This Week In Your Wallet: White House Says Client Over Commission
Last week President Obama announced his proposal to hold financial advisors handling individual retirement accounts (IRAs) and 401(k)s to a fiduciary standard. Meaning: Brokers will have to keep your best interest in mind — not their wallets.
Hmm, shouldn’t they be doing this already? As The Washington Post reports, the current rules require that whatever security or investment is being advised for you be “suitable,” but “suitable” doesn’t cover cost or performance. This proposal is aimed to crack down on backdoor payments and hidden fees paid to some — not all — brokers. Under the new standards, brokers will need to disclose if they’re recommending products that are more expensive than other available options, and also ones that may be underperforming. They’ll also have to justify their reasons for making these recommendations.
The White House estimates that these conflicts of interest can cost you 1 percentage point off your return each year (which totals to $17 billion nationwide). One percent doesn’t seem like a lot now, but fast forward 20 years and the amount can be significant. Fidelity Investments recently made a push for saving an extra 1 percent more for retirement. For a 35-year-old making $60,000 annually, the extra 1 percent (or $50 a month) translates to an extra $3,200 a year in retirement. Start earlier, and even if you earn less, the retirement income boost may be greater. For a 25-year-old earning $40,000 a year, the extra 1 percent ($33 a month) represents $3,900 a year at age 65. (The rate of return on those investments is 7 percent with expected salary growth of 1.5 percent annually.)
New tool for comparing checking accounts
WalletHub’s latest Banking Landscape Report shows that the best deals for checking and savings accounts are coming from…drum roll please… credit unions. Credit unions are offering over 10 times more interest on checking accounts than regional banks — and interest rates on savings accounts that are 573 percent higher than national banks.
There are a couple of things to keep in mind here. First, no rates are stellar. The average rate on interest-bearing checking at regional banks is .04 percent and .45 percent at credit unions. On savings accounts, it’s .03 percent at national banks and .22 percent at credit unions. (To put that in perspective, if you maintain a $10,000 balance, that translates into an annual payday of between $3 (national banks, saving) and $45 (credit union, checking). Perhaps that’s one reason why credit unions still only have a 6.8 percent share of the banking market. The nation’s 100 largest banks have 74.5 percent, according to the Credit Union National Association. Another, according to WalletHub, is that consumers are misunderstanding credit unions — more specifically — the eligibility requirements for them. Enter: The new tool for comparing products from only credit unions you’re eligible to join. You can compare checking accounts from banks, too. And take heart, as interest rates start to rise, you’re likely to reap a bigger payoff on your savings – no matter where you decide to bank.
Learn to save on every purchase
The latest data from the Bureau of Labor Statistics shows the average American household spending $51,100 a year. While a large chunk of this goes towards housing, transportation and personal insurance, Americans are spending about $1,600 on apparel and services, $2,482 on entertainment and $2,625 on dining out/take out. There’s definitely room for improvement. DailyFinance’s 15 strategies for saving on every purchase may be able to help. For example:
Think used before new. Going used can open doors to major savings of up to 50-75 percent off. Take new cars, for example, which lose roughly 11 percent of their value the moment you drive them off the lot, and five years later have lost about 63 percent. But cars aren’t the only item. How about wedding dresses? Textbooks? Furniture?
Go generic. Consumer Reports compared name-brand and store-brand grocery products and found that you can save up to 52 percent when opting for your store’s generics. Before you turn up your nose, also know that the study conducted blind tests in which most store brands tied with their name-brand competitors for taste.
Dare to share. Look for ways to share purchases with your neighbors. Think expensive household items or tools, like weed whackers, lawn mowers and ladders. Or, if you’re renting a carpet cleaner for an afternoon, see if your neighbor (or friend) wants in on the deal, too.
Have a great week,
Jean
