Money Management

CD yields have been on an upward trajectory for a couple of years. Find out why it might not last much longer. [[{“value”:”

Over the past couple of years, certificate of deposit (CD) yields have risen dramatically.

In fact, from the start of 2022 through January 2024, annual percentage yields (APYs) of high-yield CDs offered by online banks have risen from about 0.50% to about 5.35%, according to the DepositAccounts 1-Year Online CD Index, which averages the yields offered by 10 top online banks. And while the rise has been the greatest when it comes to shorter-maturity CDs, long-dated ones have risen as well. The average 5-year online CD has risen from about 0.85% to just under 4%.

With a sharp and sustained rise like this, it might seem logical to keep some money on the sidelines — maybe in your high-yield savings account — in case yields go up even further. However, that might not be the best idea.

Benchmark interest rates are expected to fall, not rise, in 2024

The Federal Reserve has raised interest rates significantly over the past couple of years. In an effort to combat inflation reaching its highest level in decades, the Fed raised the federal funds rate by more than 5 percentage points since the start of 2022. And this has been the key driving force behind the multi-year highs in savings account and CD yields we’re seeing now.

However, inflation has been steadily falling toward the Federal Reserve’s target, and nearly all experts believe the Fed is set to start cutting rates in 2024. There’s a bit of disagreement as to the extent and timing of the cuts, but most experts agree that the benchmark federal funds rate will be significantly lower by the end of 2024, and lower still by the end of 2025.

According to the most recent projections from the Federal Reserve, the policymakers themselves anticipate three rate cuts this year, for a total of 0.75%. Others think the Fed will end up being more aggressive. For example, the CME FedWatch tool, which essentially tells us what investors think will happen, shows that the median expectation is for six 0.25% rate cuts this year, a total reduction of 1.5%, with the first cut expected in March.

CD yields are likely to follow the Fed closely

To be fair, CD rates aren’t directly correlated with the federal funds rate, or with any other benchmark interest rate. However, they tend to move in the same direction as the Fed’s rate movements, and in the case of CDs from online banks, they tend to move rather closely.

For example, in the introduction I mentioned that since the beginning of 2022, 1-year online CD yields have risen from about 0.50% to 5.35%, a difference of 4.85%. In the same time period, the Fed has increased the federal funds rate by 5.25%. With 5-year online CDs, the correlation has been a bit less, but it’s still there.

The point is that if the Fed starts cutting rates in the spring, as they are widely expected to do, CD rates — especially those of online CDs — are likely to fall almost immediately.

There’s no guarantee rates will fall, but…

To be perfectly clear, there’s no guarantee that the Fed will reduce interest rates at all. If inflation were to unexpectedly spike higher, the Fed could decide to leave rates alone, or even raise them. Nobody knows for sure.

Having said that, the Fed has made it clear that it anticipates lowering rates as inflation continues to slow down, so all signs point toward lower CD yields at the end of the year than we have now. If you have money on the sidelines, and you’ve been waiting for the best time to put it into CDs to generate interest income — the best time might be right now.

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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 can 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.Matthew Frankel, CFP® has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Target. The Motley Fool has a disclosure policy.

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Leasing or financing a car comes with strings attached. Check out what you need to know about one string that affects your car insurance. [[{“value”:”

Unless you like fines, jail time, and suspended driving privileges, you probably need auto insurance to legally get behind the wheel in the U.S. Each state varies in what they require, but generally, this includes bodily injury and property damage liability coverage. These protect other drivers if the policyholder causes an accident.

That’s usually all drivers are legally required to have. But those who have leases or loans on their vehicles usually need to add a few more things to their policies. Here’s what you need to know.

Lenders have an investment to protect

Drivers with a lease or loan are usually required to purchase collision and comprehensive coverage as part of their lease or loan agreement. This ensures that the lender or lessor gets their money back, even if the driver totals the car in an accident.

Collision coverage pays for the policyholder’s vehicle repairs if they cause an accident with another vehicle. It also pays for damages due to single-car accidents.

Comprehensive coverage is broader, covering everything from severe weather damage to theft and vandalism. It also helps drivers fix their vehicles following animal-vehicle collisions. This is especially helpful for drivers who live in rural areas where deer frequently run across the highways.

Mandating that drivers add these protections to their policies gives lenders and lessors some peace of mind that they won’t lose their investments. But it also increases auto insurance premiums for their drivers. How much depends on the vehicle’s make and model. Newer, more expensive cars typically have higher collision and comprehensive costs because these vehicles are more costly to repair.

How to find a great deal on collision and comprehensive coverage

Though not required for drivers who own their vehicle outright, collision and comprehensive coverage are still options for them. And they’re often great investments for those who can afford it. Otherwise, drivers will have to pay for their vehicle repairs out of their own pocket following an accident.

Finding the best deal on collision and comprehensive coverage is similar to finding the best minimum coverage. Shopping around is the wisest thing drivers can do. Compare quotes from several companies to see which charges the lowest rate.

