Money Management

Today’s top-paying CDs and savings accounts are neck and neck in high APYs. Which is better for $5,000? Read on to compare the two. 

CDs and high-yield savings accounts are safe and FDIC-insured and sport attractively high interest rates. But if you have $5,000 and you wanted to choose one, which would be the best place for your money? For some folks, there’s a clear answer, while others will need to weigh the pros and cons carefully. If you’re undecided, let’s examine both options closely.

Which will pay more interest?

In the past, CDs have paid savers at higher interest rates than savings accounts, which has been one of their major perks. However, thanks to the Federal Reserve’s relentless campaign against inflation, which has driven borrowing rates and thus interest rates higher, some high-yield savings accounts are actually on par with some CDs.

But it depends on the length of the CD’s term. Right now, short-term CDs, ranging from 3 to 12 months, have higher interest rates than savings accounts, while long-term CDs — like a 4-year CD — are paying at comparable rates. This isn’t accidental. Banks believe the Fed will lower borrowing rates in the future and are thus assigning lower rates on long-term CDs to match this expectation.

That doesn’t mean long-term CDs are the least lucrative option. Yes, they have lower APYs, sometimes even lower than today’s top-paying savings accounts. But CD rates are fixed, whereas savings accounts have variable rates. A 5-year CD may not pay as much as savings accounts now but in five years, the rate environment could be different. It’s quite possible you could have a CD rate between 4% and 5% APY at a future time when savings accounts are once again paying a much lower rate.

On the other hand, this fixed rate could work against you. You might lock into a 5.05% CD rate on a 2-year CD. But if the Fed continues raising borrowing rates, that same CD could start paying out at 5.25% a few months later. It’s difficult to time CD rates and to lock in CDs at their “peak.” But if you’re concerned about missing out on a higher rate, a bump-up CD could be an option worth looking into.

In sum, CDs will likely earn more interest than savings accounts. That doesn’t mean CDs are the right place for your $5,000, but if earning the most interest is important to you, CDs are a compelling choice.

Which has more flexibility?

The problem with CDs is that once funds are locked in, they’re no longer easy to access. Unless you have a no-penalty CD — another compelling option for $5,000 — you’ll likely pay an early withdrawal penalty. This penalty could be equal to as little as several months of interest to as high as one year or more.

This is the advantage of savings accounts. These accounts let you withdraw money with greater flexibility. While some high-yield savings accounts have limits on how much you can withdraw (per Regulation D), cash money is usually only a bank transfer or ATM withdrawal away. This makes a savings account better for money you’ll need in the near term, as well as emergency funds.

This ease of access, however, could work against you. Having $5,000 in a savings account might tempt you to spend it. It’s fine if you need to spend the money on something you need — like replacing the tires on your car or paying a hospital bill — but if that $5,000 is burning a hole in your pocket, you might be better off locking it up in a short-term CD.

So, which is better for $5,000?

Well, perhaps both. In truth, you might be better off splitting your $5,000 between a savings account and a CD. The CD could help you lock into today’s great rates, while the savings account could offer greater flexibility.

At the end of the day, the question comes down to at least two things: Which account minimizes the risk of losing money (that is, early withdrawal penalties or interest lost to a lower APY)? And which account maximizes your potential earnings? If a CD or a savings account could answer both of these, great. If not, get creative. Make a strategy that works for your household — you might even want to consider CD ladders — and don’t be afraid to forgo earning high interest if it means protecting your money.

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Four in 10 Americans have a side hustle, averaging almost $500 extra a month. Find out why making money from your hobby isn’t always as good as it may seem. 

“You could make a fortune if you went into business,” a friend told me recently after I’d made her a birthday cake. I love baking and have made and decorated wedding cakes for several of my closest friends. It isn’t the first time people have floated the idea, but it is something I’d never do.

From dog walking to selling crafts on Etsy or driving an Uber, side hustles are all the rage.

Around 40% of Americans have a side hustle, according to a Herbalife survey conducted by One Poll. Soaring costs of living have been one factor behind the rise in taking on extra jobs. The study showed 48% of the people with side hustles said they are doing it solely to make ends meet.

