Money Management

Retirement funds are vulnerable to recessions. Find out what happens to savings if the U.S. actually defaults on its $31.4 trillion debt. 

The U.S. has $31.4 trillion of debt, about $95,000 per citizen. The country spends a lot of taxes paying off interest on that debt. This year, the U.S. maxed out its credit line in January, meaning the Treasury has been paying off debt with whatever money it has on hand.

Financial shenanigans will continue until either Congress agrees to lift the debt ceiling, giving the U.S. more room to borrow money, or the U.S. defaults on its debt, with potentially catastrophic consequences.

No biggie.

While a U.S. default is unlikely — financial experts like Suze Orman think the consequences of a default are too severe for Congress not to raise the debt ceiling — it’s worth considering why everyone is in such an uproar over the economic standoff between the Democrat president and Republican-controlled House of Representatives.

Retirees, in particular, could suffer from a debt default. They rely heavily on government-funded Social Security and invested retirement savings, which a default could devalue. Not even U.S. Treasuries, some of the safest places to store money, would be 100% safe from impact.

Here’s what will likely happen to your retirement fund if politicians don’t raise the debt ceiling.

Retirement savings may decline sharply in value

Should politicians not raise the debt ceiling, the U.S. will likely default on debt. That would be bad. Here are some consequences that might immediately follow a national default:

Rating agencies downgrade the U.S. credit rating.The U.S. raises borrowing rates even further.The U.S. economy plunges into a recession.

Credit agencies and investors worldwide will see the U.S. as less trustworthy if the U.S. defaults. That would hurt the confidence of investors and cause short-term market turmoil. This happened in 2011 and 2013, when the U.S. government failed to raise the debt ceiling until the last minute.

As trust in the U.S. economy weakens, investors could sell off U.S. bonds, leading to falling bond prices and raised rates. The economy typically weakens when the U.S. raises rates (like the Fed has been since last year), potentially frightening investors into withdrawing from the stock market — bad news for retirement funds.

As the market weakens and rates rise, the U.S. could plunge into a recession of interminable severity. Could be minor, could be major. Either way, recessions have historically hurt stock market returns — again, bad news for retirees.

None of these things would be good for retirement funds.

Social Security might get cut or delayed

Other consequences of a debt default include cuts in federal spending. Programs like Social Security could delay payments to retirees. It depends on how government leadership handles a blossoming debt crisis, and where Congress chooses to cut spending.

A default does not mean the U.S. would go bankrupt. Instead, the U.S. would need to re-negotiate debt repayments with creditors. That’s because the U.S. is a sovereign nation, and nations play by different rules than individuals and companies.

Can you default-proof your retirement fund?

Short answer, no. Longer answer: A modern U.S. default would be uncharted territory (previous financial crises were of a different flavor), and not even financial experts know precisely how badly a default would hurt retirement funds. But traditional investment advice still holds.

For example, diversification could help retirees prop up their retirement funds if the U.S. defaults. Should an entire asset class (i.e., the stock market) crash, retirees can lean on bonds and cash to pay the bills until the stock market recovers. Investing in property is also a viable option.

Don’t toss your retirement plans out the window because a default could happen — that’s doomer thinking. A default is unlikely. Congress has raised the debt ceiling over 70 times, a consistent pattern. Folks should stick to financial plans and focus on what they can control.

Consider sticking to tried-and-true retirement strategies that could help even in the unlikely event of a U.S. default. Diversify your 401(k) or IRA investments, and keep cash on hand to maximize your portfolio’s robustness.

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Online and mobile banking has never been more popular. Here are three underrated online banking features that could make managing your money easier. 

Most of us have probably used our bank’s online portal or mobile app to move our money around. It’s made performing simple financial tasks a lot easier than back in the day when you had no choice but to hop in your car and drive to the nearest bank branch. But many online banking platforms have evolved beyond simple transfers and mobile deposits.

Here are three other money management features some bank accounts offer that many people still aren’t taking advantage of. If your bank offers one or more of these, you may want to give them a closer look.

1. Automatic bill pay

Rather than remembering to pay bills manually, many banks enable you to set up automatic bill pay on a set schedule. This works well for predictable monthly bills, like your phone bill or your mortgage loan. It may not work for bills that are less predictable, like credit card bills. In that case, you may still need to set reminders for yourself so you don’t forget to pay your bills on time.

To set up autopay, you must first enter information for the person or company you’d like to pay into your online bill pay. You may have done this already if you’ve made previous, one-time bill payments through your online bank account before. Then, you look for an option to set up autopay. It should enable you to choose the frequency and amount of each payment as well as the start date. If you run into any problems, reach out to your bank for help.

