Money Management

If you don’t have a Costco near you, you can shop at Costco.com — but buying a membership just to do so may not be worth it. Learn why here. [[{“value”:”

Costco offers great deals to its members. But if you don’t live near one of Costco’s 875 warehouse store locations, then you may be hesitant to pay the membership fee to join the warehouse club. After all, you can’t take advantage of deals you’re unable to access.

Costco has a website that you can order many products from. So, even if you don’t have a Costco in or around your neighborhood, it’s still possible for you to buy from the warehouse club thanks to the magic of the internet.

If you’ll only be shopping at Costco.com, though, you need to think carefully about whether a membership is worth it. Here’s how you can decide whether that membership fee belongs on your credit card.

Will you spend enough online to justify a membership?

The first thing to know is that you do not have to be a Costco member to shop online. Anyone can go to Costco.com to purchase the items for sale there. However, if you aren’t a member, you will pay a 5% surcharge for your online purchases. In addition, Costco does have a selection of members-only items online that non members aren’t allowed to purchase.

So for it to make sense for you to buy a membership in order to shop online without this surcharge, you would have to save enough by avoiding the 5% to cover the cost of your Costco membership.

The entry-level cost of joining Costco is $60.00 per year. If paying the 5% surcharge on your purchases is less than $60, it would not make sense for you to join Costco just to avoid it. You’d be better off doing your online shopping as a non-member and paying the slightly higher prices.

So, if you are spending $1,200 or less at Costco.com, the 5% surcharge would add up to $60 or less — and paying for the membership probably wouldn’t make sense if you couldn’t visit the store. But if you bought more than $1,2000 a year worth of stuff at Costco.com, paying for the $60 membership fee would be worth it to avoid the 5% surcharge.

Say, for example, you make $2,500 worth of purchases per year at Costco.com. If you weren’t a member, the 5% charge on your $2,500 would cost you $125 a year — more than double the $60 membership fee you’d have to pay to avoid it. Becoming a member in this situation is an easy personal finance decision.

What other alternatives do you have?

You should also consider whether there might be better options out there for your warehouse club needs.

Costco generally charges more for online purchases (both for members and non-members alike) compared to what you’d pay in the club. So, if you are using its website to do most of your shopping, you aren’t really getting the best deals or the rock-bottom prices you may have expected.

Sam’s Club, on the other hand, does not charge a premium for purchases made online versus in the warehouse club. So if you want to do most of your warehouse shopping over the internet, Sam’s may be a better fit.

Before you buy a Costco membership to shop at Costco.com, you’ll absolutely need to consider these two issues. You may just find that becoming a member of this warehouse club makes absolutely no sense for you and your personal shopping budget.

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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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Mortgage interest rates aren’t as straightforward as they seem. Keep reading for the partial truths within this particular real estate lore. [[{“value”:”

I got my start in The Exciting World of Real Estate (™) in 1998, so I’ve seen a few things when it comes to mortgage interest rates. Working with buyers for 10 years made me realize that there’s a lot that people don’t understand about how all of this works.

There are many serious misconceptions about mortgage interest rates to set straight. In no particular order, here are my top three more egregious mortgage interest rate misconceptions — as well as the truth.

1. All banks offer the same rates

Have you ever googled “30-year fixed mortgage interest rates”? If so, you probably got a mortgage rates page. On it, you’ll find mortgage interest rates for banks near you, and you’ll see that they’re not always the same. This is because there’s no such thing as a universal interest rate for all mortgages. And the federal funds rate doesn’t control the rates banks charge (though it can influence them).

Banks charge what they charge based on what they’re paying to borrow money — it’s really that simple. If you’re looking for a new home loan or even a refinance, check with multiple mortgage lenders to get the best rate possible.

2. Interest rates are really high

I realize this is going to sound like absolute heresy, but interest rates are not really high. I know, I know, they’re much higher than they’ve been the last few years, but in the grand scheme of interest rates, this is actually a pretty average rate we’re looking at right now.

