Thursday, March 16, 2017

Rising Interest Rates: What Do They Mean For You?

If you read financial headlines, you’ve no doubt seen the news that the Federal Reserve is raising interest rates. These headlines can be accompanied with all sorts of hyperbole about the end of the stock market, the boom of bonds or any of a dozen other possible predictions. It’s easy to get overwhelmed when there’s this much information and so much of it is conflicting. Let’s set the record straight on what rising prime interest rates mean for you.

The prime interest rate is the rate that the Federal Reserve charges financial institutions to borrow from it. It influences a lot of other financial prices. Many of these are only of concern to investment bankers, professional investors and other economic enthusiasts. Here are some key ways the prime rate hikes can affect you!

1.) Get out of your ARM
Many people opted for adjustable-rate mortgages (ARMs) when interest rates were historically low. These mortgages often have much better rates for an introductory period, usually five years, before they adjust to a new rate. That new rate is determined in large part by the rate the Federal Reserve charges.

The Federal Reserve is planning to continue to increase interest rates as the economy continues to improve. This means the rate on your ARM may go up as well. Worse yet, the rising rates could make your monthly mortgage payment unpredictable, putting you in a bit of a budget bind. Fortunately, you can refinance your mortgage into a fixed-rate loan and take advantage of still-low interest rates. You may still be able to secure a low rate on a 10-, 15- or 30-year fixed-rate mortgage. As interest rates continue to rise, your fixed-rate mortgage will stay the same, meaning your savings will increase as time goes on.

2.) Balance your portfolio
The historically low interest rates over the past six years have done wonders for the stock market. Because companies could borrow at affordable rates, they could expand rapidly. That expansion fuels growth in stock prices.

As interest rates rise, that credit availability will decrease. Companies will find it more difficult to expand, and their growth will slow. This slowing of growth may lead to a decline in stock prices.
However, as interest rates rise, bond rates will also increase. That will lead to an increase in their price as more investors chase those rates. Individual investors need to ensure their portfolios are properly balanced to take advantage of changing market conditions. Speaking to a financial adviser to ensure your assets are where they need to be will help keep your investments growing at a healthy rate.

3.) Save more
The Federal Reserve interest rate also affects the rates that financial institutions are able to offer account holders. As it becomes more expensive to borrow from other institutions, it’s more profitable for those institutions to “borrow” from their members in the form of certificates and savings accounts. As interest rates continue to rise, it’ll be increasingly more profitable to sock your money away in an interest-bearing account.

If you’ve been putting off opening a certificate or increasing the deposits in your share account, now is an excellent time to consider it. With a 12- or 24-month certificate, you can take advantage of rising interest rates while still leaving yourself the flexibility to re-invest once interest rates rise again.

4.) Refinance your debt
The service charges on several kinds of debt are tied to the prime rate. Notably, credit cards and private student loan rates may increase as the prime rate continues to climb. That makes now a great time to think about refinancing.

Take advantage of currently low interest rates with several strategies. A home equity line of credit can help bundle your high-interest, unsecured debt with your low-interest mortgage. A personal loan for refinancing can also help secure a better interest rate. Other options exist, and the sooner you speak with a debt counselor or other financial professional, the better of
f you’ll be.

It’s easy to get overwhelmed by all the financial terminology surrounding news events like rate hikes. That’s why it’s best to have an advocate in your corner to help you figure out what to make of a changing economic landscape. First City Credit Union can do just that. Call, click or stop by to speak to a member services representative about how you can take advantage of this opportunity and put yourself on the path to financial wellness.

Your Turn: Got questions about rising interest rates? Leave your questions in the comments. Or, if you’ve got a handle on all things economic, share your wisdom with others!

Tuesday, February 28, 2017

Are You Making These 4 Common Mistakes When Filing Taxes?

While the IRS claims that anyone with knowledge of high school mathematics (and an afternoon to kill) can do their own taxes, the hurdles to filling out a tax form are many. Let’s take a look at some of the most common pitfalls that people make while preparing their own tax returns and how you can avoid falling into them.

