Money Management

Is a money market account right for you this year? Read on to find out. 

Inflation has many people spending their every last dollar on essential expenses like food, car payments, and rent. But if you’re sitting on some extra cash, you may be inclined to try to grow it into a larger sum.

You could open a certificate of deposit (CD) or invest your money in stocks and other such assets. But you may want to consider a money market account (MMA) instead.

An MMA is an interest-bearing account that most banks and credit unions offer. MMAs basically combine the benefits of a savings account and checking account into one so you can earn interest on your money, but also, in many cases, access funds in your account by swiping a debit card or writing checks. You may especially want to consider an MMA in 2024 for these key reasons.

1. You might earn a nice interest rate on your money

The Federal Reserve spent much of 2022 and 2023 jacking up interest rates in an effort to slow the pace of inflation. As a result, borrowing has become more expensive for consumers across the board, which clearly isn’t great.

The upside, however, is that savings accounts, CDs, and MMAs are paying generously these days. So now’s a good time to take advantage of the current interest rate environment.

We don’t know exactly when the Fed will start to cut rates. But there’s reason to believe that’s in store at some point in 2024, especially if inflation continues to cool.

2. You don’t have to make a big commitment

When you open a CD, you’re committing to keeping your money in the bank for a specific period. With an MMA, you’re not making that same commitment.

The funds in your MMA are not restricted. You can take a withdrawal as needed should an emergency expense arise that you’re not prepared for, like a home or vehicle repair.

What’s more, while the U.S. economy is in a decent place, some financial experts are still warning of a near-term recession. With an MMA, you get access to your money so that if you were to lose your job, you’d be able to take withdrawals as needed in the absence of a paycheck.

3. You don’t run the risk of losing principal

When you invest money in a brokerage account, you have an opportunity to score a really sweet return on it. But you also run the risk of losing money should the stock market take a turn for the worse. You may not want to run that risk given the aforementioned economic uncertainty.

With an MMA, your funds are protected as long as you open one at an institution that’s FDIC-insured and your deposit doesn’t exceed $250,000 ($500,000 for joint accounts). You can consult the BankFind Suite tool to check on various banks’ FDIC status.

Is an MMA right for you?

There are some drawbacks to opening an MMA that you should know about. For one thing, these accounts commonly require a higher minimum deposit than typical savings accounts. And you might face a limit on the number of transactions you can make in a given month.

Also, right now, CD rates are up due to the Fed’s numerous rate hikes. But if rate cuts come down the pike, CDs might start to pay less. So you may want to opt for a CD over an MMA right now to lock in a better rate while you can — unless, of course, you’re worried about committing to a given CD’s term.

But otherwise, it certainly pays to consider an MMA for your money this year. Just make sure to read the rules associated with your account carefully before moving forward.

These savings accounts are FDIC insured and could earn you 10x your bank

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Savvy consumers can earn hundreds of dollars worth of credit card rewards each year. Learn if you need to report your credit card rewards on your taxes. 

When used regularly, rewards credit cards offer some serious value. Some cards have hundreds of dollars in bonuses and rewards rates of up to 5% or 6% on purchases. If you put all your regular bills on your rewards card, it’s possible to earn over $500 back per year.

You may be wondering if you’ll need to include those rewards in your tax return. After all, Uncle Sam always wants his cut of the money you make. Fortunately, most credit card rewards don’t qualify as income.

Rewards you earn on purchases aren’t taxable

If you earn credit card rewards by making a purchase, the IRS classifies those rewards as a rebate. Rebates on purchases aren’t considered income. This applies to most of the rewards consumers earn, which is why people rarely need to report rewards on their taxes.

For example, if you have a cash back card that earns 2% on purchases, the cash back is considered a rebate on your spending. If you spent $50,000 and earned $1,000, that’s technically a $1,000 rebate. It works the same way with travel credit cards that earn points or miles. You don’t need to report your points/miles on your taxes, no matter how you use them.

This is also true with most sign-up bonuses. If a card offers a $200 bonus for spending $500 in the first three months, you don’t need to pay taxes on that $200. It’s a rebate on the $500 you spend. Regardless of the bonus amount, if you need to spend something to earn it, then it’s not taxable.

