Money Management

Curious about how Capital One buying Discover could affect the cards in your wallet? See the predictions of a top credit card loyalty program expert. [[{“value”:”

Capital One buying Discover® for $35.3 billion is one of the biggest news stories in the credit card industry. The deal is still in the early stages, and has not yet been approved by company shareholders or federal regulators. No one knows for sure what the implications will be for credit card customers.

But based on a few overall industry trends, and what we’re hearing from Capital One about its plans for the Discover brand and payment network, we have a few ideas. Capital One buying Discover could ultimately be good news for credit card customers.

We talked with credit card loyalty program expert Dave Grossman, the CEO and founder of MilesTalk, to see what might be coming next for credit card customers as a result of Capital One buying Discover.

Let’s look at a few high-level predictions and insights for the possible future of the Capital One/Discover merger, and big changes in the world of credit cards.

1. Capital One is buying the Discover payment network, not just the brand

The biggest reason why Capital One wants to buy Discover is not just the Discover brand, Discover credit cards, or Discover’s online banking platform. Ultimately, the real reason for this deal is that Capital One wants Discover’s payment network.

Many credit card customers might not realize this, but Discover is not just a credit card company — it also owns a payment network, the behind-the-scenes “rails” that send payments back and forth between banks and merchants. Every time you swipe your Discover card at a store or buy something online, Discover makes a little bit of extra money because it doesn’t have to pay credit card processing fees to Visa or Mastercard’s payment networks. Because it owns its payment network, Discover has some extra financial flexibility to offer perks and rewards that not every credit card company can match.

Dave Grossman agrees that owning Discover’s payment network is the biggest “deal sweetener” for Capital One buying Discover.

“In my opinion, this deal wouldn’t make sense at the valuation that Capital One is paying without the payment network,” Dave Grossman said. “Discover has a fair bit of overlap between its customers and a portion of Capital One’s customer base. The payment network is the main win, especially given it was the only possible legacy card payment network to acquire.”

The other three major payment networks are (from largest to smallest): Visa, Mastercard, and American Express. Owning Discover’s payment network will give Capital One the ability to compete with Visa and Mastercard, and potentially offer new credit or debit card products.

2. Discover cards are not going away

If Capital One’s purchase of Discover goes through, current customers won’t see any big changes overnight. If you currently have Discover cards or Capital One cards in your wallet, there’s nothing to worry about. The Discover brand is not going away, and Dave Grossman believes that Capital One is likely to keep offering the same Discover card rewards and perks that Discover customers love.

“I think that Capital One will pull Discover more into the fold of Capital One cards rather than vice versa, but without taking away what Discover customers like most,” Dave Grossman said. “For example, I think Capital One will keep the 5% quarterly bonus categories like Discover has now and likely maintain many of the same Discover products that exist now — although they could decide certain cards are too similar and consolidate those.”

If you are a Discover customer, just sit tight and keep using your cards as usual. Any changes will be communicated to you in the future, but it’s unlikely that your Discover card’s features are going to get “worse” as a result of this deal.

3. Discover card customers could see new benefits and rewards

At some point, as Capital One works to integrate Discover’s products and accounts into the larger bank, both brands’ credit card and debit card customers could start to see new benefits and rewards. This might not happen immediately (if at all), but Dave Grossman believes that there is an opportunity for Capital One to combine Discover’s cash back rewards with Capital One Venture miles rewards.

“It would be exciting to see Capital One add the ability to convert Discover cash back into Capital One Venture miles that can be transferred to airline and hotel partners,” Dave Grossman said. “That could be a nice upgrade for current Discover customers, especially if it’s simply an option layered on top of the current cash back with nothing taken away from the current ways that Discover customers can redeem for cash.”

Owning the Discover payment network will likely help Capital One open up additional opportunities to offer credit card rewards, Discover-style debit card rewards, and customer loyalty incentive programs from your favorite restaurants and retailers. There could be exciting new rewards coming for Capital One customers — current and future.

Bottom line

Capital One buying Discover could be a good thing for credit card customers. Your favorite Discover perks like cash back rewards on debit cards are not going away. Instead, Capital One might even decide to combine its rewards programs with Discover, and give customers new ways to redeem their rewards from everyday spending. It’s still in the early days of the merger, but there are big opportunities here for Capital One to strengthen its leadership as one of the best credit card companies.

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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.American Express is an advertising partner of The Ascent, a Motley Fool company. Discover Financial Services is an advertising partner of The Ascent, a Motley Fool company. The Motley Fool has positions in and recommends Mastercard and Visa. 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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The IRS isn’t going to chase you down to give you a tax refund. Learn why it’s worth filing a tax return even if you don’t owe additional money. [[{“value”:”

If you don’t file your taxes and owe the IRS money, serious consequences can ensue. You could face very costly penalties for failing to file a tax return when you owe money from that tax year.

