Money Management

Many people are hoping the Fed is done with interest rate hikes. But could interest rates come down this year? Read on to find out. 

Surging inflation has been a persistent problem for Americans since 2021. And in 2022, things really came to a head, with annual inflation rising to 9.1% that June.

Thankfully, inflation cooled steadily in 2023. And with any luck, it will continue to do so in 2024. If that happens, there’s a good chance the Federal Reserve will move forward with interest rate cuts. And while that’s a good thing for borrowers, it’s a less great thing for people with money in their savings accounts.

Why rate cuts may be in store

Inflation has long been a mainstay of the economy, and no one should expect the cost of living to stop rising completely. In fact, even the Fed itself is comfortable and happy with 2% inflation on an annual basis.

But the inflation levels we saw in 2022 were a far cry from 2%. As such, the Fed had no choice but to raise interest rates in an effort to encourage a pullback in consumer borrowing and spending.

Thankfully, the Fed’s efforts have paid off nicely. While inflation is still elevated, it’s not nearly as bad as it was in 2022. And as such, the Fed didn’t feel the need to raise interest rates at its last three 2023 meetings. Plus, if inflation continues to creep closer to the 2% mark (as of November, it was at 3.1%), we could easily see rate cuts arrive in 2024.

Rate cuts could be a mixed bag

While interest rate cuts could be a good thing for some people’s personal finances, for others, they may not be so great. Borrowers with existing credit card balances could be in for a world of relief if interest rates fall, because that might result in lower interest rates on the debt they’re on the hook for. Plus, those looking to put new loans in place might benefit from lower interest rates at some point this year.

However, interest rate cuts could hurt savers with money in the bank. Once the Fed lowers rates, individual banks are likely to follow suit, leaving savers to earn less interest on their balances.

Hold off on signing a loan, but lock in a longer-term CD now

Since there’s reason to believe we could be in for rate cuts this year, one thing you may want to do is wait to put a new loan in place. If you sign a loan today, you’ll be looking at today’s interest rates. If you’re able to sit tight, you may end up in a position to snag a lower interest rate later on this year.

Of course, it’s a good idea to work on boosting your credit score in anticipation of signing a loan. You can do so by paying all incoming bills by the time they’re due, reducing the amount you owe on your credit cards, and reviewing your credit report for errors.

Meanwhile, if you’re eager to capitalize on higher interest rates while they’re still in play, you may want to look at opening a long-term CD, such as a 48- or 60-month CD. While you’ll need to come to terms with the idea of tying your money up for a longer period, you might benefit tremendously if interest rates fall substantially in the coming years.

For example, let’s say you open a five-year CD today at 4%. If, in a year from now, CDs are only paying 3%, and if they’re then only paying 2% a year after that, you’re suddenly in a great spot because you’re earning a lot more interest on your money than those who are opening CDs from scratch.

All told, there’s reason to believe that rate cuts will happen in 2024. But that’s also not guaranteed. Your best bet is to keep track of economic news to see how things evolve.

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Are you paying too much for auto insurance? Find out how to save this year with these strategies. 

If your New Year’s resolution involved saving money, one thing to take a closer look at is your auto insurance cost. To be fair, you don’t necessarily want the cheapest possible coverage you can find, but there are some ways you could potentially maintain excellent coverage and save money at the same time. With that in mind, here are seven strategies you can use to help lower your insurance costs in 2024 and beyond.

1. Shop around

This is perhaps the most obvious strategy on the list, but far too few people actually do it. It takes very little effort to gather a few quotes from auto insurers every year or two, and it could save you hundreds of dollars. This is especially true if you’ve had any major life changes, such as getting married or moving.

2. Think about a higher deductible

Of course, a higher deductible means that you’ll have to pay a higher amount if you get into an accident. But if you’re comfortable with that possibility, increasing your deductible can save you serious money. Increasing your deductible from $500 to $1,000 can reduce your annual premium by 20%-25%, according to an Insurance Information Institute executive.