1. Over-complicating

Most websites will start their list of tax preparation errors by pointing out that you can deduct some medical expenses, but you should stop before you get that far. Before you start poring over receipts and charitable contributions, make sure you’re not leaving money on the table with the “standard deduction.” The standard deduction is the IRS’s baseline for what an average person spends on deductible expenses. This amount is $6,300 for a single person, $9,300 for a head of household, and $12,600 for a married couple that’s filing jointly.

The IRS has a form to help you determine if you should itemize or take the standard deduction. There are six categories on it: medical expenses, taxes, interest, gifts to charity, casualty and theft losses, and work expenses. Before you start itemizing, take a moment and make a ballpark estimation. None of these expenses can include costs that someone paid for you, like insurance in the case of medical expenses or employer reimbursement in the case of work expenses. Take a look at your expenses in these categories for December and multiply that by 12. Are the items you’re trying to deduct likely to be greater than your standard deduction amount? If not, you can save yourself a ton of time and hassle, and probably even a little money, by taking the standard deduction.

The most common source of audits from the IRS is unqualified deductions. By taking the safe route with the standard deduction, you can avoid heavy scrutiny from investigators. This simplified tax filing process can speed your preparation time and help you get a faster refund.

2. Not proofreading

The easiest place for the IRS to detect fraud is by comparing names and Social Security numbers. In 1987, the IRS began requiring Social Security numbers for all dependents claimed on a tax return. Between 1986 and 1987, the number of dependents claimed on taxes dropped by 7 million. While it might be funny to describe the IRS as eating 7 million children, the reality is that this is one of the most common and most easily visible frauds.

Make sure every person you list on your return is listed by the same name that’s on their Social Security information, and that each of those names is spelled identically. While these errors aren’t difficult to correct, they can significantly delay the processing of your return. If you recently changed your name, make sure the name change has been processed with the Social Security Administration.

While small math errors will be automatically corrected by the IRS, another place to check your errors is in rounding. If you’re rounding to the nearest dollar, that’s fine. But if you’re regularly putting in items that end in five or zero, that’s a signal to the IRS that you’re working from memory, not from receipts. Make sure you check the amounts that you’re listing against the paperwork you have on hand. Resist the impulse to estimate or “fudge” your income even a little bit; all of the income statements you get are copied to the IRS, and rounding, addition or data entry errors are sure to trigger red flags from investigators.

3. Being too aggressive (in predictable ways)

If you’ve been looking for tax advice online, you’ve probably heard the sage advice that you should be as aggressive as you can be in preparing your return. If you’ve got a deduction that you think you might qualify for, you should claim it. The IRS will only investigate if it thinks it likely that the amount of money it could recover from that investigation will justify the cost. That’s true, but the IRS is an increasingly adaptable organization. They’ve caught on to the most common places where people exaggerate their deductions and can quickly identify these as ways that may trigger an investigation.

The three most common places people exaggerate their deductions are in a home office, work-related expenses and charitable contributions. A home office must be a defined space in your home which is used exclusively and regularly for work functions. An office where you meet clients and work on your business is deductible. A den where you read your newspaper and also occasionally do a few hours of work is not. Your car is a deductible business expense when it’s used only for your business, not if it’s a family car that you also occasionally use to run business errands. If you’re going to itemize your charitable contributions, make sure you have records of the value of items you donate. Charitable contributions in excess of 5% of your income are easy places for the IRS to call for proof.

Being aggressive doesn’t mean being reckless. Be as bold as you can in claiming deductions that you can document. Don’t, though, make up or fabricate any numbers. Claim only what you can prove!

4. Making financial decisions for their tax implications

With a few exceptions, most tax incentives aren’t enough in and of themselves, to make any particular financial decision worthwhile. It’s very unlikely, for example, that you can make a charitable contribution that’s large enough to save you money on your taxes. Making your financial decisions based on the tax implications is a lot like letting the tail wag the dog.

While some decisions are only different in their tax implications, like a traditional IRA versus a Roth IRA, most of the time, your tax position should be one of the things you consider, but probably not the biggest consideration. Don’t sell assets in an attempt to change your tax burden. Fully invest in your retirement fund because of the financial security you want when you retire, not to lower your adjusted gross income. Make charitable contributions to do good in your community and make the world a better place, not to change your tax payment.