If you receive rewards without a purchase, then they’re taxable

The key element that keeps rewards from being taxable is making a purchase. But there are some rewards offers that don’t require any spending, and these are considered taxable income. Here are the most common examples:

Sign-up bonuses without a spending requirement: Most sign-up bonuses require you to reach a spending minimum to earn the bonus rewards. But if you receive the bonus just for opening the card, then it’s taxable.Credit card referral bonuses: Many card issuers offer bonuses if you refer new cardholders. Once again, since these bonuses aren’t tied to spending, they’re taxable.

You’ll get a 1099-MISC if necessary

If you make $600 or more in credit card rewards with one card issuer during the tax year, you’ll receive a 1099-MISC form. It will include the amount to report on your taxes.

Note that if you earned points or miles, your card issuer will set a value for those rewards and use that to report the income. A common valuation is $0.01 per point/mile, but this depends on the card issuer and the type of rewards. So, if you received 75,000 in bonus points from referrals, your card issuer may value those at $750.

This normally makes it easy to report the correct amount of your taxable credit card rewards. Just keep in mind that you likely won’t get a 1099-MISC if you received less than $600 in taxable rewards. This doesn’t mean you can skip reporting any form of taxable income. The $600 threshold is just when your card issuer is required to send you a 1099-MISC.

As with any tax questions, if you’re not sure what to do, the best solution is to talk to a tax professional. They can provide advice specific to your situation. But most people don’t end up owing taxes on credit card rewards. If all your rewards have been earned by spending money, then you won’t, either.

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Life insurance costs have ballooned recently. Here are some practical steps to bring them back down. 

Life insurance is an important part of financial planning, ensuring that family and friends have the necessary resources when they may need it most.

Unfortunately, life insurance costs have risen along with nearly every other expense over the past few years. The good news is that there are a few ways you can make it more affordable. Here are four ways to do it.

1. Find insurers that require a physical exam

I’ll usually pay for convenience when it’s an option, but it’s not the best approach if you’re looking for affordable life insurance.

While the cost of no-exam life insurance policies can sometimes be competitive with ones that require a physical, you’ll usually pay more because the insurer is taking on additional risk by not knowing the state of your health

As such, you’re more likely to find affordable life insurance if the policy requires you to get a physical exam first.

2. Shop around for the best policy

There’s no way around it: Shopping around for a life insurance policy isn’t exactly the most exciting thing to do with your time. But it could save you significant money!

Just as with buying furniture or a new car, spend some time looking closely at what you’re about to purchase to ensure you’re not buying something you don’t need or paying more than you should.

One of the best ways to do that is to comparison shop. It’s easier than ever to get policy quotes from insurance companies to see which is the best for you. And because you’ll likely spend years paying for your policy, spending a few minutes comparing policies could save you lots of money throughout your coverage period.

3. Bundle your insurance policies

Advertisements for bundling insurance policies are everywhere these days. Part of the reason is that insurance companies want to upsell customers on new services, but they can also be a good deal for customers.

Insurance companies benefit from customers holding multiple policies (such as life, home, and auto), and once they’ve signed up, they’re likely to stick around. Offering bundled insurance discounts helps them lock in customers for years, and, in some cases, they can offer lower rates because of this.

4. Look for term life insurance

One of the best ways to keep insurance costs lower is to sign up for term life insurance instead of whole life insurance. A term policy is for a set period, while a whole life insurance policy has an indefinite time frame.

Because term life insurance expires after a set period, insurers often charge less for these policies.

Most people only need life insurance for a set period to help their family pay off debts when they die or to replace the income they provide their family. But as your life situation changes — including paying off debts or your dependents growing older — you may not need life insurance.

The good news is that it’s possible to find cheap life insurance options. By spending a little time comparing policies, you’ll likely be able to find term life insurance that fits within your budget. And if you bundle it with your other insurance policies, you may be able to get it for cheaper than you expected.

Our picks for best life insurance companies

Life insurance is essential if you have people depending on you. We’ve combed through the options and developed a best-in-class list for life insurance coverage. This guide will help you find the best life insurance companies and the right type of policy for your needs. Read our free review 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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If you keep your savings in a savings account, you can earn extra money through interest. Not sure what to do with your earnings? Here are some ideas. 

