Money Management

It’s not a good idea to leave too much money in your checking account. Explore better options where you can earn more back on your savings. [[{“value”:”

A checking account is useful for managing your money. You can use it for depositing paychecks, paying bills, and transferring money where you need it.

What you shouldn’t do is leave your savings in your checking account. Because checking accounts have low rates, you’re missing out on interest when you keep your savings in one. Here are better options where you can earn more back on your money.

1. A high-yield savings account

The natural place to put your savings is in a savings account. The word “savings” is right there in the name, after all. But don’t pick just any savings account. Many of them, especially from brick-and-mortar banks, don’t pay much. The national average for savings accounts is only 0.47%.

Instead, check out high-yield savings accounts. These offer much higher rates, with some having APYs of 5% or more right now. If you have $10,000 in savings earning that rate, you’d make $500 in one year, just for letting your money sit in the account untouched.

2. CDs

High-yield savings accounts are great, but their rates can go up and down. There’s speculation that interest rates will fall this year, and if that happens, savings rates will also drop.

A certificate of deposit (CD) lets you lock in an interest rate for a fixed time period. The best CD rates are generally a bit higher than the best savings account rates. There are CDs available for terms ranging from one month to five years, so you have plenty of options.

If you’re not sure how long you want to lock up your money for, you could try CD laddering. That’s where you buy multiple CDs, each for a different length of time. For example, you could get a 6-month CD, a 1-year CD, and a 2-year CD, instead of locking up all your savings for two years. With this approach, you’d have a portion of your money become available as each CD term ends.

3. IRAs

Another smart way to use your savings is to save for retirement. If you do this through individual retirement accounts (IRAs), you can also save on taxes and invest your money. There are two popular types of IRAs available to anyone:

Traditional IRAs: You can deduct contributions to a traditional IRA from your taxable income. If you contribute $3,000, that’s $3,000 in tax deductions. When you withdraw money from a traditional IRA in retirement, your withdrawal is included in your taxable income.Roth IRAs: Contributions to a Roth IRA aren’t tax deductible. However, you can make tax-free withdrawals in retirement from Roth IRAs.

There are annual IRA contribution limits. The limit in 2024 is $7,000, or $8,000 for those 50 and older. You can split that up however you’d like. For example, if you’re under 50, you could divide your $7,000 limit into $3,500 to a traditional IRA and $3,500 to a Roth IRA.

4. A money market account

A money market account is like a combination of a checking account and a savings account. The best money market accounts have high APYs — some currently offer over 5%. You can also write checks from this type of account and withdraw money using a debit card.

If you want easy access to your savings, a money market account could be the way to go. Keep in mind that money market accounts often have withdrawal limits, so it’s still worth having a checking account to manage your day-to-day money.

5. A taxable brokerage account

Taxable brokerage accounts are another option for investing your money and building retirement savings. Unlike IRAs, you don’t get any tax deductions through this type of account. It’s normally recommended to invest through retirement accounts first because of the tax savings they offer.

If you have a large amount of savings or a high income, you may hit the contribution limits on your retirement accounts. In that case, you can continue investing through a taxable brokerage account. You can also withdraw from this type of account at any time. With retirement accounts, you normally need to wait until you’re 59 1/2 to avoid an early withdrawal penalty.

Your checking account should have enough money in it to cover your bills. The rest is better off in other banking products that pay higher rates, or accounts where you can invest and save for retirement.

These savings accounts are FDIC insured and could earn you 11x your bank

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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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Once you retire, you may not use your car as often. Read on to see why that’s important from an auto insurance perspective. [[{“value”:”

When you own a vehicle, auto insurance is an expense you have to account for. Recent Ascent research finds that drivers in the U.S. pay an average of $3,017 per year for car insurance. And while that’s a lot of money to pay in general, it might be an almost unaffordable sum once you’re retired.

Retirees often have to be more budget-conscious than workers because they’re limited to more of a fixed income. But if you’re retiring this year, here’s some good news: You may be eligible for a discount on your car insurance. You’ll need to contact your auto insurance company, though, to find out.

Why retiring might lead to lower car insurance costs

There are a number of different factors auto insurers use to calculate premium rates. These include:

Your location: You might pay more to insure a car you keep parked on a city street than on a suburban block.Your driving record: A history of speeding tickets could lead to higher premiums than a history of no moving violations.The type of car you have: A new $50,000 vehicle is likely to cost more to insure than a $15,000 used car, as repair and replacement costs are higher.

