Money Management

Buying a CD is a safe way to earn a reasonable return, but you could come to regret it if rates go up or you need faster access to cash. Learn more here. [[{“value”:”

Buying a certificate of deposit (CD) can be a good investment in the right circumstances. When you buy a CD from an FDIC-insured bank, up to $250,000 of your money is protected, so there’s no need to stress about whether you could lose the money that you put in. And, on average, CDs have higher rates than high-yield savings accounts, which means you can get a better return on investment without taking on any added risk.

RELATED: Best CD Rates

The low risk and generous returns may make buying a CD seem like an easy call. But there actually are circumstances where you could come to regret putting your money into a certificate of deposit. Here are two of them.

1. If you need to access your money during the CD term

One of the biggest factors that could make you regret buying a certificate of deposit is if you need your money during the time it’s locked up in the account.

When you open a CD, you commit to keeping your money invested for a set period of time, with the specifics depending on which CD you choose. Usually, you have to agree not to withdraw funds for anywhere from three months to five years. And if you do end up having to take out money earlier, you’ll get hit with a penalty that eats into the interest you earn — or even your principal if you haven’t had the CD open long.

If you put money into a CD and find yourself having to take it out of the bank ahead of schedule, you could be left with regrets when you face this penalty. That’s why it’s so important to make absolutely sure you are not investing money you’re going to need during the term. So, for example, if you’re saving for car repairs or an emergency fund, you don’t want to use that money to buy a CD, as your withdrawal time is unpredictable.

Think carefully about your goals for the funds you’re investing and if there’s any realistic scenario where you might need the money sooner than planned. If so, buying a CD with that money is probably not the best choice.

2. If interest rates rise and you’re locked in at a lower rate

There’s another scenario where you could find that you regret buying a CD: if you purchase one and rates go up shortly afterward. You could be locked into a CD offering a lower rate than you’d be able to earn had you not made that investment — and you could miss out on potential returns because of it.

In January of 2021, for example, a 5-year high-yield CD most likely offered a rate somewhere around 0.63%. But in January of 2023, a 5-year high-yield CD typically offered rates somewhere around 4.28%. Of course, you’d only be two years into your 5-year CD had you bought it in 2021, so you’d have a choice between incurring an early withdrawal penalty or sticking with your low-rate CD for another few years. In this scenario, you missed the chance to invest at historically high rates instead of historically low ones.

You can minimize this risk by buying CDs with shorter terms — but that means you’re passing up the chance to lock in your high rate if yields happen to fall in the future. So before you buy a CD, you may want to research what moves the Federal Reserve (the U.S. central bank) has hinted it will make, as well as whether most experts believe rates are going to go up or down. Of course, no one can predict exactly what will happen, but you can still get a good idea of where most people think rates are trending.

If it looks as if rates are going to go up in the future, buying a shorter-term CD or skipping this investment altogether could be your best bet so you aren’t left with regrets. If, on the other hand, rates are likely to fall, it may be wise to opt for a longer-term CD to get today’s guaranteed high returns for years to come.

The good news is, if you understand why you might potentially come to regret buying a CD, you can make more informed choices about whether the investment is right for you. Just think about your goals for the money and whether you think rates will rise or fall and let your answers to those questions be your guide.

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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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Dining out is one of my spending weaknesses, but one trick worked. Find out how I actually managed to reduce the amount I spend at restaurants. [[{“value”:”

Americans spend an average of $3,639 a year eating out at restaurants, which is a pretty big amount of money. And it’s completely understandable why people spend so much dining out — the food is good and it’s enjoyable to try different restaurants.

My own personal restaurant spending is above average, and, despite some efforts in the past to cut back on dining out, I’ve never really been successful at reducing my spending in this area.

There is, however, one thing I’ve started doing that has made more of a difference than anything else in reducing my desire to break out my credit cards for a dinner out. Here’s what it is.

This technique has made me want to dine out less

The only technique that has ever worked for me in reducing my restaurant spending has been making copycat meals at home that turn out better than the food I can usually get in restaurants.

See, my husband and I decided we wanted to cook more at home, both for health reasons and to put more money in savings for the home renovation project we’re working on. And we thought it would be a fun challenge to recreate some of our favorite restaurant meals, including pad thai and bolognese sauce.

