Ask Doc Who knew monetary policy would light up the switchboard like that?
Since we began publishing Retirement Millionaire Daily, we've received dozens of messages from subscribers.
Overall, folks are enjoying the new letter... but last week's interview with Retirement Millionaire Daily analyst Matt Weinschenk about interest rates kicked a hornet's nest.
Lots of subscribers fired off e-mails questioning Matt's sanity for daring to suggest the U.S. economy isn't a calamity. Others just called him an imbecile. Trust us, he’s not. And he’s got the answers to prove it.
We read every message, but we can't respond individually. (Nor would we want to dignify some with a response.) But occasionally, we'll publish answers to common questions or ones we think could benefit many of our subscribers. And in today's inaugural Q&A, Matt responds to one of the more reasoned e-mails on his interest-rate comments.
If you have something you'd like to ask, e-mail us at [email protected] or send us a message on our Facebook page.
Q: I'm afraid the first interview was with someone who does not understand monetary policy.
Here is what he said:
"If you're the head of the IMF and you're worried about global growth, you would like low interest rates for longer. You'd like the dollar to stay a little weaker to help those economies out."
In case Matt doesn't know it, the dollar is strong now, not weak. And if interest rates were to go up, the dollar would weaken. – M.B.
A: The dollar is strong now. I was saying the IMF would not like it to get any stronger. It's basic accepted economics that higher interest rates attract investment and that investment drives a currency up. It's called interest-rate parity.
(Some interesting empirical work suggests this relationship may not be as strong as previously thought. But we certainly weren't all wrong on the direction.)
If this principle isn't intuitive, it sometimes makes more sense in reverse. Have you heard of people afraid of a "Currency War"? This is when countries competitively devalue their currencies using loose monetary policy to make their currencies cheaper and their exports more affordable.
Either way, we had the relation of interest rates and currency moves correct. And in this context, the IMF would prefer that the dollar not appreciate in the short term due to dollar-denominated borrowings taken out by emerging markets.
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Q: Unfortunately for this retiree, one of the requirements to get those good interest rates [on checking accounts with credit unions] is to actively use your debit card x number of times and/or [maintain] what is referred to as an "active" checking account. This will not work for me. – C.P.
A: "Free" checking accounts are rarely free anymore. Most "free" accounts at major banks require that you make automatic deposits or use your debit card a specific number of times per month. The bank may also require you to keep a minimum balance in your account. Otherwise, you could face numerous fees.
But one place you can still find truly free checking is at a credit union. According to a 2014 survey from Bankrate – the online aggregator of banking-industry news and information – 36 of the 50 largest credit unions (72%) still offer free checking accounts. Free checking accounts vary depending on the bank or credit union, but often, free checking accounts don't require a monthly fee regardless of the account balance or number of transactions associated with the account. You can even earn a little bit of interest on some of them. For example, MECU of Baltimore pays 0.1% in its free checking accounts.
Many credit unions also offer checking accounts that pay a healthy interest rate, like the 3% interest rate we wrote about. We described this opportunity in our October 5 issue. But you can't have everything. If you want a truly free checking account, you're unlikely to earn much in the way of interest. If you want to earn interest on your balance, expect the credit union to place some requirements on you, like minimum balances and automatic deposits.
If you're looking for a credit union, http://www.asmarterchoice.org/ is the best place to start. You can search for local credit unions and check out the accounts and rates each offers. You may even find a credit union near you offering an interest-bearing free checking account.