3. Bundle several types of insurance

There’s a good chance that your insurance company offers more than just auto insurance, or at least partners with other insurance companies that do. In many cases, you can get insurance discounts for bundling several types of coverage with the same company. To be clear, it’s still important to shop around, as bundling isn’t always the cheapest way to go, but bundling can save you money on several different insurance policies.

4. Take a defensive driving course

Not all companies give this discount, but some will lower your premium significantly if you take an approved defensive driving course. These courses are typically very inexpensive, will take about a half day of your time, and can save you hundreds of dollars per year.

5. Consider insurance before you buy your next car

Did you know that the type of car you buy will have a big impact on your insurance cost? Insurers consider several factors, and not just the repair costs of the car. They’ll consider the likelihood of getting in an accident, how often that model is stolen, and the safety features that come with the vehicle. Of course, this won’t apply to you unless you’re in the market for a new car, but it’s worth comparing insurance costs as part of your research.

6. Work on your credit score

Many people aren’t aware that insurance companies will often monitor your credit history, and will use this information when determining your insurance premium. The short explanation is that there’s a statistical correlation between responsible credit behavior and a low number of insurance claims. But it can be a smart practice to keep your credit score high, or take steps to improve a bad credit score, such as with a secured credit card.

7. Do you need full coverage anymore?

You’re generally required to maintain liability insurance to protect other drivers, their passengers, and pedestrians if you cause an accident. And if you have a newer car, you will typically have collision and comprehensive coverage as well, which covers damage to your vehicle. If you still have an outstanding car loan, you’re usually required to carry these types of coverage.

However, once your vehicle gets a little older, carrying these might not justify the added cost. One general rule is if your insurance premium exceeds 10% of the car’s value, you might want to consider dropping some coverage, which could save you about $1,000 per year in many cases.

Not a complete list

To be sure, there are many ways to potentially save money on auto insurance, and many insurance companies have their own discounts they give to certain customers. And there’s no guarantee that these will save you money, especially if you already have a highly competitive premium. But there’s a solid chance that at least one or two of the strategies on this list could have a significant impact on your car insurance costs.

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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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There are some things your homeowners insurance won’t cover. But that doesn’t necessarily mean you need an additional policy. Here’s why. 

Most homeowners have a policy type known as HO-3, which covers the home itself, as well as your personal property (the home’s contents). It also provides liability coverage and medical payments, which is extremely important if someone gets hurt on your property and provides coverage for living expenses while your home is unusable.

However, there are some perils that are typically not covered by the standard HO-3 policy. Flood damage is a major one, but there are also earthquakes, hail, damage caused by neglect, pet or animal damage (or the pets themselves), mold damage, or normal wear and tear, just to name some of the things that could potentially leave you on the hook. There are also some unlikely exclusions, such as damage caused by government actions, war, or pollution.

In some cases, you can buy a supplemental insurance policy to fill one or more of these gaps. Here are three in particular that are quite common, but that you may not need.

1. Flood insurance

As mentioned, flood damage is one of the most common types of exclusions to homeowners insurance policies. It is also one type of damage that is among the most common causes of uninsured losses.

If you live in a high-risk flood area and have a mortgage, you are typically required to carry flood insurance. But even if you own a home free and clear, it’s still a good idea to maintain flood coverage if you live in an area where it’s likely to happen.

But what about if you don’t live in a “flood zone”? All properties are vulnerable to flooding to one extent or another, and you can buy flood insurance. While a policy for a home in a flood zone can be pricey, one for a home that isn’t considered a major risk isn’t likely to come with a massive price tag. The average policy cost from the National Flood Insurance Program (NFIP) is about $700 per year. While some experts will say that every homeowner needs flood insurance, it’s a good idea to speak with a local real estate agent or your trusted insurance company to decide if you need to pay for it.

2. Windstorm coverage

When I moved to Florida about 15 years ago, I got a crash course in windstorm insurance. Until that point, I thought a standard homeowners policy would always cover the damage.