Keep in mind that you’ll need to switch your automatic bill payments over if you later change bank accounts. Forgetting to do so could lead to all kinds of headaches.

2. Balance and transaction alerts

Some bank accounts offer a variety of alerts about various activities to help you avoid overdrafts or identity theft. Balance alerts can let you know if your bank account balance has dropped below a certain dollar amount so you don’t try to spend more than you have. And transaction alerts could alert you to unusual activity, like large purchases or purchases in another state.

Generally, these alerts are customizable, so if you don’t want them, you can switch them off. But they can be a nice way to stay up to date on changes to your bank account if you’re not in the habit of checking it often.

3. Automatic savings transfers

Those who have a checking account and a savings account with the same bank may have the opportunity to set up automatic transfers to their savings account. This is a useful tool if you hope to save more money but often forget to transfer the funds on your own.

You should be able to choose how much you want to transfer and on what schedule. It’s usually best to set up these transfers for days you know you’ll have funds in the account, like right after you get paid. This can help you avoid accidental overdrafts.

Some bank accounts also offer unique savings options, like the chance to round up every purchase to the nearest dollar and save the change. This could be a relatively painless way to grow your savings if you’re not sure you can transfer a set dollar amount on a predictable schedule.

Explore everything your bank account has to offer

This isn’t intended to be a comprehensive list of all the useful features your bank account might offer. But it should give you an idea of what to look for. If you haven’t done so already, comb through your bank account’s online and mobile banking tools to see whether there are any you’re not taking advantage of that could make your life a little easier.

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Wells Fargo agreed to settle a lawsuit brought by investors alleging the bank failed to meet compliance requirements. Read on for the details. 

What happened

Wells Fargo has agreed to a preliminary settlement for a lawsuit filed by a group of shareholders that has been in litigation for three years. The plaintiffs claim the bank inaccurately portrayed its progress in recovering from a recent series of scandals involving customers, including opening fraudulent accounts. This claim was substantiated by a report from the House Financial Services Committee that concluded Wells Fargo wasn’t in compliance with the consent orders, which caused the bank’s stock to plunge 34%.

Wells Fargo continues to deny the allegations, but chose to settle the suit to avoid the costs and other burdens associated with litigation.

“This agreement resolves a consolidated securities class-action lawsuit involving the company and several former executives and a director, who have not been with the company for several years,” said Wells Fargo in a statement. “While we disagree with the allegations in this case, we are pleased to have resolved this matter.”

So what

The plaintiffs in this case included two large state pension programs, including the Employees’ Retirement System of Rhode Island (ERSRI) and the Public Employees’ Retirement System of Mississippi.

According to Steven J. Toll, Managing Partner at Cohen Milstein Sellers & Toll, “If approved, this settlement will help compensate hundreds of thousands of investors — state employees, nurses, teachers, police, firefighters, and others — whose critical retirement savings were impacted by Wells Fargo’s fraudulent business practices.”

Now what

There are currently no details on when or how affected individuals will be reimbursed, as the preliminary settlement still awaits judicial approval.

This settlement is specific to the case brought by investors, and is separate from the action taken earlier this year by the Consumer Financial Protection Bureau (CFPB) against Wells Fargo for breaking federal consumer protection laws around auto loans, mortgages, and bank accounts. That action resulted in a fine of around $3.7 billion, $2 billion of which is required to pay back customers, and another $1.7 billion to be put into a victims’ relief fund.

You should be notified by Wells Fargo if you are eligible for reimbursement.

The CFPB warns consumers to be wary of scams surrounding these settlements. Don’t trust anyone claiming they can get your compensation, especially if they ask you to pay any money upfront. If you’re contacted by a suspected scammer, report it to the CFPB as soon as possible.

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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.Wells Fargo is an advertising partner of The Ascent, a Motley Fool company. Brittney Myers 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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Love Costco? Read on to learn about a new dessert that might make its way to your local warehouse club store. 

Some of my friends who shop at Costco claim they’ve never so much as set foot in the bakery section. Rather, they pride themselves on being disciplined shoppers who scoop up their bulk cereal boxes and toilet paper, head to the checkout area, and call it a day.

I won’t pretend that I’m capable of exercising that same level of self-control. When I go to Costco for my weekly grocery run, not only do I visit the bakery section, but I also make a point to scope out the snack aisles to see if any new products have hit the shelves. (To be fair, I also load up on things like spinach and broccoli in bulk when I go to Costco, so I figure it all evens out.)