While the extra money would boost my bank account, the idea of turning my hobby into a side hustle fills me with dread. Here’s why.

1. Hobbies are how I relax

My job involves working a lot with words and computers. In my free time I like to disconnect and use a different part of my brain. For me, that’s crafts such as jewelry making or letting loose in the kitchen. It’s fun. I can play with ideas and be creative. I don’t have to answer to anyone and it doesn’t matter if I make mistakes.

If either of those hobbies were to become a business, they wouldn’t be relaxing any more. For example, let’s say someone paid me to make their wedding cake. According to WeddingWire, on average, couples spend between $300 and $700 on a cake. That’s a lot of money. But making something that plays such an important part in someone’s big day is a huge responsibility and carries a lot of stress. That’s not what I want from my hobby.

Side hustler tips: It’s understandable to try to make money from your hobby on top of a nine-to-five job. If you go that route, don’t discount the stress involved. Burnout will damage your day job and your side job. Build in other ways to de-stress because your emotional well-being is important too.

2. I hate paperwork

Whatever form your side hustle takes, you have to pay taxes on the money you earn. Taxes equal paperwork. It’s probably not something someone who makes a living by writing about personal finance and small businesses should admit, but I am terrible with paperwork. I get so tied up in the urgent matters of the day that the important (yet not immediate) work of recordkeeping often gets pushed to another day.

I also find it hard to chase unpaid invoices. Worse? In the past, I’ve had a nasty habit of undercharging for the work I do. Going back to the wedding cake, I would likely undercharge and overdeliver. Which is great for getting repeat clients, but not great if I want to make money. Sure, these are all things I can address and work on, but it’s also a strong reason to keep my hobbies as hobbies.

Side hustler tips: Make sure you understand what federal and state taxes you’ll need to pay. To be on the safe side, try to set aside about a third of your side hustle earnings so you’ll be ready when tax season comes around.

It is also much easier to manage your paperwork if you have a separate checking account to track your spending. You can also apply for a business credit card, which might let you earn rewards along the way. Both will reduce the hassle involved.

3. It wouldn’t pay me enough

Some side hustlers earn good money. A recent LendingTree survey found that Americans earned an average of $473 a month from their extra jobs. The thing is, baking and crafts would not be that profitable for me.

For example, the materials to make a basic silver pendant that I could maybe sell for $20 might come to around $3. The work could take me five or six hours. More if you factor in the time spent on accounting, marketing, website development and so forth. Optimistically, that would make my time worth less than $3 an hour. I’d have to work an extra 40 hours a week or so to get to that average of $473.

If I were to take on a side hustle, I’d pick something more profitable than my hobbies. Since I already work as a freelancer, a better plan would be to put in some extra hours in my existing work and give my spare time to the things I enjoy. Better still would be to look for things that generate passive income, such as renting out a room or investing in stocks.

Side hustler tips: Make a business plan before you try to monetize your hobby. Think about whether there’s a market for your services, and research reasonable price points. Then map out the costs to see what kind of profit you might make. Don’t discount the time it will take. If you are going to have to work an extra 10 hours a week, make sure you’ll earn the money you need.

Bottom line

There are many good reasons for taking on a side hustle, particularly if you are struggling to make ends meet or want to pay down debt. The idea of making money from something you’re passionate about is certainly appealing. But there are also downsides and profiting from your passion isn’t always as easy as it sounds.

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Renting may be more affordable than owning a home right now, but a house is more than just a place to live. Here’s why you should consider buying. 

Renting is now more affordable than buying a home in all but three metro areas, according to the latest data from Realtor.com. Renting, on average, only costs about $1,750 per month, whereas buying a starter home in August 2023 was almost $3,000 per month. That’s a huge difference. Despite this, I still think it’s important for your financial future that you buy a home when you can.

No, I’m not out of touch with what the real estate market looks like — I regularly monitor housing across the country. I know it’s very grim at the moment for those of you who are just entering or have never been on the property ladder before. It’s downright dark out there.

