Money Management

Keeping your emergency fund in a CD is typically not a good idea. Check out a few reasons why you could regret buying a CD with emergency cash. [[{“value”:”

Having an emergency fund is crucial to protect against financial disaster. Without one, you could find yourself forced into credit card debt when something inevitably goes wrong and you have to spend money you didn’t plan to use.

You’ll need to decide where to put your emergency fund, though — particularly since you’ll probably want to have a lot of money in this account. Experts recommend having around three to six months of living expenses saved, which could mean the average family needs around $36,486 (based on The Motley Fool Ascent’s research showing average monthly expenses of $6,081).

Sticking the funds in a certificate of deposit (CD) may seem attractive because CDs generally tend to pay higher yields than even high-yield savings accounts. But should you keep your emergency money in a CD?

There’s a big problem with using a CD for your emergency money

At first glance, CDs may seem like a viable option for your emergency money. After all, they’re FDIC insured so you won’t risk losing any money when you buy one — which is important, because you can’t afford to lose the money you have saved for surprise costs. And some CDs are paying rates of more than 5% right now, which may be tempting when you have a lot of money set aside.

There’s one big problem, though: A CD is not a place to put money that you could need at any moment. That’s because you have to make a commitment when you buy a CD. Each one has a term length, such as three months or two years or five years or some other duration set by the bank that’s selling it.

When you buy the CD, you have to agree to leave your money invested in it for the term length to avoid penalties. Sadly, this would mean your funds are no longer available and accessible to you for emergencies — which is the very purpose of the money in the first place.

Your emergency money needs to be accessible to you at all times

When you save money for emergencies, you should have one single goal for that cash: to be available to you to avoid a financial crisis when unexpected expenses arise. Making the money unavailable by investing in a CD goes against that goal and could force you to either pay a penalty or borrow money if you face a surprise expense before your CD term is up.

A high-yield savings account will pay a little less than a CD and it has a variable rate, so if interest rates fall, you could end up making a far lower return than you would have had you locked in with a CD at today’s rates. But those downsides are worth dealing with when the tradeoff is that your funds actually remain available for unexpected expenses.

You can’t predict when you’ll need to rely on emergency money, so even a CD with a short term could end up locking up your cash for too long. You can use a CD for other short- and mid-term goals when you know you won’t need the money for a set time…but your emergency fund belongs nowhere else but a savings account so it’s ready when you need it.

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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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The biggest credit card merger in years is set to take place. Take a look at what consumers should know. [[{“value”:”

Capital One recently shocked the financial industry by announcing it has agreed to acquire Discover, combining two of the largest credit card–issuing banks into one company. The combined business would have more than 400 million credit card customers in addition to the other banking products offered by each company, and it would also have Discover’s own payment network.

While there are some clear (and legitimate) reasons why the Discover and Capital One merger makes sense for both businesses, there are also concerns that it could raise costs for consumers.

Why is Capital One acquiring Discover?

There are a few reasons why this deal could be attractive for Capital One. First, and perhaps most obvious, with all other factors being equal, larger businesses are typically more efficient than smaller ones.

As an example, Capital One and Discover currently have two full leadership teams they’re paying. After the merger, they’ll only have one. They can also combine marketing efforts, leverage each other’s strengths (like Capital One’s local branches) to their advantage, and more.

What’s more, there are four major payment networks in the United States, of which Discover’s is by far the smallest. By owning a payment network, Capital One could ultimately create a closed-loop payment network (where it serves as the bank and processes transactions) and use its resources to scale it. Owning a payment network could be a major competitive advantage — as it has been for American Express through the years.

Concerns about what it could mean to consumers

Shortly after the merger announcement, several consumer advocacy groups voiced their strong opposition to the deal.

First, they say that combining two already-massive credit card issuers will hurt competition and concentrate risk in the U.S. financial system. Think of it as if Walmart were to acquire Target. Sure, there are other large retailers out there like Costco, but this would be a competition-reducing deal (which would almost certainly be rejected by regulators).

This concentration and scale would allow Capital One to increase fees on consumers and businesses, argue the deal’s opponents. The credit card industry is already dominated by a group of large players, and if you look at our best credit cards pages, you’ll notice that most are issued by just a few major banks.

Here’s why this is a concern: Larger credit card issuers generally charge higher interest rates and have higher fees than smaller ones. In fact, a report by the Consumer Financial Protection Bureau found that the 25 largest credit card issuers charge interest rates that are 8% to 10% higher, on average, than those charged by smaller banks and credit unions.