Another factor that goes into determining your auto insurance costs is how much you actually use your car. And if the answer is “not a lot,” that could result in a reduced premium rate.

Once you retire, you may find that you’re not driving very often in the absence of a commute. And that’s something you’ll want to talk to your auto insurance company about. You never know what sort of low-usage discount you’ll be eligible for once you’re not driving your car daily. So it’s worth making a call to your insurer and talking things through.

A pay-per-mile policy might even make sense

Some auto insurers offer policies that allow drivers to pay a base premium rate and then a per-mile rate on top of that. These policies have the potential to be more cost-effective than standard ones for people who rarely drive. So if you’re retiring and expect to do very little driving, it could pay to see if a pay-per-mile policy might end up saving you money.

And if your current insurance company doesn’t offer this type of policy, you may want to find one that does and get a rate quote. Once you’re retired, you may find that every dollar you have counts even more, since you’re no longer earning a paycheck. So if you’re able to shave a bit of money off of your auto insurance costs, it’s bound to help.

Of course, if you’re retiring and are no longer driving to work, you might also ask yourself whether it really pays to own a car at all. If you live within walking distance of stores and entertainment, you may decide to ditch your vehicle altogether and save the money you’d otherwise spend on it.

AAA found that the average yearly cost of owning a vehicle in 2023 was $12,182, which is over $1,000 a month. If that’s an expense you can shed in retirement altogether, it may just be worth doing.

Our best car insurance companies for 2024

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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.Maurie Backman 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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As a homeowner, you need insurance. Read on to see why it may be hard to come by in certain parts of the country. [[{“value”:”

If you’re looking to buy a home, there are certain requirements you’ll need to meet to get a mortgage. You’ll need proof of income and, if applicable, a down payment.

You’re also required to put homeowners insurance in place in order to get a mortgage. But even if you’re planning to somehow pay for a home in cash, homeowners coverage is the sort of thing you should aim to have regardless, even if it’s not a requirement.

Without homeowners insurance, you could conceivably end up in a situation where you have to pay out of pocket to rebuild your home in the event that it gets destroyed. And even in a less-extreme scenario, you might have to shell out many thousands of dollars to cover the cost of damage in the absence of insurance.

But in some parts of the country, homeowners insurance is becoming harder to get. So before you make an offer on a home, make sure you’ll be able to actually obtain homeowners coverage.

Climate change is forcing insurers out

Although climate change is impacting the whole country, there are certain states that have been more susceptible to property damage in recent years as a result of it. And as such, homeowners insurance companies are increasingly pulling out of high-risk areas like Florida, where storm-related damage and flooding has been prevalent, and California, where wildfire damage has been a major issue.

Last year, State Farm announced that it would stop accepting new homeowners applications in California effective May 27, 2023. And Farmers Insurance announced last year that it would stop offering its policies in Florida.

These are just a couple examples. The point, however, is that homeowners insurance is getting harder to come by in parts of the country. And even if insurers aren’t pulling out of markets completely, they may be raising their premium rates to an unaffordable degree to account for their higher risk and costs. That’s something you’ll need to look into before buying a home.

Shopping around for options is always a good idea

To be clear, just because you’re buying a home in a state like California or Florida doesn’t mean you won’t be able to get insurance. But in certain areas, your choices may be limited. And you may have limited options in other high-risk states or areas, too. The point, therefore, is to shop around for insurance before committing to a home purchase to see what options you have.

Even if you’re not buying a home in a high-risk area, it’s still a good idea to do some research and see what homeowners insurance expenses you’re looking at. That might help you determine whether a home you’re looking to make an offer on is as affordable for you as you think.

You may, for example, be calculating your ongoing housing costs under the assumption that you’ll pay $100 a month for homeowners insurance. If you contact insurers and realize you’ll need to spend double that amount, that throws your numbers off. But it’s better to find that out before you buy. Doing the research beforehand will help ensure you don’t get thrown for a loop when it comes time to sign on the dotted line for your new home.

Our picks for best homeowners insurance companies

There are many homeowners insurance companies to choose from. We’ve researched dozens of options and short-listed our favorites here. Looking for a green build discount or easy bundle policies? Want an easy-to-use interface? Read our free expert review and get a quote today.

