SPIA – Single Premium Immediate Annuity

Most annuities come with unnecessary charges and high expenses, but there is one annuity that can serve you in planning for your retirement: the single premium immediate annuity (SPIA).

What is a SPIA?

A SPIA is a contract with an insurance company in which you give an upfront sum of money, and in return the insurance company will pay you a set amount of money periodically for the rest of your life. This is useful for retirement planning as it ensures you won’t run out of money.

You can receive these payments for as long as you, or even your spouse, live. If you are worried about outliving your retirement savings, a SPIA could be an attractive option for retirement planning.

Annuities can be fixed or variable. A fixed annuity, like the name implies, is a fixed payment amount for each pay period. These payments could be made monthly, quarterly, etc.

Variable annuities are based on how your money performs in a mutual fund. These also offer payments at regular intervals, but could be more or less than a comparable fixed annuity depending on market forces.

Pros

SPIAs can adjust to rise with inflation; this option will incur a higher premium, or lump sum up front.

SPIAs are tempting. They guarantee a fixed income, and can make retirement planning easier because they are predictable. But predictability in financial products comes at a cost.

Considerations for a SPIA

If you hope to benefit from a SPIA, live longer than your insurance company thinks you will. You should also hope that your insurer lives at least as long as you do— the products are “subject to the claims-paying ability of the issuer,” per Vanguard’s disclaimer. So if your insurer goes out of business you may not receive your payments. Some states offer guarantees for annuities up to a certain amount, but these guarantees differ from state to state, ranging from $100-500K, and have their own idiosyncratic rules, which could expose you to risk if you, for example, move out of the state where your SPIA was purchased.

If you anticipate you may need cash access to large amounts of your retirement savings, or if you don’t have much cash savings, a SPIA may not be a good idea. Once the premium is paid, it is not refundable (or if it is cash-refundable, will come with a steep price tag). If you die a week after you make this premium payment you will not benefit from the annuity and your estate will have lost the premium.

Transaction fees, surrender fees, administration fees, and inflation can all chip away at the rate of return on a fixed annuity.

Conclusion

In summary, SPIAs can be a good source of fixed income if you think you may outlive your retirement savings, have enough cash on hand in case of an emergency, and do your research for state guarantees.

 

 

personal finance

Bromoney Interest Rate iPhone App

May 1st, 2012

I’m happy to introduce you to the new Bromoney Interest Rate App. You can now check interest rates on savings accounts and CDs right from your iPhone. You can download it from the App store here. The next time you open a CD or savings account consult the latest rates with the Bromoney Interest Rate App. Here are the screenshots:

personal finance

Bank of the Eastern Shore Closed by FDIC

April 29th, 2012

The FDIC shut down the Bank of the Eastern Shore in Maryland on Friday bringing the total bank failures to 22 this year. That’s down from 39 bank failures at the same point last year. Four other banks were closed on the same day including: Harvest Bank of Maryland, Plantation Federal Bank in South Carolina and Palm Desert National Bank.

Money News

Texas Security Bank CD Special

April 25th, 2012

Texas Secuity Bank is offering a special deal on 6 month CDs. They’ve got a 6 month rate of 1.25%: http://www.texassecuritybank.com/ It looks like they’re offering some other pretty decent rates. Leave comments here if you’ve banked with them before.

CD Rates

Camouflage Painting Man

November 23rd, 2011

Just saw this story about the Chinese artist Liu Bolin. Apparently he covers himself in body paint so he blends in with the background of his setup shots and then takes pictures of himself in his element. Do you think you can spot him?

Take a look at this one:

camouflage painting man

Here’s a link to some more of his work: http://games.yahoo.com/photos/camouflage-paintings-1321923033-slideshow/

Random

Dime Savings Bank 3.10% 7 Year CD

March 1st, 2011

Dime Savings Bank is currently offering a 3.10% APY 7 year CD and a 2.5% 5 year CD with a minimum deposit of $500. The thing about Dime Savings is that if you withdraw early on their long term accounts you lose 2 years’ interest on your CD, if they even let you remove your money early.

dimeDime is currently the long term CD leader, but they’re also offering a 1.65% APY 10 month CD. You can open an account online or over the phone; however, if you don’t open an account in person you will be required to send in a copy of your driver’s license and a bill to verify your address. Dime Savings Bank is located in New York.

Dime Savings Bank has a 4 out of 5 star soundness rating from Bankrate and is insured by the FDIC. If you’d like to leave a review on Dime Savings, follow this link.

Uncategorized

Melrose Credit Union 2.93% 5 Year CD

February 3rd, 2011

Melrose Credit Union is currently offering a 2.93% 5 year CD which is currently second best to Connexus Credit Union’s 3% 5 year rate, although Connexus requires you to open a checking account with them to get their CDs. Melrose is also offering a 2.42% APY 4 year CD and a 1.41% 1 year CD. The minimum deposit is $5,000 or $4,000 if you’re opening an IRA account. The early withdrawal penalty for CDs a year or over is 180 days of interest.