The tax code is written by people with decades of experience in financial planning from a governmental perspective. They wouldn’t be doing their jobs if there were an easy way to get out of paying your taxes. So it’s best to grin, bear it and enjoy the things your tax dollars provide. Remember, it only comes due once a year.

Thursday, February 23, 2017

Donating Items For A Tax Deduction: How Do You Calculate Value?

Tax Season Ends April 18, 2017.
It’s tax time again! If you’re looking for another tax deduction while clearing clutter from your house, you might want to donate your used clothing and other household items to your favorite charity.
If you give away things you don’t want anyway, everyone wins. You get rid of your clutter without the hassle of trying to sell your items at a garage sale or consignment shop. You also get a tax deduction while the worthy cause you choose to support gets a donation. And, if they go on to sell your things to someone who can’t afford to buy them new, there’s another person who will benefit.

Figuring out the value of these items, however, can be tricky. On the one hand, you don’t want to underestimate the value, because why take a lower deduction than you have to? On the other hand, you don’t want to raise the eyebrows of your friends at the Internal Revenue Service. You surely know the old adage: It’s better to be safe than sorry! Government manuals on the topic are too vague to be useful, but several software programs on the market can help you figure out the value of donated items. Typically priced at around $20, these programs give you what you need to claim an accurate deduction. Another benefit of using this software is that you’ll have something to back you up in the event that you might need to defend your deductions to the IRS.

For more information:

Tuesday, February 14, 2017

A Financial Showdown: What's Your Financial Plan Weapon of Choice?

There's more than one way to get your financial house in order, and Dave Ramsey and Suze Orman have helped many people with their different styles. If you're trying to figure out which one has the best advice for you, use this infographic to compare and contrast them both!

Thursday, January 19, 2017

Don’t Bet Your Retirement On An 8% Return

If there’s one lesson in investing, it’s that time in the market matters. The longer you leave your capital alone, the more it can grow. If past growth rates continue, the time you leave your savings alone is more important than how much you save.

The problem with that, though, is that past growth rates are not likely to continue. Over the last 30 years, the stock market has averaged 7.8% growth. That growth rate is the foundation of many retirement plans, including some professionally managed funds. If you’ve invested your whole 401(k) in total market index funds hoping to chase that growth, you may be in for a surprise.

That nearly 8% growth is a historical anomaly that’s driven by a number of shifting demographic factors. Because of slowing industrial growth, decreasing population growth, and more competitive overseas markets, economists are projecting that rate to slow as much as 2% in the next year, and for possibly longer than that.

If you think that’s too little to make a difference, you’re underestimating the power of compound interest. For 25-year-olds currently saving for retirement, a two-point drop over the next decade could require them to save twice as much before they retire. That’s a frighteningly realistic scenario.

When dealing with macroeconomic trends, it’s easy to get overwhelmed. After all, the changes in the global economy are way bigger than one person. That doesn’t mean you have to be unprepared, though. You can take these four steps to prepare your portfolio for struggling gains.

1.) Max out employer match

About 31% of American workers with access to a 401(k) don’t use it at all. With that level of participation, it’s small wonder that Americans are worried about retirement. Beyond missing out on the savings, employees are also missing out on matching funds programs.

Think of matching funds programs as interest payments. Your company is willing to pay 100% interest on your 401(k) deposits. Even if you have expensive credit card debt, it’s unlikely anyone is charging you 100% interest. Increasing your 401(k) contributions at least to the maximum match level will help minimize the impact of slow growth within your portfolio.

2.) Watch the fees

If a 2% decrease in return can require doubling your savings to catch up, every point is important. That’s why one of the biggest differences between successful 401(k) investors and those who keep working long into their retirement is the fees that each pays on their investments. By law, companies must disclose the fees they charge for investment management. You can get a breakdown from your HR representative.

Once you see the fees you’re paying, it’s time to gauge if they’re reasonable. For comparison, most small companies have fees around 1.4%, medium-sized companies have fees around 0.8% and large companies have fees around 0.5%. If you’re paying more than that, it might be time to switch the funds you’re using.

