Money Management

CDs can help you grow your savings, but they can also cost you if you’re not careful. Here are five big mistakes you definitely want to avoid. [[{“value”:”

Certificates of deposit (CDs) are a great way to grow your wealth without risking it in the stock market. But if you want to maximize their value, you can’t just throw some money in the nearest CD and forget about it.

You need to understand the rules of the account and be aware of common pitfalls. Here are five of the most costly errors to avoid when using a CD.

1. Withdrawing funds from a CD early

Each CD has a term, which is the length of time you agree to leave your money in the account. Terms can range from a few months to several years, depending on the account you choose.

If you attempt to take money out of a CD before the term ends, you’ll pay a penalty equal to several months of interest payments. And you’ll have to take all your cash out at once. CDs don’t allow for partial withdrawals.

2. Locking in a low rate

CD interest rates are typically guaranteed for the entire CD term. This makes them a popular investment when interest rates are falling on deposit accounts, as they’re projected to do later this year. But it also makes them a poor choice when rates are rising.

If you invest in a CD, especially a long-term CD, when rates are rising, you could get stuck earning a low interest rate on your funds for years. In this case, it’s much better to keep your cash in a savings account where you can take advantage of climbing interest rates over time.

3. Choosing a CD term that’s too long for you

Long-term CDs could make sense if you don’t plan to spend the money you need before the term is up and interest rates on savings accounts are falling or holding steady. But if one or both of these things isn’t true, it’s not a good fit for the reasons discussed above.

You might consider a short-term CD and then re-evaluate where you’d like to keep your money after that term ends. Or you could try a savings account or a CD laddering approach instead.

4. Forgetting about old CDs

When a CD matures — that is, when the CD term ends — banks typically reinvest that money in a new CD of the same term unless you intervene. You can request that it move the cash to a checking or savings account where you can either spend it or place it in a different account of your own choosing.

You want to keep track of your old CDs so that cash doesn’t get automatically reinvested without your knowledge. Generally, this isn’t the best thing for your money. When one CD term ends, shop around to see which CD has the current best offer if you’d like to reinvest rather than just sticking with the current bank.

5. Using CDs for long-term savings

CDs can be a good fit for cash you plan to use on a large purchase a few years down the road, but it’s not ideal for money you don’t think you’ll need for decades. Even the best CD rates usually aren’t close to the returns you can get from investing in the stock market over the long term.

Keep retirement savings in a retirement account and consider a taxable brokerage account for additional funds you want to put to work for you over the next five to 10 years.

Remember, when you open a CD, you’re committing to leaving your money in that account. If you have any questions, it’s best to seek guidance from the bank beforehand. This will help you avoid surprises down the road.

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Many people are missing out on guaranteed returns as their money languishes in a big bank savings account earning next to no interest. Our picks of the best online savings accounts could earn you 11x the national average savings account rate. Click here to uncover the best-in-class accounts that landed a spot on our short list of the best savings accounts for 2024.

We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers.
The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.The Motley Fool has a disclosure policy.

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If you sign up for a Costco Executive membership, you may feel pressured to maximize your cash back. Here’s why this could be a big mistake. [[{“value”:”

Costco has two different kinds of memberships you can choose from when you join the warehouse club. You could become a Gold Star member for $60 per year. Or you could spring for the upgraded Executive membership, which would mean $120 must come out of your bank account to cover the yearly membership fee.

One of the biggest benefits of signing up for the Executive membership is the annual reward. Specifically, Costco provides you with 2% back on most of your shopping (things like gas and the food court are excluded), up to a maximum of $1,000 back, when you choose the Executive membership.

While getting this money back is a pretty nice perk, it can also set you up for a mistake that could be damaging to your personal finances. Here’s what it is.

Don’t fall into this Costco trap if you become an Executive member

If you sign up for the Executive membership, one of the most common ways to justify the extra cost is to determine that you’ll make back your $60 due to the 2% cash back. And, in fact, if you spend at least $3,000 a year in Costco purchases, you would get a $60 annual reward and the 2% back would fully cover the added cost of upgrading your membership.

The mistake, however, comes from feeling pressured to hit your $3,000 spending target to “get your money back.” If you’d be left feeling like you wasted your cash by upgrading your membership if you didn’t end up spending $3,000 a year at the club, your attempts to meet this milestone could lead you to spend more money at Costco than you otherwise would.

Sadly, spending more money to try to make back what you’ve already paid out is rarely a good idea — and it probably isn’t in this case either.

