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Understanding Savings Bonds

Understanding Savings Bonds

What is a Savings Bond?
A savings bond is a conservative investment that enables an individual or corporation to maintain a fixed return following the purchase of the bond. Savings bonds are issued by financial institutions or government agencies that are in need of raising money for public goods or other services. When an investor purchases a bond they deliver a lump-sum payment to the issuing agency and in return they receive a “promise” that the issuing agency will repay the investment plus added interest upon maturity of the bond.
Savings bonds were initially created to finance the First World War. The instruments were created to finance the war and were originally known as “Liberty Bonds.” Not only were the bonds packaged as an investment idea, but they were also marketed as a patriotic movement; those that purchased the bonds were helping the United States army by directly funding the army.


Types of Saving Bonds


Series EE Savings Bond
The series EE bond is issued at 50% of face value and reach maturity 30 years from issuance. The Series EE Savings Bonds are among the most conservative form of fixed-income an individual can invest in. Interest is added to the Series EE Savings Bond monthly and paid when holder cashes the bond upon maturity.
The bonds are designed to reach face value after 17 years; however, an investor can hold the bonds up until 30 years so the bonds can accrue more interest. Interest on the bonds is taxable at the federal level only and the bonds are marketed only towards individual investors. The Series EE Savings Bond are sold at a discount and redeemed at an amount that includes the interest income. Interest, therefore, is calculated monthly, but paid only until redemption. 

Series HH Savings Bond
Series HH bonds are sold at discount and mature at face value. Dissimilar to T-Bonds and agency-issued bonds, the Series HH Savings Bonds are nonmarketable. In addition, the Series HH Savings Bonds pay interest semi-annually. 

Series I Savings Bonds
The Series I Savings Bonds are issued at face value and possess a variable yield that is primarily based on inflation. The interest rate attached to savings bonds consist of two components: the first portion is a fixed rate which remains constant over the life of the bond and the second component contains a variable rate, which is reset every six months from the time the bond is purchased according to the current inflation rate.
Similar to EE Savings Bonds, I Savings Bonds are issued to individuals with a limit of $5,000 per investor per year. Individual investors may purchase the limit of both types of Savings Bonds for a total of $10,000 per year. If an individual redeems the bonds before five years they will incur a penalty of three months unpaid interest. 

Bond Funds Explained

Bond Funds ExplainedWhat is a Bond Fund?

Income funds or bond funds are terms used to describe a particular type of investment company—primarily mutual funds, unit investment trusts, or closed-funds—that invest solely in bonds or other types of debt-laden securities.

Depending on the company’s investment policy and objective, a bond fund may concentrate its strategy in a particular type of debt or bond security. For example, bond funds may allocate the majority of their capital towards the investment of municipal bonds, corporate bonds, mortgage-backed securities, government bonds, zero-coupon bonds, or fixed-rate bonds. Additionally, bond funds may develop a portfolio to combine or mix any of the aforementioned debt securities.

The types of debt securities that bond funds will possess will vary in regards to the risk, duration, return, volatility, and other features associated with the debt securities.

What is the risk Associated with investing in a Bond Fund?

An individual who invests in a bond fund is susceptible to obtaining a loss of their investment. A typical misconception among many investors is that fixed-income securities or debt securities such as bonds and bond funds possess little to no risk. Similar to any investment, bond funds are subject to a number of investment risks including, interest rate risks, credit risks, and prepayment risks.

A bond fund’s prospectus will disclose the aforementioned risks and all other risks associated with the fund’s investment strategy. Before investing in any bond fund, an individual or entity should carefully review and read all of the available information, including the prospectus and the most recent shareholder report issued by the bond fund.

Credit Risk: The risk that the issuers of the bonds owned in a bond fund’s portfolio may default—meaning the bonds fail to pay the debt they owe on the bonds that have already been issued. The credit risk may be minimal for funds that primarily invest in U.S. Government bonds.

Interest Rate Risk: The risk that the market value of the bonds owned by a bond fund will fluctuate as interest rates rise and fall. For example, when interest rates rise, the market value of bonds owned by bond funds will generally decrease. Typically, all bond funds are subject to this type of risk, but bond funds holding bonds with longer maturities are subject to this form of risk than funds that hold bonds with shorter maturities. As a result of this type of risk an individual can lose money in a bond fund, including those individuals who invest only in government bonds or insured bonds.