3.) Revisit the Roth question

Most of the time, a Roth 401(k) makes the most sense for young people. Taxes are likely to be higher in the future, so paying them now results in a savings in the long run. With returns expected to drop and savings amounts likely to be a larger determinant of total wealth accumulation, it might be time to revisit conventional wisdom.

If taking a tax deduction now in the form of a traditional 401(k) contribution would enable you to save more, it might be worthwhile. You can find other ways to manage taxes once you’ve saved enough for retirement. In the meantime, growing your nest egg may be the most important step.

4.) Look for predictable returns

As interest rates rise, growth is likely to slow down. This is a natural result of decreased credit availability. The same force that makes the market a less attractive option also makes savings through other instruments more valuable.

An Individual Retirement Account (IRA) can hold savings certificate funds, like those available at First City Credit Union. These instruments offer a predictable rate of return that is not dependent on those macroeconomic forces. As a hedge against market slowdowns, adding certificate accounts to your portfolio can be an excellent step toward minimizing risk.

Despite the changing economic winds, the principles of smart retirement planning remain the same. Spend less than you earn. Avoid debt. Invest as much as you can, as often as you can and as cheaply as you can. With a little luck and a lot of hard work, you can enjoy a safe, prosperous retirement.

Thursday, January 12, 2017

Beware of Utility Scams

Gas, electric, water and cable are not purchases you regularly think about. At best, they get a moment’s thought as you write a check for them once a month. Maybe they even auto-pay, and you only look at the bill when you review your statement.

Either way, if someone called and said your account was overdue and your service was about to be shut off, it’d be frightening. It might be frightening enough that you’d do whatever they said, just to avoid the dire consequences. And that’s exactly what scammers are counting on.

The Department of Consumer Affairs has warned of a new scam targeting utility customers. A scammer calls and claims that the potential victim is overdue on a utility bill, and that someone is en route to shut the power off. The scammer will direct the victim to go to a nearby drugstore and buy a prepaid debit card. The scammer waits to receive the number on the card and then takes its whole value. Transactions with these cards are difficult to trace, which means getting the money back is next to impossible.

If you’re targeted by one of these scams, it’s important to stay calm. Stand your ground, and don’t give in to threats.

Know your rights

Utility companies just don’t operate like these scammers. No one from a utility company will tell you that your service is going to be shut off in minutes if you don’t pay right now. There are rules and regulations that govern how and under what circumstances companies are permitted to turn off service.

First, they’re required to provide you with a notification of termination. This is a letter identifying the reason, the date and what you can do to prevent this shut-off. This process is cumbersome, so most utility companies won’t send one until you’re more than two payments behind.
Second, turning service off and on is an expensive process for the utility provider. They’re likely to make several attempts to contact you before they start the process of turning off your service. They’re also likely to use multiple contact methods, including phone and mail. Ask for a record of past attempts at contact and check it against your own records. A utility company will be happy to provide this information, as they’d need to keep it for court anyway. A scammer will likely hesitate when asked for details.

Pay it right

Utility companies process hundreds or thousands of payments every day. They have established procedures for securing payments. They will never insist you make a payment through a pre-paid debit card or other means.

In fact, anyone who wants to collect money from you will make it as easy as possible for you to pay them. Always choose a secured means of payment, like your credit or debit card. These cards offer fraud protection and limit your liability if something goes wrong with the transaction.

When it comes to utility companies, First City Credit Union offers automatic bill payment. We’ve set up payment relationships with area utility providers to let you make your payments directly without the trouble of writing a check or the expense of postage stamps. You can make sure you’re current on your bills and save yourself time with automatic bill payment.

See something, say something

If you get a call like this one, hang up. Then, contact the FCC. Using the telephone to demand money is illegal, as is making unsolicited commercial phone calls. Report violations of the no-call registry at You can help make the airwaves safer for everyone!

Stay ahead

If you’ve run into payment trouble with utility companies in the past, you can keep the fear that makes these scams work at bay by working ahead on your utility payments. If coming up with the money is a challenge, there are federal and state programs designed to help you keep the lights on. One such program is the Low Income Home Energy Assistance Program (LIHEAP). This program provides utility payment credits for low-income individuals, and they can be applied to past bills as well.