Don’t overspend to justify your upgraded membership

Although getting 2% back is a nice bonus as an Executive member, the reality is that it’s a really small percentage of what you’re actually spending. So, if you’re buying things you don’t need just to make sure you get your $60 back in annual rewards, you’re parting with a lot of funds for a pretty minimal reward.

Let’s say, for example, you’re getting near the end of the year and you look back and realize you’ve only spent $2,500 at Costco so far and you’ll be getting just $50 back — so you’d be $10 short of covering your upgraded membership fee. Sure, you could go spend the extra $500, but is it worth buying $500 of additional Costco products just to not “waste” $10? Probably not.

If you suspect that your spending choices will be influenced by a desire to get those rewards at any cost, then you probably should go with the basic Gold Star membership tier unless you have a long, proven track record of spending more than $3,000 annually at Costco. Otherwise, that $60 upgrade to the Executive membership tier could end up being a costly choice.

Also, keep in mind that Costco is known for its great return policy, which applies to the Costco Executive membership too. If you fall short of breaking even with the upgraded membership, Costco will refund you the difference. There really is no need to make an expensive mistake with your membership.

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We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers.
The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.Christy Bieber has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Costco Wholesale. The Motley Fool has a disclosure policy.

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There’s a popular strategy credit card experts use to earn more rewards. See what it is and how it could earn you $500 to $1,000 or more this year. [[{“value”:”

Rewards are one of the best credit card perks and a personal favorite of mine. If you have a good credit score, you can get lots of value from rewards credit cards, whether you prefer earning cash back or travel points.

Since I started using rewards cards, I’ve always wanted to find ways to earn as many points as possible. There are quite a few methods out there. For example, you could shop online through your card issuer’s shopping portal to earn bonus points. Or you could add your spouse as an authorized user, so you’ll earn points on their spending.

But to be entirely honest, there’s one strategy that puts everything else to shame: Opening new rewards cards to earn welcome offers. I’ve earned well over 1 million points this way, and it’s not a hard strategy to follow.

Why there’s no better way to earn rewards

Welcome offers are an incentive credit card companies use to bring in new cardholders. They’re fairly common among cash back and travel credit cards. If you open a card and meet the terms of the welcome offer, you earn a bonus. Most of the time, the only requirement is spending a certain amount on your new card.

For example, you could find a travel card that offers 75,000 bonus points when you spend $4,000 in the first three months. Or cash back cards that offer a $200 bonus for spending $500 in the first three months.

These give you a much faster way to earn rewards, and one that requires far less spending. Let’s say you have a travel card that earns 2 points per $1 on purchases. At that rate, you’d need to spend $37,500 to earn 75,000 points. Many people don’t spend that much on their credit cards in an entire year.

With a welcome offer, you could earn that many points with $4,000 of spending, not $37,500. And since you’re spending that money within the first three months, you can take advantage of these bonus opportunities multiple times per year.

How to use welcome offers to max out your rewards

Here’s the process I use to earn rewards with welcome offers:

Decide which type of rewards card you want. Cash back is the most popular type of credit card, but travel rewards cards are useful if you travel often.Check out the highest welcome offers. Remember that the welcome offer isn’t the only important feature. Compare all the features of the cards you like to decide which is right for you.Open the card you want and spend enough to earn the welcome offer. Make sure you’ll have no problem meeting the spend requirement. If a card requires you to spend $4,000 in the first three months, only apply if you’re sure you’ll spend at least that much.When you’re ready, start looking for cards again. You could do this right after you earn a welcome offer or give it some time. It all depends on how soon you want to get a new credit card.

It’s a straightforward strategy, but there are risks involved. If you’re going to try it, there are a few things to keep in mind.

Having more credit cards can be a chore

Every time you open a new credit card, it makes your finances a bit more complicated. It’s another payment to remember. If you have cards with annual fees, you need to make sure you’re getting your money’s worth from each of those cards. Only follow this strategy if you’re sure you can handle multiple credit cards.

You need to stay on top of your spending

Rewards credit cards and welcome offers incentivize you to spend money. You don’t come out ahead if you spend more than you normally would, and you definitely don’t come out ahead if you get into credit card debt.

Don’t let credit card rewards change your spending habits. Use them for expenses you’d be paying regardless, and don’t spend more just to earn rewards. Most importantly, always pay your credit card bill in full so your card issuer doesn’t charge you interest.

It eventually becomes harder to get approved for new credit cards

If you open credit cards often, you may stop getting approved as easily as before. Credit card companies look at how many cards you’ve opened recently when you apply. Some will deny your application if you have too many recent accounts for their liking.

The fast track to more credit card rewards

It’s always wise to proceed with caution when it comes to credit cards. I wouldn’t advise opening a ton of new cards all at once or taking on more cards than you can handle.

