Tradeoff for safety is low interest rate

  • McClatchy Newspapers
  • Friday, March 19, 2010 2:38pm
  • Business

Question: Where can my parents park $132,000 for a year or two to get a better return than the 1.1 percent on their current CD?

Answer: Unfortunately in these days of low interest rates, your parents do not have many options without either locking up the funds in a longer-term (investment) or taking additional risk that ultimately could result in some loss of principal.

Due to the short timeframe investing these funds, there is a trade-off: By not taking any real risk with the principal, your parents are giving up potential long-term rewards.

I would advise researching local credit unions. Some have certificates of deposit where funds can be withdrawn as needed. Your parents would have the liquidity they wanted and still could achieve higher interest rates than a normal savings account.

Another option would be online banks, such as (Charles) Schwab Bank or E-Trade. For example, I just looked at the ING online checking account, which is currently paying 1.25 percent APY for a deposit of your size. Not too bad by today’s standards while still preserving your liquidity.

You will want to do a significant amount of research before deciding where to deposit these funds. I would also make sure the funds are covered by FDIC insurance.

—Michael R. Tate, investment adviser

Q: My 82-year-old mother has decided to sell her house in Los Gatos, Calif., and move into a senior living community. She bought the house in 1975 for about $42,000 and plans to list it for about $700,000. She is very worried about capital gains on the house, since she needs this money to live on for the rest of her days. She has roughly $10,000 in the bank and about $75,000 in debt from a $150,000 line of credit on her home. Her only income is $700 a month from Social Security. How big a hit will she take from capital gains/taxes when her house sells? Is there any way she can protect or shelter this income?

A: Assuming she has lived in the house for two of the past five years, she will be able to exclude $250,000 of the gain when calculating the taxes due (married couples can exclude up to $500,000).

The cost basis of the home is not only the purchase price, but also the cost of any improvements (new roof, kitchen remodeling, etc.) and her expenses in selling the home. This total cost basis would be deducted from the sales price to determine her capital gain.

The good news is that the current long-term capital gains tax rate is only 15 percent and may even be zero if her taxable income is low enough. Before selling the house, be sure to discuss her situation with a qualified tax professional.

—Susan Soesbe, certified financial planner

Talk to us

> Give us your news tips.

> Send us a letter to the editor.

> More Herald contact information.

More in Business

A closing sign hangs above the entrance of the Big Lots at Evergreen and Madison on Monday, July 22, 2024, in Everett, Washington. (Ryan Berry / The Herald)
Big Lots announces it will shutter Everett and Lynnwood stores

The Marysville store will remain open for now. The retailer reported declining sales in the first quarter of the year.

George Montemor poses for a photo in front of his office in Lynnwood, Washington on Tuesday, July 30, 2024.  (Annie Barker / The Herald)
Despite high mortgage rates, Snohomish County home market still competitive

Snohomish County homes priced from $550K to $850K are pulling in multiple offers and selling quickly.

Henry M. Jackson High School’s robotic team, Jack in the Bot, shake hands at the 2024 Indiana Robotics Invitational.(Henry M. Jackson High School)
Mill Creek robotics team — Jack in the Bot — wins big

Henry M. Jackson High School students took first place at the Indiana Robotic Invitational for the second year in a row.

The computer science and robotics and artificial intelligence department faculty includes (left to right) faculty department head Allison Obourn; Dean Carey Schroyer; Ishaani Priyadarshini; ROBAI department head Sirine Maalej and Charlene Lugli. PHOTO: Arutyun Sargsyan / Edmonds College.
Edmonds College to offer 2 new four-year degree programs

The college is accepting applications for bachelor programs in computer science as well as robotics and artificial intelligence.

FILE — Boeing 737 MAX8 airplanes on the assembly line at the Boeing plant in Renton, Wash., on March 27, 2019. Boeing said on Wednesday, Feb. 21, 2024, that it was shaking up the leadership in its commercial airplanes unit after a harrowing incident last month during which a piece fell off a 737 Max 9 jet in flight. (Ruth Fremson/The New York Times)
Federal judge rejects Boeing’s guilty plea related to 737 Max crashes

The plea agreement included a fine of up to $487 million and three years of probation.

Neetha Hsu practices a command with Marley, left, and Andie Holsten practices with Oshie, right, during a puppy training class at The Everett Zoom Room in Everett, Washington on Wednesday, July 3, 2024. (Annie Barker / The Herald)
Tricks of the trade: New Everett dog training gym is a people-pleaser

Everett Zoom Room offers training for puppies, dogs and their owners: “We don’t train dogs, we train the people who love them.”

Andy Bronson/ The Herald 

Everett mayor Ray Stephenson looks over the city on Tuesday, Jan. 5, 2015 in Everett, Wa. Stephanson sees  Utah’s “housing first” model – dealing with homelessness first before tackling related issues – is one Everett and Snohomish County should adopt.

Local:issuesStephanson

Shot on: 1/5/16
Economic Alliance taps former Everett mayor as CEO

Ray Stephanson will serve as the interim leader of the Snohomish County group.

Molbak's Garden + Home in Woodinville, Washington will close on Jan. 28. (Photo courtesy of Molbak's)
After tumultuous year, Molbak’s is being demolished in Woodinville

The beloved garden store closed in January. And a fundraising initiative to revitalize the space fell short.

Everett Mayor Cassie Franklin, Advanced Manufacturing Skills Center executive director Larry Cluphf, Boeing Director of manufacturing and safety Cameron Myers, Edmonds College President Amit Singh, U.S. Rep. Rick Larsen, and Snohomish County Executive Dave Somers participate in a ribbon-cutting ceremony on Tuesday, July 2 celebrating the opening of a new fuselage training lab at Paine Field. Credit: Arutyun Sargsyan / Edmonds College
‘Magic happens’: Paine Field aerospace center dedicates new hands-on lab

Last month, Edmonds College officials cut the ribbon on a new training lab — a section of a 12-ton Boeing 767 tanker.

Gov. Jay Inslee presents CEO Fredrik Hellstrom with the Swedish flag during a grand opening ceremony for Sweden-based Echandia on Tuesday, July 30, 2024, in Marysville, Washington. (Ryan Berry / The Herald)
Swedish battery maker opens first U.S. facility in Marysville

Echandia’s marine battery systems power everything from tug boats to passenger and car ferries.

Helion Energy CEO and co-founder David Kirtley talks to Governor Jay Inslee about Trenta, Helion’s 6th fusion prototype, during a tour of their facility on Tuesday, July 9, 2024 in Everett, Washington. (Olivia Vanni / The Herald)
State grants Everett-based Helion a fusion energy license

The permit allows Helion to use radioactive materials to operate the company’s fusion generator.

People walk past the new J.sweets storefront in Alderwood Mall on Thursday, July 25, 2024, in Lynnwood, Washington. (Olivia Vanni / The Herald)
New Japanese-style sweets shop to open in Lynnwood

J. Sweets, offering traditional Japanese and western style treats opens, could open by early August at the Alderwood mall.

Support local journalism

If you value local news, make a gift now to support the trusted journalism you get in The Daily Herald. Donations processed in this system are not tax deductible.