Money Management

Certificates of deposit and savings accounts can both be good places to put money you’ll need soon. Learn how to choose the right one for you. [[{“value”:”

If you are saving money for a short-term goal that you hope to accomplish in around five years or less, the stock market isn’t the place for your funds. You need a safe investment option where you can ideally earn a reasonable rate of return but you won’t risk losing money.

Savings accounts and CDs both fit the bill. Both are generally FDIC insured (meaning your money is protected from bank failure), and they can provide a reasonable rate of return without any risk. However, there are important differences between them that you need to know about to decide which is right for you.

1. Access to your funds

The biggest difference between CDs and savings accounts is how accessible your money will be.

If you have money in a savings account, you can generally take it out whenever you want without any penalties. Although some savings accounts have monthly withdrawal limits (like restricting you to six or fewer), it’s usually very easy to work around those and access your cash.

When you invest in a CD, that’s not the case. Although there are some no-penalty CDs that typically come with lower rates, most CDs are fixed-term. They have term lengths, which most often range from around three months to five years (although it is sometimes possible to get longer or shorter fixed-term CDs, they aren’t as common).

If you get a fixed-term CD, you have to leave your money invested for the duration of the term to avoid a penalty. This makes CDs a bad option for savings you might need at unpredictable times, such as money in an emergency fund.

2. The interest rate you’ll earn

The interest rate you’re paid is another big difference between CDs and savings accounts. CD rates tend to be higher than the rate you’d be paid on a savings account.

For example, the national average interest rate on a savings account is 0.47%, while the national average rate on most CDs is higher. For example, a 3-month CD has a national average rate of 1.67%, while a 1-year CD has an average rate of 1.86%.

It is possible to get rates that are much higher than the national average for both CDs and savings accounts, especially if you opt for a high-yield account. In fact, in this current high-rate environment, you can find both products offering rates above 4.00%. But the data on national averages from the Federal Reserve shows overall trends and, in general, the best rates on CDs are almost always going to be better than the best rates on high-yield savings accounts.

So, if you’re OK with locking up your money and want the best rate possible, a CD may be a better bet.

3. Whether your rate is guaranteed

CD rates are guaranteed for the entire CD term. So, if you get a competitive rate right now on a 5-year CD, you’ll know you’ll earn that return for the full five years even if interest rates go down during that time period.

Savings accounts usually have variable rates, and the return on investment you’ll get on money in them can decline rapidly as interest rates fall. If you want a guaranteed yield, a CD is the better choice.

4. Minimum investment requirements

Many savings accounts do not have an investment minimum, or the minimum deposit required to open the account — if it exists — is typically pretty low. CDs, on the other hand, often require a higher minimum investment. Often, you’ll be required to put in at least $500 and sometimes much more ($2,500 or higher) to be eligible to buy a CD.

If you don’t have a ton of money available that you’re looking to invest, a savings account may be the best choice.

5. Monthly fees charged

Finally, many CDs do not charge you a monthly fee. And while there are fee-free savings accounts out there, it’s more common to be charged a monthly cost with savings than with a certificate of deposit.

While the monthly bank fee on a standard savings account may be as little as $5, this can still add up over time. You can search for a fee-free savings account or, if you don’t mind giving up access to funds for a bit, put your cash into a CD instead.

Now that you know these five key differences between CDs and savings accounts, you can make the choice that’s right for you about which of these accounts to put your money into.

Where to invest $1,000 right now

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Selecting the right investments involves asking yourself a few key questions. Find out here what you need to consider to grow your wealth this year. [[{“value”:”

Choosing the right investments is one of the most important things you can do to improve your personal finances. The investments you make can help you to grow your wealth by putting your money to work for you. But the wrong investments could cost you, making it harder to get ahead.

So, how can you decide where your money should go in 2024? Here are the questions you need to ask yourself.

What’s your timeline for needing the money?

The first and most important question is what your investment timeline is. That’s because the right short-term investment is very different from the right long-term investment.

If you won’t need the money for around five or more years, it most likely belongs in a brokerage account, so you can invest in the stock market. That’s because the market has consistently produced better returns than pretty much any other reasonable investment. But, while long-term investors stand a very very solid chance of making money, those who invest for the short term could easily sustain big losses.

The table below gives you an idea of what you could expect to earn by investing. It shows how the S&P 500 did over time (the S&P 500 is a financial index of 500 large U.S. companies and it’s widely viewed as a measure of the performance of the market as a whole).

As you can see, if you have a short investing timeline, you can’t take the chance of investing at the wrong time and sustaining big losses that could top 20%, or even 30%. But if you’re a long-term investor, then you don’t want to pass up the returns you could potentially earn over time — so opening a brokerage account and investing in the market is your best bet.