Melrose is open to membership from anybody and is located in Queens New York. They are insured by the NCUA and have a 4 out of 5 star soundness rating from bankrate. To leave your comments on Melrose go here: comments

CD Rates

Top 5 Myths about FDIC Insurance

January 13th, 2011

fdicFDIC insurance is the most attractive part of having a deposit account over investing money in something involving more risk. With funds that are FDIC insured, you’re guaranteed to get your money back if your institution fails by the FDIC as long as you fall within the guidelines. There are a few misunderstanding when it comes to FDIC insurance, but it’s important to know exactly what FDIC does and does not cover as someone who places their money into a bank deposit account.

1.) The FDIC insures funds for up to $100,000

During the financial meltdown a couple years back, congress voted to increase the FDIC insured limit up to $250,000 to ensure that people didn’t lose their money when a new bank was failing every other day. The measure they passed was temporary at first, which is why some people might think it expired. But congress acted before its expiration to make the $250,000 FDIC insured limit permanent. So that is the new limit as of this day.

2.) All financial institutions have FDIC Insurance

Most financial institutions you’ll hear of likely have FDIC insurance, but not all do. Every bank we recommend on our site has it (or NCUA for credit unions), but there are institutions out there that aren’t FDIC insured. You should make sure to check any new financial institution you’re interested to make sure they’re FDIC insured by checking with the FDIC themselves.

3.) I can only get $250,000 insured at one bank

The FDIC allows people to insure multiple types of account at a single bank. For example you can have a personal account, joint account, and retirement account, all at one bank and all insured for up to $250,000 each. In addition banks have programs known as Certificate of Deposit Account Registry Service or CDARS, A CDARS account actually holds your funds at multiple banks in order to bump up the FDIC insured limit for “one account.” It’s a very convenient way to get FDIC insurance for large sums of money.

4.) I can get up to $250,000 insured with each bank account I have at one bank

Although you can get multiple accounts at a single bank FDIC insured, that doesn’t mean that you can have $250,000 of FDIC insurance with ANY bank account you want at a single bank. For example a savings and checking account under one person’s name doesn’t qualify as different accounts in the eyes of the FDIC. However, a personal checking account and a joint checking account DOES qualify as separate accounts to the FDIC because the owner of both accounts isn’t the same. One is owned by an individual and another is owned by 2 individuals.

5.) Any asset that a bank offers is covered by FDIC insurance

While banks offer many accounts that are covered by FDIC insurance, they also offer products that don’t come with FDIC insurance. For examples banks will offer mutual funds, stocks, bonds, money market mutual funds, and other products that don’t come with FDIC insurance. If you’re getting a new product from a bank and you’re unsure whether it comes with FDIC insurance then ask your bank whether the account you’re interested in has FDIC insurance.

personal finance

Top 10 Banks Rated by Customer Satisfaction

January 12th, 2011

I mostly write about interest rates on this blog, but another important factor when looking at banks is customer satisfaction. Everyone knows how important it is for a bank to have great customer service and most people are willing to take a small cut in interest rates in order to work with a bank that treats them fairly when a problem arises.

Due to the importance of this factor I’m listing the top 10 banks rated by customer satisfaction by JD Power.

  1. Northwest Savings Bank
  2. Susquehanna Bank – PA, MD, DE
  3. Bank of the West
  4. BankAtlantic – Florida
  5. Regions Bank
  6. Suntrust Bank
  7. Commerce Bank – Midwest
  8. Eastern Bank – New England
  9. Flagstar Bank
  10. Independent Bank – Michigan

Banking Summaries

Difference Between Debit and Credit on Your Bank Card

January 11th, 2011

Anyone who has used their bank’s check card to pay for items knows that you can use debit or credit to make purchases, but most people don’t know what the difference is besides the fact that with debit you have to enter a pin, and with credit you need to sign. One of the key differences is that the merchant must pay a fee when they process the transaction as credit. If you’re purchasing an item from a store you’d like to support, you should select the debit transaction so the merchant avoids the credit fee.

Another key difference is the processing time for each type of transaction. A debit card transaction pulls the money out of your account immediately, while the credit transaction requires time to be processed before the money is taken out of your bank account.

One final difference is that most banks place a debit limit on your card, meaning you can only use debit purchases on your card for up to a certain amount. If you’re looking to make a large purchase on your debit card you should select the credit option to ensure that you don’t go over any possible limits. (Of course if you’re making a large purchase you should really use a reward credit card as mentioned in our article on ways to save money)

personal finance