We were surprised to find a ton of copycat recipes online, even for specific restaurant foods, from websites like Taste of Home, and we ended up making our own version of several restaurant favorites that we liked much better than the restaurant version. And, as a bonus, we’ve been able to use healthier organic ingredients to make them — and still spend less than we would going out.

Recreating these meals at home has made us a lot less likely to go out to eat, and since we don’t have to drive to the restaurants and wait to place our orders, it actually takes less time in many cases to just cook and eat the meals than it would to visit the restaurant. We’ve essentially given up on going out for Thai, Italian, and about four other different places we used to visit almost every month. And even after accounting for ingredients, this has saved us over $150 monthly.

Cooking restaurant meals at home may be easier than you think

Before we got started on our copycat restaurant project, I always assumed making stuff like pad thai would be complicated. But I was surprised to find out that really isn’t the case at all.

If you’re spending a lot on dining out, why not look up some of your favorite restaurant meals and give cooking them at home a try? You may be surprised to find there’s a lot less to it than you think, and that you end up liking your version better just like we did. You could end up with more money in your bank account and healthier meals on the table, which is a huge win-win.

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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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High-yield savings accounts are paying a competitive rate right now. Learn why one writer isn’t rushing to add more cash to hers. [[{“value”:”

As of mid-February 2024, the best high-yield savings accounts offer rates above 5.00%, with some paying as much as 5.50% APY. That’s a pretty competitive rate and is well above the rates you could get just a few years ago when banks were paying 1.00% or less.

Despite the fact that savings accounts are offering higher yields than they have in years, I’m not putting even $1 extra into my savings accounts. Here are a few reasons why.

1. I have enough short-term savings already

One big reason why I’m not putting more money into my savings accounts is because I already have enough saved for my short-term goals.

I have an emergency fund, as well as accounts for expenses like vacations and car repairs. I replenish these accounts as needed, but I don’t intend to put any extra money into any savings accounts just because rates are higher than usual right now.

The simple reason my savings won’t be growing is that I don’t believe a savings account is a good investment — even with rates at 5.00%. I’d rather invest any money I won’t need in the next few years. If I use my brokerage account, I can reasonably expect to earn a 10% average annual return over the long run. But if I divert it to savings, I’d earn around half that amount, at best.

2. Savings account rates aren’t guaranteed to last

Even if I did believe that today’s competitive rates offered a great chance to invest in a risk-free investment paying upward of 5.00%, I still wouldn’t put any extra money into savings.

That’s because savings accounts have variable interest rates. If rates drop, the return you get on money in savings will decline, too. I believe rates inevitably will be dropping soon, as they’ve been trending higher than they have during most of my adult life. Rates were driven up because the Federal Reserve (the U.S. Central Bank) took steps to fight pandemic-related inflation. But inflation is cooling, and the Fed has signaled rate cuts may soon be coming.

When rates start to drop, the 5.00% APYs will be gone very quickly. If I wanted an investment offering this generous return where I couldn’t lose money, I’d put my cash in a certificate of deposit instead of savings. CDs tend to offer slightly better rates than high-yield savings accounts do anyway, and the rate is guaranteed or locked in for the CD term. So even if rates fall in the coming months or years, the CD would still pay out the rate I was promised when I signed up.

Now, CDs do require you to lock up your money — you can’t take it out any time as you would with a savings account. But if I was hoping to put money away for purposes of investing rather than just saving for short-term goals, that wouldn’t matter. I’d be better off with the CD where my rate was guaranteed.

Ultimately, if you have enough money in savings for anything you’ll need to do in the next few years, the rest of your spare money that’s earmarked for long-term goals should be in the stock market rather than in a savings account (even one paying a decent rate). But if you do want to make a risk-free investment that gives you the chance to benefit from today’s higher-than-normal rates, a CD may be a better bet due to the fact your rate is guaranteed.

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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You probably know paying late can hurt your credit score — but you may not be aware of these other ways your score is at risk. [[{“value”:”

Your credit score affects many different things, from where you can rent a property to how much you’ll pay if you get a mortgage or a car loan. So it’s pretty important to try to make sure your score is as high as possible.

