Money Management

The national average savings account rate is just 0.46%. Instead of earning such a low rate, consider putting your money in one of these two places. [[{“value”:”

There are lots of reasons to put money into a savings account, including saving for emergencies or for short-term goals. If you’ll need the money soon, saving it rather than investing it in a brokerage account is the right move. You can’t afford to risk losses that could result if investments are timed poorly.

While keeping your funds in an accessible savings account with a bank or credit union is a good idea, the national average interest rate on these accounts is very low. In fact, according to the FDIC, it’s just 0.46%, which means any money you have in a savings account paying the national average rate is likely losing ground because it’s not keeping pace with inflation (price increases that happen over time).

So, what should you be doing with money you must save for short-term goals? You have two options.

Put the money into a high-yield savings account

If you need to keep your money ready and available to you at any time, a high-yield savings account is most likely the best place for it. While the national average savings account rate is very low, high-yield savings accounts are different. They often pay much higher rates, with some accounts currently offering yields of up to 5.32%.

You’ll want to shop around to find the best savings account rates available to you based on how much money you have invested (some banks only pay their highest rates if you maintain a specific balance amount). And of course, be sure the account is FDIC insured so you face no risk. Virtually all savings accounts from major financial institutions and even most online banks are FDIC insured, but you can confirm by using the FDIC’s BankFind tool.

One downside to be aware of is that savings accounts have variable rates, so the rate you’re being paid now could decline if rates go down over time. But a high-yield savings account is always going to pay a better rate than the national average. There’s no reason not to shop around and find an account that’s as competitive as possible — especially if you’re keeping a good amount in savings to be prepared for emergencies.

Buy a certificate of deposit

You also have another option: You can buy a CD. Certificates of deposit also come with FDIC insurance coverage so there’s no loss risk. The national average CD rates are higher than the national average savings account rates. It’s absolutely possible to find really competitive yields, with the best CD rates coming in at 5.55%. This means they’ll beat high-yield savings accounts as well.

Now, there is a possible downside. CDs require you to make a commitment to leave money invested for a period of time (usually between three months and five years, depending on what CD term you choose). So you’d only want to put money in one of these if you won’t need it for that period of time and are 100% sure you won’t have to take it out early. Breaking a CD term early can trigger penalties.

If you’re saving for a medium-term goal, such as a vacation in a year or buying a house in three years, a CD can be a great way to get some of the highest returns available on a risk-free investment. CD rates are also guaranteed for the whole CD term, they aren’t variable like savings account rates. So, if you think interest rates will fall soon, that’s another reason to opt to use some of your savings for a CD.

Ultimately, both of these options can be much better than putting your funds in a savings account paying the national average rate. Check out high-yield savings accounts and CDs today to see if any are right for you.

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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.

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Got a chunk of money from Uncle Sam coming your way this spring? Read on to learn what not to do with it. [[{“value”:”

Ah, tax time — it’s such fun to sit down with an accountant or tax-filing software and see if you underpaid or overpaid the government (which already knows your tax liability). You might be excited to see that you’re owed a refund on what you paid in 2023. But before you start making plans for that money, take a beat and check out a few mistakes you should avoid in the process.

1. Thinking that it’s “free money”

The way some folks celebrate getting a tax refund, you’d think it was a surprise windfall being given to them as a gift. I’m sorry to burst your bubble, but a tax refund isn’t like a birthday check from your grandmother — it’s your money, and the government held onto it for a while because you overpaid your taxes. Now it’s being returned to you, without interest.

I recognize that a tax refund has the potential to give you more financial breathing room, and even a bit of extra cash to spend, if your needs are met otherwise. But keep in mind that this is your money, and if you’d had access to it during 2023, it might’ve helped you out of a jam then.

Say you’re getting back $2,400. That represents $200 per month — what could you have done with $200 extra per month last year? Maybe you could have paid down some high-interest debt (more on that below), not sweated your high grocery bills as much, or padded your emergency fund.

2. Paying down low-interest debt

So you’ve decided to pay off some debt with your tax refund. This is a great idea — owing less money to your creditors is an excellent feeling, and can save you quite a bit. (In fact, the average credit card APR was 21.47% as of November 2023.)

But what you don’t want to do with your tax refund is use it to pay down debt that isn’t costing you a ton of money in interest — unless, of course, it is the only debt you have and you don’t have a better use for the money. (May I recommend adding it to your emergency fund?)

If you’ve got mortgage debt that isn’t costing you a ton in interest (say, you bought or refinanced a home in 2020 or 2021 and are sitting on a sweet 3% mortgage rate), putting your tax refund toward paying extra on it isn’t really the best use of that money. This is especially true if you also have higher-interest debt, like credit card debt. Paying off debt with a tax refund is smart, but apply that money where it’ll do the most good — like saving you 21% interest.