Prepayment Risk: Risk that the issuers of the bonds owned by a fund will prepay them at a time when interest rates decline. As a result of interest rates declining, the fund may reinvest the proceeds in bonds with lower interest rates, which can reduce the fund’s overall return.

Tax advantages Associated with Municipal Funds?

Bond funds who invest in municipal bonds pay interest which is exempt from federal income taxes. Furthermore, interest obtained on the bonds of some states is exempt from taxation by that particular state. Not all of the income received from a municipal bond fund; however, will be exempt from federal or state income tax. The particular fund’s prospectus will elucidate upon any tax-exempt features.

Amortization Calculator At A Glance

Amortization Calculator At A GlanceWhat is an Amortization Calculator?

An amortization calculator is a fundamental resource used by individuals or entities that are indebted to a mortgage company or financial institution. The amortization calculator will display (subsequent to the satisfaction of a few variables) the remaining payments left on their particular loan or mortgage. By revealing this information, the individual or entity who took out the loan can observe the expected payments until maturity and thus develop an appropriate budget to ensure that they meet such obligations.

An amortization calculator is a free resource offered by the majority of lending institutions in the United States. The resource is free and easy to use and requires only the basic information attached to the particular loan or mortgage.

The loans associated with an amortization schedule typically possess a maturity date of 20-30 years. As a result of this long-term nature, the payments made towards both the principle and the interest would be difficult to evaluate without the inclusion of an amortization calculator.

In addition to revealing the expected monthly or periodic payments, the amortization calculator will reveal the percentage and total amount of the payments as they coordinate to paying off the interest and principal of the loan. Following the input of the required information, the amortization calculator will reveal the expected payments to maturity in an easy to follow and easy to understand table. The table, which effectively is known as the amortization table, will deliver each month’s payment and reveal how each payment is used to satisfy the interest and principal obligations of the loan.

What information is needed in an Amortization Calculator? 
To view the expected payments of a loan or a mortgage and to understand how each payment affects the remaining principle and interest of the loan an individual or entity must satisfy the following components of the amortization calculator: The principal balance of the loan in question, the rate of interest attached to the loan, the maturity schedule of the loan (the loan term), the starting month and starting year that the loan was issued.

In addition to this generic information, some amortization calculators will offer the user optional information, such as: the monthly additional principal prepayment amount, the one-time prepayment amount, and the annual principal prepayment amount of the loan.

When the above information is entered into the calculator (amortization calculators are typically offered on lending websites) the resource will construct a table that is unique to the user based on the loan information given.

National Finance Center

National Finance CenterWhat is the National Finance Center?

The National Finance Center is an agency of the United States Federal Government that aims to provide human resources, along with administrative and financial services to the coordinating departments and sub departments of the government. The center is responsible for organizing and delivering numerous administrative roles for coordinating agencies as they pertain to such matters as health insurance, payroll, and various human resources needs.The National Finance Center was established in 1973 and is located in New Orleans, Louisiana. 
In essence, the National Finance Center acts as a middle-man to expedite the functions of a government department. Through the implementation of technology and administrative services, the National Finance Center offers coordinating government agencies the ability to carry-out human resource’s functions and administrative roles necessary to maintain the stability of the department.
The National Finance Center maintains a customer base that is currently composed of over 130 federal organizations or departments, representing all three branches of the federal government.
The National Finance Center is the singular Shared Service Center provider positioned under the Office of Personnel management and the Human Resources Line of Business initiative. The National Finance Center’s human resources department is delivered as an organized system suite which supports a governmental agency’s services aligned with payroll and personnel action processing.
Additionally, the human resource system streamlines the recruitment and classification process of a government department. In essence, the National Finance Center offers the various subdivisions of government with an organized system to help maintain the body’s stability. The National Finance Center achieves such a goal through the implementation of efficient administrative and financial services to better organize and carry-out payroll as well find candidates who best fit the body’s job description.

What does the National Finance Center Provide?
As stated before, the National Finance Center operates as a liaison between 130 federal departments and their ability to carry-out various administrative and human resource-related functions. The National Finance Center provides this service through the implementation of a well-organized financial system that will deliver an efficient method to find and subsequently compensate employees. The primary functions or roles the National Finance Center include the following:
o    The National Finance Center operates a highly-developed an integrated payroll/personnel system. This system is then transferred to the coordinating government departments who use the system to carry-out their various administrative needs.
o    The National Finance Center also maintains and operates the Centralized Enrollment Clearinghouse System for the Office of Personnel Management. The Centralized Enrollment Clearinghouse System reconciles records between the federal payroll office and the various Federal Employee Health Benefits providers.
o    The National Finance Center maintains and operates the Direct Premium Remittance System, which is the primary method used for billing and collecting health insurance premiums of participating government bodies.

