Category: Personal Finance

One of the more common questions I get at this site is “Will there be a stimulus check in 2020?”.  Well, surprise, surprise – it looks like there definitely will be a stimulus check in 2020.  A Corona Virus stimulus check to be exact.

Why do people keep asking this question?  Well, back in 2008, the US government gave out $600 stimulus checks to most Americans.  Needless to say this money was very well received and I’m sure most people wouldn’t mind seeing more of those checks.

Who doesn’t like free money?

History of the stimulus check

In 2008, a $600 stimulus check was paid out to most taxpayers in an effort to boost the economy by getting more cash into the hands of people likely to spend it.

In 2009, a $250 stimulus check was sent to all recipients of Social Security (retired people) and SSI (Supplemental Security Income) for disabled people.

Will there be a CoronaVirus check this year?

The current administration is working on a giant stimulus bill which contains Corona Virus or Covid-19 stimulus checks.  The amount will be $1,200 per person or $2,400 for a couple.  Parents will get $500 per child under the age of 17.

The payouts get phased out if you make enough money.  The stimulus check will start getting reduced if you make more than $75,000 and will be eliminated if you make more than $99,000.

What is a stimulus check?

A stimulus check is a check mailed out to a significant number of Americans in order to give government tax money to those most likely to spend it and help stimulate the economy.

Summary

For the first time in a long time – the American government will be paying out stimulus checks because of the CoronaVirus epidemic.  $1,200 per person is an impressive financial commitment to get the country back on track.

Will there be another $250 stimulus check for SSI recipients?

Will there be another $250 stimulus check for Social Security recipients?

 

 

hello there

After a multi-year hiatus, Mr. Cheap has returned to blogging at http://moneytimeblog.com.
Posting on topics from investing to careers to arguing with Mike to frugal living such as this post.

Network television and cable TV generally strikes me as one of those things that will seem very strange to the next generation. “What do you mean you had to turn on your TV at a specific time to watch something?!?!” our children will ask us, with the same disdain we asked our grandparents about using an outhouse.

Costs for cable typically range from $11-20 a month for very basic access through to $100 and up for a variety of premium channels and extra features.

While you won’t get the exact same experience living without cable, you can “cut the cord” and get a comparable – and in many ways superior – experience.

Over The Air

Years ago there was talk about phasing out over the air TV, where you use an antennae for reception. When I bought the house my wife and I currently live in, there was a massive antennae running up the side of the building. I mentioned to a friend that I was going to pay to have it removed, and he was horrified. He said it would be an excellent way to get uncompressed, high-definition channels.

After playing around with it and running some cables, it turned out he was right! It dramatically increased the number of channels we could get compared to the little indoor antenna we were using before, and as long as the weather is clear, reception is close to perfect. We get Fox, CBS, ABC, PBS and a bunch of other things. This is pretty well equivalent to the basic cable package, and there’s absolutely no monthly cost to it.

Movies and TV Shows

You don’t get the exactly same selection, but Netflix ($8 / month) and Amazon Prime ($100 / year, with free shipping of Amazon purchases) provide on-demand viewing. My experience with both services is that they don’t have everything you want to see, but they have more than enough that you’ll be willing to watch. Hit shows will often come to these services after a year or two delay, and these days some of the hot shows debut on them – e.g. House of Cards, Orange is the New Black and Mozart in the Jungle.

If you’re willing to walk on the wild side, more options for this below, you can share an account with family or friends and cut your costs further.

DVDs

I never touch the things myself, but DVDs are another alternative. If you’re the type of person who likes to binge watch long running shows, you can inexpensively rent or buy entire series – or borrow them from a friend or library for free.

Sports

For quite a while I told people that cooking and real estate shows would be the biggest things they’d miss without cable. These are now more available than before, so the only big thing I think people will miss is sports. Obviously there will be loads of sports on the network channels, but for people who like to watch things that only air on the specialty sports channels, you pretty well need cable.

