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How Do I Invest In Gold? Your Money Questions Answered

Is canceling a credit card good or bad for my credit? What is considered a good interest rate (or yield) these days? How do I invest in gold?

You would think those are basic money questions with easy, clear-cut answers. But as with most things money-related, even the simplest issues can provoke varied opinions and heated discussions.

We launched Mint Answers a few weeks ago to give consumers a platform to voice their personal finance and investing questions – and discuss them with other Mint users and community members. Since then, hundreds of you have asked – and many more have chimed in with responses.

In this week’s Mint Answers round-up, we give you some answers to the questions above.

How do I invest in gold to ride the wave?

I have a feeling gold will continue to rise for a variety of reasons, I am curious what the best way to invest in it is?

1. The most popular gold mutual fund is GLD. Some people like to buy actual gold pieces, but the cost of storing and protecting them will eat into your return, to say the least.

For anyone less bullish on gold, there’s also a short gold fund, DGZ.

2. There is some confusion on the use of GLD and other precious metal ETFs in 401(k) and IRA accounts.  Here are the factors you should be aware of.

Many investors are surprised to learn that physical gold and other precious metals are taxed as “collectibles” at a 28% capital gains rate rather than 15%.  Because of the structure of precious metals ETFs, investors are treated as owning a fractional share of the fund’s underlying assets.  As result, ETF investments can be subject to taxation as “collectibles” at the higher 28% rate just as if you held physical gold.

This analysis has let some to worry that precious metal EFTs should not be used in IRA accounts.  The reason is that you are not generally permitted to own collectibles in these funds.  In fact, if you make this kind of prohibited investment in your IRA, the investment is treated as a distribution subject to tax and penalties.  (There are specific exceptions for certain kinds of bullion and coins.)

However, in at least one private ruling, the IRS long ago confirmed that investment in a gold ETF was permitted in an IRA account.  If you have specific concerns, you should consult your tax advisor.

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Should I Cancel My Credit Card?

Is canceling a credit card bad for the credit score?

1. It will hurt your credit score slightly, but not using credit cards is the best thing you can do for your financial future :)

2. Short answer: No. Canceling the credit card can hurt your credit rating, so first ask yourself why are you wanting[sic] to cancel the credit card?

If it is to prevent yourself from using it, then just cut it up and throw it away. If you are worried about someone knowing your credit card info, you could report it stolen so that the credit card company will issue you a new number.

Your balance-to-credit-limit ratio or “utilization ratio” makes up part of your credit score, and you want to keep it low – both overall and on each individual card. If you cancel a card with a zero balance (which is the best balance-to-credit-limit ratio you could possibly have), your overall utilization ratio may actually increase, possibly enough to hurt your credit score.

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How much is a good interest rate?

I’d really like to know.

1. I’m getting 3.0% APY on a Performance Checking account.  It’s earning me about $50 a month in Interest.  The catch is that you have to use your debit card 12-times a month, set up online bank statements, and have an automated debit or direct deposit coming into the account.  Typically, at the first of the month, I run up to Wal-Mart and purchase 12 Gatorades, all as a separate transaction at the self-checkout kiosk.  Then, I use my rewards credit card for all other purchases to get some cash back.

2. The US Savings Bonds are a pretty good benchmark. Currently, Series I Bonds (the inflation-adjusted bonds) are going for about 1.74%.

I just got offered 1.1% from a bank for an internet savings account which they claimed was an excellent deal.

What I find particularly interesting right now are the “rising rate” CDs that offer the ability to raise your rate once during the term. It looks like ally is currently offering something like this at 1.94% for a 2-year CD.

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Do you have a money question that you feel has no black-or-white answer? Go to Mint Answers and ask away! While you’re there, feel free to answer questions from other community members. Come back often, as we introduce new enhancements to this feature.