Knowing The Banking Regulations

Knowing The Banking RegulationsWhat are Banking Regulations?



Banking regulations are a form of government regulation which place certain restrictions and requirements, and guidelines on individual banks. Banking regulations are instituted to effectively restrict financial institutions from engaging in predatory lending techniques or fraudulent techniques aimed to take advantage of customers or businesses who conduct transactions with the underlying bank
Objectives of Banking Regulations:
The basic objectives of banking regulations, and their particular emphasis, will vary between jurisdictions; countries will impose different banking regulations that are typically based off their macro-economic conditions and the overall stability of their markets.
The most common objectives of banking regulations are:


o    Banking Regulations are placed on financial institutions to reduce the level of risk that bank creditors will be exposed to. These prudential regulations are imposed to protect individuals and business entities who deposit funds into banks; over-leveraging or an increased exposure to a shaky credit market could result in massive defaults.
o    Banking regulations are also introduced to limit an institution’s systemic risk; this form of risk refers to disruption resulting from adverse trading conditions for banks which may cause major or multiple bank failures.
o    Other forms of banking regulations will be placed on a financial institution to avoid misuse and to effectively reduce the risk of banks being used for criminal activities, specifically laundering the proceeds of criminal acts to bank accounts.
o    Banking regulations may be instituted to protect banking confidentiality
o    Lastly, banking regulations are imposed to properly allocate credit streams. Lending is a primary function of a bank; as a result, banking regulations are created to direct such liens of credit to more favorable sectors to limit the risk of default.
General Principles of Bank Regulations:


•    Although banking regulations will vary widely across countries and jurisdictions, there are general principles of bank regulations that exist throughout the world
•    Minimum Requirements: Banking regulations will impose minimum requirements as it pertains to capital ratios to promote the principle objectives of a bank.
•    Market Discipline: Banking regulators will impose restrictions that will publicly disclose the financial information of a bank. This information is used by depositors and creditors to assess the level of risk of the underlying bank and to subsequently make investment decisions. As a result of this regulation, the bank will be subjected to market discipline and the agency imposing the banking regulations can use market pricing information as a direct indicator of the bank’s financial stability.
•    Supervisory Review: Banking regulations will impose a licensing process on the underlying bank; such a license is required to carry on the everyday business of the bank. The regulator (agency who imposes the regulations) will supervise the licensing process to ensure that the underlying bank meets all compliance issues. If a bank fails to acquire a license or fails to adhere to such compliance issues, the regulatory agency will respond to the breach through obtaining undertakings, imposing penalties, giving directions, or revoking the bank’s ability to conduct business.

Your Guide to Understanding FOREX

Your Guide to Understanding FOREXWhat is FOREX?

FOREX is the abbreviation commonly used for the term ‘Foreign Exchange’, which is the financial instrument facilitated in the trading and exchange of foreign currency for other forms of currency. Within the realm of trading FOREX, an activity undertaken within the FOREX Market – also known as the Foreign Exchange Market – a variety of factors exist within the dynamic of FOREX, exchange rates, monetary systems, economics, and financial circulation.

When is FOREX Used?

The instrument and process involving the foreign exchange of currency can be undertaken in two primary settings; these settings are commercial activity and travel:

