were outdated. Over the past two years, we have researched personal finance topics way beyond the interest of the average person, picking and choosing resources as relevant to our needs.

After seeing our efforts come into fruition in the shape of cash back, free flights, and lavish dinners (not just TGIF) and realizing that too many people our age do no take advantage of many financial opportunities, we created this blog. Because we live in the DC area, some of the entries may be region-specific, but we hope most of them will be relevant outside the beltway as well. Enjoy!

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