Tax implications of various investments

March 18, 2006 5:57 PM

I have a chunk of change that I am trying to make earn more than the small interest in my savings account. Can anyone speak to the tax implications of someting like an ING Direct savings account - which is offering a promotional yield of 4.0% - vs. something like a money market fund, which lately seems to yield in the range of 3.8 - 4.3? Help me make my money work for me!
posted by xmutex to Work & Money (15 answers total)

Try playing around with a tax equivalent yield calculator like this one. It'll give you a feel for taxable vs. tax free yields, adjusted for your local/state/federal tax bracket.
posted by dudeman at 6:06 PM on March 18, 2006

I expect the income on both of these accounts would be fully taxable, though, right? In that case there isn't any significant difference between the two, as taxes go.
posted by xil at 6:24 PM on March 18, 2006

Response by poster: Yeah, I am sure they'd be fully taxable, I just wasn't sure if they would be different in some way that would make one option a little more lucrative than the other.
posted by xmutex at 6:26 PM on March 18, 2006

Emigrant is offering 4.5%... I opened an account a few weeks ago... looking forward to the interest coming in.
posted by ruwan at 7:00 PM on March 18, 2006

ING also regularly offers a sign-up bonus, so if you're talking small amounts of money, this might be a way to score a few more points.

OTOH, if ING is still using that smarmy cockhead for its commercials, you'd have to suffer the knowledge that you've encouraged them to continue. God, I hate that guy.
posted by five fresh fish at 7:30 PM on March 18, 2006

Isn't the ING Direct just a money market account with a good yield? There's a difference in the tax treatment of interest, dividends, capital gains, etc, but in this case I'm pretty sure you're just talking interest all around.
posted by alms at 8:49 PM on March 18, 2006

ING and HSBC both offer $25 signup bonuses, IIRC, so you might want to open an account with both banks. (They are basically equivalent on interest at the moment, 4.75% vs 4.80%, but both are promotional rates that expire soon; Emigrant tends to be the leader in non-promotional times.)

If you need an ING referral link to get your $25 bonus from them, pretty much anyone who has an account will be happy to send you one since they get $10 for doing so. For HSBC you just need to enter code START (IIRC) during sign-up.

All the accounts you're talking about are indeed taxable.
posted by kindall at 9:25 PM on March 18, 2006

HSBC is offering 4.8% 'til April 26th if memory serves.. It'll then come down to "market", which before that was 4.25%...

As far as tax - the income is taxable via the 1099-INT form you'll have to fill out. Nothing you can do to legally avoid that, I'm afraid.
posted by twiggy at 10:20 PM on March 18, 2006

alms, ING Direct is basic savings, not money market. Since the yield is superior to most MMAs, the tax consequence is the same, and there's no minimums or fees, it (along with competitors such as HSBC, Emigrant, etc.) is a better choice than an MMA.

However, depending on how much money is being invested, and for how long, tax-free bonds might also be a good option.
posted by nakedcodemonkey at 1:41 AM on March 19, 2006

GMAC Bank has a 4.65% APY MMA, and it's not a promotional rate. I recently opened an account with them and have so far been happy with their service.
posted by musicinmybrain at 9:08 AM on March 19, 2006

as far as i can tell, ING is sort of a scam. it seems that during the "hold" on your incoming money, you do not earn interest on that money.

when you are moving large sums around for short periods of time, this can be a huge lose. the hold period is quite long.
posted by joeblough at 10:22 AM on March 19, 2006

I have Emigrant Direct, and am underwhelmed, especially now that money market rates -- even Treasury MMFs -- are once again north of 4%. I started an account and have never added to it.

I've heard people complain about HSBC. I think the preceeding comment is the first negative one I've ever heard about ING Direct.
posted by pmurray63 at 11:58 AM on March 19, 2006

joeblough, do you have any citations to back this up? While I've never seen any indication that ING is dishonest, as its customer I'd sure want to know about any evidence of questionable practices.

My experience is that ING funds transfer policy is similar to most online transfers between institutions. i.e. it takes 3 business days for ACH to process the transaction; and there are limits on how often and how soon you can transfer money out (mostly due to legal requirements imposed on all savings accounts). ING does wait 2 days before beginning to accumulate interest on new funds, but it's hard to consider that "quite long".

ING and other online-only savings accounts would indeed be the wrong choice for anyone planning to move funds in and out regularly and who needs to do so quickly -- however that wasn't xmutex's question.
posted by nakedcodemonkey at 2:25 PM on March 19, 2006

i dont have any citations, but i have my own experience. i'm talking about 5-figure sums here, so maybe they are holding the money longer than usual because of federal fund transfer notification requirements.

at any rate, its bogus that they don't pay interest during that period. but that's how they make money... workin' the float.

i slammed them on their most recent customer survey and they didnt bother to reply...
posted by joeblough at 4:21 PM on March 19, 2006

I've used HSBC for a few months. I haven't had any trouble with it. For a while, they had a $25 sign up bonus (which I haven't gotten yet). It takes about 5 days to get money transfered, where there is no interest.
posted by lpctstr; at 7:53 PM on March 19, 2006