Managing Cash When Interest Rates Are LowThe economy may be improving, but high unemployment and low inflation indicate that the Federal Reserve may keep interest rates low at least until 2012.1 It’s generally a good idea to keep three to six months of income in an emergency fund to help cover unexpected expenses or a sudden loss of income. But when interest rates are low, where should you keep your cash? Savings AccountsPerhaps the most appealing aspect of savings accounts is that they are insured and highly liquid. The Federal Deposit Insurance Corporation insures deposits up to $250,000 per depositor, per institution, in principal and interest. You can generally withdraw your money at any time, although you could be subject to a fee if you exceed the financial institution’s monthly limit on withdrawals or transfers. One disadvantage is that savings accounts may offer lower interest rates compared with other cash alternatives. Although you are unlikely to lose money deposited in a savings account, you could lose purchasing power over the long run if the interest rate does not keep pace with inflation. 
Certificates of DepositCDs may offer slightly higher interest rates than savings accounts, but you generally must commit your principal for a period of months or years. Early-withdrawal penalties vary by institution and may range from several days’ worth of interest to the loss of some principal. Typically, the interest rate paid by a CD depends on the maturity date. The longer you are willing to commit your money, the higher the interest rate you may be able to earn. Some CDs also offer higher rates for larger deposits. However, if your principal is locked into a CD when interest rates increase, you may not be able to take advantage of the higher rates until your CD matures, and the early-withdrawal penalty may offset any gains from reinvesting at a higher rate. The FDIC also insures CDs (up to $250,000 per depositor, per institution), which generally provide a fixed rate of return. Money Market FundsMoney market funds are mutual funds that invest in short-term debt. These funds typically pay dividends, which may be greater than the interest paid by a savings account or CD. Generally, there are no limits or penalties for redeeming shares from a money market fund. Money market funds are neither insured nor guaranteed by the FDIC or any other government agency. Although money market funds seek to preserve the value of your investment at $1.00 per share, it is possible to lose money by investing in such a fund. Mutual funds are sold only by prospectus. Please consider the investment objectives, risks, charges, and expenses carefully before investing. The prospectus, which contains this and other information about the investment company, can be obtained from your financial professional. Be sure to read the prospectus carefully before deciding whether to invest. 1) MoneyRates.com, 2011 The information in this article is not intended as tax or legal advice, and it may not be relied on for the purpose of avoiding any federal tax penalties. You are encouraged to seek tax or legal advice from an independent professional advisor. The content is derived from sources believed to be accurate. Neither the information presented nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. This material was written and prepared by Emerald. © 2011 Emerald Connect, Inc. |
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Investors should consult with their own professional advisor regarding the potential tax, estate, and legal considerations that may arise in connection with entering into a life settlements transaction. Proceeds from a life settlement transaction may be taxable under federal or state law to the extent the proceeds exceed the cost basis. The proceeds from a life settlement transaction may be subject to claims of creditors. The receipt of proceeds from a life settlement transaction may adversely impact eligibility for government benefits and entitlements. The amount received for the sale of the Policy may be impacted by the circumstances of the particular purchaser of the Policy, the insured’s life expectancy, future premiums, the death benefit, the terms of the Policy, and the current market for insurance policies, among other factors. The amount received for the sale of the Policy may be more or less than what others might receive for the sale of a similar policy. There may be high fees associated with the sell of a Life settlement.
Any tax advice contained herein is of a general nature and is not intended for public dissemination. Further, you should seek specific tax advice from your tax professional before pursuing any idea contemplated herein. This advice is being provided solely as an incidental service to our business as a financial planner.