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"Christmas Club accounts are now largely a thing of the past (undercut by the rise of easy credit)..." — so I wrote in the current issue of the Sound Mind Investing newsletter in an article on multiple savings accounts (subscribers' link).
That's true — Christmas Clubs have faded into the past for the most part.
But a reversal may be in the offing. Sears/Kmart promoted a Christmas Club program last year. Now, the New York Times reports another major retailer is rolling out such a club for this year:
Toys "R" Us is counting on an Eisenhower-era tactic to get consumers to spend this Christmas. The toy retailer will begin offering a "Christmas Savers Club" [this week] that allows shoppers to put money away with the company for holiday gifts.
Participants will receive a card similar to a gift card, and can contribute funds to it through cash or credit card payments. As an incentive Toys "R" Us will add 3 percent interest on the balance.
The program is a throwback to what banks and credit unions offered in the 1950s and 1960s before credit cards allowed people to spend money they did not have.
Our Level 2 article focused on Christmas Clubs run by banks, but many retailers had them too back in the day — to build customer loyalty, of course. That's exactly what Toys "R" Us is going for.
Shoppers can sign up for the program in Toys "R" Us stores, either at the cash register or the customer service stand. The company will add the interest on the balance as of Oct. 16, and the funds will be available Oct. 31 for purchases at Toys "R" Us and Babies "R" Us stores and Web sites.
Earning 3% is nothing to sneeze at these days, but unless you are absolutely, positively planning to buy something from Toys "R" Us — and you know exactly how much you're going to spend — it's probably better to set aside your Christmas savings in an earmarked bank account.
Earlier this week, I talked about the benefits of having multiple earmarked accounts with host Bob Crittenden on Faith Radio's Faith Meeting House program. Listen below (13 min.) — or download an mp3 (right click/save as).
The fundamentals of good financial management aren't difficult, but they do require 1) planning and 2) discipline to stick with your plan.
In a short interview Monday on Alabama's Faith Radio, SMI assistant editor Joseph Slife (right) talked with host Bob Crittenden about the importance of having a savings plan. In a follow-up to air soon, he'll discuss a simple way to make sure your savings plan works.
Use the audio player below to listen — only 7 minutes!
In our March issue, we reported (subscriber's link) on new money-fund regulations advanced by the U.S. Securities and Exchange Commission.
Those regs took effect last week, and Marketwatch's Chuck Jaffe (right) says they're likely to make money-market funds — already scraping bottom on yields — even more unattractive to savers who are seeking yield as well as safety.
Under the new rules...money funds must hold more liquid assets and limit their investments to only the highest-quality securities. In addition, they must reduce the average maturity of the securities they hold.
Furthermore, retail or taxable money-market funds must now hold at least 10% of assets in cash or highly liquid securities — think Treasurys — that can be converted to cash within one day. At least 30% of a money fund's assets must be in cash or Treasurys that mature in 60 days or less, or that can be converted into cash within a week....
The top-yielding money market funds currently are generating almost nothing for shareholders, with the best individual money funds paying out less than 0.2% and the top tax-exempt funds generating about 0.25%, according to Crane Data, which tracks the money-fund business. If anything, the new rules will drive those rates even closer to zero....
[Meanwhile, t]he top-yielding bank savings accounts and interest-bearing checking accounts carry annual percentage rates four or five times higher, according to BankRate.com.
That may not seem like much difference, but every little bit counts. An investor with $100,000 in cash to park will earn about $3.50 per day in an online savings account paying 1.3%, but will earn just 35 cents per day on a money fund paying 0.13%. The returns are miserable in both cases, but the extra $1,150 — and the plus of having Federal Deposit Insurance Corp. protection — is worth leaving the money fund.
Jaffe concedes that the day may come when "the new safety measures...pay off and protect shareholders." But right now, by mandating a reduction in risk, the regulations will make it even more difficult for MMFs to climb out of the low-yield hole.
To learn more about various options for savers, visit SMI's Savings Accounts page.
In these days of low, low interest rates (not to mention a fair amount of bank instability), where is a good place to store your savings?
SMI's executive editor Mark Biller (right) discussed that question with host Chuck Bentley on yesterday's MoneyLife radio program from Crown Financial Ministries.
Click the arrow below to listen (20 min.) — or use this link to download an mp3 (right click/save as).
There's a site in beta that allows you to compare your spending (and soon, saving) habits with the proverbial Jones's. It's called Bundle.com. That's more interesting than it may sound at first, as you can slice the data any which way — by geography, age group, income, type of household...you name it. You can even see which business end up with the most of your hard earned money.
It's quite interesting to see the story Bundle tells via its data. But it also comes with a warning label. When I reviewed Mint.com (membership required) I said the following:
The second "Trends" section is what they call "SpendSpace." Here you can choose a category and a geographical location and see how your spending compares to others across the country. You can even compare your spending by merchant.
Caution #7: This is one of the most interesting, addictive, and useless features in Mint. Why should I care if I spent less on "Hair" than someone in Cleveland? Or more at Old Navy than your average Alaskan? I shouldn't. It's not going to change my spending decisions one cent. Nevertheless, like much of the Web, it's a fascinating time waster.
This type of reporting is more-or-less the point of Bundle. Yes, there are other features like "Discoveries" which is a blog aggregate, and a spending quiz that groups you into a "spendtype." But the primary reason to visit Bundle is to, as the site says, "... see how people like you spend and save money...".
I'm not sure how actionable the data is (though it probably has its uses). But it's certainly interesting, and a little bit addictive. So consider yourself warned.
It's no secret that interest rates for money market funds are scraping bottom. Even the top recommendation in our current money rates table (subscription required) is paying a scant 0.30%. Vanguard Prime, one of the best-known and most popular MMFs available, is yielding a barely noticeable 0.05%.
So is it time to abandon the money-fund ship and move your savings elsewhere?
Russel Kinnel, editor of Morningstar's FundInvestor newsletter (and director of the company's mutual fund research), is advising MMF investors to hang on rather than bailing on MMFs and moving to short-term or ultrashort bond funds.
We're still wary of ultrashort funds [following the implosion of several such funds in 2007 and 2008]. Short-term bond funds can work if some losses in the short run are acceptable — for example, if you are parking money between investments, plan to hold for a year or two, or just want a conservative bond holding in your long-term asset-allocation scheme....
But for other uses, such as emergencies or upcoming big-ticket expenditures, I'd stay with money market funds. Think about what will happen when interest rates start to rise. Bond funds will initially lose money because their superlow-yielding bonds will be discounted in the face of new higher-paying bonds. On the other hand, money market funds will quickly start to have higher yields, yet they won't lose money when rates go back up.
Kinnel concedes that MMFs aren't exciting, "but money market funds are there to serve in an emergency. Insurance always costs you money, and that's how I'd look at money markets."
Another practical matter is simply: Is it worth the trouble to switch? A Los Angeles Times story (titled, "Look, Ma, Nearly No Yield") quotes Peter Crane, head of money-fund research firm Crane Data: "My general rule is, if you're not going to make $100 more [in interest] by switching, don't bother."
Although 2009 was the toughest year on record for money funds, the MMFs recommended by SMI outperformed the overall field (for the 12th year in a row). Details are available for SMI web members in our February Level 2 article.
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