I have zero interest in sports, so this isn’t any sort of loss for me.

Children’s Shows

I don’t have kids, but my understanding is that it’s very easy to get banks of whatever show your kid is into – Teletubbies, Barney, The Wiggles or whatever is hot now. I just typed “The Wiggles” into Google and there are 146,000 results, including tons of full episodes. When I was visiting a friend recently, whenever his son would get restless he’d just turn on a 9 hour playlist of Wiggles and his son would be quietly hypnotized.

Watching Video Files

If you’re willing to illegally pirate TV shows and movies, you’ll have an unsurpassed selection of entertainment. Using torrenting or other options, you download video files to your computer and can watch them there. A better set up is to deliver the video files to your television. A Chromecast combined with the free app Videostream is one easy way to do this. In our house we currently use a Roku 3 and Plex software. A media center entails having a computer permanently hooked up to your television. Each of these options will let you use a remote control and easily navigate to find your content. Most of these also let you watch Netflix, Amazon Prime and other options on your TV.

If you like the sounds of this, but aren’t willing to download illegally, there’s a small amount of content that can be legally downloaded and watched. “Star Trek: Phase II” is an example of this, it’s a fan made continuation of the original Star Trek series.

As you may suspect, it’s terrible.

Welcome to the Future!

Other than sports, we’re really in a golden age of entertainment. It’s easily accessible for far less than $100 per month.

Read more by Mr. Cheap over at Money Time.

New year and time for a new post!

I like to measure the performance of my investment portfolio every January to see how I’m doing.  This year was a banner year for equities and my portfolio went up 19.9% which is pretty good for  a 75% equity/25% fixed income mix.

It’s been said that investors who are in the accumulation phase should be happy when markets go down, so they can get more for their investment dollar.  While I don’t disagree with that idea – in practice, it might not work out so well.

As someone who works in the financial industry, I know that my job prospects go down exponentially with the markets.  A prolonged bear market might be good for a long term investment strategy, but if the investor doesn’t have a job, then it’s not really going to matter much, because they won’t be able to make any contributions.

Even if you don’t work in the financial industry, the markets are often loosely tied to the general economic health of a country.  Think of the great stock market crash in 1929 and the ensuing depression.  Did those people in bread lines really appreciate the incredible investing opportunity they were missing out on?  😉

Market returns in 2013

For a more complete set of returns – check out http://www.canadiancapitalist.com/asset-class-returns-for-2013/.

Here are the relevant equity returns for my portfolio:

• Canada 13%
• United States (in Canadian dollars) 41.5%
• Europe/Asia 31.3%
• Canadian dollar lost 6.5% against the US dollar.  This helps increase any non-Canadian holdings

My allocation

My portfolio allocation is 75% equity and 25% fixed income.  Here are the exact allocations:

Asset class	ETF	Target (%)
Short term bonds	XSB/BSV	20
Real return bonds	XRB	5
Canadian equity	XIU	11
US equity	VTI	32
International equity	VEA	32

 

I’ve been a good little indexer this year, so my actual allocations were pretty close to those numbers.  My overall return in 2013 was 19.9%.

Past returns

Here are my returns over the last eight years:

Year	Return(%)
2006	14.7
2007	4.1
2008	-17.0
2009	20.24
2010	7.3
2011	-1.8
2012	13.3
2013	19.9

My annualized rate of return over the seven years is 6.9%. At that rate, $100,000 invested eight years ago would now be worth $170,569.

The rate of inflation over the last six years has been pretty low at just under 2%, so my annual real return is almost 5%, which is pretty reasonable.

I have a relatively low amount of Canadian equities (11%) which helped this year as my non-Canadian equities performed much better. This doesn’t mean anything, as there are other years where the Canadian index is the winner. My investment philosophy is to keep my investment fees low and diversify.

How did your investments do last year?