But buying a house isn’t about this moment, and that’s kind of my point.

You should buy a home — even if renting is easier

I spent many years putting a lot of people into a lot of houses, so you’d be forgiven to believe that I’m a bit prejudiced in this regard. What I learned during that period was something I will never forget as long as I live, and something that continues to prove true: Housing permanence is a massive stabilizer.

According to the U.S. Census Bureau’s 2021 American Housing Survey (AHS), there are over 128 million households in the United States. Of those, 82 million are homeowners; 46 million are renters. In the two years prior to the survey, 35 million of those households had moved. Of those, 14 million were owners, while 21 million were renters. About 60% of the people who moved were renters, which is far from an unusual pattern — rental homes tend to be temporary places to lay your head.

And that’s the problem, really. Here are three reasons why buying a home is better than renting, even if it’s not cheaper.

1. Buying a home creates permanence

When you know how much your house payment will be every month, it’s much easier to plan for anything that might happen. Although your mortgage lender will be the first to tell you that only the principal and interest payments are guaranteed, it’s rare that your taxes or insurance will suddenly grow explosively, unlike rents in a hot market.

Being forced to leave your home because you can’t afford your rent is a tragedy that happens far too often, and it unbalances life for people all across the country. You can’t have financial security without secure housing.

2. Buying a house gives you a sense of community

Buying a house in a neighborhood where other people have bought houses and still own them is a whole experience. It’s not just about investing in real estate (and buying your own personal home should never be considered an investment) — it’s about joining a community you can’t access as a renter.

Homeowners association or not, your neighborhood is a badge of honor, a place to make friends, and a source of unity and security. Even if you don’t live in the premier neighborhood in your area, you and your neighbors are working hard to make the place better every day, and that changes your perspective.

3. Permanence and community help create a solid financial foundation

Which brings me to the third point. Having both permanence and community is how you get a solid financial foundation. Look at the people who have managed to secure their futures. Not the ultra wealthy, but those who are financially comfortable. Those guys (and gals) have a lot in common, including the fact that they own their homes and therefore have both permanence and community.

According to a MassMutual study from 2018, nearly half the people surveyed believed that community involvement improved their finances, and 65% believed it improved their careers. Although many Americans don’t see a direct link between community and financial health, Americans who lack community feel more anxious about their current financial well-being and more anxious about their financial future.

What’s cheaper isn’t always what’s better

Although you may find significant savings in renting right now versus buying that starter home, if you’re in a place where you want to really dig in and start to establish your financial life in a significant way, you need a base of operations from which to do it — and a mortgage.

Simply having control over your housing, and being able to decide what happens to your family today, tomorrow, and into the deep future, frees you from the worry and expense of having to move yet again. It allows you to set down real roots, get active in your community, get to know your neighbors, and really focus on managing your expenses.

Even if you’re paying more on your mortgage today than you would be in rent, it does even out over time. One study showed that from 2017 to 2022, rents have consistently increased by an average of 5.77% year over year, meaning that rents have increased by 5.77% each year since 2017. In those years, your fixed-interest mortgage’s principal and interest payment hasn’t changed at all.

Renting isn’t really cheaper in the long run, as it costs you financial opportunities in a thousand different ways.

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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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Some people only make it over to Costco on occasion. Read on to see why it’s worth having a membership even if you don’t hit the store frequently. 

A basic Costco membership costs $60 a year, while an Executive membership that gives you 2% cash back on your purchases costs $120. And for someone like me, those membership fees are worth paying.

I shop at Costco almost every week. And when I do, I can reap anywhere from a few dollars’ worth of savings to $30 or more, depending on the groceries and household supplies I’m picking up.

But stocking up on the things I need at Costco is easy for me — there’s a store that’s only about 15 minutes away. Some people may not have a Costco as close by, and if you’re in that boat, you might struggle to get there.

Similarly, if you’re someone who works a demanding job, it may be difficult to visit Costco regularly. So if you can’t remember the last time you set foot in the store, you may, at this point, be wondering if your membership is worth keeping.