Saving is an excellent financial strategy. Having extra money in the bank can allow you to pay an unexpected bill with less stress or cover upcoming purchases without going into debt. To earn interest, many savers keep their extra cash in a high-yield savings account. If you’ve been earning interest on your savings and aren’t sure what to do with it, this article is for you. You can use additional money earned from interest to help you reach other life goals.

1. Boost your emergency fund

An emergency fund is a great financial tool. If you experience a financial emergency, like job loss, you can use these funds to continue paying your everyday expenses. You can quickly be put into a difficult and stressful financial situation without a solid emergency fund.

One option for using the money earned from interest is to stash the earnings in your emergency fund. Doing this will increase your emergency fund balance, making you even more financially prepared for the unexpected. Every extra dollar earned adds up and makes a difference.

2. Take a vacation

Another option is to use your earnings to take a vacation. While hard work is important, it’s also essential to prioritize your emotional and physical well-being. A vacation is a great way to give yourself much-needed time away from everyday life and work stresses.

Many people want to prioritize using their vacation days, but they don’t think ahead about the costs associated with taking a trip. If you want to take a vacation without racking up credit card debt, you can use the interest you earn from your savings account to fund your yearly trips.

3. Increase your retirement contributions

If you’re contributing money to a retirement account, like an IRA, you may want to consider your earnings to boost your annual contributions. Your IRA account can increase value through compound growth, so it’s beneficial to contribute more money early on in life to give your account balance more time to grow before your retirement years.

Review the annual contribution limits for your retirement accounts and decide if using your extra cash to increase your contributions would be beneficial. This may be a good option if you’re nowhere near the maximum yearly contribution limits and are prioritizing this financial goal.

4. Use it to improve your quality of life

Another way to use the money is to improve your quality of life. There are many ways to do this, but consider how you could make your life easier, less overwhelming, or reduce your workload. By improving your life, you may also be able to improve your overall happiness and feel less stressed. Here are a few ways to invest in yourself by improving your quality of life:

Pay for a task that you dread (like house cleaning)Treat yourself to quarterly massagesSubscribe to a grocery delivery subscription serviceSubscribe to a virtual fitness subscription or a gym membershipInvest in a high-quality mattressBuy a quality desk chair

Earn extra cash as you save

If you’re working hard on your savings goals, keep your money in an interest-earning bank account, like a high-yield savings account. You can earn money as your money sits in the bank. Review our best high-yield savings accounts list to explore your options. For additional financial tips, check out our personal finance resources.

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Taking out a personal loan can be a smart decision in some circumstances. Keep reading for the situations where you should avoid them. 

A personal loan can be used for almost anything you want. And because the money is usually deposited right into your bank account when you’ve been approved, it can be more flexible than a credit card, as you may not be able to charge every purchase on a card.

But just because a personal loan is a flexible funding option doesn’t necessarily mean you should take one out for any reason. There are good and bad reasons to borrow using this type of financing. Here are some of the best and worst reasons to use a personal loan.

These are the best reasons to take a personal loan

Here are some scenarios where taking out a personal loan is likely a good idea:

Debt consolidation

Debt consolidation is a great use for a personal loan because it can save you money over time. Say you have a $4,000 credit card balance at a 21% interest rate you’re paying $100 a month toward and a $3,000 balance at 18% with $75 monthly payments. If you can consolidate to a new personal loan at 12.23% for 48 months, your monthly payment will be almost the same ($185.11), but you’ll save $2,669.72 over time in interest and reduce your payoff time by 1.78 years.

Financing an essential purchase

If you must buy something before you can pay cash for it out of your checking account, a personal loan could be a better way to do it. Say you needed $5,000 for a home repair and had a choice between using a personal loan at 12.17% (the average interest rate) or a credit card at 21.19% (the average rate for cards, according to the Federal Reserve Bank of St. Louis). You could take out a three-year personal loan, make payments of $166.48 per month, and pay $993.20 in total interest. Or you could use a credit card. If you used a card and made the same $166.48 monthly payments as a loan would’ve required, it would take you three years and eight months to be debt free and you’d pay a total of $2,187.86 in interest over time.