 

 

Updated April 21, 2013. 

The high interest savings account market in Canada is pretty diverse.  On one hand you have the established big banks that offer modest interest rates because most of their customers either don’t have enough cash to care about the rate or can’t be bothered shopping around.  On the other hand there are smaller banks and credit unions that offer much higher rates.

I’ve been one of those big bank customers who didn’t have enough cash to care.  In the last decade or so, most of our extra money has gone to maxing out my RRSP and paying off our mortgage.  Saving money outside our RRSPs wasn’t a priority.

A couple of years ago however, we started up a TFSA savings account in order to have a bit of an emergency fund/savings vehicle for large purchases.  That money has been stored at ING Direct and is currently earning 1.4% interest which isn’t the best rate available, but doesn’t seem too bad. 

Recently, my mother-in-law sold her condo and moved into a senior’s residence.  I’ve been entrusted to look after her savings and try to get a decent rate.  With that motivation, I finally took a good look at the high interest savings accounts available in Canada and had to make a decision about where to put her money.  With all this newfound knowledge, I can also think about moving our TFSAs to another bank to get a higher rate of return.

Streets and Allys

Until recently, one of the contestants in the Canadian high interest savings game was Ally Bank.  This bank was a leader in the marketing arena and they also had some pretty decent interest rates, although not quite as high as some of their competitors.

However, one of the big banks bought Ally and has made it clear that they didn’t make this purchase to obtain the high interest savings account clients who are basically being kicked to the curb.

Not being an Ally customer myself, this news didn’t concern me too much, but the information I’ve researched on interest rates will hopefully help any current Ally customers to find a new home.

The Rates

Enough of the blah blah – let’s get to the rates and then I’ll explain how I made my choice for the best savings account.

[updated/verified April 21/2013]

[table id=14 /]

 *These are temporary teaser rates.

Column explanations:

• Bank – Name of the bank.  You can use this to search for their website.
• Savings Account – Interest rate offered on the non-registered savings account.
• TFSA – Interest rate offered on the TFSA savings account.
• RRSP/RRIF – Interest rate offered on the RRSP/RRIF savings account.
• Online – Do they offer online banking.
• Guarantee – This indicates whether the accounts are protected under the CDIC (Canada Deposit Insurance Corporation) or the DGCM(Deposit Guarantee Corporation of Manitoba). 
• Quebec Eligible – Indicates if residents of Quebec are eligible to open an account.

My choice for mother-in-law savings (larger dollar amount of savings)

For my mother-in-law’s money, I decided to go with People’s Trust.  Their regular savings account has 1.90% interest and the TFSA is 3.0%, they have online banking and are insured by the CDIC.

I didn’t just choose the bank with the highest interest rate, there were two other factors which were also important to me.

1. Online banking.   This wasn’t a show stopper factor, but if a bank doesn’t have online banking they better have a pretty high interest rate to make up for it.  We need to do monthly withdrawals from this account.
   
2. CDIC coverage.  I’m not comfortable with the Manitoba credit unions because they are insured by a corporation which isn’t backed by the Manitoba government.  Given that they only offer 1/10 of a percent more than the highest CDIC insured rates, I don’t think it’s worth the extra risk to chase a small interest rate difference.

My choice for our TFSAs (more modest amount of savings)

I’ve also decided to go with People’s Trust for our TFSAs.  They have a really good TFSA rate and of course we will already be using them for my mother-in-law’s account.  They have online banking and are CDIC insured.

[EDIT – The original version of this article had a different choice for bank.  It was pointed out to me in the comments that People’s Trust does have online banking and with it’s superior TFSA rate (3%), they will likely be the best choice.]

It’s tempting to stay with ING, since we don’t have a huge amount of money in our TFSA and ING is very convenient and easy to deal with.  However, I’m hoping to add more to our TFSA in the future, so the interest rate difference will add up over time. 

