Dear Liz: My son has an IRA at his credit union. He puts in small amounts when he can. Recently they lowered the interest rate and started charging a $25 yearly maintenance fee, which now is taking all the interest back. Is this legal?
Answer: Yes. It’s also a good reason to move the account elsewhere.
Your son’s retirement account was shrinking in real terms even before the fee ate up all his interest. Even though rates are now on the rise, they’re still lower than inflation, which means the money’s buying power is being eroded every day.
Your son needs to invest in stocks if he wants his savings to grow faster than inflation. A few discount brokerages, including ETrade, Fidelity and TD Ameritrade, have no account minimums or annual fees.
Your son also should consider making automatic contributions to his retirement account. This is known as “paying yourself first,” and it ensures that those contributions actually get made. Waiting until he sees what’s left over is paying himself last, and the result will be a much smaller retirement fund than he’s likely to need.
This points out one of the problems faced by young people, you need to put your money somewhere that it can grow, but you don’t have enough money to meet the minimum deposit required by many mutual funds. I agree with the automatic deposits, but I would hesitate to advise a new investor to own individual stocks. I’ve moved away from individual stocks toward low cost conventional mutual funds, because I don’t want to have to do all of the research myself, but I have the accounts established and the minimums taken care of. This could be something that you might want to address in a future column.
Thanks.