Now ultimately, if you’re getting no use out of that membership, it probably makes sense to cancel. But before you do, realize that it may be worth it to keep your membership for these benefits alone.

1. Discounts on travel packages — and support when things go awry

Costco offers a host of discounted travel packages you can book online or over the phone. Some of these bundles could save you money compared to the cost of putting together an itinerary yourself or even working with a travel agent. Just as importantly, you’ll have the support of Costco’s travel team behind you in case something goes wrong with your plans.

Such a thing happened to me in 2020, when the cruise I’d booked through Costco was canceled due to the pandemic. Costco called the cruise line on my behalf and got me my deposits back so I didn’t have to deal with that hassle. That alone made my membership worth it, as it likely saved me many hours on the phone.

2. Extended warranties on electronics

Buying a single laptop or TV through Costco could save you enough money to recoup the cost of your membership in full. But just as importantly, electronics purchased through Costco come with a second-year warranty (on top of a typical one-year manufacturer’s warranty). When you’re making an expensive purchase like a new computer, you want that peace of mind.

Costco also offers free tech support when you buy electronics at a store or through Costco.com. So if you live alone and are overwhelmed by the idea of setting up a new TV or laptop, rest assured that you’ll have someone to help walk you through the process.

3. Savings on eyeglasses

Buying eyeglasses through Costco Costco can be less expensive than buying them elsewhere. And Costco makes it easy to purchase eyeglasses.

If you don’t have a warehouse club store conveniently located where you live, you can order your new pair of glasses online with ease thanks to Costco’s new virtual try-on option. The site’s new technology lets you upload a video of your face and then actually see what different pairs of glasses will look like.

For some people, it’s easy to justify the cost of a Costco membership. But if you don’t hit the store often, you may be wondering if yours is worth hanging onto. Before you cancel, though, think about whether you’re planning to book a vacation, buy electronics, or replace some eyewear in the new future. If so, then keeping that membership could very much make sense.

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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 positions in and recommends Costco Wholesale. The Motley Fool has a disclosure policy.

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T-Mobile will soon automatically switch some customers with older mobile phone plans to newer, more costly plans. Find out what you can do to avoid this. 

What happened

Some T-Mobile customers will be automatically upgraded to a new mobile service plan in November, and the mobile carrier hopes to shift customers away from its older plans. Impacted customers should prepare to pay more, as the brand’s newer phone plans cost more money.

Customers with the following older unlimited phone plans will be affected:

OneSimple ChoiceMagentaMagenta 55 Plus

Those who want to opt out can contact T-Mobile’s customer service line. But there is no official word on how long customers will be allowed to remain on outdated mobile plans. The carrier will begin to send notices to impacted customers on Oct. 17. Those who don’t opt out can expect their plan to be updated and their rate to increase starting with their November billing cycle.

So what

This is news worth knowing if you’re a T-Mobile customer with an older mobile phone plan. Unless you agree to the new plan and price or opt out of the switch, the change will impact your checking account. In a recent CNET article, a T-Mobile representative noted that, “there will be an increase of approximately $10 per line with the migration.”

While $10 may not seem like a lot of money, it adds up to an additional $120 per line annually. The change could cost customers with multiple lines several hundred dollars per year. If you’re on a tight budget or working hard to meet financial goals like building an emergency fund or paying off credit card debt, the additional cost of your mobile plan could slow your progress.

Now what

If you’re subscribed to an older plan and don’t want to switch, you should contact T-Mobile to request that your plan not be changed. If you accept the automatic plan change, you’ll want to budget for the new higher rate so your future phone bill doesn’t surprise you.

Here’s an easy way to save money on your phone bill: T-Mobile offers discounts of $5 per line to customers who enroll in auto-pay. While the carrier no longer allows customers to pay automatically using a credit card, you can connect a debit card or bank account and get a discount.

But only do this if automatic billing works well for your personal finance situation. The last thing you want to do is accidentally overdraw your bank account because you forget about an auto-pay bill. Another way to get around this switch is by comparing phone plans from other carriers. It may be more affordable for some individuals and families to switch mobile carriers.

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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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