According to the Federal Reserve Bank of St. Louis, the average for a 30-year fixed mortgage at the end of February 2024 was 6.94%. One year ago, that same figure was 6.73%, based on St. Louis Fed data. The big problem, of course, is that two years ago, it was 3.85%.

Two years ago, lower interest rates were an anomaly. It was an anomaly that lasted much longer than it likely should have, but it was still an anomaly. I took a look at mortgage interest rates across time to give this story some perspective. What I learned was that the average interest rate between April 2, 1971 and Feb. 29, 2024 was 7.73%, well above today’s average rate.

If you’re old enough to remember the Great Recession, you might remember that interest rates were very different before that. The FRED data says rates averaged 9.21% between 1971 and that rough period. They were pretty low for a long time after, though, in the hopes of resetting a lot of different things in the economy, because boy was that a big tumble. And that led to average rates between the Great Recession and Feb. 29, 2024 being at 4.42%, which makes it all seem very bad that rates are in the 7% range.

That was a period of roughly 15 years, versus the 50ish years that we have data on. I’m not at all saying that home affordability isn’t a problem, but the issue isn’t really the interest rates. There’s a lot more at play here.

3. You can always refinance

This is a bald-faced lie told constantly by well-meaning people. It’s true that you can sometimes refinance your mortgage. But to say that you can always refinance your mortgage assumes a few significant things. First of all, that your life can’t possibly change substantially from the moment you close to the moment you need to refinance. If you’ve changed jobs, taken a pay cut, lost a spouse’s income, or experienced one of a lot of other lifestyle changes, you may not be able to qualify for a refinance.

Secondly, it might not make financial sense to refinance, even if you can. Not only do you usually have to pay closing costs again (though it is less expensive with a refinance than with a purchase), you’re resetting your interest. What does that mean? Well, with the way mortgage loan amortization works, you end up paying most of the loan’s interest upfront.

Let’s say you bought your house with a $300,000 loan today, at 7.16% interest. Your first simple principal and interest payment will be a total of $2,028 in April 2024. For the payment, $238 is principal and $1,790 is interest. In April 2029, five years from your first payment, your payment remains the same, but your principal is now $340.44 and your interest is $1,687.80.

In the first five years of your ownership, you’ve paid $17,468 in principal and $106,255 in interest. You’ll pay a total of $430,169 in interest if you pay the note off as-is. But if you refinance, all of that starts over. That $100,000 in interest you paid? It’s gone. Poof. So, if you refinance, you have to have a rate that’s around or below 5.4% just to break even on your interest, not including what you’ll pay for closing costs (usually a couple of thousand dollars, depending on where you live).

Mortgage interest rate lies

People don’t tell you mortgage interest rate lies to be mean; they’re generally well-meaning people who just misunderstand how all of this works. But before you believe your aunt’s neighbor’s cousin when it comes to the biggest purchase of your life, ask your banker for the cold, hard truth.

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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.Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Kristi Waterworth has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet. The Motley Fool has a disclosure policy.

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Your tax refund really shouldn’t be money you’re banking on heavily. Read on to see why. [[{“value”:”

Many people have already filed their 2023 taxes, even though returns aren’t due until April 15. And a big reason so many tax filers are motivated to submit their returns ahead of the deadline is to expedite their refunds.

The average tax refund paid so far this year by the IRS is $3,213. That number could change as the season moves along, but all told, it’s unlikely to be a small one.

You may be relying on your tax refund to catch up on late bills or cover existing ones that haven’t yet been paid. But if that’s the case, your finances may need a pretty big overhaul.

You can’t bank on a tax refund

Maybe you’re someone who commonly gets a tax refund year after year. Even so, there may be certain years when you’re not due a refund. And there may be years when your tax refund comes in much lower than it usually does.