Raising the policy’s deductible can also reduce premium costs. However, this will result in larger out-of-pocket expenses when filing a claim. Drivers who go this route may want to keep money to cover the deductible in an emergency fund where they can access it whenever they need to.

Those who can’t find a policy that fits into their budget may have to rethink the vehicle they plan to lease or buy. A more affordable model may bring lower collision and comprehensive costs, and thus, a cheaper policy. Exploring all options before making a decision is the best way for drivers to find a vehicle and an auto insurance policy that works best for them.

Our best car insurance companies for 2024

Ready to shop for car insurance? Whether you’re focused on price, claims handling, or customer service, we’ve researched insurers nationwide to provide our best-in-class picks for car insurance coverage. Read our free expert review today to get started.

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 want to put your money where it’ll do you the most good. Find out how to decide if you should keep your $10,000 in a savings account. [[{“value”:”

Saving $10,000 is a huge milestone, and it’s worth celebrating. That kind of money can solve a lot of problems. But it also raises some important questions, like where’s the best place to keep that kind of cash?

A savings account might seem like the obvious option, but it’s not always the best move. Here’s what you need to know to decide if it’s right for your money.

Benefits of keeping your $10,000 in a savings account

First things first: There’s nothing wrong with keeping $10,000 in a savings account. If you’re working with a reputable bank, your money will have Federal Deposit Insurance Corporation (FDIC) insurance up to $250,000 per person per account ($500,000 for joint accounts). This protects your money even if the bank fails. So there’s no risk of loss as long as you protect your personal and banking information.

Keeping your money in a savings account can also help you earn interest over time. Interest rates vary depending on economic conditions. Currently, they’re pretty high, with some of the best high-yield savings accounts offering rates exceeding 4.50%. That could earn you $450 or more in a year with a $10,000 initial deposit.

Using a savings account keeps your money accessible as well. This is extremely important if that $10,000 is part of your emergency fund or is for a large purchase you plan to make in the next couple of years. You usually don’t want to invest this money because markets can be unpredictable in the short term. If you need to withdraw your cash when your investments are down, you’d have to settle for a loss. A savings account enables you to withdraw your money worry-free at any time.

The drawback to keeping your $10,000 in a savings account

Though savings account interest rates are high right now, they aren’t guaranteed to stay that way. And even the best savings accounts probably won’t earn you as much as investing would over the long term.

A certificate of deposit (CD) might be a better choice if you’re worried about savings account interest rates falling throughout 2024. CDs give you a guaranteed interest rate for the entire term, which could be anywhere from a few months to several years, depending on the CD you choose. If you lock in a high CD rate now, you could potentially earn more in interest with one of these accounts than you could with a savings account over the next few years.

But you should note that you typically cannot touch money in a CD until the end of the CD term. If you access yours early, you’ll usually pay a penalty equal to several months of lost interest. So it’s not the right place for your emergency fund or cash you plan to use before the CD term ends.

Investing your savings is another option, but as mentioned above, market volatility makes this a poor choice for the money you plan to use soon. It can be a great option, though, for money you don’t expect to use for years. The S&P 500 — one of the most popular market indexes — has a compound average annual growth rate of 10.7% over the past 30 years.

If you invested your $10,000 and it earned about 10% per year over the next 10 years, you’d wind up with close to $26,000. No savings account will earn you that much over that time.

It doesn’t have to be all or nothing

There are pros and cons to all of the above options. If you’re not comfortable putting all your eggs in one basket, consider spreading your money around. Keep some in a savings account and put the rest in a CD, brokerage account, or retirement account. This can help you earn higher yields while also keeping some of your cash readily accessible. Think through all your options and go with the approach that you’re most comfortable with.

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 can 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.Kailey Hagen 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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Daycare can be horrendously expensive. Read on for ways to save on your child’s care. [[{“value”:”

If the cost of daycare is upending your personal finances in a big way, you’re not alone. Care.com data shows that in 2023, the average weekly cost of daycare for an infant was $321. Ouch.

If you’re drowning in daycare bills, you may be inclined to move your child to a different center with fewer amenities. But do you really have it in you to make that switch? As a parent, it’s natural to want the best care possible for your child. So moving to a lower-cost facility may not sit well, despite the potential savings involved.

The good news, though, is that you may have options for saving money on child care without having to skimp on quality. Here are a few to explore.

1. Arrange your work schedule to allow for fewer daycare days

Some people’s work hours have the potential to be more flexible than others. If you have a great relationship with your manager and a proven track record of meeting deadlines, ask for some leeway.

You never know if your boss might be amenable to having you work a Wednesday through Sunday schedule instead of Monday through Friday. If you’re able to go from needing five days of daycare a week to only three, the savings could be huge.

Of course, this suggestion assumes that you have a partner or willing adult to care for your child on Saturday and Sunday while you put in your time at work. If not, then this advice may not work for you. But if you have a co-parent who works a traditional Monday-to-Friday schedule, then this idea might work quite well.

