Money Management

CDs and stocks are both good investment options, but they serve different purposes. Learn more about them to see where you should invest your money. [[{“value”:”

Certificates of deposit (CDs) and stocks are two popular and very different types of investments. CDs are banking products you buy for a set time period, such as five years, and earn a fixed rate on your money. Stocks are shares of companies, so their value depends on the performance of the underlying company.

If you’re deciding between CDs or stocks, here are the returns you can expect from each one and how to figure out the right investment for you.

CD vs. stock performance

Thanks to recent interest rate hikes, CDs are currently offering their highest payouts in years. The best CD rates are currently over 5.5%. Rates vary depending on how long of a CD you want, but you can get at least 5% for CDs ranging from one month to as long as five years.

That’s good, but the stock market tops it by a wide margin. The S&P 500, an index of 500 of the largest companies, has an average return of about 10% per year.

But there are no guarantees with the stock market. With CDs, you know how much interest you’ll earn and for how long. The stock market is unpredictable. It has been doing well lately. The S&P 500 increased by 24.2% last year, and has continued growing this year. That’s not always the case, though. In 2022, it declined by 19.4%.

Invest in CDs if you need stability

Because CDs offer a fixed return, they’re the better choice if you’ll need the money in the near future. For goals you have within the next five years, go with CDs over stocks. To give you a few examples, CDs can work well for money you plan to use for:

A down payment on a homeYour wedding or honeymoonUpcoming college costsBuying a car

These are all situations where it’s risky to put your money in the stock market. Stocks may offer a greater potential return, but unlike CDs, they can also lose value. The last thing you want is for your wedding or home fund to be worth less than because of a sudden market downturn.

You could also use other banking products to save for short-term goals. High-yield savings accounts are a popular choice. The advantage with CDs is that they let you lock in an interest rate. And it’s possible that interest rates will go down later this year, so now is considered a good time to get a CD.

Invest in stocks for long-term financial goals

Stocks are a better investment when you don’t need the money any time soon and can afford to ride out the ups and downs of the market. For goals that are more than five years away, invest in stocks over CDs.

Retirement savings is the most common example, but the same is true for any other goal that’s still a ways off. For example, if you’re in your early 20s and would like to buy a home in your mid-30s, you could put that money in the stock market. You still have plenty of time to let your money grow and get through any downturns.

As you get closer to your goal, you can adjust your strategy. Continuing the example above, once you’re within five years of buying a home, you’ll probably want to sell some of your stocks and put that money in a savings account or CD for your down payment.

You may want both for a balanced portfolio

Investing in CDs or stocks doesn’t need to be an all-or-nothing decision. Many investors put money in both: CDs for their short-term goals and stocks for their retirement nest egg.

It’s wise to have some money in the bank and some in the stock market. Stocks are one of the best ways to build long-term wealth, but they’re too volatile to have all your money in them. That’s where high-yield banking products can be useful, so you have cash when you need it. Some people stick to savings accounts for that, but CDs generally pay a bit more and allow you to lock in your interest rate.

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Want to buy a house? Keep reading for a few ways to get the best mortgage rate available — even though rates are up across the board. [[{“value”:”

Buying and owning a house is expensive — there’s no way around it. The interest rate on your mortgage is a huge influence on how much you’ll end up paying. No one is doing 3% mortgages anymore — as of this writing, the average rate on a 30-year fixed-rate mortgage is 6.9%, according to Freddie Mac. Here are a few ways to get the lowest possible rate, even in a less-than-ideal mortgage market.

1. Focus on improving your credit

A house is likely to be the largest purchase most of us will ever make, and if you’re borrowing money in the form of a mortgage to do so, it pays to be the best borrower you can be. A FICO® Score of 620 is regarded to be the minimum for approval on a conventional loan, but the higher your score, the more likely you are to get a good rate on any home loan. Improve yours by doing the following:

Pay down some debt: If you can pay down some current debt (especially of the credit card variety), it’ll free up more cash in your budget and you’ll see your credit score rise to boot — mine increased by 100 points when I paid off my debt.Check your credit report for errors: If there are mistakes on your credit report (such as an account reported as delinquent when in reality it is paid and up to date), disputing them with the credit bureau and having them removed can improve your credit score.Hold off on applying for new credit: If you’re preparing to apply for a mortgage, now is not the time to get a sweet new travel credit card. Hard credit inquiries (generated when you apply for new credit) will ding your credit score.Keep making on-time payments: Payment history is the biggest part of your FICO® Score, representing 35% of it. Lenders prefer to loan money to consumers who have a history of reliable payments, so now is the time to get better about it — or keep on keeping on.