You might also look into programs which average your utility payments. This can avoid the spike in bills that can occur in response to inclement weather and also make budgeting a slightly easier process. This will help ensure you can make a payment every time and avoid being a target for these scams in the first place.

Your Turn: Have you been targeted by a utility scam? How did you handle it? Share your wisdom in the comments!

Monday, December 5, 2016

Good Ideas, Bad For Credit: How Your Responsible Choices Can End Up Hurting Your Credit Score

Q&A: Can Your Responsible Choices Can End Up Hurting Your Credit Score?

Q: I've had some trouble with credit in the past, but I'm trying to turn over a new leaf. I think I'm doing everything right, but my credit score still isn't rising! What gives?

A: Credit scores can affect you more than you know. Employers look at credit scores. Landlords look at credit scores. Bill providers look at credit scores, and they might decide to charge you if yours gets too low. With all this pressure, you've no doubt started working on some good habits for improving your credit score. You pay your bills on time, are sure to not max out your credit line and work hard not to default on a loan. You might be surprised to find out that some actions you take to improve your credit score are actually hurting it.

If your credit score isn't where you want it to be, it might be due to one of these habits. Read on for four good ideas that might actually be hurting your credit score:

1.) Debt settlement

Settling your old debt can seem like an easy way to get out of a sticky situation. You make an agreement with a third party, pay a part of your debt and the owner writes off the rest of it.  However, unless it's at least 90 days since the debt was due, it's always better for your credit score to pay the debt back in full yourself. Settling a debt for less than you owe can take your credit score down as much as a hundred points. This happens because the debtor only took your settlement on the assumption they'd never see the full amount you owed. Future lenders worry that they'll end up in the same situation, and that makes them hesitant to lend.

2.) Turning down credit

It might seem like a good idea to reject a higher credit limit. If your credit card offers to boost your limit, that might seem to indicate you have more money to spend. If you've struggled with responsible credit management in the past, you might want to turn it down in an effort to keep your spending in check. Keeping your credit limit low can give you a budget and a sense of security regarding when you'll stop yourself from spending.

However, a higher credit limit does come with benefits. To be exact, it can boost your score quite a lot through a something called a credit utilization ratio. That's the ratio of your credit card balance to your credit card limit. The less you spend relative to what your limit is, the higher your score in terms of this one factor. That means, if you have a higher credit limit, you'll be using less of it, and therefore increasing your score.

3.) Avoiding credit cards

With all this rigmarole and paperwork, many people might think it's easier to just not have a credit card at all.  While it might make your life simpler at first, it can complicate your relationship with credit in the future. You might not need credit for day-to-day things like buying groceries or gas, but you will need it for a home loan, auto loans and to prove to potential landlords and employers that you can be trusted. So long as you're paying everything on time and not carrying a high balance, a credit card is much more beneficial in the long run.

4.) Closing paid accounts

Paying off a credit card can be a big struggle. Once it's over, your instinct might lead you to throw it away, burn it or otherwise have it completely out of your life once and for all. Credit reporting agencies say something different, though. Since 15% of your credit score is the length of your credit history, you want to keep your cards for as long as possible.

Additionally, your credit utilization score is worth 30% of your total score. Closing a credit card account also kills available credit, which lowers that balance-to-limit ratio. You can destroy the card itself and delete its record from online shopping sites to be certain you'll never accidentally use it, but don't cancel it. Even after all that, you should keep the account open (provided there's no annual fee attached to it), just to keep your score up.

Credit scores have never been easy. There's an endless number of twists, turns and troubles to keep in mind. It may seem like there's no one on your side in this struggle. Yes, you have to be in charge and be responsible enough to pay everything on time. First City Credit Union can help. Visit our website today to get help with budgeting, credit management or debt consolidation.

You don't have to go it alone, but you can leave bad credit cards alone by taking a look at First City's Visa Platinum.  It has a low rate—lower than most banks, no Balance Transfer fee, and no Annual fee.  Check out one of best credit cards today, here!