That being said, welcome offers are the best way I’ve found to earn rewards. So if you’re hoping to earn more, try checking out these offers every three to six months and applying if one of them catches your eye.

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We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers.
The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.The Motley Fool has a disclosure policy.

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Bearing expensive housing costs can be tough. Read on for ways to cope if you’re trapped in that situation. [[{“value”:”

In 2020 and 2021, many people clamored to buy homes as mortgage rates fell to record lows. And because demand was so high at the time, many people were willing to go to the extreme of buying a home sight unseen. They were also willing to make offers that were considerably higher than sellers’ asking prices in an effort to secure an ultra-low mortgage.

If you paid a premium for a home not so long ago, you may now be regretting that decision if it’s straining your finances. But there’s a problem — now’s not a really good time to sell if you need to buy another home with a mortgage.

Sure, you might get a decent price for your home if you were to list it today. But as of this writing, the average rate on a 30-year mortgage is 6.87%, according to Freddie Mac.

If you’re sitting on a 2.87% mortgage you locked in a few years ago, you may be loath to give that rate up. And frankly, even if you were to downsize or replace your current home with one that’s less expensive, the higher interest rate on your mortgage could largely or fully negate your savings.

But while you may be stuck in a home that’s eating up more of your income than you’re comfortable with, you’re not necessarily doomed financially. You may be able to turn your home into an income stream, or multiple income streams if moving isn’t an option. Here are some ways to go about that.

1. Rent out a finished basement

If your home has a separate area that could serve as someone’s fully functional living space, then you may want to consider renting out that portion for a period. Let’s say you have a finished basement with a kitchenette and a full bathroom. If you’re willing to give up use of that space, you could rent it out as its own apartment. And then, you can use your rental income to help cover your mortgage and other household expenses.

That said, you’ll need to check with your local zoning department to make sure you’re able to legally rent out your basement, or whatever part of your home you choose to rent out. Your property may need to meet certain requirements for this to be possible, so find out before you sign a lease you can’t fulfill.

2. Rent out a parking space in your driveway

If you live in an area that’s close to a business hub where parking is hard to come by, and you have a parking spot in your driveway that sits unused, you may have a prime opportunity to rent it out for income. And best of all, you won’t have to welcome a stranger to live under your roof. You’ll simply just park next to a car that isn’t yours.

3. Rent out closet space

Maybe one of the things that helped you fall in love with your home was its generous amount of closet space. Well, now you can monetize that space by renting some of it out. Sites like StoreAtMyHouse allow you to list the storage space you have available and find people in need of it.

That said, if someone is renting a closet in your home, they’ll need access to it. You may not love the idea of a stranger coming in once a week to access their belongings. So while this is a potential solution, it may not be an optimal one.

If you move forward with this sort of arrangement, you’ll need to make sure to put some carefully worded rules in writing. For example, your agreement might dictate that your closet-renter can only access your home while you or another adult owner is present.

It’s a terrible thing to feel like you’ve taken on too much house. But rather than resign yourself to struggling financially, see if it’s possible to monetize your home until your income either picks up or housing market conditions become more favorable for a cost-effective move.

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We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers.
The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.The Motley Fool has a disclosure policy.

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Keeping most of your savings in cash could backfire. Read on to see why. [[{“value”:”

When you work hard for your money, which most of us do, the idea of potentially losing some to a bum investment can seem downright terrible. As such, you may be leery of putting your money into the stock market.

Data from Stash reveals that 20% of hardworking Americans think the bulk of their savings should be all cash. But if you adopt a similar approach, you might lose out on tremendous gains through the years.

The problem with sticking to cash

If you make a point to bank at an FDIC-insured institution, then your principal cash deposits are protected in the event of a bank failure provided they don’t exceed $250,000 (or $500,000 in the case of a joint account). On the other hand, when you buy stocks, there’s a chance their value will decline from one week or month to the next.

As such, you may be inclined to stick to cash for your long-term savings. But if you do, you might end up regretting that decision big time.

While stocks carry a degree of risk, they tend to offer much stronger returns than cash. And you may need those higher returns to meet your long-term savings goals.

Right now, you can generally snag a 4% return or more in a high-yield savings account. But today’s rates aren’t the norm.

So let’s say you save $200 a month over a 30-year period, all the while earning 3% on your cash in the bank. After three decades, you’ll have around $114,000. But if you’re saving for a milestone like retirement, that’s not a lot of money to work with.

On the other hand, let’s say you invest your $200 a month in stocks and score a 10% annual return, which is consistent with the market’s average over the past 50 years. In that case, you’ll grow your savings to about $395,000, which is a far cry from $114,000.