General Recommendations for High Interest Savings Account

I’ve explained how I made my choice for the best bank to save money with, but there are a number of factors involved so I can’t just recommend one bank for everyone.  It depends on your scenario and your preferences.

Here are some things to think about when choosing a high interest savings account:

• Big bucks – Higher interest rates are more worthwhile for higher dollar amounts. For example if you have $100,000 in savings, an extra half percent is $500 per year or $42 per month.  That will add up to big bucks over a number of years.
• Longer time frame – The longer you will have the money in the account, the more worthwhile it is to go for a higher interest rate.  The extra money will compound and build over time.
• Convenience – Are you going to be making a lot of deposits and withdrawals?  Then look for a good online interface and easy access to your bank account.  I’ve been using ING and they have a great interface and easy access to the money.
• Insurance – All the institutions I’ve listed are insured by the CDIC or DGCM.  I’ve decided I only want CDIC coverage, but many savers will likely be ok with DGCM-protected institutions which offer slightly higher rates.

If you have larger amounts of money and some of it isn’t long term, it might be worthwhile to have two accounts.  One account for the portion that won’t be touched for a long time – go for the highest interest rate for this one.  The second account will be the ‘convenience’ account where the interest rate doesn’t matter so much since there will be a smaller balance and more transactions.

Ok, one recommendation

One recommendation I can make is for ING Direct.  I’ve been using them for a number of years and I think they are great.  The only drawback is that their interest rates are not all that competitive with some of the other banks.

However, if you don’t have a ton of money or your time frame isn’t that long and you want the convenience of a good interface and quick access to your money, the ING is definitely a good choice since the interest rate is likely a secondary consideration for you.

If you do set up an account with ING and want a free $25 deposited in your account after opening, then consider using my orange key code so I can make some money to feed my hungry kids (I get $25 as well) – my key code is 33089336S1  (that’s an “ess” near the end, not a 5).

More instructions on using my orange key code

How Does the CDIC Work?

The Canada Deposit Insurance Corporation is a federal Crown corporation backed by the federal government.  This institution will guarantee your savings at member institutions up to $100,000 per account type and per institution.

CDIC only insures savings products like bank accounts and GICs (with terms up to five years).  Investments such as mutual funds or stocks are not covered.

Any bank accounts (non-registered) at an institution will be covered up to $100,000 in total.  So if you have $80,000 in your chequing account and $70,000 in your high interest savings account at the same bank – the CDIC will only cover $100,000.  If you have more than $100,000 – consider opening up another account at a different institution to get more coverage.

RRSP, RRIF and TFSAs are considered different account types and each have their own $100,000 of coverage.  So if someone had $100,000 in their bank account(s) plus $100,000 in a RRIF, $100,000 in an RRSP and $100,000 in a TFSA all at the same bank – they would be fully covered by the CDIC.

Accounts with different names are also considered as separate for insurance purposes.  For example, someone with a bank account in their name and a joint bank account would have $100,000 coverage for each account because the names on the accounts are different.

How Does the DGMB Work?

The Deposit Guarantee of Manitoba is different than the CDIC.  It is not backed by any government either federal or provincial.  It is a corporation responsible for guaranteeing the deposits in Manitoba credit unions.

DGMB only insures savings products like bank accounts and GICs (with terms up to five years).  Investments such as mutual funds or stocks are not covered.

The amount of savings guaranteed by the DGMB is unlimited.  There is no $100,000 limit like the CDIC has.

The guarantee is available to any person depositing money to a Manitoba credit union regardless of their province of residence.

 If you have an experience with People’s Trust or any other bank mentioned – feel free to leave your thoughts in the comments.

I recently wrote about an analysis I did on my mortgage to see if it was worthwhile to refinance it.  According to my original analysis, it wasn’t since I would be more or less breaking even.  If I did end up making any money it would have been because of a good call on interest rates rather than the refi itself.  As an interesting side note – we found out the termination fee from both the mortgage company and our mortgage broker.  The mortgage broker’s termination fee was $300 higher which I guess would be their commission for ‘brokering’ the new mortgage.  Always check with the mortgage company for the details.

