Personal Banking E-Newsletter - December 2011

Using Annuities to Generate Retirement Income

An annuity is a contract between an investor and an insurance company in which the insurance company promises to make payments to the investor either immediately or at a future time. An immediate annuity, as its name suggests, offers payments that start immediately. With a deferred annuity, payments are delayed to a future date. You may be able to purchase an annuity either with a single payment or with a series of premiums. Details of annuities vary considerably, and it is important to familiarize yourself with the particulars before making a purchase.

Depending on the underlying investment, you may have a choice of a fixed annuity, a variable annuity, or an equity-indexed annuity.

Fixed Annuities
As their name suggests, these annuities typically present a guaranteed interest rate that is locked in for an initial period and may be adjusted thereafter, often annually. Earnings on the underlying investment accumulate tax-deferred and are not taxable until they are withdrawn, when they are taxed as income. Withdrawals before age 59 1/2 may entail a 10% penalty. Withdrawal options may include a lump sum or a lifetime stream of income. With a deferred fixed annuity, there may be surrender charges on withdrawals during the first several years of the annuity contract. Once the surrender period has expired, you generally can access your money without penalties.

Variable Annuities1
This type of annuity, in contrast, generates investment returns that fluctuate depending on how underlying subaccounts are invested. Generally, an investor (called an annuitant) may make an investment selection that may include stock, bond, cash equivalent investments, or some combination of these. As with many investments, the value of a variable annuity will change depending on the performance of the investments you choose.2

Risk tolerance and costs are important considerations to investigate when researching variable annuities as these types of investments are subject to investment risk, fees, and expenses. Expenses can include surrender fees, contingent deferred sales charges, mortality and expense risk charges, administrative fees, and annual contract fees. Any riders added to the annuity can also be subject to additional costs. The benefits of riders and annuities are subject to limitations and restrictions. Withdrawals are taxed as ordinary income.

Equity-Indexed Annuities (EIAs)
EIAs are another variation of annuity. They frequently offer a guaranteed minimum interest rate combined with an interest rate linked to the performance of a market index. The guaranteed minimum typically is 90% of the premium paid at a 3% annual interest rate.3 The index-based return is tied to an index, such as the S&P 500, that is identified in the prospectus.

The index-linked interest rate may be computed in a variety of ways. Some annuities present a participation rate (for example, 80%) that determines how much of the index's gain is credited to the annuity. There may also be an interest rate cap on how much an EIA can earn. For example, if an index linked to an annuity gained 8% and the cap rate was 6%, then the gain would be 6%. There are also a variety of indexing methods used to calculate the index-based return. When reviewing EIAs, be sure to read the prospectus for details and ask questions about anything you do not understand.

Determining Suitability
Whether an annuity is right for you may depend on how much you anticipate receiving from traditional sources of retirement income, such as Social Security or an employer pension. Also, many annuities require fees that impact an investor's total return. But if you need an additional source of retirement income, and the particulars are suitable for your situation, annuities may be worth a look.

1Variable annuities are long-term, tax-deferred investment vehicles designed for retirement purposes and contain both an investment and insurance component. They are sold only by prospectus. Guarantees are based on the claims-paying ability of the issuer and do not apply to a variable annuity's separate accounts or underlying investments. The investment returns and principal value of the available subaccount portfolios will fluctuate so that the value of an investor's unit, when redeemed, may be worth more or less than their original value. Withdrawals made prior to age 59 1/2 may be subject to a 10% IRS penalty. Surrender charges may apply. Gains from tax-deferred investments are taxable as ordinary income upon withdrawal.

Not FDIC/NCUA Insured -- May Lose Value -- Not Bank/CU Guaranteed -- Not a Deposit -- Not Insured by Any Federal Agency

2Before investing, investors should consider the investment objectives, risks, charges, and expenses of the variable annuity and its underlying investment options. The current contract prospectus and underlying fund prospectuses, which are contained in the same document, provide this and other important information. Please contact your representative or the offering company to obtain the prospectus. Please read the prospectus carefully before investing or sending money.

3Source:, "Equity-Indexed Annuities: A Complex Choice," April 22, 2008.

Because of the possibility of human or mechanical error by Financial Communications or its sources, neither Financial Communications nor its sources guarantees the accuracy, adequacy, completeness or availability of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information. In no event shall Financial Communications be liable for any indirect, special or consequential damages in connection with subscriber's or others' use of the content.

© 2011 McGraw-Hill Financial Communications. All rights reserved.

Holiday Sale Planning

Harnessing the power of the holiday markdown

Have a holiday check-list? Decorate the house, greet the in-laws, unpack the sleds and shovels… check, check, and double-check. But, are you preparing financially for the holiday season?