2. Go in with a solid down payment

Buying a house involves a lot of money along the way, and the biggest single chunk of cash you’ll shell out is likely to be your down payment. If you intend to buy with a conventional loan, the gold standard for a down payment is 20%.

With 20% down, you’ll have a solid amount of equity in a home (making it less likely that you’ll end up underwater — owing more than the house is worth). Plus, you can avoid an extra expense tacked onto your monthly payment — private mortgage insurance, or PMI.

But in some housing markets, this could take you years to save — and even on a national level, the median home price was $417,700 as of Q4 2023. Putting down 20% on a home at that price comes to nearly $84,000 — yikes.

You may be able to get away with putting down as little as 3% on a conventional loan, but the more you put down, the more “skin in the game” you’ll have — and this looks better to a lender. If you can put down that 20%, it looks a lot less likely that you’ll stop making payments and forfeit that cash when your house is foreclosed upon.

If that’s not possible, I understand…but the higher the down payment, the better. Instead of 3%, can you swing 5%, or what about 10%?

3. Consider all your lender options

How will you know what the best rate for you (based on credit score, down payment, etc.) is if you don’t shop around? You won’t. So the solution is to dig in and shop around. It isn’t exactly a riveting experience to spend an afternoon applying with different mortgage lenders (ask me how I know), but it’s very illuminating to see all the possibilities available to you.

Maybe one lender offers a startlingly low rate — but then you dig into the fine print and discover it’s only possible because you’re being charged for “mortgage points.” Meanwhile, a different lender’s rate is a little higher than that, but you’re not shelling out extra money upfront to get it.

Different lenders also have different options for mortgage types — for example, you might find a lower rate with an adjustable-rate mortgage (ARM). One of these might be a good option for you, if you’re comfortable starting off with a lower rate that is fixed for a period (often five, seven, or 10 years), but can then adjust annually after that. (If you get one of these, consider refinancing into a fixed-rate loan once rates come down across the board.)

And you might even find differences in rates between big national lenders (think big banks), online-only lenders, and tiny local credit unions. It’s absolutely worth taking the time to explore all your options and apply for pre-approval with a few lenders to see what you’re offered.

It’s not the best time to be applying for a mortgage, thanks to higher rates than we’ve seen in a while. But if you can go into the process with a boosted credit score and a solid amount of cash to put down, you’re more likely to get the best rate available. And don’t forget to shop around, because how else will you know if the credit union up the street has a better rate for you than the big national bank?

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Travel is a prime opportunity for some R&R — but it might also come with some pitfalls. Learn how to plan ahead for a happier (and cheaper) vacation. [[{“value”:”

Is there any better feeling than pulling out a suitcase ahead of an upcoming vacation? Well, perhaps the feeling that comes from knowing you’re saving money and packing in extra fun in the process. Here are a few of my favorite tips to optimize my vacation spending.

1. Save in the right place

If you’re planning a future vacation and putting money aside to fund your adventure, you might assume it doesn’t matter where you keep that cash — but you’d be wrong. Leaving it in your checking account might mean accidentally spending it on bills or other purchases. But just rolling it into any old savings account won’t do, either.

What you really want is a high-yield savings account, and there’s a few reasons why:

Your cash will grow: The best high-yield savings accounts are paying APYs 10 times higher than the national average (0.46%, according to the FDIC), and that means more vacation money for you.You can easily track your savings: Many high-yield savings accounts are offered by online banks, many of which offer excellent mobile banking apps. This makes it easy to check on your progress anytime.You might get access to sub-accounts: Your bank might call these “buckets,” “pockets,” or something else. But the upshot is that you get many savings accounts in one — and you can set separate goals for each.

2. Consider travel insurance

Booking all the pieces of your trip might come with some anxiety — what if something goes wrong? Unfortunately, life is unpredictable, and if you get sick or the weather goes sideways or some other calamity happens, you might have to miss or modify your vacation.