On the other hand, there’s a solid argument to be made that the deal will increase competition on the payment processing side. Visa and Mastercard are so large that they have an effective duopoly on the payment processing industry. With Discover under Capital One’s umbrella, it could be better positioned to become a serious competitive threat to the two giants.

Should consumers be worried?

Not yet. For one thing, there’s a lot that needs to happen before the deal can be finalized. And the deal is subject to regulatory approval before it can go through. There’s also the burden of showing that the merger benefits the public, not just the businesses and their investors, so there is likely to be somewhat of a battle. The deal isn’t expected to close until late 2024 or early 2025, and even this could prove to be an aggressive timeline.

The bottom line is that nothing is changing immediately, and there’s no way to know right now whether the deal will ultimately be approved. But if you’re a credit card user, it’s definitely worth keeping an eye on.

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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.Discover Financial Services is an advertising partner of The Ascent, a Motley Fool company. American Express is an advertising partner of The Ascent, a Motley Fool company. Matt Frankel has positions in American Express. The Motley Fool has positions in and recommends Costco Wholesale, Mastercard, Target, Visa, and Walmart. The Motley Fool recommends Discover Financial Services and recommends the following options: long January 2025 $370 calls on Mastercard and short January 2025 $380 calls on Mastercard. The Motley Fool has a disclosure policy.

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Losing money stinks. Read on to learn five reasons why CDs are great for risk-averse investors. [[{“value”:”

For risk-averse investors, finding a secure and reliable investment method can be challenging. While the stock market can offer sizable returns, it can also be very volatile. Meanwhile, letting your money sit in a bank account can mean it’ll lose value, thanks to inflation.

Thankfully, certificates of deposit (CDs) let you maximize returns while minimizing risk. CDs are a type of savings account that allows you to earn a fixed interest rate over a set period, giving you a predictable return without the risk of losing your initial investment.

Here’s why CDs are an excellent choice for risk-averse investors.

1. You know exactly how much you’ll earn

CDs are one of a handful of investments that guarantee a specific percentage you’ll earn on your initial investment and give you an exact timeline of when you’ll get it.

For example, let’s say you have $10,000 you want to invest, and you don’t need that money soon for your emergency fund, car payments, or other expenses. If you put that money into a 5-year CD date that pays 4.00% APY, it will turn into about $12,166 over that period — earning you $2,166.

With CDs, there’s no guessing how much money you’ll make. You can calculate the return upfront and decide whether it’s a good decision for you or not.

2. You’re guaranteed to get back what you put in

With a CD, you’re guaranteed to get back whatever money you initially invested. This may seem obvious to some, but it’s an important difference between other types of investments.

For example, let’s say you have $5,000 to invest and you use it to buy a few stocks. A few months later, the stock market is in turmoil, and all of the stocks you own have lost half of their value. Within a short amount of time, your $5,000 is now worth $2,500.

That can’t happen with CDs. At the end of the maturity date, you’ll always get back your initial deposit plus any interest you’ve earned. One caveat to this is if you withdraw your money before the maturity date and are charged an early withdrawal fee, it’s possible to receive less principal back if the interest earned doesn’t cover the cost of the fee.

3. They’re free (mostly)

CDs typically don’t have any maintenance fees, so depositing your money into CDs usually won’t cost you a dime. Just make sure you leave your money in the CD for the entire term, or you may have to pay a penalty.

For CDs with terms longer than 24 months, the usual early withdrawal penalty fee is 180 days of simple interest on the amount you withdraw early. For CDs with terms shorter than 24 months or less, the penalty fee is usually 90 days of simple interest on the amount you withdraw early. But penalties can vary by bank account issuer.

4. You have control over the terms

When you buy a CD, you can shop for a maturity length you’re comfortable with, with an interest rate you like, and decide how much you want to invest. Of course, you don’t have complete control over all these aspects combined, but you can shop around for CDs that match your needs.

For example, maybe you want a 1-year CD with a 5.00% interest rate. Or, perhaps you want a 3-year CD with a 4.50% interest rate and no minimum deposit. There are many options for CDs, making it likely you’ll find one that suits you.

When choosing a CD, consider:

The length of the maturity termThe annual percentage yield (APY)The minimum deposit amountWhat the early withdrawal penalty fee is

5. CDs are FDIC insured

When you put money into a CD, it’s essentially the same thing as putting your money into your bank account, as far as the government is concerned. Deposits in a CD are FDIC insured, which means your money, up to $250,000, is guaranteed if the bank holding the CD fails.