But if you’re due a refund from the IRS, there’s no penalty for failing to file a return. In that case, the IRS doesn’t mind, because it gets to hang onto your money — but that doesn’t mean you should let it.

The IRS isn’t going to chase you down

It’s a big misconception that if you’re owed money from the IRS in refund form, the agency will find you and make sure you get the funds you’re due. Not so. If you want a tax refund, you need to file a tax return to get it.

Now some people are exempt from filing tax returns because their income is lower than the standard deduction. But even if you’re not required to file a tax return, it could pay to do so for refund purposes.

If you’re a lower earner, you may, for example, be entitled to a valuable tax credit called the Earned Income Tax Credit. It’s a fully refundable credit that could result in a multi-thousand-dollar refund. But you won’t get that refund if you don’t ask for it.

What if you didn’t claim a previous tax refund?

It may be that you missed the boat on filing a tax return for a previous year that may have otherwise resulted in a refund. If that’s the case, you may not be out of luck.

The IRS gives you three years from a given return’s filing deadline to submit that return and snag your refund. For example, 2023 tax returns are due this year on April 15. But that technically means you have until April 15, 2027 to submit that tax return.

Of course, seeing as how many Americans are living paycheck to paycheck without any money in a savings account, waiting that long makes little sense — especially when you may be eligible to file your taxes for free. This year, you’re eligible to file for free if your adjusted gross income is $79,000 or less. And if you think you can’t manage the process alone, you may be eligible for free help.

The IRS’s Volunteer Income Tax Assistance (VITA) and Tax Counseling for the Elderly (TCE) programs offer help for certain filers. Usually, for VITA, you need to earn $64,000 or less, have a disability, or have limited English-speaking ability. But if you feel you need help with your taxes, don’t hesitate to explore these programs to see if you qualify. You may also find a local tax preparer who’s willing to help you at a greatly reduced rate.

A tax refund is something you shouldn’t give up. That’s money that could do a lot of good for your finances. So if you’re not sure you’re due a refund this year, go through the motions and see. You may find that the IRS owes you a nice sum of money thanks to the various tax credits that are made available to filers.

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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 Roth IRA contribution limit is $7,000 in 2024. You might be surprised what could happen if you max it out. Learn more here. [[{“value”:”

American workers who qualify can contribute as much as $7,000 to a Roth IRA for 2024, with an additional $1,000 catch-up contribution allowed for those age 50 or older. But with no immediate tax benefit, it could be hard for many people to justify maxing out their Roth IRA contributions in 2024 and future years.

However, you might be surprised at what can happen if you pick a brokerage firm to open a Roth IRA and then put in as much as you can this year.

First, here’s what won’t happen

As I briefly mentioned earlier, there’s no immediate tax break for contributing to a Roth IRA. If you contribute $7,000 to a traditional IRA and qualify for the traditional IRA deduction, you could use the entire amount to reduce your taxable income. Roth IRAs get no such treatment.

However, while traditional IRA withdrawals in retirement are treated as taxable income, Roth IRA withdrawals typically are not. Even if you have $1 million in a Roth IRA, you are free to withdraw the entire amount and the IRS can’t touch a penny (although withdrawing as a lump sum is rarely the best idea).

What could happen if you max out your 2024 Roth IRA contribution

Let’s say that you’re 30 years old and you contribute the $7,000 maximum to a Roth IRA in 2024. Based on the historical average returns of the stock market (about 10% per year over long periods of time), this could grow to about $197,000 by the time you’re 65. And that’s from maxing out your Roth IRA in one year. (Note: The S&P 500 has averaged a 10.2% annualized return since 1965.)

Of course, there’s no guarantee of future investment performance. But the point is that a Roth IRA offers excellent long-term compounding power.

It’s also worth pointing out that the deadline for Roth IRA contributions is the same as Tax Day each year in April. So, you can still make 2023 Roth IRA contributions by April 15.

What could happen if you max out your Roth IRA contributions every year?

The previous section discusses maxing out your Roth IRA in 2024. But what if you max your Roth IRA out every year?

Of course, the long-term effects will depend on the exact performance of your Roth IRA investments, the age at which you start, and the age when you decide to retire. But let’s look at an example.

Let’s say that you’re 30 years old and open a Roth IRA in 2024 and fund it with a $7,000 contribution. But you don’t stop there. You contribute another $7,000 in 2025, 2026, and so on — all the way until you’re 65 years old and ready to retire.

You might be surprised to learn that at a 10% annualized growth rate, this would lead to a nest egg of nearly $2.1 million by the time you’re 65. And best of all, this would be completely tax-free retirement savings. You could choose to withdraw a certain amount of money each week or month to create an income stream, or simply take out money as you need it — and the IRS won’t be able to touch a cent.

