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Credit Cards

Kiss 0% Goodbye

I'm not getting as many 0% interest balance-transfer offers on my credit cards. Does that have anything to do with the new credit-card legislation? I thought the law didn't take effect until 2010. S.C., Houston

The new credit-card law limits the ability of card issuers to raise rates and charge fees, and it eliminates some misleading practices. Most of those provisions take effect on February 22, 2010. In the meantime, card issuers are raising some rates and fees while they can, before they're bound by the new law.

For example, 0% balance-transfer offers are harder to come by -- especially if you don't have an excellent credit score -- and the introductory-rate period is generally shrinking from 12 months to six, says Bill Hardekopf, chief executive of And expect to pay higher transfer fees for the privilege of shifting your balance to a card with a low- or no-interest rate. Some card companies have raised their transfer fees to 3% or 4% of the amount transferred and eliminated the caps on those fees. Previously, issuers often set a maximum transfer fee of $75, for example. Card companies have also been increasing their annual fees, reducing credit limits, raising rates and dropping customers who carry high balances.

It's important to review the rules and fees of a balance transfer and calculate your potential savings before making a move. An offer that might have been attractive in the past may not be worthwhile if you have to pay a high fee -- particularly if there is no cap on the transfer fee.


There is some good news regarding balance transfers: When the new law takes effect, card companies must apply any payment you make above the minimum to your highest-rate balance first. In the past, issuers would entice customers with low rates on balance transfers but charge higher rates on new purchases (say, 0% on transfers and 11.99% on new purchases). Unless you paid your bill in full -- or didn't use your card for purchases -- your payment would be applied to the low-rate transfer balance first and then to the higher-rate portion of the bill. So you'd be paying off the 0% balance while interest on new purchases continued to accrue at 11.99%.

The new law also requires that promotional rates last for at least six months and that rules be clearly disclosed. You will still need to keep track of your payment deadlines and pay off the transferred balance (or switch it to yet another card) before the promotional rate expires.

How to invest $70,000

After selling our home and purchasing another, my partner and I -- 42 and 35, respectively -- will have about $70,000 to invest. What is the best, most liquid place for a $20,000 emergency fund? And how can we invest the remaining $50,000 more aggressively? Mike DeFlavia, Washington, D.C.

A safe bet for your emergency fund would be a high-yield savings account or a certificate of deposit maturing in six months or less. Katherine Holden, of Holden Financial Planning, in Wayne, Pa., recommends the online account from FDIC-insured ShoreBank. The account, which requires $1 to open and has no monthly fees, yielded 2.15% in mid August. For the time being, that's more than you can get from a top-yielding six-month CD, so the more flexible savings account wins.


For the other $50,000, David Fleisher, executive vice-president of Firstrust Financial Resources, a financial-planning firm in Philadelphia, recommends that you invest in mutual funds to achieve diversification at fairly modest costs. A balanced portfolio would typically put 60% in stocks and 40% in bonds. But because you're at least 20 to 30 years from retirement, you can be more aggressive. Fleisher suggests putting at least 80% of the $50,000 into stock funds -- with one-fourth of the stock allotment devoted to foreign companies -- and the remaining 20% in bond funds.

Holden advises that you build your portfolio with Vanguard stock and bond index funds -- specifically Total Stock Market Index (symbol VTSMX), Total International Stock Index (VGTSX) and Total Bond Market Index (VBMFX) -- because of their low fees, simplicity and broad diversification. If you prefer actively managed funds, choose from the Kiplinger 25 for our picks and sample portfolios).

IRAs for home buyers

I am going to withdraw money from my IRA to make the down payment on my first home. How can I avoid the early-withdrawal penalty? Do I need proof at tax time that the money was used to buy a home? Chris Sullivan, Tucson, Ariz.

You may withdraw up to $10,000 penalty-free from a traditional IRA over your lifetime to buy or build a first home for yourself, your spouse, your kids, your grandchildren or even your parents. Your spouse may also withdraw up to $10,000 from his or her IRA toward the purchase.


You normally would have to pay a 10% penalty, as well as taxes at your top rate, on distributions before you turn 59. To qualify for the exception, the money must be used to buy or build the home within 120 days of the IRA withdrawal. The definition of first-time home buyer is broad: a person who hasn't owned a home for the past two years.

The rules are different for Roth IRAs. You can withdraw contributions from your Roth IRA at any age for any reason without paying taxes or penalties. If you're dipping into Roth earnings before age 59, though, you need the first-time home buyer exception to protect you from the 10% penalty. As long as the account has been open for at least five calendar years, the earnings are tax-free, too.

You don't need to provide proof to the IRA administrator that you're using the money for a home purchase, but you do need to file IRS Form 5329 with your tax return for the year of the withdrawal (you can find the form and instructions at If you're withdrawing the money from a Roth IRA, you need to complete IRS Form 8606, too.

Accessing complaint records

I'm looking for a lower premium on my auto insurance. I found a good deal from a company, but I don't know much about it. How can I find out whether it does a good job of paying claims? A.D., Washington, D.C.


State insurance departments keep records of complaints against insurers. For details, visit the National Association of Insurance Commissioners' Consumer Information Source.

Type in the name of the company, the state where you live and the type of insurance. (Click on "property/casualty" for home and auto insurance.) Focus on the complaint ratio, which measures the company's U.S. market share of complaints against its market share of premiums for a specific policy type. Compare that figure with the national median: If the national median complaint ratio is 1.00 and the ratio for the company you're considering is 2.00, for example, that should be a red flag. Also look at the complaint trend report to see whether complaints have been increasing or decreasing over time.

You can also check the insurer's record at your state insurance department to see whether any enforcement actions have been taken. You'll find links to your state insurance regulator at the Kiplinger Insurance Center.

My thanks to Stacy Rapacon for her help this month.