Unfortunately, you may actually be hurting your credit score and not even know it. Here are three unexpected factors that can affect it, so make sure you’re aware of them so you can do everything possible to try to earn great credit.

1. Not checking your credit report for errors

Did you know that mistakes on credit reports are pretty common?

As many as 1 in 4 consumers were able to spot errors on their credit report that could potentially affect their credit scores, according to FTC research. And 1 in 10 consumers saw their credit scores change after they notified credit reporting agencies and had an error corrected. In a small number of cases (1 in 250 consumers), the consumers saw their scores go up by more than 100 points after they got an error corrected.

You don’t want your credit, or ability to qualify for credit cards or loans, to be impacted by data that doesn’t belong on your report. To make sure that doesn’t happen, visit AnnualCreditReport.com regularly (at least once every few months or so) to take a look at your credit reports at no cost. If you spot an error, you can notify Equifax, Experian, and TransUnion and work on getting it corrected (learn how in this guide to fixing credit report errors).

2. Not paying attention to when your balance is reported

There’s another common mistake many people don’t know about. It has to do with when you pay your balance relative to when your credit card company reports your balance.

See, credit utilization ratio (or the amount of credit used relative to credit available), is a very important factor in your credit score. It accounts for 30% of your FICO® Score and a lower ratio is better than a higher one.

Now, if you’re paying off your balance in full, you might assume you’re good on this factor. But the problem is, your card issuer doesn’t necessarily report what your balance is right after you make a payment. And this could lead to a higher balance being reported.

Say, for example, you have a $1,000 credit line and you charge $800 worth of purchases, but you pay it off every month. If the card issuer reports your $800 balance before you repay the card the next day, you look like you have an 80% utilization ratio — well above the maximum 30% necessary to avoid hurting your score.

To make sure you don’t get a lower credit score because your payment date doesn’t line up well with when your balance is reported, ask your card issuer when exactly it reports the balance. You can also figure this out by looking at what amount is reported on your card and checking your credit card statement to see when your balance lined up with that amount.

Try to make your full payment before the time your creditor reports, so your reported balance is very low and your score gets a boost.

3. Not having a good mix of different kinds of credit

Finally, not having a mix of different kinds of credit can also hurt your score. If you just have credit cards, for example, this could result in a lower score since you don’t have any installment loans (like personal loans, auto loans, or a mortgage). Installment loans show that you can be responsible when you borrow over time and repay the debt on a set schedule.

Your credit mix accounts for 10% of your FICO® Score and it’s a good idea to try to have a few different kinds of loans. You could, for example, take out a car loan even if you have the cash to buy, and then just pay off the loan after a month or two so you have that different type of credit on your report. Note that you don’t want to get stuck with a lot of interest just to get a slight bump in your score, so be careful how you do this and don’t borrow too much for too long if you don’t really need to.

The good news is, now you understand these ways you could potentially hurt your credit score and impact your personal finances. You can make sure to do all you can to avoid inadvertently ending up with lower credit that makes you seem less attractive to creditors and companies you do business with.

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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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I don’t pay attention to short-term swings in the market because I’m invested for the long term. Find out why you shouldn’t focus on them either. [[{“value”:”

Over the years, I have put a lot of money into taxable brokerage accounts and retirement accounts to save for my future. I invest because doing so can help me to earn the kinds of returns I need to grow my wealth.

Despite the fact I have hundreds of thousands of dollars in the stock market, I have no idea what the market is doing at any given time — nor do I want to know. Here’s why that’s the case.

You don’t need to be a stock guru to invest successfully

I am not interested in checking on the performance of the market, despite the fact I have a lot of money invested, for two simple reasons. The first is that stocks just don’t really interest me too much and I don’t want to spend my time looking at how the market is performing. And I’ve been able to set up my investments so I don’t need to.

I found one of the best brokerage firms for ETFs, then I used the screeners the broker offered to find some exchange-traded funds that tracked the performance of the stock market as a whole. ETFs are traded like stocks, but your money is pooled. Depending on the ETF, the money is often used to buy a small ownership stake in many companies that make up a financial index or that track the performance of specific industries or specific kinds of companies.

Since my money is spread around hundreds of the largest U.S. companies, my risk of big losses is minimal and my likely returns are very predictable. I don’t need to care what the market is doing on a day-to-day basis, because I’m confident that this is a sound investment strategy.