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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How well do you understand your tax return? See how you stack up in tax knowledge — and get fresh ideas for how to save money on taxes. [[{“value”:”

Most people don’t love filing taxes, but it’s a necessary part of life. As you go through your career, just as you will ideally experience growth in your income and wealth, you will also likely get savvier about taxes.

No matter how you file your tax return, it’s important to know your rights and responsibilities as a taxpayer. Getting a better understanding of how taxes work can help you save money during tax season and free up more cash in your budget throughout the year.

Let’s look at a few unofficial “levels” of taxpayer savvy and see where you stand on the journey to being a better-informed taxpayer.

Level 1: Do I actually need to file taxes?

Most U.S. citizens and permanent residents working in the U.S. must file a tax return. But it depends on how much money you make. For example, if you’re single and your gross income is $12,950 or higher, you’ll need to file a tax return.

If you aren’t sure if you need to file taxes, check out the IRS website for more details.

Fun fact for Level 1 taxpayers: If you’re a student, you might not be required to file a tax return, but could still get a tax refund — for example, based on money that was withheld from your paychecks at a part-time job.

Level 2: Young adult with no children and simple taxes

You are a young adult, single, with no children. You’re working at your first “real job” out of high school or college, you receive a W-2 form from one employer, and you don’t own a home. At this stage of life, your tax situation might be the simplest it will ever be again.

As a Level 2 taxpayer, you probably don’t know the difference between the standard deduction and itemized deductions. Maybe you’re not putting money into tax-advantaged retirement accounts like a traditional IRA. Your tax return is kind of a mystery to you; you just fill out the tax software, and if you get a big refund from the IRS, you think that’s great. Free money!

Fun fact for Level 2 taxpayers: If your adjusted gross income (AGI) is $79,000 or less, you can file taxes for free with the IRS Free File program and free tax-filing software.

Level 3: Mid-career adult who’s happy to pay for tax software

As a Level 3 taxpayer, you’re making a lot more money than you did at your first job. You own a home and have started a family, and your taxes have gotten more complicated. At this level, it’s worth paying for the best tax software.

You’re putting cash into a traditional IRA or other retirement accounts like a 401(k). You’re paying home mortgage interest and local property taxes on your home, and asking yourself questions like, “Can I get a tax deduction for my home mortgage interest?” and “Does the $10,000 SALT deduction cap affect me?”

At this level, you understand what your tax return looks like, what tax bracket you’re in, and how to make a few strategic tax planning moves. You might want to proactively maximize your tax savings by putting more money into a traditional IRA or health savings account (HSA). See if you have enough itemized deductions to be bigger than the standard deduction.

Fun fact for Level 3 taxpayers: Writing a few extra checks to charity by the end of the year can be a good way to reduce your taxable income with itemized deductions.

Level 4: High earner/entrepreneur with lots of deductions

At this level, your income has grown, and so has the complexity of your taxes. You might be in a higher tax bracket than ever before. You decide to hire a professional tax advisor, not just use tax software. (Hiring professional tax help is especially important for small business owners.)

You have a high enough income to max out your 401(k) and other tax-advantaged retirement accounts — while being mindful of income limits. You might be able to itemize deductions with just a few smart tax planning moves. Plan ahead to get a ballpark estimate of how much tax you will owe in a typical year. Instead of celebrating a big tax refund, try to get a smaller refund — so you can have more cash to invest throughout the year.

Fun fact for Level 4 taxpayers: You can make prior-year contributions to a health savings account (HSA) or traditional IRA right up until your April 15 filing deadline.

Level 5: High-net-worth household

You’ve reached a high level of wealth and income. You’re in one of the highest tax brackets, and it’s important for you to be strategic about tax planning. You itemize deductions and make big donations to charity to help reduce your taxable income.

You try to only pay long-term capital gains tax, not short-term. You do tax-loss harvesting (selling losing stocks in your taxable brokerage account). You look for advanced tax strategies, and you need professional tax help to handle your money in the most tax-efficient way possible.

Fun fact for Level 5 taxpayers: If your income is too high to use a Roth IRA, you can use a tax strategy called a backdoor Roth IRA to get access to valuable tax benefits.

Bottom line

Young people who are in the early stages of their careers might have simple tax returns and can file for free. Middle-aged people with children, mortgages, and tax deductions might need to do a deeper dive into IRS tax rules. And self-employed people who own small businesses might need professional tax help from an accountant or tax attorney.

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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.Citigroup is an advertising partner of The Ascent, a Motley Fool company. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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