Many different factors determine whether you get a refund and how much of a refund you’re eligible to receive. You could have a year when your income rises or you earn more money in your brokerage account via dividend payments and capital gains, for example.

Because of this, it can be difficult to estimate your refund ahead of time. It’s not a good idea to count on getting a refund, and to take on expenses with the assumption you’ll use your refund to cover those costs.

A better approach to your finances

If you have outstanding bills you can’t pay until your tax refund arrives, or if you have upcoming bills you’re counting on your refund to cover, then you may need to rethink the way you manage your finances. Even though a tax refund is the IRS’s way of returning money to you that you’re owed, it’s not money you should count on the same way you can bank on getting a certain sum of money out of your paycheck. Instead, you should treat your refund as extra money you can use for important financial goals — not as money to pay everyday expenses.

If you can’t cover your regular bills based on your paycheck alone, you may need to reassess your spending and cut back in areas where there’s room to do so. That could, for example, mean getting a roommate if your rent eats up so much of your paycheck that there’s barely room left over for things like groceries and utility bills.

You may also want to consider picking up a side hustle until your salary at your main job increases. That way, your side gig can serve as reasonably steady income — or at least far more predictable income than a tax refund.

It’s a great thing to use your tax refund to save toward an important goal. But if you need your tax refund to pay your basic expenses or catch up on expenses you’ve already taken on, then it’s time to change the way you approach your finances. Remember, if your refund doesn’t come through, you could end up with serious debt on your hands. And that’s something you really don’t want.

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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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If you have a large amount of cash in the bank, you may be risking loss. Keep reading to learn about FDIC insurance on deposit accounts. [[{“value”:”

When you’re saving money, a savings account is often a good place for it — which shouldn’t be a surprise, given the name.

Savings accounts allow you to access your funds when you need the cash and provide a return on your investment (which could be pretty generous with a high-yield account). Typically, they also come with FDIC insurance, which also means you can’t lose the money you put in, up to a certain amount.

If you’re saving for a really big purchase, though, there’s a very important risk you need to be aware of.

The insurance risk of a big savings account balance

When socking money away for a huge purchase, you should be aware that there is a limit on FDIC insurance.

Specifically, the FDIC will cover up to $250,000 in deposited funds per depositor, per bank. So if you and your spouse have an account at a bank together, you’d each be covered for $250,000 for a collective total of $500,000 in protection.

But if you were a single person and had $250,000 in savings and $50,000 in a checking account, you’d still have just $250,000 in coverage at that bank, and $50,000 of your funds would not be protected.

Now, it may seem hard to imagine that you’d end up with more than $250,000 in the bank at any one time. But if you’re saving for a down payment for an expensive home or for some other major purchase in the future, this very well could happen. And if it does, you need to know that you’re not fully protected against losing all of your hard-earned money.

It may also seem far-fetched that a bank would fail in this day and age. But it absolutely does happen, and some bank failures occurred pretty recently. You don’t want to take any chances, especially when you’re talking about such a big sum of money.

How can you protect your funds if you’re above FDIC limits?

If you’re saving money for something really big and have more than $250,000, one option is to just open accounts at different banks. Keep each account’s balance below the insured limit and you’ll be fine. It’s a little extra hassle, but it’s better than losing your funds.

Another technique is to use a cash management account. These accounts are non-bank cash accounts that typically provide hybrid savings/checking services.

Cash management accounts often come with higher interest rates, and if you pick the right one, they can spread your money among different FDIC-insured banks. This means you can get more coverage — often on up to $1 million or more in deposited funds. There are some risks, including the fact that before your funds are transferred to the program banks, they’re unprotected unless your cash management account is a member of the Securities Investor Protection Corporation (SIPC). But if you do your research, this can be a great solution.

The important thing is to be aware of the problem and explore one of these options so you don’t find out the hard way your money isn’t as safe in the bank as you thought it was.

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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 Fetch. The Motley Fool has a disclosure policy.

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