Mr. Cheap referred me to one of his earlier posts where suggested that a cheaper way to refinance was to make use of any pre-payment room to lower the termination fee.  He points out that you can borrow the money, pay down the mortgage and then get a new mortgage for the original amount and use the cash difference to pay off the loan.  Since the loan would be very short term, the interest should be minimal.

Let’s look at a simple example:

Joe has a mortgage for $150k at 5% interest, 5 year term and he is 2 years into the mortgage. He owes $100k on the mortgage at this point in time. His mortgage broker calls and offers a deal – for a $4,000 breakage fee he can get a new mortgage for 4%.

Joe does the math (without prepaying) and concludes that he would break even so it is not worthwhile.  Then he gets a call from Mr. Cheap explaining how to lower the termination costs by borrowing some short term money.  Joe can prepay $30k so he can lower the termination fee by $1200 to $2800.  Even if he pays $100 in loan interest then his profit is still $1100.

Needless to say Joe is pretty excited and goes ahead with the deal.

However that night Joe gets another phone call from someone named Mike who points out that he left out an important number from his original calculation.  Joe (and Mike) didn’t add the termination fee to the amount of the new mortgage.  Adding $2800 to the mortgage will increase his interest costs by $336 (for 3 years) which lowers his profit to $760.  Not bad, but it’s debatable whether it is worthwhile or not.

Blend and extend

“Blend and extend” sounds like a good recipe for a fancy drink.  It’s hard not to be positive about a smooth sounding marketing line especially when there are no termination fees to worry about.  But is it too good to be true?

A commenter on my blog  gave some details about his ‘blend and extend’

In our case we were 2 years into a 5 year fixed at 5.09%. By blending and extending we brought our rate down to 4.81% (for 5 yrs)
…
and it cost us a mere $75 to take that option and the paperwork was 1 page or 2. No legal fees or termination fees required in blending and extending.

As I interpret this – the ‘penalty’ is that he just got a 5 yr mortgage with a well-above market rate interest rate.  Right now you can get a 5 yr mortgage for just under 4% so the extra ~0.8% is the penalty.  This is not to say that ‘blend and extend’ is a bad deal, but rather that it’s probably not any better than a normal refinance where you pay the penalty and get a lower rate.

Switch to variable?

Another strategy is to pay the termination fee on your long term mortage and then go for a variable rate or 1 year deal.  The rates are so low that this is very tempting.  However, if you do this you are really just making a play on interest rates.  If you guess right then you might save a lot of dough, if you are wrong then you might be better just leaving things well enough alone.

What’s your story?  Have you refinanced lately?  Share ALL the details and why you think you are saving money.

Last week saw Barrack Obama re-elected as president of the US.  I can’t claim to fully understand the US government system, but the fact that the Republicans still hold a fair bit of power means that there will likely be a lot of conflict over the next four years rather than good governance.  It appears that their current power distribution is similar to Canada if there is a minority government in place.

On with the links

Rob Carrick of the Globe & Mail wrote a very good article called Three smarts ways to find a discount brokerage.  Rob was nice enough to include a couple of my articles, but that’s not why it is a good read.  His main advice is to use multiple sources of information on discount brokerages.  Here is a different link to the article if the first one is behind a paywall.

Rob from Canadian Mortgage Trends wrote about some differences between US and Canadian housing markets.  He’s not suggesting that the housing market in Canada won’t crash, but it’s important to note that there are some significant differences.

Ben Rabidoux has one of the better arguments as to why Canadian house prices will fall.  Now if he could just provide a timeline for that fall….

 Mike from Oblivious Investor has a very good piece on what to do about low interest rates?

Robb from Boomer & Echo compared some free chequing accounts.