How much risk are you willing to take on?

If you are putting your money into a brokerage account to invest it, you’ll also have another choice to make. You’ll have to decide if you should buy shares of individual companies or opt for exchange-traded funds.

Buying shares of individual companies is the right move if you’re willing to take on a little more risk for greater potential rewards — and if you have the time and knowledge needed to research which shares to buy.

If you don’t feel confident picking stocks or want to minimize your risk, though, then putting your money into an ETF (exchange-traded fund) is probably your best option. ETFs come with low fees and it’s easy to find one using your broker’s screening tools. Plus, you can pick a fund that tracks the S&P 500 or the market as a whole. Since your money is pooled and you get an ownership stake in hundreds of big-name companies with this approach, you substantially limit your risk.

Of course, you do limit potential returns too — but since the S&P 500 has consistently produced 10% average annual returns over the long term, you’re still getting a pretty good return on your investment.

Are you willing to give up some access to your money?

Finally, you need to think about how accessible you want your money. This is an important question if you aren’t going to put it into a brokerage account and invest it, because you’re using it for a short-term goal.

If you need to be able to access the funds any time, a high-yield savings account is the best place to invest to maximize your returns and keep the money liquid. If you can lock up the money for a little while though (anywhere from around three months to five years), then a certificate of deposit (CD) could be a better bet, as you’ll get a guaranteed rate of return that’s usually above what a high-yield savings account would offer. Plus, your APY would be fixed for the duration of the CD’s term — savings account APYs are not fixed.

By asking yourself these key questions, you can pick the right place for your investment dollars. Start considering them today and get your money working for you ASAP in 2024.

Where to invest $1,000 right now

When our analyst team has a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has nearly tripled the market.*

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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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The IRS may take a closer look at these items on your return. Here’s how to avoid sending up a red flag. [[{“value”:”

Even with the availability of online tax software, filing your taxes can still be nerve-racking. No one wants to trigger an IRS audit, but with so many complicated questions and detailed responses required, it can seem easy to get something wrong.

Here are five things you should watch out for so your tax return doesn’t raise a red flag to the IRS.

1. Unreported income

Unreported income is a big red flag on your tax return, and it’s easy for the IRS to spot it. For example, if you’re a freelancer and were paid $600 or more for your work, those businesses must file their own paperwork showing they paid you. And because they file forms saying they paid you, it means the IRS knows whether or not you’re correctly reporting your income on your taxes.

If you’re not a freelancer, the IRS still receives tax forms from your employer, so make sure you report the same income that’s listed on the forms you receive from your employer. It’s worth mentioning that if you received income from your brokerage account, you need to report that, too.

How to avoid the red flag: Report all of your income! As a freelancer, I know this can be difficult to track, especially if you have many clients. Double-check your client lists, look at bank statements for payment amounts, and follow up to ensure you’ve received forms if you’re supposed to receive them. These may include a W-2 for employees and 1099 forms for freelance work and brokerage income.

2. Misreporting business expenses

The IRS keeps a close eye on business expenses that don’t quite add up. If you have legitimate business expenses like traveling or meals, it’s important that you report these accurately and don’t confuse business expenses with personal ones.

TurboTax says the IRS will scrutinize excessive business tax deductions. One way it does this is to look at the typical travel and business expenses for specific occupations and compare them to your deductions.

How to avoid the red flag: Keep receipts of your business expenses and make sure that purchases are clearly business costs. If you’re unsure about your business expense claims, you can check them against the IRS’ business expense resource.

3. Digital asset transactions

The IRS is getting more serious about tracking digital asset transactions. On 1040 forms, the agency asks about any potential digital asset income from the past year, including cryptocurrencies, stablecoins, and non-fungible tokens (NFTs).

Everyone has to answer the question of whether they’ve engaged with digital assets or not. And if you respond in the affirmative, the IRS says, “…taxpayers must report all income related to their digital asset transactions.” The IRS says that you may not need to report if you simply owned digital assets but didn’t engage in any transactions with digital assets during the year.

How to avoid the red flag: First, everyone must answer the question on their tax form, regardless of whether you did anything with digital assets during the year. Make sure to check “yes” if you received a digital asset, transferred one, disposed of, or sold digital assets. Then, file the correct forms to show your digital asset transactions. Check out the IRS’s detailed information on digital assets.

4. Using round numbers

If you’re listing business expenses, you should list specific amounts and not round numbers. For example, if you list advertising expenses of $500 for the year or office supply costs of $100, this will likely send up a red flag to the IRS.

If some of your expenses are legitimately round numbers, that’s okay, but the IRS says on its website that it’s “unlikely” that all businesses’ expenses are round numbers. If you list your expenses in round numbers, the IRS will assume you’re just estimating.

