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My Money Blog:

Well, the CPI-U that I recently questioned went up 0.9% in March alone. I guess you can’t hide everything. So, is it time to buy some Series I bonds? First, refer back to this earlier post for a primer as well as some background information. You can ignore the predictions since we have the actual data now.

Calculating the Rates For Next 12 Months
If you buy by the end of April, the fixed rate portion of I-Bonds will be 1.2%. You will be guaranteed an variable interest rate of 3.08% for the next 6 months, for a total interest rate of 4.28%.

After that, the rate will adjust every 6 months based on the previous 6 month’s worth of inflation data. The next adjustment will be in May, based on September-March 2008 data. We can effectively predict this now using the prediction method explained here:

Sept 2007 CPI-U was 208.490. March 2008 CPI-U was 213.528. 213.528/208.490 = 1.02416, or a semi-annual increase of 2.416%.

Total rate = Unknown fixed rate + 2 x Semiannual inflation rate + (Semiannual inflation rate X Fixed rate)

If we assume a fixed rate of the current 1.2%, we get
Total rate = 0.012 + (2 x .02416) + (.012 x .02416)
Total rate = 1.2% + 4.86%
Total rate = 6.06%

Possibly Good Short-Term Investment?
A known “trick” with I-Bonds is that if you buy at the end of the month, you’ll still get all the interest for the entire month as if you bought it in the beginning of…

My Money Blog:

When I first heard of SmartyPig, it sounded like a pretty cool idea. Give us back the piggy banks we had as kids, but make it virtual and public so that others can help directly with our goal. But a bunch of fees made it expensive and my enthusiasm disappeared. However, the folks at SmartyPig seem to have really listened to feedback, made some changes, and now I think it is deserving of another look. I opened an account to check things out. So, how is service different from a traditional bank?

Multiple Accounts For Specific Goals
With SmartyPig, you can create as many separate accounts as you want for different goals. Tuition for your kid, a Wii, engagement ring, whatever. Why not, they are all free. Yes, you could simply use one big savings account and a notepad for all of this, but if this convenience helps you visualize your goal better then what’s wrong with that? I use mental accounting like this all the time.

You Must Setup Automatic Contributions
No broken resolutions here. You must set up regular contributions of at least $25 per month from an external bank account. You also must add a $25 contribution to start, and your goal must be at least $250. Here is a screenshot of setting up a goal:

Friends and family can help contribute to your goal. You have the option of making your goal public. Grandma can then send over some money for little Jane’s tuition via credit card, but will…

make it! Finance and Investment Blog:

I was talking with a bank manager a few weeks back who told me something I was quite surprised to hear, and hadn’t considered, about fixed rate loans and break costs. Naturally, if you pay out a fixed rate loan early (lets say, due to a forced sale), your bank will generally sting you for lost interest in the form of break costs. How break costs are calculated seems to vary widely, but there is a situation where fixed rate loans can be escaped without break costs if you ask.

In the current environment of rising interest rates, many people are still sitting on fixed rate loans of as low as 6%. These are in general no longer profitable for the bank given that even the cash rate is now 6.75% and most fixed rates are sitting above 8% and are set to go higher due to current economic conditions here and overseas.

If you want to sell such a property, or pay it out early, for whatever reason, you may be holding back because the break costs can be significant. Your bank is likely to charge you these break costs unless you ask. I personally have a fixed rate mortgage on an investment property at 7.1% and the bank manager indicated to me that I could discharge this loan without any penalty if I choose to sell the property.

If you ever find yourself in this situation, talk to your bank manager! Note that not all…

make it! Finance and Investment Blog:

Most variable rate home loan products today come with the option of 100% mortgage offset through the use of savings accounts. Many people are ignoring these to opt for a fixed rate and surety of payments, and as far as I am aware there are no fixed rate products that offer 100% offset (please contact me if you know of any).

UPDATE: 

CUA appears to offer fixed rates in combination with 100% offset. It will be interesting to see if their pricing relative to variable rates differs substantially from other fixed rate offerings to take this into account. Link: CUA’s Fixed Rate Loans

For the disciplined, these can be one of the best investments going. They offer substantial tax benefits, and a very high effective return — if you are disciplined enough not to spend money you have access to. More on that later …

I’ll start with a brief introduction of how a mortgage offset facility works.

The facility basically entails having a bank account opened, of which the balance will be offset against your home loan when calculating interest. Most mortgage offset facilities that I am aware of allow you to have multiple accounts offsetting your loan, without charging any additional fees.

When calculating interest on your home loan, which is calculated on a daily basis (and usually charged monthly), the bank will use the following formula (simplified):

Interest = ((Balance of loan) - (Combined balance of offset accounts)) * Interest Rate

Without an offset facility the formula is simply:

Interest =…