As you can see, in both of these situations, you end up financially better off if you took out the personal loan compared with the alternative. While it would be better to pay cash for your essential purchase or to pay off your debt quickly, doing those things isn’t always possible. If you’re in a situation where you need to reduce your interest or to pay for something right away that you can’t afford, a personal loan can be a good way to do it.

These are the worst reasons

Unfortunately, there are also some bad reasons to take a loan. Here are two of the worst.

Paying for vacation

Vacations are fun, but they are generally not worth going into debt for because they aren’t really a necessity. Rather than making your vacation more expensive by paying interest for it, just take a cheaper trip you can pay for with your savings. Or consider setting a goal to build a big vacation fund so you can go where you want without getting stuck with debt you’ll be paying long after the trip is over.

Funding a lifestyle you can’t afford

You cannot borrow your way out of a budget shortfall. You’ll be constantly in debt and will only make your future situation worse. Instead, look at cuts you can make and start living within your means ASAP. Consider increasing your income to support your spending, too.

Before taking a personal loan, you should always ask yourself if doing so will leave you better off over the long term. If not, then skip the borrowing and look for a different option, such as saving up for a purchase or cutting your costs to free up more money in your budget.

Our picks for the best personal loans

Our team of independent experts pored over the fine print to find the select personal loans that offer competitive rates and low fees. Get started by reviewing our picks for the best personal loans.

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 can only avoid thinking about taxes for so long. Read on for ways to gear up for the upcoming filing season. 

Taxes are the sort of thing many of us would rather not think about until we absolutely have to. And in that regard, there’s some good news.

Tax returns for 2023 are not due until April 15, 2024. So at this point, you have a good three months to get yours together.

However, the IRS will begin accepting tax returns on Jan. 29. And it’s in your best interest not to wait till the last minute to file your return so you can get your refund sooner (if applicable) and generally avoid a stressful crunch. In the coming weeks, it’s a good idea to make these essential moves so the tax-filing season goes smoothly for you.

1. Line up tax help if you think you’ll need it

If your tax situation is fairly simple — say, you work a salaried job and your only outside income is the interest you earned last year in your savings account — then you can probably get away with filing your 2023 tax return on your own. But if you took on a side hustle in 2023 and are also looking at claiming multiple deductions, then you may want to enlist the help of an accountant.

The time to line up that help is now. Tax professionals tend to get busy in the weeks leading up to the mid-April filing deadline. So while you don’t necessarily need to have all of your tax paperwork ready by the end of January, at that point, you should at least know which accountant, if any, you’ll be using this season.

And if you’re not sure where to find an accountant, your best bet is probably to ask the people you know. Between neighbors, friends, family members, and colleagues, chances are, someone has a tax professional they can recommend. Get multiple names, though, in case some of those recommendations are already fully booked for the season.

2. Make a list of the paperwork you’ll need

The tough part of filing a tax return is coming up with the right paperwork. Look through your records and previous tax return to see what documents were necessary then, and assume that at the very least, you’ll need the same information this year as well.

Some of the documents you might need for your tax return include your:

W-2 wage summary1099 forms, including those from your bank, brokerage account, and freelance clients you worked forMortgage loan interest statementsIRA statements (so the IRS knows how much you contributed and/or how much you withdrew)Charitable contribution records

And this is just a basic list. Your personal list might be longer. Start making it now so you’re not left scrambling.

3. Assess your savings in case you end up owing money

It’s not a good idea to assume that you’ll be getting a refund this year. In fact, if your earnings increased last year, you might end up owing the IRS money.

Those earnings don’t only have to be job-related. If you made a lot of money in your savings account in 2023, it counts as income. So do profits in your brokerage account.

Now’s a good time to assess your savings and see how much money you have available to pay the IRS should that scenario occur. If you find that you really don’t have any available funds to use for a tax bill, you may want to consider expediting your tax return. That way, you’ll see early on whether you owe money or not — and you’ll have time to come up with a plan to scrounge up that cash.

You may not be quite ready to think about taxes. But you can only put them off for so long. So make a point to tackle these moves in the coming weeks. It could spell the difference between an easy tax-filing process and a stressful one.

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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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