Now, this assumes that the maximum Roth IRA contribution will stay at $7,000 forever, when in reality it rises with inflation over time. And it ignores the catch-up contributions you’ll be eligible to make after you turn 50. So, the compounding power is likely to be more than the figures discussed here.

Other Roth advantages

Now, $7,000 might seem like a large portion of your income to tie up until you reach retirement age, especially if you’re young. After all, what if you don’t have an adequate emergency fund set up yet? Or what if you also plan to buy a house eventually and are concerned about your down payment?

If you’re concerned about keeping your money in the Roth IRA until retirement, it’s important to realize that Roth IRAs have a special provision that allows you to withdraw your contributions (but not your investment profits) at any time, and for any reason, without penalty. Of course, the best compounding power comes from leaving your money in the account. But if you are faced with a true financial emergency, you can choose to take some of your money back.

Also, IRAs in general have a special rule that allows you to take as much as $10,000 out of your account to use toward a first-time home purchase (I did this about 15 years ago), or any amount to help pay for college expenses for you or someone else.

In short, when you put money into a Roth IRA, it isn’t as “tied up” as you might think. So don’t let this stop you.

The bottom line

Maxing out your Roth IRA might seem undesirable since you don’t get any immediate benefit for doing so, but the long-term effects can be outstanding. And unlike building up a million-dollar nest egg in a traditional IRA, you can use your Roth IRA to produce tax-free income.

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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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Sticking with the wrong bank could be a costly mistake. Here are a few sure signs that it’s time to switch banks. [[{“value”:”

Switching banks can be inconvenient, but most people are willing to do it if necessary. Over three-quarters (76%) of consumers are likely to switch banks if they find one that better fits their needs, according to a recent banking survey by The Motley Fool Ascent.

There are many banks to choose from, so it doesn’t make sense to stay with one that has unnecessary fees or subpar benefits. If you’re wondering whether you should make a change, here are some common reasons to switch banks right away.

1. You’re paying a monthly fee for your account

Your bank account should never cost you money. But many banks still charge those pesky monthly maintenance fees. This is particularly common with big banks, including Bank of America, Chase, and Wells Fargo.

Monthly maintenance fees generally range from $5 to $15, although they can cost more. There are also usually ways to avoid them. For example, a bank may waive the monthly fee if you maintain a balance of at least $2,500 every day, or if you receive $1,000 in direct deposits per month.

If you’re going to use an account with a maintenance fee, make sure you can meet the requirements to have that fee waived. If not, pick an account that won’t charge you anything. There are plenty of quality checking accounts and savings accounts with no fees.

2. You’re earning less than 4% on your savings

One of the benefits of a savings account is that you can earn interest on your money. Interest rates have also gone up quite a bit over the last two years, but not all Americans have taken advantage.

The best savings accounts are generally paying rates of 4% or higher right now. Some are even offering over 5%. But the average is only 0.46%, according to the FDIC, because a lot of banks still don’t pay very much. At the big banks, rates are as low as 0.01%.

Less than a third (31%) of Americans have a savings account with a rate of at least 4%, according to savings research by The Motley Fool Ascent. If you’re one of them, you could be missing out on a nice return. If you have $5,000 in savings, that could earn you $225 per year in interest at a 4.5% APY — or $23, in an account with an average 0.46% APY.

3. You need more convenient ATM or branch options

You can do most of your banking online nowadays, but there may be some tasks you still need or want to do in person. This is where online banks sometimes fall short.

For example, when you need to get cash, it’s nice if there’s an ATM near your home or work. If the nearest fee-free ATM is a long drive away, then it may be worth looking for a bank with a more convenient ATM network. Or, you could go with a checking account that reimburses ATM fees.

If you like to be able to visit your bank, then once again, location matters. It could be better to switch to a local bank, if your current bank doesn’t have any branches within a reasonable distance.

4. You don’t like your bank’s web platform or mobile app

Some banks have invested heavily in technology, and it shows. Others not so much. They have outdated web platforms and mobile apps that are often frustrating to use.

If you dread logging in to your bank account, or you feel as if you can’t get anything done in its app, start looking for a more user-friendly option. SoFi is one bank that’s highly rated in this regard, both with its website and mobile app. I personally use and like Capital One. If you do a lot of banking on your smartphone, you may want to look at our list of the best banking apps.

You don’t need to settle for less with your bank account. If your bank is charging you fees or paying a subpar APY, or if there’s anything else you don’t like about it, it’s worth the time to make a change.

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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.JPMorgan Chase is an advertising partner of The Ascent, a Motley Fool company. Bank of America is an advertising partner of The Ascent, a Motley Fool company. Wells Fargo is an advertising partner of The Ascent, a Motley Fool company. Lyle Daly has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Bank of America and JPMorgan Chase. The Motley Fool has a disclosure policy.

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