Fed Reaffirms Keeping Rates Low for Extended Period - How to Generate More Yield and Income

Fed Reaffirms Keeping Rates Low for Extended Period - How to Generate More Yield and Income

Rate information contained on this page may have changed. Please find latest savings rates.

The Fed released their FOMC statement yesterday and it reaffirmed the phrase we've become accustomed to: "...low rates of resource utilization, subdued inflation trends, and stable inflation expectations, are likely to warrant exceptionally low levels of the federal funds rate for an extended period." The Fed is not going to help the rate situation so you need to help yourself.

The Fed released their FOMC statement yesterday and it contained the phrase we've become accustomed to: "...low rates of resource utilization, subdued inflation trends, and stable inflation expectations, are likely to warrant exceptionally low levels of the federal funds rate for an extended period."

That means that savings and cd rates will continue to offer rock-bottom rates at least through 2010 and perhaps beyond. Indeed, rates continue to decline even as the economy seems to be sputtering to life. So, what's an income oriented investor going to do? I'd recommend going out a bit longer with a portion of your money to perhaps a 3 or even 4 year CD. Rates have been low for almost two years and many investors have stayed short waiting for inflation and rates to pick up. Hasn't happened and it may not happen for some time. Indeed, bond vigilantes seem to have given up on the US and are conceding rates may stay down for some time.

I'd also look at municipal bonds. Yields are way down because of the flood of money into munis but the composite muni rate for a 10-year bond is 4.56%, after tax advantages are factored in.

Many of my friends have begun to buy dividend stocks, which can generate 5-6% per year and are more tax advantaged that deposit income. And if the stock market keeps going up, you can get the capital appreciation also. Sean Riskowitz lists many good dividend stocks worth taking a look at.

Of course, none of those investments come with the security of FDIC insurance. If you do want to stash your cash in a bank for a period of time, then check out the savings and cd rate rate tables to be sure you are getting the highest rate on your money.

The Fed's not going to help you out so you need to help yourself.

Below is the full text of the FOMC statement:

Information received since the Federal Open Market Committee met in March suggests that economic activity has continued to strengthen and that the labor market is beginning to improve. Growth in household spending has picked up recently but remains constrained by high unemployment, modest income growth, lower housing wealth, and tight credit. Business spending on equipment and software has risen significantly; however, investment in nonresidential structures is declining and employers remain reluctant to add to payrolls. Housing starts have edged up but remain at a depressed level. While bank lending continues to contract, financial market conditions remain supportive of economic growth. Although the pace of economic recovery is likely to be moderate for a time, the Committee anticipates a gradual return to higher levels of resource utilization in a context of price stability.

With substantial resource slack continuing to restrain cost pressures and longer-term inflation expectations stable, inflation is likely to be subdued for some time.

The Committee will maintain the target range for the federal funds rate at 0 to 1/4 percent and continues to anticipate that economic conditions, including low rates of resource utilization, subdued inflation trends, and stable inflation expectations, are likely to warrant exceptionally low levels of the federal funds rate for an extended period. The Committee will continue to monitor the economic outlook and financial developments and will employ its policy tools as necessary to promote economic recovery and price stability.

In light of improved functioning of financial markets, the Federal Reserve has closed all but one of the special liquidity facilities that it created to support markets during the crisis. The only remaining such program, the Term Asset-Backed Securities Loan Facility, is scheduled to close on June 30 for loans backed by new-issue commercial mortgage-backed securities; it closed on March 31 for loans backed by all other types of collateral.

Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; William C. Dudley, Vice Chairman; James Bullard; Elizabeth A. Duke; Donald L. Kohn; Sandra Pianalto; Eric S. Rosengren; Daniel K. Tarullo; and Kevin M. Warsh. Voting against the policy action was Thomas M. Hoenig, who believed that continuing to express the expectation of exceptionally low levels of the federal funds rate for an extended period was no longer warranted because it could lead to a build-up of future imbalances and increase risks to longer run macroeconomic and financial stability, while limiting the Committee’s flexibility to begin raising rates modestly.


Managing your Finances after Divorce

Managing your Finances after Divorce

Rate information contained on this page may have changed. Please find latest savings rates.

