Disclaimer

This blog contains some simple tips and advice from two regular guys. We're not accountants, financial advisors, or brokers, so follow, ignore, or discuss our ideas as you see fit.

Wednesday, January 16, 2008

Are Internet Savings Accounts on the way out?

Posted by Matt

I received this disappointing bit of news not too long ago:

We are writing to inform you that based on the recent drop by the Federal Reserve, HSBC Direct has adjusted your Online Savings Account rate to 4.25% APY. At 9x the national savings average, you are still earning one of America’s highest savings rates.

I was pretty enthusiastic about my Internet Savings Account when I first signed up, but now I hear that the Fed is likely to drop the rate again soon. How low will HSBC go? Is it time to start exploring new places to keep my savings/emergency fund? I checked other ISA's and HSBC definitely isn't the highest, but I don't want to hop from bank to bank chasing quarter points, either (see more on this from Paul here).

I'm also wondering whether I should put any more money into my savings account at all. It contains plenty of cash to cover most small to medium emergencies, so it might be worthwhile to start thinking again about putting my extra money toward real long-term investments (i.e., bump up my retirement savings rate) or maybe paying extra on the mortgage. Paul and I have debated the latter several times and I don't think we've come up with a really solid answer yet.

Have any of our readers paid off their mortgages early? If so, would you make that same choice again?

3 comments:

Bill Griffith Jr CFP said...

Matt

I posted an article about this on my blog in July 07. You should look at mortgage financing in light of a your entire financial picture. By doing this, you will have more information that you can use to help you make the decision to save for the future, to pay down your mortgage earlier, or to make investments to increase your net worth.

Have you ever compared the after-tax benefit of pay down versus equity investment? Based on your tax bracket, how would “equity repositioning” affect your financial situation? You will see the effect of making extra payments to pay down the mortgage, or if you don’t make extra payments but invest consistently, how much your investment account could be worth, based on a projected rate of return.

It really comes down to what your specific goals are.

Vibiana said...

FWIW, I read a book recently called "Untapped Riches--Never Pay Off Your Mortgage, and Other Surprising Secrets for Building Wealth." The authors are Susan and Anthony Cutaia and Robert Slater.

The book made a pretty solid case for keeping your mortgage and using any money you would have put into extra payments as investment capital. What scared me off was the authors' advocacy of certain investment products that they seemed to have some sort of interest in themselves.

What might not make this work for others is that they follow the instructions, but rather than investing the extra money, use it to fuel higher discretionary spending. (The authors frankly discourage this and basically tell you that if you're only wanting the extra money to spend, not to bother reading the rest of the book! lol)

Anonymous said...

We paid off our small mortgage early (in our case, VERY early, but it's a long story to explain our unusual circumstances).

I'm sure there are sound financial reasons to carry a mortgage if you are willing to learn about all your investment options. Frankly, that is so contrary to how my husband and I are constructed that we have not wanted to spend our energy in that way.

We are creative and thoughtful people, so stupidity is not a contributing factor. We opted for the amazing gifts of simplicity and peace of mind. Add to that all the interest we haven't paid over the past 20 years, and we have been able to stay fairly financially nimble even on small "do-gooder" salaries. I have no regrets!