Understanding banking terms key to service satisfaction

Dear Bruce: I opened a sizeable money-market account at a local bank. A couple of months later, I noticed an ad in the paper from this same bank advertising a money-market account with a different title, with an interest rate of 1 percent more. I called the bank to see if my money-market account interest rate also was increased, and they said no. I have always thought that money-market accounts adjust to pay the current short-term interest rate. I see the above practice as something of a scam, allowing the bank to attract new money without paying their existing customers the prevailing rate. I told them so when I withdrew my funds. Am I wrong to be displeased with their business practice? – R.C. Ventura, Calif.

Dear R.C.: You say that you opened a “money market” account. That is the name that the bank has titled it. They started calling them money-market accounts to compete with “money-market mutual funds,” which are an entirely different animal. In a money-market mutual fund, you own shares that will go up and down with the rate of return on the fund. A money-market account is simply a savings vehicle for an agreed-upon interest rate. Some do adjust, most do not. On the other hand, if interest rates were to fall on a money-market mutual fund, the rate of return would diminish. In your bank account, you will get whatever the agreed upon return was until the end of the time period. I don’t think your quarrel is with the business practice as much as your confusion of terms.

Dear Bruce: My wife, an Australian citizen, has had an inheritance in a regular bank account in Australia for some years now. We haven’t tried to transfer the account to the United States, as exchange rates were not looking good. The dollar has now devalued significantly and the last exchange rate we saw was $1.37 Australian equaling $1 American. What would be the easiest and least expensive way to have the money transferred to her here? She has relatives there who could withdraw the money and send it here, but we don’t know if that’s legal and if the best exchange rate would be available. We’re looking at approximately $160,000 Australian. We really don’t need the money, but we fear problems if my wife and/or both of us become incapacitated or die. – A.E., Las Vegas, Nev.

Dear A.E.: Moving the money from Australia to here would be a simple matter. Go to your bank in Las Vegas. They will have a correspondent bank in Australia that will wire-transfer the money. You should know that this transaction will be reported to the Internal Revenue Service when it hits the U.S. bank. That is the law. There may be taxes due, and that’s something that your accountant would be able to answer. As to the exchange rate, they are constantly in flux. The value of our dollar versus the Australian dollar or the Japanese yen, the Euro, etc., literally changes on an hourly basis. Whether this is the best time to make the exchange is a guess that money speculators are constantly making. The actual transfer from the bank in Australia can be done with no difficulty. Check with your bank and they in turn will determine what documentation they will need from your wife in order to transfer the money.

Dear Bruce: Having accumulated bonds over the years at the rate of one per month or more, they are reaching maturity where they will no longer pay interest. Other than cashing them in month by month, what alternative do I have to receive maximum benefit? I have been cashing them in six months at a time. – F.L., via e-mail

Dear F.L.: When the bonds are matured, it’s time to cash them in. Whether you wish to reinvest in savings bonds is up to you. You may consider purchasing long-term U.S. Treasury instruments; they will give you a safe and liquid investment. Treasury instruments can be purchased directly or through a bank or a broker.

Dear Bruce: My wife and I are both preparing for retirement within the next two years. We own two homes, one that we live in worth approximately $800,000 and the other, which we rent out, worth approximately $500,000. The one that we live in has a principal balance of $198,000, and the rental house is paid for. My individual retirement accounts and Social Security net me about $1,550 a month. When I close my business next year, that will be it. I’m a sole practitioner lawyer and, at 75, it’s time to close the doors. My wife has two more years to go for her retirement. Her pension plus Social Security will net her about $1,450 a month. We have a small amount of stock, which is worth about $7,000. We have two vehicles, which are paid for, and about $180,000 in certificates of deposits that are only getting about 2 percent. Where do we go from here? I’m tired of maintaining the rental house, and it’s an 80-mile trip. We are concerned about taxes. – J.D., Calabasas, Calif.

Dear J.D.: The piper must be paid. You know that you could sell the home that you are living in and very likely keep most of the money, since you have a $500,000 federal tax exemption. You might consider doing that and moving into the rental property, keeping that as your principal address, netting another $500,000, and then establishing yet another home in perhaps a less expensive area. While your net worth is substantial, a $200,000 mortgage with the income you’ve described is way too high.

Bruce Williams is a national radio talk show host and syndicated columnist.