3. Blowing it on a purchase with expensive continuing costs

Considering buying a new car with your tax refund? (How big is that tax refund, anyway?) You might want to think twice. As anyone who’s ever received a big repair bill from their auto mechanic can tell you, making a big purchase is often just the beginning. Say you use your tax refund as a down payment on a new vehicle. Can you reliably afford the ongoing monthly payments for the car? How about auto insurance premiums?

Don’t make the mistake of committing to a large ongoing expense made possible by a chunk of money from your tax refund. If you have already figured the new expenses into your budget and were merely waiting for sufficient money to put down on the purchase, that’s likely fine. But before committing to any kind of big addition to your budget, make sure it actually fits into your budget long term.

4. Getting a refund at all

Honestly, getting a big tax refund at all could also be a mistake — unpopular opinion, I know. But remember what I said earlier, about how a tax refund is your money that you should’ve had access to during 2023 from your regular paychecks? If the money you’re receiving from Uncle Sam could’ve really helped you out last year, consider making a change to impact your 2024 taxes.

The IRS has a withholding estimator that can help you see if you’re having too much money taken out of your paychecks. You can update your withholding on your W-4 form with your company’s human resources department. It can be tricky to get the math just right, and you may end up owing a little next year, or still getting a small refund. Either way, you’ll have access to more of your hard-earned cash during the year, and that might make a difference in how comfortable you feel paying bills and managing your personal finances.

A tax refund can do a lot of good for you. Just be careful not to squander this opportunity or create a bigger headache for yourself when using it.

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Recently, I was in a minor accident. I planned to just write a check to the other driver, but something changed my mind. Here’s what happened. [[{“value”:”

Not too long ago, I got into a minor accident in a parking lot when the back of my car scraped the back of another vehicle. I talked to the other driver, looked at the small scratches on the back of the car, and decided that it made sense to just write them a check out of my bank account, rather than going through auto insurance.

Normally, making an insurance claim is the right move if there’s a risk of injury or more serious damage. But since the other driver wasn’t even in the car at the time and the incident seemed as if it was very minor, I figured I’d rather avoid having my auto insurance premiums go up due to an accident on my record.

In the end, though, things didn’t turn out as planned and I ended up having to report the crash to my car insurance company. Here’s what happened.

Reporting the accident to my insurance turned out to be necessary for a surprising reason

Since I planned to pay for the repairs for the other driver personally, I asked her to get a quote from a repair shop and send it over to me so I could write a check. But when I received that quote a few days later, I was shocked to see the costs were over $3,500.

Since I thought the incident just involved some minor scratches, this did not seem reasonable to me in any way. The repair quote included removing roof panels and repainting the left side of the car, when the damage was to the bottom right of the vehicle.

I didn’t trust that the repair quote was accurate, I didn’t want to ask the other driver to keep getting quotes from different repair shops, and I wasn’t comfortable writing such a big check to a repair shop I knew nothing about. So I decided it was best to get the insurance company involved.

Insurance protects a policyholder’s interests

Ultimately, I decided that making a claim with my insurance was important because my insurer would protect me.

See, as anyone who has ever done any car repairs knows, it’s not always possible to 100% count on repair shops to be completely transparent about pricing or about what’s actually wrong with a vehicle. I had some serious concerns that the repair company in this case might be inflating the price or trying to do work that wasn’t directly related to the accident since it knew someone besides the car’s owner would be footing the bill.

When going through insurance, though, there’s an investigative process to make sure that the damages the other party claims are accurate. My insurance could — and did — insist on sending out an adjuster to assess the damage. It also had the driver go to one of the insurer’s approved repair shops and it reviewed the quote to make sure it was reasonable.

The fact my insurer protected me against an unfair and inappropriate repair bill reminded me that it really is important to put every claim through insurance when there’s another driver involved — even a claim that seems like it should be a minor annoyance. Insurance doesn’t just pay the bill, but it also protects against scams by looking out for policyholders, since insurers have the knowledge and power to do that.

So, anyone who gets into a fender bender can learn from my mistake — no matter how minor it may seem, reporting it right away to insurance can save a world of headaches. (And potentially a few thousand dollars too!)

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It may feel good to have a lot of money in checking, but it’s not a great idea. Find out how you know when you have enough. [[{“value”:”

Having a chunk of money in your checking account can feel good, especially if you’ve ever been broke. However, there is such a thing as having too much money in your account. Let’s say you have $5,000 in your account but are suddenly abducted by aliens (hey, the podcasts I listen to tell me it could happen). You reappear one year later and your $5,000 is still in the account. The problem is that $5,000 can buy less due to inflation.

So, what’s the right number? Let’s dive into your options.

If your bank requires a minimum balance

Given the number of brick-and-mortar and online banks we have available to us, it’s hard to imagine that anyone still deposits their money into a financial institution requiring a minimum balance — but people do every day.