Travel-Based FOREX

In the event that an individual wishes to travel abroad – typically on an international level – they may be subject to undergo the exchange of currency; this exchange may take place involving currency native to their respective country of origin, as well as the currency utilized within the country being visited. The FOREX Rate – Foreign Exchange Rate – is applicable to the terms of this exchange in a variety of measures:
Upon entering a country other than the country of one’s origin, the exchange of currency for the acquisition of the native currency may be deemed as a useful practice; as a result, all purchases, negations, and financial activity can be substantiated and accepted within the bounds of that country – while certain currencies are more widely accepted than others, an individual country or nation bears no obligation to accept foreign currency with regard to commercial transactions.
The FOREX Rate applicable to the two countries – both the country from which the traveler comes, as well as the country in which the traveler visits – is an important dynamic to investigate; the initial FOREX rates with regard to exchange of foreign currency upon arrival will not necessarily mirror the FOREX rates upon departure.
Individuals participating in travel-based FOREX activity are encouraged to investigate preexisting trends and behaviors of the currency facilitated within a particular destination country; countries or nation experiencing severe decline in the valuation of FOREX rates risk the rendering of eventual loss upon subsequent exchanges
Commercial FOREX Trading
Akin to the Stock Market, which allows for the trading of stocks, shares, investment, bonds, and additional commodities subject to market fluctuation, the FOREX Market allows for individuals to participate in the exchange of foreign currency within a commercial setting; the FOREX Market is guided by the current – albeit fluctuating – FOREX rates with regard to the valuation of foreign currency – currency with increased FOREX rates may result in financial gain, while currency undergoing a decline in valuation may render financial loss:
In tandem with investment brokers, FOREX brokers exist as well; brokers specializing in FOREX trading are entrusted with funds from their respective clientele with the hope of producing gainful results as a result of trade activity undertaken within the FOREX Market
As per the applicable rate and trend of FOREX Market fluctuation, the innate valuation of currency is both subject to unforeseen and unexpected increases in value, as well as declines in value

SEC Charges Pennsylvania City for Making Fraudulent Public Statements

SEC Charges Pennsylvania City for Making Fraudulent Public Statements

 

 
The United States Securities and Exchange Commission charged the city of Harrisburg with securities fraud for misleading public when it issued statements regarding its financial situation. Officials for the city claim that the city’s financial condition was rapidly deteriorating and the public information made available to municipal bond holders was either outdated or incomplete. 
 
An investigation conducted by the SEC found that misleading statements were filed in the city’s budget report, mid-year and annual financial statements, and within the State of the City address. This case marks the first time that the federal agency has filed a complaint against a municipality for offering misleading statements outside of its securities disclosure filings. Harrisburg has agreed to settle the charges with the SEC.
The SEC found that the city of Harrisburg failed to comply with mandates to provide continuing financial information and audited financial statements for investors holding hundreds of millions of dollars in municipal bonds issued or backed by the city. As a result of the city’s non-compliance from 2009 to 2011, investors were forced to seek out the city’s other public statements in order to procure updated information about the city’s finances. However, insufficient information regarding the city’s fiscal situation was available elsewhere. Information that was publicized was offered on the city’s website; only the city’s 2009 budget, the 2009 State of the City address, and the 2009 mid-year fiscal report were available, but were either misstated or failed to disclose pivotal information regarding the city’s credit ratings and financial condition. 
 
According to the SEC, Harrisburg is close to bankruptcy due to the $260 million debt the city had guaranteed for repairs and upgrades to a resourced owned by the Harrisburg Authority. As of March of this year, the city has missed roughly $14 million in obligation debt payments. 
 
This investigation was conducted by prominent members of the EC’s enforcement division on municipal securities and the public pensions unit. 
 
 
Source: SEC.gov

Nearly 100,000 Borrowers Shortchanged in Mortgage Settlement

Nearly 100,000 Borrowers Shortchanged in Mortgage Settlement

 

 
Checks that were supposed to compensate mortgage borrowers who fell victim to illicit foreclosure practices have finally started arriving in mailboxes; however, many of these checks are well short of the amount owed. 
 
Due to a processing error, nearly 100,000 borrowers received checks for less than what they were owed in a settlement reached between the United States Federal Government and 13 mortgages servicers. 
 
Under the terms of the agreement, 4.2 million borrowers who foreclosed on their homes between 2009 and 2010 were deemed eligible for checks between $300 and $125,000, for a sum of roughly $3.6 billion in payments. 
 
The list of abuses filed in the suit included foreclosing on borrowers who were in the process of refinancing their mortgages; repossessing homes that were supposed to be protected under bankruptcy law; and foreclosing on active duty service members. 
The deficient payments were delivered to borrowers with mortgages serviced by former subsidiaries of Morgan Stanley and Goldman Sachs. The two firms, which agreed on a settlement a few months after the original lenders had first reached a deal, had agreed to pay higher sums to borrowers.
 
However, Rust consulting, the company handing the issuance of rebate checks, applied the same compensation schedule to the clients of Morgan Stanley and Goldman Sachs as it did to those other financial institutions, resulting in shortfalls. “The servicers provided us with a list of borrowers and the categories of foreclosure abuse; we misapplied the payment amounts for the Morgan Stanley and Goldman Sachs borrowers,” said David Holland, the executive vice president at Rust Consulting. 
The consulting company did not offer specifics, but the differences in rebates could be significant. For instance, Morgan Stanley and Goldman Sachs agreed to pay roughly $39,000 to borrowers who were wrongfully foreclosed when they were in fact protected under bankruptcy law. Under the settlement, approximately 110 borrowers were entitled to higher payments from Morgan Stanley and Goldman Sachs. 
 