Black Friday and other holiday sales can be a double-edged sword for shoppers. Shop smart and you can save a lot, but fail to plan and it may cost you. Here are a few tips to help you harness the power of the holiday mark-down:

  • Create a budget – Whether it’s on an iPad or a post-it, have your budget written down. It’s the same principle as using a list while grocery shopping to avoid buying more food than you can eat before it spoils. A concrete set of spending rules will help keep you on task. Decide how much you’ll spend before you even look at the ads and you’ll be less likely to make impulse buys.
  • Charge it! – Don’t be afraid to use your credit cards when buying during holiday sales. Find out from your bank what spending benefits and/or rewards programs your purchases qualify for and what warranty coverage and return protections are included on credit card purchases. Paying with credit cards can also make returns easier to handle.
  • Look online – The vast majority of the US population has made an online purchase (94% according to a 2008 Nielsen survey) and as many as 23% shopped online on Black Friday last year. Visit each store’s site to see if you can buy the product cheaper in the store or online. If you plan to buy online, remember to factor shipping costs into your budget. Many retailers also offer internet-only coupons and/or additional discounts you can print off and bring along with you.
  • Don’t leave ads at home – Bringing ads and coupons along for the ride allows you to take advantage of price matching or “best price” sales. Proof that another store is selling the same product for less can be great leverage for the savvy shopper!
  • Make a schedule – Have a game plan prepared to avoid missing any sale times. Some stores have sales starting right when they open (the infamous “door-busters”) while others may not go into effect until a few hours after the store opens. Find out how many sale items will be stocked to avoid waiting in a massive line with nothing to show for it at the checkout. Plan your store-to-store route around sale times as well as store location.

With a little planning and some smart money habits the holiday sales season is reason to celebrate! Happy shopping!

How to Get a Perfect Credit Score

Paying attention to the details to help with lofty credit aspirations

There are certain things that we discover are just an illusion as we grow up: Santa Claus, the Easter Bunny and the Fountain of Youth are a few. However, much like Big Foot, one myth that persists well into adulthood, is the perfect credit score. Some swear they've seen it, others think it's impossible.

According to FICO, the company that designed our current credit model, these overachievers are out there. Craig Watts, senior manager for Public Relations for FICO, says that while most people score in the middle-to-low 700s on their credit scale, less than 1% of the U.S. population (about 1 million people) do, in fact, net a full score of 850.

Of course, a score that high isn't easy to achieve either. To reach the top tier you have to master not just the basics, maintaining positive payment history and a low debt to credit ratio, but you must pay attention to the details as well. In an effort to help those with lofty credit aspirations, below is a profile of what these credit superstars look like.

They Have a Long and Impressive Payment History and a Clean Record.
The bulk of your credit score is determined by your payment history and the amount of debt you may or may not have currently on file. Unsurprisingly, those with perfect credit scores use credit regularly while paying it off on time, every time. They also have a squeaky clean record. Ulzheimer explains that the credit elite have no debt to speak of. "No liens, no bank repossessions, no settlements," he says. "Nothing."

They Maintain a Diverse Set of Accounts.
According to McClary, credit lines fall into two major categories. Installment accounts are closed-ended and require consumers to pay a fixed amount each month until the entire balance has been depleted. These typically include mortgages or car loans. Revolving accounts, on the other hand, limit the line of credit, but have balances that fluctuate. These essentially are the accounts tied to the credit cards in your wallet.

Top credit scorers have a careful balance of both accounts on record. "They'll have a mortgage, a car loan and a few credit cards on file," McClary explains.

They Have a "Well-Aged" Credit Report.
"One advantage to being older is that you tend to have a longer credit history," McClary says. Keep in mind, though, that it's not your age, but the age of your oldest credit account on file that influences your overall score. As such, you may want to keep open that store charge card you opened up on your 21st birthday.

They Have a Very Limited Number of Credit Inquiries on Record.
On the other hand, those without a store charge card shouldn't simply open one frivolously. While having large number of credit card inquires on file won't dramatically decrease your score, it can keep you from joining the credit elite, especially if several inquiries are recorded over a short period of time. This is why you should refrain from opening up a litany of store accounts during the holiday season, no matter what type of discount the retailer is offering as an incentive to do so.

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Making Holiday Charity Contributions

Five tips to ensure your money goes to a good cause

From the Japanese earthquake and tsunami to the Joplin, Mo., tornadoes, 2011 has proved to be the costliest year on record for natural disasters across the globe - an estimated $265 billion in the first half of the year alone. In the wake of such devastation, you may feel compelled to act quickly. But you will maximize your gift’s impact if you take the time to research how a charity spends your money. Below are five things you should know before giving to a charity this holiday season.