How to minimize risk as a stock investor

You can’t remove the risk that comes with putting your money into stocks. It’s just not possible. But one thing you can do is pledge to invest over a longer period. That gives you an opportunity to ride out market downturns and recover from temporary losses.

Remember, the 10% annual return referenced above wasn’t the return the stock market recorded every year over the past 50. That’s just an average based on strong years and plenty of years of market declines.

Another way to minimize your risk of losses as a stock market investor is to diversify your holdings. Buy different stocks from companies across a range of market sectors. Or, load up on broad market ETFs (exchange-traded funds), which allow you to own a bucket of stocks with a single investment.

You might think that keeping most of your savings in cash is the safest bet. But while that might help you avoid losing money, it could also be a big impediment to gaining money through the years. And ultimately, it’s a financial decision that may not serve you well at all.

Alert: our top-rated cash back card now has 0% intro APR until 2025

This credit card is not just good – it’s so exceptional that our experts use it personally. It features a lengthy 0% intro APR period, a cash back rate of up to 5%, and all somehow for no annual fee! Click here to read our full review for free and apply in just 2 minutes.

We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers.
The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.The Motley Fool has a disclosure policy.

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Banks can subtract money from your deposit accounts, like checking or savings, under one condition. Find out when they can seize funds and how to prevent it. [[{“value”:”

Bank accounts are one of the safest places to store money. As long as your bank has FDIC insurance, your deposits are insured up to $250,000 per account holder. Most online accounts also have intense security measures in place to protect your savings against fraud and theft, like smart password requirements and two-factor authentication.

That said, under some circumstances, a bank may have the right to withdraw money from your checking account, even if it doesn’t obtain your permission in advance. It’s called a “right of offset,” and it typically occurs when you borrow money and bank at the same institution. Let’s take a look at when a right to offset might occur and what you can do to prevent it.

When can a bank take money out of your account without your permission?

Contrary to what you might think, a bank could legally withdraw money from your deposit accounts (like a checking or high-yield savings account) if you’ve defaulted on one of its loan products, like a mortgage or car loan.

Again, the technical term for this is the “right of offset” or “right to offset.” Under this right, which can be found in your account’s deposit agreement, your bank can subtract money from any deposit accounts to cover outstanding balances. The account and unpaid balance must be with the same bank for the right to offset to be legal. A bank cannot take funding from an account that isn’t theirs.

Oddly enough, banks cannot seize funding for unpaid balances on credit cards. Consumers are protected from this under The Federal Reserve Board’s Regulation Z Section 1026.12, which forbids financial institutions from withdrawing funds to cover outstanding credit card balances. Banks also won’t seize money from retirement accounts, like a 401(k) or IRA. They can only take funding from deposit accounts, such as a checking account, savings account, money market account, or certificate of deposit (CD). This could be an account that you own solely, or a joint account that you share with someone else.

How to stop your bank from taking money without permission

To be sure, if you can find right of offset language in the deposit agreements that you signed, there’s not much you can do to stop your bank from legally withdrawing money without your permission.

That said, if the right of offset bothers you, you could bank and borrow money from separate institutions. You might hold your checking and savings accounts at one bank, for instance, while getting car loans or mortgages from another. In this way, your lender cannot legally seize your money if you fall behind on payments.

Of course, you could also avoid this by keeping up with your loan and mortgage payments. So long as you don’t give your bank reason to dip into your checking account, you’ll never have to face an unexpected withdrawal. If you do start falling behind on payments, however, it might be wise to reach out to your bank and see if you can set up a debt repayment plan. Many banks are willing to work with you, especially if you’re undergoing financial hardship resulting from a job loss, death of spouse, injury, or other unexpected event.

You might even be able to transfer your unpaid debts to a balance transfer credit card with a 0% intro period. This could work with personal loans whose payments you’re getting behind on, though be careful — not all 0% APR credit cards will allow you to transfer loans.

To be clear, a bank won’t withdraw funds without your permission for any other purpose than to cover outstanding debts. Take a look at your deposit agreement to see if your bank has a right to offset and don’t hesitate to report any unauthorized withdrawals, as it could be a sign of fraud.

These savings accounts are FDIC insured and could earn you 11x your bank

Many people are missing out on guaranteed returns as their money languishes in a big bank savings account earning next to no interest. Our picks of the best online savings accounts could earn you 11x the national average savings account rate. Click here to uncover the best-in-class accounts that landed a spot on our short list of the best savings accounts for 2024.

We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers.
The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.The Motley Fool has a disclosure policy.

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