If you’re like me and not interested in the market, or even don’t understand it, you shouldn’t let that hold you back from investing. Buying an S&P 500 index fund that tracks a financial index with 500 of the largest U.S. companies is a pretty safe and easy investment and one likely to earn you 10% average annual returns over the long haul. It’s about as easy as it can be to put your money into this type of fund and start earning generous returns.

Checking the market too often can backfire

There’s also another reason why I don’t care what the stock market is doing. I’m invested for the long term and I don’t want to make decisions based on short-term trends. See, as the table below shows, while the S&P 500 earns 10% average returns over the long haul, it doesn’t earn 10% returns consistently every year. Some years, you could make a lot — and others, you could lose a lot.

Since I don’t invest any money I’ll need in the coming five years, I don’t want to be tempted to take action if I think the market is crashing or believe a recovery is inevitable. I know it’s too hard to time the market and I’ll increase my chance of losing money if I’m buying and selling too often.

Since I don’t pay attention to the market, I don’t have to stress about whether I’m having a bad few months or even a bad year. I can just leave my money alone to do its thing over time and I’m likely to earn the 10% average annual returns I’m expecting.

If you are confident in your investment strategy and you’ve chosen to invest in ETFs for the long term, you also don’t need to stress about what your stocks are doing on a day-to-day basis — or even a month-to-month or year-to-year basis. Just invest regularly and let your money work hard for you to build wealth over time while you focus on other things in your life that may be a whole lot more fun than watching the financial news.

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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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A tax refund can certainly be a nice windfall of cash. But a large tax refund might not mean what you think it does. Keep reading to learn why. [[{“value”:”

According to the most recent data, the average tax refund is $3,207 per taxpayer as of Feb. 16, which is 2% more than the average refund at the same point in 2023.

Millions of Americans look forward to getting their tax refunds every year, and with an average amount like this, it’s no surprise. After all, a sudden infusion of a few thousand dollars can help you pay off credit card debt, build your savings, invest, or pay for a large expense.

However, if you are receiving thousands of dollars back from the IRS every year, it isn’t necessarily a good thing. Here’s the problem with a large tax refund, and what you might want to do about it instead.

An interest-free loan

Take a moment and think about why you get a tax refund. Throughout the year, your employer withholds money for your federal (and state, if applicable) income taxes and sends it to the government. These withholdings are based on information you provided when you got hired, such as your number of dependents and your marital status. And if you’re self-employed, you likely make quarterly estimated tax payments to the IRS, based on your expected tax liability.

Then, when tax time rolls around early the following year, you or your tax preparer complete your income tax return, which calculates the amount of tax you owe for the year. If the amount you’ve paid through withholdings and estimated tax payments exceeds the amount you owe on your return, you’re entitled to a tax refund.

In other words, you give the government your money throughout the year, and if you overpay, you get the difference back. For example, if your withholdings total $20,000 for the year, and your tax is calculated to be $15,000, you get $5,000 back.

By doing this, you are effectively loaning the government money and receiving no interest. You are giving the United States Treasury an interest-free loan of your money.

What you can do instead

If you’re getting a modest tax refund each year — say, $1,000 or less — it’s probably a good idea to leave it alone. After all, it’s more desirable to slightly overpay than to find out you owe money at tax time.

On the other hand, if you are receiving the average tax refund of about $3,200 or even more back, it could be time to rethink your withholding. Think of it like this — would you rather have a $3,200 tax refund, or another $123 on each of your bi-weekly paychecks?

If you’re saying that you’d rather have the $3,200 all at once, consider this. By making your paychecks larger, you could put the extra money into a high-yield savings account each time you get paid and you would end up with more than $3,200 at the end of the year.

A too-large tax refund is a good problem to have, but it’s still a problem. Fortunately, it’s an easy fix. By visiting your payroll department, you can instruct them to withhold less money from each of your paychecks, so you ensure you get all the pay you deserve throughout the year.

If you picked up a side hustle that paid you an extra $100 or $150 every couple of weeks, would you be willing to wait until next April to get paid? Of course not. So why would you want to wait to get the portion of your earned income that a tax refund represents?

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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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