If this is a concern for you, you might want to buy a travel insurance policy. Before you do, be sure to explore any insurance benefits your credit card might offer, though — you don’t want to pay for coverage you might already have access to.

3. Be strategic with credit cards

Speaking of credit cards, if you have a travel card already (or are considering applying for one), I applaud this move. You have a range of options, from cards that are tied to specific airlines or hotel chains, to all-purpose cards that give you a higher rewards rate on travel spending and offer you the chance to redeem rewards for travel.

I used my favorite travel credit card to cover most of one of the cross-country flights for my last vacation — and using that card on excursions and dining while I was on that trip meant I earned more points for future trips!

4. Go in the off-season, if possible

This tip is borne of my desire to keep improving my personal finances and avoid large crowds whenever possible. Unless you want to pay higher prices on lodging and activities and deal with hordes of people, I highly recommend exploring your options for off-season or shoulder season travel to popular destinations.

To use an example from my own life, the Maritimes region of Canada is absolutely beautiful in high summer — but it’s also packed with vacationers. I’ve had much better experiences visiting in May, which is before kids get out of school and before the summer weather truly arrives. I enjoyed empty beaches in a hoodie and jeans — and a price about 50% less than my vacation rental would have cost in July.

Be careful, though — sometimes the weather in a given destination is extremely unfavorable for tourism in the offseason. You don’t want your trip to Florida to be ruined by a hurricane. Of course, if one threatens and you’ve got a travel insurance policy that covers adverse weather, you might not be out any money.

5. Stay flexible — and do your research

Finally, flexibility can be your friend if you’re hoping to pull off a dream vacation with as little stress and as much savings as possible. Remember to make backup plans (or at least sketch them in), just in case.

If the restaurant you’ve got your eye on for dinner is closed or not taking more reservations, research the area and see what else is available. Is it too expensive to take your whole family to the huge museum advertised on the highway exit sign? Instead, consider visiting the small historical society off the beaten path (it might even have a cool gift shop and an excellent place for your kids to blow off steam).

You will never regret doing as much research about a given destination as you can ahead of time, just to get the lay of the land and ensure you have plenty of options for fun when something goes awry.

Time away from home and your routines is a precious opportunity to relax and remember why you work so hard. Make the most of your vacation with these tips.

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Many companies allow customers to pay their bills automatically with autopay services. Find out why doing this could be a smart move for your finances. [[{“value”:”

As a personal finance writer, I do what I can to make managing my finances easier. My monthly calendar lists every payment that is set to come out of my checking account, so I’m not caught off guard about an upcoming payment.

Another way I set myself up for success is by using autopay services provided by my billers. While I don’t have every monthly expense set on autopay, I use this payment solution for several of my expenses. I’ll share with you three reasons why I made this money move.

1. They’re low-cost bills

As mentioned above, only a few of my bills are set to autopay. I manually schedule payments for more costly expenses, like my home mortgage. I want to avoid overdriving my bank balance when the payment is drafted from my account. Manually scheduling helps prevent this.

The bills I have set up on autopay are low-cost bills. Here’s a breakdown of the costs of the expenses that I have set to autopay:

Electric: $140/moGas: $45/moMobile phone service: $75/mo

These expenses add up to a small amount compared to my other monthly expenses, so I’m comfortable having them automatically deducted from my checking account every month.

2. They’re fixed costs

The bills I’ve chosen to automate through my billing providers are considered fixed costs — meaning they don’t fluctuate (or at least not much). For my electric and gas bills, I’m on budget billing. My service providers send me a monthly bill based on my average usage costs for the year. This keeps my costs more manageable year-round.

For example, in the summer months, we run central air, so we use more electricity. Instead of paying much higher bills during the warmer months, we pay a steady rate year-round. My bills may rise slightly if my usage changes, but generally, I know what to expect and won’t be surprised when I see a payment drafted from my checking account. Because of this, I’m comfortable having my utility bills set to automatic payment.

3. It helps make my life easier

I’m a self-employed freelance writer, so I have a lot to keep track of each week in addition to my financial affairs. Having a few of my bills on autopay saves me time and reduces my stress. Knowing there’s one less bill I might forget to pay eases my mind. I’m always looking for ways to simplify my life. This strategy works well for me.

Could autopay bill payment be a win for your finances?

You may wonder if you should enroll in autopay. It may not be ideal to put every expense on autopay, but it could be helpful for you to do this with some of your steady, less costly bills.