  1. Avoid untested groups. Stick to charities that have a track record for relief work, such as the American Red Cross, Doctors Without Borders and the Salvation Army.

  2. Watch out for scams. The high-profile nature of some disasters makes them prime opportunities for con artists. For instance, up to 60% of the 4,000 charity Web sites that cropped up in the wake of Hurricane Katrina could have been phony. Be especially alert for sound-alike names, newly formed sites and forwarded e-mails claiming to be from disaster victims. Think twice before donating money over the phone, and be wary of outlandish claims. It’s disingenuous for a charity to say that 100% of your donation will go to the victims, because even a credit card transaction carries some administrative cost, says Bennett Weiner, chief operating officer of the BBB Wise Giving Alliance. Most reputable charities spend at least 75% on their programs and serv­ices.

  3. Do a little sleuthing. If you feel strongly about where your donation should go, you can earmark the money and ask the charity what happens once the specific need is met. Alternatively, consider making an unrestricted gift and let the professionals prioritize the projects that need funding. If you want to see how well the charity is allocating its money, you can check its IRS Form 990 filings, which most nonprofits are required to make public.

  4. Let the pros do it. There are also several organizations that will do the background checking for you, among them the Better Business Bureau and Charity Navigator. Donating to international charities can get tricky (and you won’t reap any tax benefits), so stick to U.S.-based charities with an international scope, says Miniutti.

  5. Claim a tax break. To deduct your donation, you must itemize your deductions. Then confirm that you are giving to a qualified organization. (You can search for the charity on Once you make the donation, keep a record. For contributions of $250 or more, you’ll need written acknowledgment from the charity. You must actually pay your pledge before the end of the year for the donation to count in that tax year; checks and charges to a credit card count even if they don’t clear until after December 31.

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Winter Car Maintenance Tips

How to keep your car running smoothly during the cold months

No doubt the first frosts have already coated your windshield, forcing you to dig out the scraper. As you adjust to the coming chill, give a thought to your ride, and check out these nine tips that will keep your car rolling smoothly through winter’s challenges.

We’re assuming you've covered the basics (such as the scraper!) and are up-to-date on your car’s regular scheduled service. Don't postpone that -- an annoyance in summer can be a hazard that strands you in the winter.

Don’t Make Compost in Your Car
As you tackle fall's bounty on your lawn, leave some energy for removing the leaves that find their way into your vehicle. Leaves, twigs and other organic matter can cause havoc with gutters on your house -- and the equivalent on your car. When debris builds up in areas of your car where water is supposed to flow out, you can get leaks or corrosion. The air plenum near the windshield is a classic spot where this can happen. If you have a sunroof, open it up and poke around in there, too. Sunroofs have drains that flow water that sneaks past the seals down to the ground. Leaf gunk in there can make for wet headliners or worse.

Winter Tires
So-called "all-season" tires have been on the market for decades. Coupled with front-wheel-drive and anti-skid systems, they have allowed many folks to avoid mounting a true snow tire for the winter months. But there are two trends in tires you should be aware of:

  • Styling priorities have led to manufacturers fitting wider, low-profile tires on a variety of cars. Wide and low profile, on balance, makes a tire worse in the snow. Pressures to improve tire fuel economy have also worked against the snow utility of all-seasons.
  • Winter tires have improved their behavior from the era of knobby snow tires. New tread patterns and rubber compounds make them quieter on dry roads, yet even more effective on frozen stuff.

If you choose to go with winter tires, note that vendors such as The Tire Rack and Discount Tire Direct offer packages with the tires already mounted on a new set of wheels. Switching the entire wheel for the winter is more cost-effective than having two sets of tires mounted on your existing wheels twice a year.

Wipers for Snow, Too
Fog, snow and rain will cut down your visibility in winter. Check your wiper blades, which have a lifespan of about a year. If your car doesn’t have the newer "beam blade" style wipers, consider a pair, especially for the winter months. The beam style blades don't have an external spring to freeze up. When snow or other freezing precipitation threaten, pop your wipers up when you park so they're not touching the windshield. This little trick will make it easier to scrape your windshield and reduce the chance that you burn out the wiper motor by having them turn on while the blades are frozen in place.

Make Sure Your Battery is Fully Juiced
Winter puts more stress on your battery, particularly if you park your car outdoors. Avoid the sinking feeling of hearing nothing when you hit the ignition with a proactive check of your battery and charging system now. Repair shops don't usually charge very much to load-test your battery, and some car-parts stores will do it for free. If you find out your battery's going south, you can replace it at your convenience, instead of being at the mercy of whomever your dead car’s been towed to. Note that some big-box stores such as Costco offer a good price on batteries for those of you willing to change one yourself.