Most of the 96,000 individuals who received deficient checks; however, were slated to procure much smaller amounts; roughly 42,000 of Morgan Stanley’s and Goldman Sachs’ clients were set to receive $1,3000 because their mortgage provider ignored their request to modify their mortgage schedule. 
 
 
Source: whitehouse.gov

Young Men: The Exposed Age Group under Obamacare

Young Men: The Exposed Age Group under Obamacare

 

 
The Obama administration claims that the Affordable Care Act will provide cheaper health insurance for millions of Americans. However, young men who are not insured through their employers could their premiums spike once coverage in the state-based insurance exchanges starts in January. 
 
Several groups have come out with reports forecasting the impact to premiums, on average, in 2014. But just what individuals will pay for insurance on the individual market depends on several factors, including the enrollee’s age, income, gender, state of residence and current coverage level. 
 
“The average is not very relevant to any particular person,” said Jim O’Connor, an executive at consulting firm Milliman, who wrote a report on how “Obamacare” will impact premiums. 
 
The precise cost of plants likely will not be known until the summer, and possibly not until the exchanges open for enrollment in the fall. Insurers have already entered proposals to state officials, and regulators are currently reviewing them. However, it is up to each state to decide when to publicize plan specifics. 
 
Only a few insurers have disclosed their individual market prices for next year, but several have warned that they are likely to raise their prices significantly. In Maryland, for example, Blue Cross said its premiums can rise by up to 25 percent. 
 
That said, participants have the opportunity to choose from a variety of plans offered by a variety of different insurers. These plans from “bronze” plans with low premiums but higher-out-of-pocket costs to platinum plans that feature high premiums but cover more expenses. 
 
A key provision in the law is that those with pre-existing conditions cannot be charged more or excluded for coverage. Until now, the majority of cancer survivors and those with other ailments have faced difficulty procuring insurance. The new rule is therefore great for those who have been sick, but likely will be more expensive for the healthy people who procure insurance by raising the overall cost of coverage. 
 
 
Source: whitehouse.gov

Stuck in the Mud: Europe Facing Longest Recession in History

Stuck in the Mud: Europe Facing Longest Recession in History

 

 A long winter held back construction activity in Germany, which contributed to a sharper than expected drop in first quarter output across the Eurozone. German barely avoided recession at the start of this year, but its return to growth was not enough to prevent the Eurozone economy from contracting for a record sixth quarter in a row. 

Gross Domestic Product in the 17-country Eurozone dropped by .2 percent in the first quarter, largely due to France’s recent struggles. This compared to a decline of .6 percent in the fourth quarter. 

The region’s economy has failed to grow since the third quarter of 2011, making this the longest stretch of declining output in the history of the Eurozone. 

The pace of contracted eased up slightly in struggling Spain and Italy, but both economies still contracted by 0.5 percent in the quarter.

The prospects of a second consecutive year mired in a recession and tumbling inflation prompted the zone’s central bank to slash interest rates earlier this month to a record low of 0.5 percent. 

“An interest rate cut to 0.25 percent looks probable while the European Central Bank will also continue to evaluate the case for a negative deposit rate and ways of securing more credit to smaller companies,” said Howard Archer, the chief European economist at HIS Global Insight. 

The euro continue to slide against the dollar, and European stocks were weaker in early trading hours before recovering to roughly even. The recession has hurt business confidence, blown attempts to slash government debts, and has sent unemployment to record numbers. Many leaders within the European Union have signaled their willingness to ease austerity in the hope of shoring up a recovery that the majority of economists are still forecasting for later this year. 

However, Wednesday’s GDP estimate was far worse than economists were forecasting, largely due to poor growth in Germany. If the estimate proves to be accurate, the news could increase pressure on the European Central Bank to take further action to stimulate activity. 

Germany, which accounts for roughly 30 percent of Eurozone output, grew by only 0.1 percent in the quarter, as an unusually cold winter impacted construction activity. Analysts were expecting growth of roughly 0.3 percent in Europe’s largest economy. Investment and exports also dropped, underscoring the impact of the Eurozone recession and poor global growth. 

Source: Congressional Budget Office

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