This may be especially helpful if you sometimes forget to schedule your bill payments or want to eliminate some manual tasks that take extra time. It can also help you avoid paying late fees since your bills will be paid on time.

Review your monthly expenses and consider which bills may be best to set on autopay. You can set up automatic payment directly through the biller by logging into your online account.

Ensure you know what bills are coming up soon to avoid a costly surprise. Marking each bill’s due date on your calendar can help you stay organized.

For additional money management tips, check out our personal finance resources.

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You still have time to fund your Roth IRA for 2023. Learn a few tricks for boosting your Roth IRA before the deadline. [[{“value”:”

A Roth IRA is one of the best wealth-building tools imaginable. You’ll never get a tax break on your contributions, but you get tax-free growth on your investments and withdrawals in retirement. Given the stock market’s history of producing jaw-dropping returns over long periods of time, a Roth IRA offers some of the most generous tax breaks imaginable.

Even though we’re just two months into 2024, you still have time to give your Roth IRA a boost for the 2023 tax year. Follow these tips to make sure you’re getting the most out of your Roth IRA.

Max out your Roth IRA before Tax Day

The deadline to fund your Roth IRA for any tax year isn’t until Tax Day. In other words, you have until April 15, 2024 to max out your Roth IRA for 2023.

The 2023 contribution limit is $6,500, or $7,500 if you’re 50 or older. For 2024, the limits increased to $7,000 and $8,000, respectively.

If you didn’t max out your Roth IRA in 2023, consider making 2023 contributions before you contribute for 2024. Your brokerage will probably have an option to designate upcoming contributions for 2023 or 2024.

Now is also a great time to open a Roth IRA if you don’t already have one. Even if you can’t afford to make the maximum contribution, contribute what you can for 2023. After Tax Day, you can start investing for 2024.

Take advantage of catch-up contributions

As we noted earlier, the Roth IRA limits for both 2023 and 2024 are $1,000 higher if you’re a taxpayer who’s 50 or older. That’s because once you reach 50, you’re allowed to make extra catch-up contributions to most retirement accounts.

If you had at least 50 candles on your birthday cake in 2023, consider kicking in an extra $1,000 to your Roth IRA for 2023 before Tax Day. Then, make it your goal to save the $8,000 maximum for 2024.

Fund a spousal IRA

To fund a Roth IRA, you typically need earned income. Essentially, earned income is money you get from working, i.e., a salary, hourly wages, bonuses, or commissions. But there’s an exception: If your spouse doesn’t earn money from working, you can still fund a Roth IRA on their behalf, so long as you file a joint tax return, through an arrangement called a spousal IRA.

You can fund a spousal IRA up to the annual contribution limits, but you can’t make IRA contributions that exceed your combined earned income for the year. For example, if your combined income for the year was $10,000, you’d only be able to contribute up to $10,000 between both of your IRAs.

Get your kid to open a Roth IRA

If your child works part time or earns income from activities like babysitting or mowing lawns, they’re allowed to open a Roth IRA, as there’s no minimum age. The hurdle for most minors is the requirement that you have earned income to open a retirement account. Minors also typically need an adult to serve as the account’s custodian.

The annual contribution limits on a Roth IRA for kids are the same as for everyone else: $6,500 for 2023 and $7,000 in 2024, though if your income is less than the contribution limit, you can only contribute what you earned. So if your child earned $3,000 working last year, their maximum contribution is $3,000 for 2023.

There’s no rule that says they actually have to be the one making the contribution, though. Going back to the example above, if your child earned $3,000 last year, you could contribute up to $3,000 to their Roth IRA. Or if you want to get them in the habit of saving for retirement early, you could offer to match part of their contributions. For example, you could offer them a dollar-for-dollar match of up to $1,500.

Should maxing out a Roth IRA be a top priority?

Before you max out your Roth IRA, aim to pay off high-interest debt, like credit cards. You also want to have an emergency fund that could cover you for at least three to six months. If you have a 401(k) plan or another employer-sponsored retirement account, getting any matching funds there takes precedence over funding a Roth IRA, since it’s free money from your employer.