Check Your Nethers
To improve aerodynamics and save fuel, today’s cars are equipped with increasingly elaborate underbody panels and low-hanging air dams. These can be vulnerable to damage, and driving over a snowdrift in the winter could turn a small problem into a more expensive one. Take a look under the car, starting from the front, to see if there's anything loose flapping about. Maybe you can just pop it back into place. Maybe a zip tie will take care of it.

The Antifreeze
This is many people’s first thought when it comes to winter car care. "Flush and fill" promotional signs abound at service stations as the weather cools. But chances are good your engine coolant (a better name for it) is just fine for the winter ahead. If you’ve followed your car’s service schedule regularly, give this pitch a pass. Most newer cars have been fitted with coolants that can last as long as five years or 150,000 miles. Read your owner's manual.

Check Your Tire Pressure
Here are two good reasons to get down there with the gauge and unscrew the valve caps as the weather cools:

  • Tires lose a pound of pressure for every drop of 10 degrees Fahrenheit.
  • An underinflated tire won't "bite" through snow down to the pavement as well as one at pressure. It's similar to hydroplaning on water -- and just as dangerous.

Don’t forget to put the valve caps back on when you're done. Letting in moisture, which then freezes, could let the valve core leak out air.

Survival Kit of Some Sort
Everyone should have a space blanket in the car, tucked in the glove compartment or some other storage space in reach of the driver. The most complete survival kit in the world won’t do a bit of good if you're upside down in a car you can’t get out of and the kit’s in the trunk. The shiny space blanket's ability to keep you warm could be a lifesaver -- and it takes up virtually no space and costs less than $10.

Additional things to add: whistle, plastic bag for gathering snow for water, plumber's candle & lighter, single-edged razor blade (cut up your upholstery for insulation), empty metal soup can (for melting snow with the candle). You can -- and perhaps should -- keep going (some people suggest packing a wordy novel). The more rural and remote your roads, the more you’ll want.

Wax the Lights
Okay, we admit it's a little detail, but in winter’s gloom and short days, every last lumen you can squeeze out of your headlamps is going to improve your safety. Here's an easy two-minute drill: Make sure the headlamps are clean of dirt, rub car wax (any type will do) on the lamps, let it dry and buff it off. And then apply a second coat. For bonus points, do the taillights. The slippery surface you leave behind will be less likely to build up an "icicle" coat when road slush refreezes on your car -- and will make it easier to remove it if it does.

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Layaway Makes a Comeback

What you need to know to avoid lofty charges

Like big hair and skinny jeans, layaway is staging a comeback. Invented during the Depression, layaway was the best way to make big purchases if you were strapped for cash up until the rise of the credit card in the mid-80s. Now, with many consumers wary of making large purchases on their credit cards, layaway is becoming a more popular option once again. With the holidays right around the corner, several retailers have brought back layaway plans to help their customers make big purchases. Here's what you need to know before choosing layaway to avoid paying unnecessary charges.

What is layaway?
In a nutshell, layaway plans allow customers to pay for purchases in interest-free installments. Yes, there's a catch. Consumers pay a layaway service fee and a percentage of the total purchase cost as a down payment, and cannot take possession of the layaway item until the purchase has been paid in full. There may also be additional fees if the customer cancels the purchase or fails to make payments on time.

What's the benefit of using layaway?
Unlike making large purchases with a credit card, layaway payments do not accrue interest, so the total price of the purchase is less than if it's bought on credit. Using layaway also discourages impulse spending, since consumers can't take the item home until it's paid off. Layaway plans also do not require a credit check. While you won't be able to take your purchase home until you've paid all your scheduled installments, the item cannot be bought out from under you. This is especially valuable for popular gifts during the holidays. Some online retailers even offer layaway as an option for customers.

Tip: Make your layaway payments with cash, checks, or a debit card rather than a credit card to avoid additional charges.

Is layaway better than using a credit card?
That depends. The most common time-frame for a layaway plan is 60 days. If you're shopping for holiday gifts too late, a credit card may be the better option for those items that you need right away. Keep in mind that if the retailer you've made a layaway purchase from goes bankrupt and you're not able to pay off the item in full, you will lose it. On the flip side, missing layaway payments will not adversely affect your credit score (though you'll have to pay a fee to the retailer), and since no interest accrues on the purchase balance you'll know the exact amount of each payment.

Layaway is a fantastic debt-free option, but read the fine print first. Do the math for your intended purchase. If the layaway service charge is less than the item price with your credit card's interest rate factored in, go old-school and take advantage of layaway!

Source: Wisconsin Banker’s Association via Mark Thorn