Most homeowners insurance policies cover damage caused by windstorms, but that isn’t always true in areas where hurricanes are common. If you live in a high-risk coastal area, you might need a separate windstorm insurance policy. This is in addition to flood insurance — flood insurance typically covers damage from water entering your home. Windstorm insurance covers damage caused by a qualifying weather event (typically a named storm).

The good news is that in most areas, windstorm insurance isn’t required by mortgage lenders and the coverage provided by a standard homeowners policy is sufficient.

3. Earthquake insurance

As mentioned, standard homeowners insurance policies exclude earthquake damage. But that doesn’t mean you need to pay for separate earthquake coverage, even if you live in an area where earthquakes frequently occur.

According to FEMA, most homes impacted by an earthquake wouldn’t even experience damage that was greater than their insurance deductible. So, unless you live in a particularly vulnerable area or have an older home that would likely be significantly damaged, you may not need to pay for earthquake coverage. Although 90% of earthquakes in the U.S. happen in California, only 10% of residents choose to buy earthquake insurance.

Be aware of the risks

To be clear, if your lender doesn’t require these types of insurance and you choose not to pay for them, it’s important to keep in mind that you’re taking a risk. Now, some areas are very unlikely to flood, and I mentioned that most homeowners in earthquake-prone areas don’t feel the need to buy an additional policy. But there’s always the chance that a disaster could strike, so be aware that skipping these types of insurance isn’t a smart move for everyone.

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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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Thinking of refinancing now that mortgage rates are a bit lower? Read on to make sure you don’t fall into a giant trap. 

For weeks on end, prospective home buyers and homeowners alike were bemoaning the fact that mortgages were so expensive to sign. But in recent weeks, mortgage lenders have been lowering their rates. And as of this writing, the average 30-year mortgage rate is sitting at 6.61%, according to Freddie Mac.

Now if you’re someone who signed your mortgage back in 2021, a rate of 6.61% probably isn’t much to write home about. But in late October of 2023, the average 30-year mortgage rate was 7.79%. So if you locked in a mortgage at that level a few months ago, you may be tempted to refinance your loan now that rates are lower.

In fact, generally speaking, it can make sense to refinance once you’re able to shave about 1% or more off of your mortgage’s current rate. But if refinancing is something you’re looking into, be sure to account for one key factor.

Make sure you’ll be able to recoup your closing costs

When you sign a mortgage — whether it’s an original purchase mortgage or a refinance — you’re charged closing costs by your lender. Those costs are a collection of fees that are incurred in the process of putting a loan in place.

Closing costs on a mortgage commonly amount to 2% to 5% of the amount you’re borrowing. Because of this, it’s important to make sure that you intend to stay in your home long enough to recoup those fees and benefit financially.

Let’s say you recently signed a 30-year, $200,000 mortgage at 7.79%. That would leave you with a monthly payment of $1,438 for principal and interest.

Getting a new 30-year loan at 6.61% would mean paying just $1,279 a month in principal and interest on a $200,000 balance (and yes, if you’ve had your mortgage for a few months, your balance may be slightly lower, but probably not by much, since early mortgage payments mostly go toward interest, not principal). So that’s a potential monthly savings of $159.

However, let’s say you’re charged 4% closing costs on a $200,000 loan balance. That means you’re shelling out $8,000 to put your new loan in place. When we divide $8,000 by $159, we get 50 (more or less), which means that refinancing will only make sense if you intend to stay in your home for more than four years and change.

If you think you’ve found your forever home, then yes, it might take you 50 months to break even on your closing costs, but from there, it’s all savings. However, if you think you might move in three years, then you could end up losing money by refinancing.

Don’t just chase a lower rate

It can be very tempting to chase a lower interest rate on your mortgage, especially if you happened to sign your loan at a time when rates were notably high. But before you rush into a refinance, calculate your break-even point. That’s one of the best ways to determine whether a mortgage refinance actually makes sense or not.

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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.JPMorgan Chase is an advertising partner of The Ascent, a Motley Fool company. Maurie Backman has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends JPMorgan Chase. The Motley Fool has a disclosure policy.

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