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On money

Checking account no place to park money

By HELEN HUNTLEY
Published April 2, 2006


Are you the type who keeps a hefty balance in your checking account "just in case?" If so, higher interest rates mean your caution is costing you big time.

Thanks to the Federal Reserve's push, short-term interest rates are at their highest level in five years.

The highest-yielding money market mutual funds and bank money market accounts are paying between 4 and 5 percent interest, which means every $10,000 you keep in no-interest checking is costing you between $400 and $500 a year in potential income.

Of course there are good reasons to keep some money in an ordinary checking account you can use to pay your routine bills and can tap via ATM for spending money. I do it.

Many higher-yielding accounts have restrictions on the number of withdrawals permitted each month or the minimum size of each check. The banks that offer these accounts may not have as many free, easily accessible ATMs as the big banks, an important factor for some people.

However, it's not unusual for retirees to go overboard, keeping a balance of $10,000 or $20,000 or even more in checking accounts paying 1 percent interest or nothing. Some banks encourage this by offering tiered checking. You earn a little more interest when you have a large account, but not as much as you would if you transferred your money to a different type of account.

I don't believe in constantly moving money to chase the highest yield of the moment; another 1 percent on your checking may not be worth the hassle. But an extra 3 or 4 percent? You're talking big money if you have a large account.

If you don't mind tying up your money for a year or two, you can earn 5 percent on a CD. But be careful about locking your money up for longer than that because interest rates cuold go higher.

Some of the nation's best high-yield options are listed in the Times business section on Sundays, with a small supplemental listing inside the section on Tuesdays. You also can find high-yield offerings online through sites such as www.bankrate.com

Last year my husband sold all the junk we had accumulated in our garage over the years on eBay. I'm guessing he made about $7,000. These are items we paid retail for, but sold at a much lower cost. Do we have to claim it on our taxes?

Selling a few items at a loss isn't something you need to report. But if you're selling thousands of dollars worth, even at a loss, you're edging into gray territory.

"I don't think I would report anything, but I would have documentation in my files explaining what was sold," said St. Petersburg CPA Celia Hall. "If they want to err on the side of extreme caution, they could disclose the money they got and the cost. The loss would be a personal loss and not deductible."

The best way to keep the IRS happy is to take a business-like approach to selling, keeping records of costs, which you can deduct from your proceeds. If you don't have a receipt showing what you paid for an item, try to establish the cost.

"The more dollars involved, the more incentive you have to put some time and effort into reconstructing the cost," Hall said. If an item cost thousands of dollars, you'd certainly want to do some research and maybe even hire an appraiser to help you determine what items like yours sold for at the time you made your purchase.

Of course if you make a profit, you're required to report it to the IRS and pay taxes on it. If you're shopping the flea markets on weekends and reselling your purchases, you should report your activity even if you lose money. You have a hobby that has the potential to become a real business.

Is there a way a husband can file as head of household and not claim his wife?

Yes, if they did not live together for the last six months of the year and he meets the other requirements for filing as head of household. When married couples live together, their only options are married filing jointly and married filing separately.

Helen Huntley writes about investing and markets for the Times. If you have a question about investments or personal finance, send it to On Money. We'll try to answer those we think are of greatest reader interest. All questions must be submitted in writing, but readers' names will not be published. Send questions to hhuntley@sptimes.com to Helen Huntley, Times, P.O. Box 1121, St. Petersburg, FL 33731, or log onto www.sptimes.com/blogs/money where you also can see other questions and answers.

[Last modified April 2, 2006, 01:23:12]


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