FDIC says the standard coverage limit is $250,000 per depositor, per FDIC-insured bank, per ownership category. This means that if you and your spouse opened a CD together, you could be protected up to $500,000.

While bank failures are uncommon, having your deposit insured by the government is far safer than having your money in a mutual fund, bonds, or stocks, which aren’t FDIC insured.

High CD rates may not last much longer

Right now could be a good time for investors looking to lock in the best CD rates. With inflation slowing, the Federal Reserve has indicated it may cut interest rates later this year.

If that happens, CD interest rates will likely fall as well. So if you’re on the fence about opening up a CD, consider this a gentle reminder that the window for maximizing your CD returns may be closing soon.

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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Have a tax refund coming your way? Read on for great ways to maximize that cash. [[{“value”:”

As of late February, the average tax refund issued by the IRS this filing season was $3,213. Since the April 15 filing deadline is still about a month away, that average refund amount has the potential to change. But no matter what refund you get on your taxes, it’s important to make the most of that money. Here are nine savvy moves you can make with your newfound pile of cash.

1. Cover yourself with emergency savings

Without an emergency fund, you may be forced to resort to taking on debt when unplanned expenses come up. Rather than risk that scenario, add your refund to your savings account. At a minimum, aim for enough cash in the bank to cover three months of essential bills. And if your refund alone doesn’t get you there, which it may not if you’re starting with no savings, aim to continue adding to your savings after tax season is over.

2. Pay off costly debt

Maybe you owe money on your credit cards because you had to charge some unexpected medical bills last year. Or maybe you’re still carrying an expensive loan you signed when your credit score wasn’t great. If you have debt that’s costing you a lot of money in interest, then it definitely pays to use your tax refund to try to knock it out.

3. Invest for the future

Investing money is a great way to turn a small sum of cash into a much larger one. Over the past 50 years, the stock market’s average return has been 10%. A $3,212 tax refund invested in a regular brokerage account or a retirement plan today could be worth over $145,000 in 40 years if your portfolio delivers a 10% yearly return as well.

4. Further your education

Feeling stuck in a rut career-wise? A job that bores you to tears isn’t good for your morale. So if taking classes or going to grad school is what it takes to help you land a much more interesting (and perhaps better-paying) role, then consider using your tax refund to further your education. It could be one of the best investments you’ll ever make.

5. Upgrade failing electronics

Have a cellphone that can barely hold a charge, or a laptop that freezes on you constantly and whose keyboard is so banged up the keys barely work? You may want to use your tax refund to upgrade these and similar items that are essential to your everyday quality of life. And if you’re self-employed, some of those upgrades may be eligible for a tax write-off when you file your 2024 taxes. (Consult a tax professional to find out for sure.)

6. Start a 529 plan

If the idea of paying for your kids’ college makes you want to throw up just a little bit, then now’s the time to open a 529 plan using your refund as seed money. The nice thing about 529s is that investment gains in these accounts are tax-free, as are withdrawals, as long as that money is used to cover qualifying educational expenses. Plus, 529 plans make it easy to switch beneficiaries, so if you have multiple children, you get flexibility in the happy event that you end up with excess college savings on your hands.

7. Make home or car repairs

If your car has seen better days, or if there’s a specific ticking time bomb of an issue happening at home, like a water heater that’s about to go kaput, you may want to use your tax refund to address that matter. Letting problems with a car or home linger could cause you a lot of stress. And then, you might eventually land in a situation where you have to fix an issue on the spot when you’re less prepared.

8. Make home improvements

Improving your home could make your daily life more comfortable. Your tax refund may not be robust enough to cover a major home improvement, like gutting your kitchen or finishing your basement. But it could be just the thing that allows you to replace worn bathroom tiles or upgrade to more energy efficient appliances.

9. Buy life insurance

If you’ve been putting off life insurance because of the cost, you should know that a term life policy may be more affordable than you’d think. But also, you shouldn’t keep putting that purchase off, because if something happens to you, your loved ones could be left in the lurch. So if you’re sitting on cash from a refund, use it to cover the initial cost of your premiums. You’ll get peace of mind — and so will the people you care about most.

If you find out from your accountant (or tax software program) that you’re getting a tax refund, know that it could improve your life and finances in a number of ways. So no matter what that sum amounts to, think carefully about your options for putting it to good use.

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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.Maurie Backman has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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