A guide to protecting your financial health during and after your divorce.

Divorce affects the finances of both parties as they split. Sometimes one partner faces a much lower standard of living -- and dramatic lifestyle changes because of that. With the housing market down, interest rates falling and the costs for goods and services is increasing, there's an even bigger effect on couples.  Here are a few tips in order to ensure your finances stay in order during this challenging time.

The task of dividing your assets is a crucial one.  Typically, everything you and your spouse acquired from the day you were married is subject to division. The exceptions are individual inheritances, gifts to an individual spouse, and assets acquired before marriage. When assets are divided, the court considers each spouse's earning ability, the length of the marriage, and how much each spouse contributed to building household assets.

The exception to this are the nine "community property" states -- Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin. Under the laws of these states, almost all assets will automatically be divided equally.

Notify others of your new name.  If the divorce decree provided for a name change, get a new Social Security card, driver’s license, passport and credit cards. Notify your bank, investment account manager, all credit accounts, personal lawyer and accountant of the change. To change your name with the Social Security Administration (SSA), file Form SS-5 at a local SSA office. It usually takes two weeks to have the change verified. The form is available on the agency’s Web site, by calling toll free 1-800-772-1213 and at local offices (you can find these addresses at the SSA Web site). 

Be sure to review and update your retirement plans.  f there was a division of a pension, 401(k) or IRA, confirm that a Qualified Domestic Relations Order has been submitted to the fund administrator and implemented correctly. Also make sure that, as recipient of the distributions, you have established an account for the funds to be transferred to. If you were married for at least 10 years, you are entitled to make a claim against your former spouse’s Social Security when you are eligible for the benefit. And ex-spouse can receive either 100 percent of his or her Social Security payment, or 50 percent of the former spouse's entitlement. Check with the Social Security Administration for details. 

Be sure to review your will or, if you don't have one, draw one up. You should consult an attorney familiar with your state's estate laws to ensure that your assets are properly distributed. Do not wait until the divorce is final. You should review and amend your estate plan at the same time you decide to commence a divorce proceeding. Also make sure to review beneficiary designations for pensions, 401(k)s, and life insurance policies. Federal law requires a spouse to be the sole beneficiary of pension or 401(k) benefits unless that right is waived in writing by the spouse.

If you find yourself faced with divorce, it is essential to protect your financial future. Enlisting the help of an attorney and carefully monitoring the process can ensure that your interests are considered and that you won't need to revisit the proceeding later on.


State Tax Receipts Are Down--Are Your Savings Next?

Rate information contained on this page may have changed. Please find latest savings rates.

State tax receipts are plummeting--what does this mean for you?

To say that state tax receipts are down is hardly news.  Between unemployment driving down state income tax receipts, a laggard consumer market cutting sales tax, reduced driving pulling down gas taxes and businesses shutting their doors or moving elsewhere to drive down corporate tax receipts, the tax picture has never looked worse for the states.  But what does that mean to you?  The biggest thing is that states will either need to cut budgets or raise dollars, and often both. 

There are three things that jump out at me that this means--here's how to protect yourself.

State debt may offer better rates.  Cash-strapped states may look to borrow, and thus offer better bond rates for those interested in investing in a state government.  Though there is a chance of default on this debt in the future, it is somewhat abrogated by the fact that states take in money every year thanks to taxes on whatever's left.

State taxes may go up.  Thus, if you have the choice to take income in 2010 or 2011, you may want to stick to the devil you know rather than the devil you don't.  Any state tax hike is likely to take effect not this year (being as this year's already a third over with, almost) but rather next year.  Also consider where you may be able to take more deductions if you have a small business or itemize your annual tax returns.  The more deductions, the less paid out.

City taxes, where applicable, may also go up.  Counties and cities that depend on revenue sharing with the state will get a smaller chunk of the pie since the overall pie is smaller.  So in places where there are city or county taxes, you may want to consider moving before the city or county in question gets the idea to jack up taxes.  Even if you have to commute a little longer to get to your job, chances are the extra gas money won't be as high as jacked-up city taxes, county taxes, or even property taxes.

It's all about adding to your savings out here at Best Cash Cow, and when you can protect your current savings, that's just as good.