2. Sign up for a dependent care FSA

You may be familiar with a flexible spending account, or FSA, in the context of setting money aside for healthcare costs. But there’s another version of the FSA that applies to child care expenses: a dependent care FSA. And while contributing to one of these accounts won’t lower your daycare costs directly, you can reap some tax savings when paying for the care you need.

This year, dependent care FSA limits are $2,500 for married couples filing separately or $5,000 for singles and couples filing jointly. If you put $5,000 into a dependent care FSA this year and then tap that account to pay your daycare expenses, you’ll shield $5,000 of your earnings from taxes.

Your specific savings there will hinge on the tax bracket you fall into. But if you’re in the 22% bracket, a $5,000 dependent care FSA contribution could result in $1,100 of savings for you.

3. See if a nanny share makes more financial sense

It’s understandable that you may not want to move your child to a second-rate daycare center to save some money. You want your child to have the best care possible.

One of the reasons some daycare centers charge so much money is that they maintain small caregiver-to-infant ratios, such as one caregiver for every four children. But you may be able to get an even more favorable ratio — and spend less money — by looking into a nanny share.

Care.com puts the average weekly cost of a nanny at $766. That’s more than double the average weekly cost of daycare for infants, which, as a reminder, is $321. But what if you were to find two other parents in your neighborhood who also need infant care and split the cost of a nanny? In that case, if you’re charged $766 a week, your share is roughly $255, which may be less than what your daycare center is charging you. Plus, you might still end up in a situation where your child gets the attention you want them to have.

Usually, with a nanny share, a nanny watches a small group of children at once. It’s common to rotate homes with one of these arrangements, either by assigning preset days or using a cycle that works for you.

So for example, let’s say three of you in the same neighborhood are sharing a nanny. On Monday, your nanny-sharing parents might drop their kids off at your home before work, where your nanny arrives to watch everyone. On Tuesday, you might drive your child to a different house for the same setup, and so forth.

It’s natural to want only the best possible care for your child. Use these tips to lower your costs without having to skimp on the quality of care your child receives.

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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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Not understanding insurance terms like comprehensive coverage could lead to big out-of-pocket losses. Find out more here to protect your finances. [[{“value”:”

Buying car insurance can be a lot more confusing than drivers might expect. It may seem like a simple matter of reaching out to an insurer and getting a policy in place, but there are actually tons of choices to make about what coverages to buy.

Unfortunately, sometimes drivers end up making costly mistakes when getting covered that hurt their bank account balance. In particular, here are three terms that are often misunderstood — and not knowing the truth about them could come at a huge cost.

1. Comprehensive coverage

When drivers hear about “comprehensive coverage,” it’s not surprising that many people think it will be truly comprehensive, or cover everything they need. After all, it’s right there in the name.

In reality, comprehensive coverage is not nearly as comprehensive as a reasonable person would assume. Basically, this type of insurance pays for non-collision related damage. It pays for things like glass breakage to a vehicle, damage to the car due to vandalism, a tree falling on the car, or theft.

What it does not do is pay a single penny toward crash damage that a driver might incur. With an average cost of $5,700 in property damage costs per vehicle in auto accidents, that can be a big problem for drivers who may think they are protected but who find out they are not.

Motorists who want to make sure their insurer actually pays in a crash will need to get collision coverage. In general, it’s a good idea to get both collision and comprehensive coverage so the insurer will pay out for crash losses and all the other things that can go wrong. Collision costs around $290 per year on average and it is usually well worth it to ensure that car repairs can be paid for by insurance (or that insurance will pay to replace a totaled car!). Drivers with auto loans on their vehicles will generally be required to carry both comprehensive and collision coverage.

2. Bodily injury coverage

“Bodily injury coverage” is also a term that could be misunderstood. It’s easy to believe this will pay for injuries the policyholder sustains — but it won’t. It only pays for bodily injuries caused to others in an accident. The actual policyholder will not have any insurance coverage of their own from this.

Those who want to make sure they can get their own medical bills paid by an auto insurer after an accident should get medical payments coverage, which will pay for their out-of-pocket health expenses like health insurance deductibles and other treatments health insurance may not cover. Usually, this adds less than $20 to auto insurance premiums but it could be invaluable in case of an accident that causes injuries.

3. Rental car reimbursement

Finally, “rental car reimbursement” is a confusing term because policyholders may think it covers the cost of damage to a rental car. In reality, it will pay for a rental car that is needed while repairs are being made on a vehicle after a covered loss. Without it, drivers could get stuck without transportation or paying out of pocket for a rental car.

Rental car reimbursement usually costs around $4 per month, and with the average cost to rent a car coming in at close to $100 a day in most parts of the country, having this coverage is crucial.

A full understanding of these terms is important to get the right coverage — so drivers should review their auto insurance policies with this information in mind to ensure they have the appropriate protections in place.

Our best car insurance companies for 2024

Ready to shop for car insurance? Whether you’re focused on price, claims handling, or customer service, we’ve researched insurers nationwide to provide our best-in-class picks for car insurance coverage. Read our free expert review today to get started.

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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