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Ask Farnoosh: Risk-Free Investments, Working From Home, and More

Where to invest $25K?

I have a little bit of money I want to invest (about $25,000). I want to invest it in a risk-free place (at least to guarantee the original capital), but with a good interest. Usually, bank accounts give just about 1% APY, which I consider very low. Do you have any suggestions?
— Corina

Dear Corina,

Ah, the perennial hunt for yield. How to avoid big gambles with your money but do better than the average savings account rate, which pays less than 1% a year? And when you consider inflation is around 1.4%, there’s plenty of incentive to find a richer alternative.

Before you look at other risk-free investment options, Greg McBride, Senior Financial Analyst at Bankrate.com, recommends assessing your finances. Are you paying down credit-card debt and outstanding student loans? Do you have an emergency savings cushion equal to at least six months of living expenses? Once you’re set on those, you can look into stashing your money in lower-return investments.

As an alternative to a traditional savings account, consider a rewards checking account, offered by some banks and credit unions. Yields on checking rewards can top 2% — but you’ll encounter some stiff requirements to qualify. For most accounts, you have to maintain a minimum balance and do a certain number of transactions each month. ABCO Federal Credit Union in New Jersey, for example, offers a 2.52% yield on accounts up to $25,000, without any minimum requirement; but you must be enrolled in online banking, clear at least one automatic payment each month, make at least 10 debit-card purchases, and conduct one financial transaction — such as a transfer or bill pay — each month. Without fulfilling those criteria, the yield on the account can drop to as low as 0.05%. Be sure to read the fine print in any and all of these high-yield account offers.

If you’re willing to take on a little risk, McBride recommends looking at high-quality investment grade bonds. These are company bonds that have the best ratings and lowest chance of default. Illinois Tool Works (ITW), for example, recently offered 30-year debt with a yield of 3.9%. Keep in mind, though, these investments aren’t risk-free, as higher interest rates and lower credit quality could hurt your returns. Municipal bonds are another option. The income from the interest on these bonds isn’t taxed on the federal level, and in some cases, is exempt from state and local taxes.

Working from home

My daughter has been looking for a job that will allow her to stay at home with her two small children. How can you tell if an online job is legit or a scam? She checked out elance.com but wasn't exactly sure how it worked. Any advice would be great!
— Valerie

Dear Valerie,

Pursuing part-time work from home — especially for stay-at-home mothers — is a great way to stay in the job market and enhance her family’s financial security. Elance.com, as you mentioned, is one of the largest job databases out there, with over 160,000 businesses — big and small — posting positions. Elance reviews and vets each job listing to make sure it’s legitimate and requires several forms of verification, including email and credit card.

Elance says freelancers can make anywhere from $100 writing bios for web sites, to as much as $25,000 developing a mobile app. The majority of freelancers using the site were hired for web development, graphic design, writing, editing, online marketing, and administrative and research positions. A few other work-from-home options include: Tutor.com, where average pay is $10 to $14 an hour, and TaskRabbit.com, a small-jobs outsourcing service where you can get $40 to $50 for picking up someone’s dry cleaning or doing their grocery shopping. If you own an up-to-date computer and a landline phone, you could also start a home-based call center. Many companies, such as Hilton Hotels and 1-800-Flowers, hire customer service reps who work from home.

If you’re ever unsure about an online job posting — and there are countless scams out there — I suggest doing an online search for the company to see what has been written about it, using the company’s name and the word “scam” or “fraud.” Also, check with your local Better Business Bureau (bbb.org) if there have been complaints filed. A definite red flag is if a company requires you to pay a fee in order to secure the job.

Should I consolidate my loans?

I recently graduated from Rutgers University with a Master's in Social Work. I have been on three interviews, but have not landed a job. I have one credit card wit Capital One, a checking account at TD Bank and a savings account at the Credit Union of New Jersey. I have a US Department of Education loan, a Sallie Mae loan, and a Citibank loan. My two private loans have different interest rates. I have recently been advised that I need to start paying my undergraduate loans from Citibank back. My concern is that I feel like I will be paying my loans forever and if I should try to consolidate my loans into one.
— Celese  

Dear Celese,

Loan consolidation is a great way to simplify your loan payments, but the rules for consolidation sometimes make it hard for borrowers to qualify. First, keep in mind that private loans can’t be consolidated with federal loans. And some private lenders don’t allow for consolidation at all. Your bank — Citibank — is one such bank. So, unfortunately in your case, you’ll need to continue paying each lender separately.

That said, if you’re out of work and unable to pay your loans, you may qualify for a deferment or forbearance. Citibank, for example, allows you to enter forbearance, which is a temporary suspension of your payments, if you meet certain requirements. You can contact the bank directly to determine your eligibility. Be aware that if you do postpone payments, interest will still accrue and will be added to the principal, which means you’ll end up paying more over the loans’ lifetime. It’s always better to start paying off your loans as quickly as you can, so speak to the bank about your repayment options before looking at deferment or forbearance.

Once you begin paying back your loans, be sure to take advantage of borrower benefits your lenders may offer. For example, you can often qualify for a 0.25% percentage point interest-rate reduction on student loans — private and federal — by enrolling in automatic payment.  Also, the federal government has an income-based repayment plan for borrowers with high debt relative to income. Check out the calculator at IBRinfo.org to see if you qualify.

Do you have a personal finance question? Email farnoosh@farnoosh.tv or tweet it @Farnoosh using #FinFit, and I may answer it in an upcoming column.

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