The average fee for dropping below the minimum balance ranges from $4 to $25. While most banks have a workaround (like opening a savings account with the same bank or opting for direct deposit), it’s still a fee that nibbles away at your finances.

In this case, it makes sense to keep at least the minimum required balance in the account at all times, even if it’s a checking account you rarely (if ever) use. There’s no reason to waste money on fees.

But if, like most Americans, you use your checking account to pay bills, you’re going to need more.

Building a buffer

Another option is to leave enough in your checking account to cover all expected bills for the month, plus enough to cover any surprises.

For example, if your monthly bills add up to $3,500, you know $3,500 isi the minimum you’ll need in the account. But what if an expense you’ve forgotten about comes through or a bill is higher than you expected? You might want to add an extra $1,000 to cover the “what ifs.”

What you’re trying to avoid is a non-sufficient funds situation. Say you make a quick run to the grocery store and spend $125, but there’s only $110 in your checking account. Not only will your bank hit you with a non-sufficient fund fee, but you’re also likely to face a fee from the grocery store. In short, it can get expensive.

Each state or U.S. territory sets the maximum amount financial institutions in that location can charge for non-sufficient funds. It ranges from $10 in Puerto Rico to $50 in Virginia.

Fortunately, most banks offer overdraft protection where you link one account to another. For example, you may link your savings account to checking. If you face a non-sufficient funds situation, the bank will automatically transfer the money needed to cover the transaction from your linked savings account. Some banks charge a fee for each transfer, but it’s likely to be less than you would pay in non-sufficient fund fees.

The sweet spot

One rule of thumb that may offer peace of mind is to keep enough in your checking account to cover one to two months’ worth of bills. Again, if any money you would normally spend over the course a month amounts to $3,500, that means aiming for $7,000 in checking. With two months tucked away, you know that your “regular” bills will be paid as well as any surprises that may come through.

There’s another advantage to having enough money to cover two months’ worth of bills in your account. Imagine you suddenly become ill or are injured in a car accident and in no condition to ensure bills are paid. Unless you have someone doing it for you, some bills may go unpaid, negatively affecting your credit score.

While having that much money in your checking account may seem excessive, it buys you time to get back on your feet and take control of your finances.

Once you deposit an amount that’s just right for you in checking, it’s time to put any additional money to work in a high-yield savings account, money market account (MMA), or certificate of deposit (CD). Now is a great time to watch your money grow.

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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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Tax credits reduce your tax bill dollar for dollar and sometimes help you land a refund. Learn about the five biggest tax credits you may be able to claim. [[{“value”:”

If you want to keep more of your money in your pocket instead of sending it to Uncle Sam, you need to maximize your tax credits. Unlike tax deductions, which reduce the amount of income that’s considered taxable, tax credits offer a dollar-for-dollar reduction in what you owe. In other words, if you get a $100 tax credit, you’ll owe $100 less in taxes. Some tax credits are even refundable, which means that if you’re owed money when you file your return, you can receive the credit as a tax refund.

We’ll break down five of the biggest tax credits Americans can claim. All numbers listed below are for 2023 numbers and apply to tax returns due on April 15, 2024.

1. Adoption credit

How much it’s worth: Up to $15,950

The adoption tax credit is meant to offset the high costs of adopting a child. Eligible expenses include adoption fees, legal expenses, and costs of travel related to the adoption. You can generally claim the credit if you adopted a child under age 18 or anyone who’s physically or mentally unable to care for themselves, regardless of age. One exception: You can’t claim the credit if you’re adopting your stepchildren.

The credit phases out if your modified adjusted gross income (MAGI) was between $239,230 and $279,230 in 2023.

Though it’s nonrefundable, you can carry forward the excess amount for up to five years. In other words, if you only owe $5,000 at tax time in 2023, you could carry forward the remaining $10,950 of the $15,950 credit and use it to offset taxes in a subsequent year.

2. EV tax credit

How much it’s worth: Up to $7,500

If you purchased a new electric vehicle (EV) in 2023, you may qualify for a tax credit of up to $7,500. If you qualify for this credit, it shouldn’t come as a shock to you. Dealers are supposed to give customers a report showing that their vehicle qualifies for the credit.

You can claim the credit if your modified adjusted gross income is less than $150,000 (single filers), $225,000 (heads of household), or $300,000 (married couples filing jointly).

There’s also a credit of up to $4,000 for customers who purchased a used EV, but the income thresholds are lower: $75,000 (single filers), $112,500 (heads of household), or $150,000 (married couples filing jointly).

If you’re considering purchasing an EV this year, read up on the EV tax credit rules for 2024. One big change for 2024: Dealers can now apply the credit directly to your purchase price and get reimbursed by the IRS.

