Q&A: Parking money for a short term

Dear Liz: We will soon be selling our home and moving into an apartment until we purchase a new home. Our proceeds from the sale will be over $600,000. It seems that there is no place to safely put the funds and get some meaningful interest to boot. Savings accounts and money markets pay very little interest, and certificates of deposit have a fixed time. We may need to withdraw the money in as few as 30 days, but it may be six months or longer. Any suggestions where to park our money?

Answer: Some online banks currently offer interest rates around 1% for savings accounts. It’s not much, but it’s better than the 0.06% rate that’s currently the national average, according to the FDIC’s April 3 report. An Internet search for “best savings rates” should turn up competitive offers.

A rate of 1% isn’t much and means that you’ll lose a little ground to inflation, which is currently more than 2%. But it’s more important that your money be safe and liquid, ready when you need it, than for you to try to squeeze a high return from it.

Q&A: Professional investment management fees

Dear Liz: I have an IRA with over $100,000 at a discount brokerage. I had it in a target date fund. Due to market downturns, I got nervous and was convinced to put my investment into the brokerage’s portfolio advisory services with additional fees coming to $1,600 per year. In general, is it wise to change investments to these more professional services?

Answer: If professional management keeps you from bailing out of your investments when markets decline, then paying a higher fee may be justified. But the higher the fees you pay, the less money you can accumulate. For example, your IRA could grow to more than $600,000 over 30 years if you net a 6% return. If your fees are one percentage point higher, and you net just 5%, you’d end up with less than $450,000.

Some discount brokers, including Schwab, Fidelity and Vanguard, now offer a low-cost “robo” option that invests your money using computer algorithms. These robo options don’t offer the highly customized investment portfolios that some other services provide, but they come at a much lower cost — typically 0.3% to 0.4%. A few, including Vanguard and Betterment, offer access to financial advisors.

Q&A: Annuities have indirect costs

Dear Liz: Thank for your right-on reply to the reader who claimed that fixed and indexed annuities were available at no cost to investors. I am so tired of hearing from agents and investors that their annuity is great and does not have fees!

Answer: Insurance companies aren’t charities providing investments at no cost. They’re businesses that have to keep the lights on and pay the people who sell their products. With fixed and indexed annuities, the cost is built into the interest rate spread, which is the difference between what the insurer earns on your money and what it pays into your account. The investor pays an indirect cost, rather than a direct cost that’s explicitly disclosed.

Friday’s need-to-know money news

Today’s top story: How credit use affects credit scores. Also in the news: Starting a business if you have student debt, how one couple crushed their debt, and how budgeting doesn’t have to suck if you make it a habit.

Virtual People, Real Lessons: How Card Use Affects Credit Score
Meet Cora Condo and Rebuilding Robert.

Ask Brianna: Can I Start a Business if I Have Student Debt?
Can you be your own boss?

This Couple Crushed Their Debt
How you can do it, too.

Budgeting Doesn’t Have to Suck If You Think of It As a Habit Rather Than a Task
Getting into a groove.

Thursday’s need-to-know money news

Today’s top story: 6 late-filing tax mistakes you need to avoid. Also in the news: Why paying taxes by credit card probably isn’t a good idea, collection agencies are getting another shot at your back taxes, and filing a tax extension to buy more time.

6 Late-Filing Tax Mistakes You Need to Avoid
Common mistakes to watch out for.

Paying Taxes by Credit Card Probably Isn’t a Good Idea
You’ll pay for the convenience.

Collection Agencies Get Another Shot at Your Back Taxes

Don’t Panic, File a Tax Extension to Buy More Time
Take a deep breath.

Wednesday’s need-to-know money news

Today’s top story: Can’t refinance student loans? Try these tactics. Also in the news: 10-word answers to your biggest car insurance questions, 5 foods that raise blood pressure – and life insurance rates, and 5 ways to save on preparing your taxes.

Can’t Refinance Student Loans? Try These Tactics
Looking at the alternatives.

10-Word Answers (or Less!) to Your Biggest Car Insurance Questions
Short and sweet.

5 Foods That Raise Blood Pressure — and Life Insurance Rates
That burger could spike more than just your blood pressure.

5 ways to save on preparing your taxes
Keeping more of your money.

Tuesday’s need-to-know money news

Today’s top story: There’s still time to make an IRA contribution for 2016. Also in the news: FAFSA tool outage, 4 money lies you might be telling yourself, and when a tax refund means bankruptcy.

There’s Still Time to Make an IRA Contribution for 2016
You have a couple more weeks.

FAFSA Tool Outage: Students It Affects Most and How to Cope
Added stress.

4 Money Lies You Might Be Telling Yourself
Time for the truth.

When a tax refund means bankruptcy
The means to pay for going broke.

4 tax hacks you might not know

You know to contribute enough to your 401(k) to get the full company match. Maybe you’ve even adjusted your withholding so you’re not giving Uncle Sam an interest-free loan.

Yet you may feel the need to do even more, especially if you’re making the last big push toward retirement. These hacks allow you to shelter more money from taxes now and when you retire. In my latest for the Associated Press, the 4 crucial tax hacks you might not know.

Monday’s need-to-know money news

Today’s top story: NerdWallet’s best credit card tips for April 2017. Also in the news: How one man dug out from $30K in debt, seniors are facing rising credit card debt, and should colleges require a financial literacy class?

NerdWallet’s Best Credit Card Tips for April 2017
The best cards for spring.

How One Man Dug Out From $30,000 in Debt
You can do it, too.

For Seniors, Rising Credit Card Debt Squeezes Tight
Medical debt is pushing seniors to the limit.

Should colleges require a financial literacy class?
Two experts weigh in.

Q&A: Credits can boost a refund beyond the taxes paid — and keep millions out of poverty

Dear Liz: A friend of mine received a 2016 tax refund of over $9,000 even though this person did not pay nearly that amount in taxes over the course of the year. My friend has a fairly low-paying job with no benefits, is a single parent of two young children and receives no support from the children’s other parent. Given this scenario, is it possible to get a tax refund in an amount greater than what you paid in taxes?

Answer: Absolutely, and these refundable credits keep millions of working Americans out of poverty each year.

Refundable credits are tax breaks that don’t just offset taxes you owe but also can give you additional money back. Most of your friend’s refund probably came from the earned income tax credit, which was initially created in the 1970s to help low-income workers offset Social Security taxes and rising food costs due to inflation.

The credit was expanded during President Reagan’s administration as a way to make work more attractive than welfare. Each administration since has increased the credit, which has broad bipartisan support.

The maximum credit in 2016 was $506 for a childless worker and $6,269 for earners with three or more children. Your friend probably also received child tax credits of up to $1,000 per child. This credit, meant to offset the costs of raising children, is also at least partially refundable when people work and earn more than $3,000.