After you’ve hit those three goals, maxing out your Roth IRA is a laudable goal. But even if you can’t make the maximum contribution, save what you can, knowing that the tax-free income will pay off later 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.
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If you buy the right electric vehicle in 2024, car dealerships make it fast and easy to get your EV tax credits. See how to save big money. [[{“value”:”

If you’re thinking of buying an electric vehicle, you might have heard some myths and misconceptions about EV tax credits. The truth is, it’s easier than ever to get EV tax credits when you buy an electric vehicle.

Not every EV will qualify for tax credits, and not every person can claim them — there are some income limits for higher earners. But you don’t have to do a bunch of extra paperwork. You also don’t have to wait until next year’s tax return to save money on your purchase (and free up cash for an EV auto insurance policy). You can get your EV tax credit immediately at the car dealership when you buy a qualifying electric vehicle.

Here’s everything you need to know about how to get your EV tax credit “the fast way” in 2024.

1. How to get your EV tax credit: Go to a car dealership

Starting from Jan. 1, 2024, the IRS has new rules making it easier for car buyers to get their EV tax credits. If you choose an electric vehicle or plug-in hybrid vehicle that qualifies for EV tax credits, and your income is below a certain limit, you can get your EV tax credit immediately upon purchasing your car at a dealership.

Here’s how the process works.

Car dealerships register with the IRS for the EV tax credit program

If your car dealership is participating in the EV tax credit program, the salesperson will tell you. Most dealerships want to make money from selling more electric vehicles, and will do what it takes to get this reliable income from the IRS.

Car dealerships will tell you which cars qualify for EV tax credits

There are lots of details involved with finding out which cars can get EV tax credits, especially for new cars. For example, if you want to buy a new EV that qualifies for the full $7,500 new EV tax credit, the vehicle must have final assembly in North America and its EV battery must be sourced from the U.S. or certain U.S.-allied countries.

Car dealers are required to keep track of these details, and it’s in the dealer’s best interest to get it right. You don’t have to worry about proving to the IRS that your new car is eligible for a new EV tax credit — if a new car qualifies for new EV tax credits, the dealership will share the details with you and the IRS.

But if you want to do your own research in advance before you go to the dealership, check out FuelEconomy.gov. You can use this site to search for full lists of cars that are eligible for EV tax credits:

New EVsPre-owned EVs

When you buy an EV from a car dealership, the dealership files paperwork with the IRS

You don’t have to do anything extra to get the EV tax credit. The car dealership will file the paperwork for you. This is how the IRS gets confirmation that the car dealership sold you a qualifying, tax-credit-eligible electric vehicle. The document that car dealers file with the IRS is called a “time of sale” report.

You transfer your tax credit to the dealership, and you get a discount

Upon purchase of your vehicle, the dealership will give you a discount that is equal to the amount of EV tax credit. You’re not “getting” a tax credit from the IRS directly; instead, you are “transferring” your car’s tax credit to the dealership — and the dealership gives you a discount for that same amount.

This works like a cash rebate or immediate discount on the price of the car. For example, let’s say you buy a new EV that qualifies for the full $7,500 tax credit, and the sale price of the EV was $45,000. The dealership will reduce your purchase price to $37,500. You pay the dealer $37,500, and the dealer gets the $7,500 credit. It’s like Uncle Sam is sitting there with you at the dealership, chipping in a few thousand dollars toward the purchase of your car. (Too bad there are no tax credits for car insurance.)

2. Keep this IRS form to file with your tax return next return

When you buy your car, ask the dealer to give you a copy of the “time of sale” report. This report includes details about your vehicle, such as the MSRP (for new EVs) or the used car sale price (for pre-owned).

The time of sale report is your proof to the IRS that you actually bought a vehicle that is eligible for an EV tax credit, and that you are following the rules. Keep your copy of the time of sale report, and file it with your tax return next year. You will also need to file Form 8936 with your tax return to show that you transferred the tax credit and have qualifying modified adjusted gross income (MAGI).

Bottom line

That’s all it takes to get your EV tax credit in 2024: two steps. (With a few smaller steps mixed in along the way.) Buying an EV from an IRS-registered car dealership is the best, fastest, and only way to get EV tax credits in 2024. The good news is — the dealership will take care of most of the paperwork.

The purchase price is not the only cost of owning an EV. You still need to pay for car insurance and EV charging. But with up to thousands of dollars of immediate discounts, EV tax credits can give you a strong start in the journey of electric vehicle ownership.

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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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