3. Earned Income Tax Credit (EITC)

How much it’s worth: Up to $7,430

The Earned Income Tax Credit (EITC) is a refundable credit that provides tax relief to families with low to moderate incomes. To qualify, you need to have earned income, i.e., money from working, during the tax year.

Income limits are based on family size. A single filer with no dependents won’t qualify if their income was above $17,640 in 2023, while a married couple filing jointly with three dependents qualifies with up to $63,398 of income.

The maximum amount of the credit ranges from $600 for taxpayers with no qualifying children to $7,430 for families with three or more qualifying children.

4. Solar tax credit

How much it’s worth: Up to 30% of qualifying home improvement costs

If you made energy-saving improvements to your home, you may qualify for a tax credit of up to 30% of the costs. The Residential Clean Energy Credit, aka the solar tax credit, applies to home clean energy projects through 2034, though in 2033 and 2034, the value of the credit will be phased down.

Qualifying expenses include the costs of installing solar panels, solar water heaters, wind turbines, and geothermal heat pumps. The credit is nonrefundable, but you can carry forward any unused amount and use it to lower your tax bill in future years.

5. Child Tax Credit

How much it’s worth: Up to $2,000 per qualifying child

Parents of children who were age 16 or younger at the end of 2023 may qualify for the Child Tax Credit. To claim the credit, your child will generally need to be your tax dependent. The credit is available to single filers with incomes of less than $200,000 and married couples filing jointly earning less than $400,000.

The credit is worth up to $2,000 per qualifying child. Of that, $1,600 is a refundable tax credit known as the Additional Child Tax Credit.

How to maximize tax credits

Fortunately, tax-filing software makes it pretty easy for most people to figure out what tax credits they’re eligible for. But if you incurred major expenses that may help you qualify for a credit — like you adopted a child or completed a major home project — it may be worth consulting with a tax professional, since the rules can be complex.

Filing taxes is never fun. But tax credits can ease your burden at tax time and could even help you score a refund.

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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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CDs and high-yield savings accounts are both offering excellent returns right now. Find out how to decide which one you should use for savings. [[{“value”:”

Certificates of deposit (CDs) and high-yield savings accounts are two popular places to store your savings. They have several similarities, including competitive rates and FDIC insurance to keep your money safe.

They also have some differences, and each type of account has its pros and cons. Keep reading to see how their current rates compare and which option you should use for your savings.

CD rates vs. high-yield savings account rates

CDs typically offer slightly better rates than high-yield savings accounts. That’s the case right now, as the best CD rates are as high as 5.55%. And while the rate depends on how long of a CD you want, there are CDs available from 1-month to 5-year terms with rates of at least 5.00%.

The best high-yield savings accounts range from 4.30% to 5.32%. So, you can get about 20 to 30 basis points more (0.20% to 0.30%) from a CD than from a savings account. Keep in mind that this isn’t a huge difference. On a $10,000 balance, that’s $20 to $30 in extra interest per year.

The more important difference is that with CDs, you’re getting a fixed rate. Your rate is guaranteed for the entire term of the CD. But you also need to keep your money there until the end of the term to avoid an early withdrawal penalty. The penalty is typically a few months of interest.

With a savings account, you can withdraw your money at any time, but your bank can also change the interest rate. That could work out in your favor if rates go up, or against you if rates drop.

It’s a great time to lock in a high rate with a CD

If you want to guarantee a high interest rate on your savings, a CD is the better choice. Choose a term that works for you, so you won’t need to take out your money early and pay a penalty. For example, if you have savings for a down payment on a home, and you won’t need it for two years, put it in a 2-year CD.

While it’s impossible to predict future interest rates with complete accuracy, it’s looking like we’re at the peak. Experts are expecting the Federal Reserve to lower benchmark interest rates sometime this year. If it does, banks will almost certainly do the same with their rates, including on CDs and savings accounts.

You can get an APY of 5.00% or higher with both CDs and savings accounts right now. But you can only lock in a rate that high with a CD, ensuring you earn that rate for the entire term. If you put your money in a savings account, there’s no guarantee how long that rate will last.

A high-yield savings account gives you more flexibility

If you might need to dip into your savings at any time, go with a high-yield savings account. You’ll be able to make withdrawals without any penalties. The tradeoff is earning less if your bank lowers interest rates.

One of the best examples of money you should put in a savings account is your emergency fund. You can’t predict when an emergency will happen, so it doesn’t make sense to lock up that money for a fixed period in a CD.

The same is true for any other money you may need to use. If you’re saving up for a car, and you plan to buy one as soon as you find a good deal, that’s money you should have in a savings account.

There are excellent rates available on CDs and high-yield savings accounts. The right option depends on whether you’re willing to commit to a CD term for a fixed rate, or if you’d rather use a savings account and keep your withdrawal options open.

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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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