How to avoid the red flag: Keep specific records of your expenses to list the accurate amount when claiming deductions. Using expense management software makes it easy to search for expenses by category to give the IRS specific numbers.

5. Large charitable deductions

Making significant donations to charity may not be a red flag in and of itself, but it might be if your donations are disproportionate to your income.

The IRS knows the average amount people give to charity in your income bracket, and if your donations are much higher than that, it may give your tax filing a closer look. And if you list non-cash donations above $500, make sure you file Form 8283.

How to avoid the red flag: Like everything else on your tax return, make sure you’re being as specific as possible and have the paperwork to back it up. Using a budgeting app to keep track of your donations might be helpful in this situation. You should get appraisals for non-cash donations. You can find out more about that process on the IRS website.

Filing your taxes can be stressful, especially if you’re worried about triggering an IRS audit. The good news is that even free tax software can help you file your taxes correctly.

Where to invest $1,000 right now

When our analyst team has a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has nearly tripled the market.*

They just revealed what they believe are the 10 best stocks for investors to buy right now…

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*Stock Advisor returns as of February 12, 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.Chris Neiger has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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It pays to pack light so you can avoid checked bag fees. Find out how much you’ll pay on American Airlines and how to get a discount or qualify for free bags. [[{“value”:”

If you’re an American Airlines flyer, there’s some news you’ll want to know. On Feb. 20, the airline announced that it would be raising checked bag fees. These fee increases apply to passengers with airline tickets issued on or after today. We’ll explain the new fees and share how some travelers can get a $5 discount on their first checked bag.

American Airlines flyers will now pay more to check a bag

Americans Airlines officially updated its checked bag fees on its website on Feb. 20, 2024. Travelers flying on some routes will now pay $5 to $10 more to check a bag. Fees vary by route, ticket type, and whether the traveler checks one or multiple bags. Here’s an overview of the updated American Airlines checked bag fees for several popular routes and ticket types.

Travel between the U.S., Puerto Rico, and the U.S. Virgin Islands

For tickets purchased on Feb. 20 or later, basic economy and main cabin passengers flying between these regions will now pay $40 for their first checked bag. A second checked bag costs $45 for these routes and ticket types. For basic economy and main cabin tickets purchased before Feb. 20, a first check bag costs $30, and a second check bag costs $40.

Travel between Canada and the U.S., Puerto Rico, and the U.S. Virgin Islands

For tickets purchased on Feb. 20 or later, basic economy and main cabin passengers flying between these regions will now pay $35 for their first checked bag. A second checked bag costs $45 for these routes and ticket types. For basic economy and main cabin tickets purchased before Feb. 20, a first check bag costs $30, and a second check bag costs $40.

Other routes are also impacted. If you’re an American Airlines flyer, you’ll want to review these fee changes before buying your next ticket. Knowing how much you’ll pay to check one or more bags can allow you to be financially prepared before takeoff.

Paying for your first checked bag online will save you $5

If you fly with American Airlines often and like to check your bags, this is likely disappointing news. But the airline is offering some flyers the opportunity to save $5 on their first checked bag.

Travelers flying within or between the U.S., Puerto Rico, and the U.S. Virgin Islands can get a $5 discount by paying their checked bag fees online through the American Airlines website or mobile app. This solution offers an easy way to keep more money in your wallet.

How to get free checked bag benefits

Don’t want to pay to check a bag? Here are a few ways to qualify for free checked bag perks:

Travel with a carry-on bag only: One way to avoid checked bag fees is to bring a carry-on bag. American Airlines allows passengers on all ticket types (even basic economy) to bring a carry-on bag at no additional cost. Excelling at being a light packer can be a win for your bank account balance.Invest in a premium ticket: When flying on some American Airlines ticket types, like premium economy, business, and first, travelers aren’t charged checked bag fees. If you want to avoid these fees, you may want to splurge for premium airfare.Get an airline credit card: Another way to avoid checked bag fees is to have the right credit card. Some airline credit cards provide cardholders free checked bag perks on select routes. Review our list of the best American Airlines credit cards to learn more.Earn elite status: Another way to avoid paying checked bag fees when flying with your favorite airline is to achieve elite status. Depending on your status tier, you could qualify for one or more free checked bags when you fly with the airline.

Whether you’re a member of team carry-on only or a traveler who prefers to check a bag, staying alert to airline pricing updates like this is essential. Knowing what to expect regarding extra fees can allow you to outline a realistic vacation budget and make travel plans that match your financial situation. Looking for more ways to save money? Check out our personal finance resources.

Where to invest $1,000 right now

When our analyst team has a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has nearly tripled the market.*

They just revealed what they believe are the 10 best stocks for investors to buy right now…

See the 10 stocks

*Stock Advisor returns as of February 12, 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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