Meanwhile, a recent SheKnows article reveals that Costco has introduced a new lemon meringue cheesecake pie into its bakery lineup. Clearly, it hasn’t hit every market yet, because I’ve yet to see it at my local Costco. But to say that I’m excited to try it would be an understatement. And apparently I’m not the only one.

The aforementioned article said that an Instagram user shared a video of Costco’s latest dessert, and it had fans swooning. But before you rush to your local Costco in search of its newest bakery creation, make sure buying it is really the right call.

You don’t want to throw your money away

Costco is reportedly selling its new lemon meringue cheesecake for $19.99 (though do note that Costco prices can vary by market, so you might end up with a higher credit card tab, depending on where you live). Now when you compare that to the cost of a mega-sized dessert at your local bakery or supermarket, it might seem like a bargain.

But the one rule you should always follow when it comes to bulk buying at Costco is to only spend money on products you’re convinced you’ll get to use up in full before they go bad on you. If you buy food you don’t manage to consume before it turns, you could end up throwing your money away.

Such is the case with Costco’s latest lemony concoction. It certainly sounds delicious. And if you’re tasked with bringing dessert to a friend’s barbecue or family picnic, then by all means, consider this Costco find if it’s available at your local store.

But otherwise, be careful about plunking down $19.99 (or whatever your local price is) for a dessert you might only end up eating half of. I mean, I’m the sort of person who tends to prioritize dessert. But chances are, a lemon meringue cheesecake only has a limited shelf life. And even I would probably struggle to consume the entire thing myself in a matter of days.

Plus, a lot of people are having a hard time managing their bills these days due to inflation. If your savings account has taken a hit, then you’ll need to be really careful about extra spending — and that unfortunately extends to Costco bakery delights.

Be on the lookout

Costco’s newest creation may not be available at your local store yet, but since it’s the perfect summertime treat, there’s a good chance it’ll make its way there sometime soon. So keep a close eye on your bakery section for lemon meringue cheesecake if money isn’t tight, you have an occasion warranting a larger dessert, or you’re simply confident in your ability to consume massive quantities of sweetness without getting sick in the process.

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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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Have a mortgage? Read on to see why paying it off ahead of schedule may not be your best move. 

Some people take out a 30-year mortgage and carry it well into their 60s. Others make extra payments toward their mortgages in an effort to pay them off sooner.

If you ask financial experts whether it makes sense to pay off a mortgage early or not, you’ll get different answers. Shark Tank personality Kevin O’Leary, for example, says homeowners should aim to have their mortgages paid off by age 45.

But sticking to your mortgage’s original repayment schedule could work to your benefit. That’s because paying off your home loan early comes with the following pitfalls.

1. You lose out on a tax break

If you itemize your deductions on your taxes, you can claim a deduction for the interest you pay on your mortgage. And that deduction could be instrumental in keeping your IRS bills to a minimum. Lose out on that deduction, and you might find yourself writing a check to the IRS every April instead of walking away with a tax refund.

2. You lose out on the chance to invest your money elsewhere

You might save yourself money on interest by paying your mortgage off early. But if you were to invest the money you’re using to knock out the remainder of your mortgage balance, you might come out ahead financially.

Let’s say you’ve signed a 30-year, $300,000 mortgage at 5% interest, and you have 10 years left on your loan. Let’s assume at that point, you get a $150,000 inheritance to pay off the remainder of your loan, which is roughly what you’d have left at that point. Doing so could save you about $41,000 in interest, which isn’t a small amount of money.

Meanwhile, the stock market’s average yearly return over the past 50 years has been 10% (before inflation), as measured by the S&P 500 index. If you were to invest $150,000 and leave that money alone for 10 years, you’d more than double it to about $389,000, assuming you snag a 10% average annual return in your portfolio. So in that case, rather than save $41,000 on interest, you’d gain almost $240,000.

3. You lose out on an easy opportunity to score a risk-free return

You might save yourself a lot of money on interest by paying off your mortgage early. But if you were to take the money you have to pay off your loan and put it into the bank, you could set yourself up for years of risk-free returns in a savings account.

Now some years, your savings account may not pay as generously as in others. But either way, that money could serve as your financial safety net. If you put it into your mortgage, it will simply be gone. Granted, so will your mortgage debt, but that’s not the same thing as having cash in the bank.

Paying off a mortgage early isn’t necessarily a bad move. Just make sure to consider the downside of going this route before throwing a pile of cash into your mortgage.

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Getting there really is half the fun. Keep reading for some pro tips to keep your expenses as low as possible along the way. 

Road trips are my favorite kind of vacation. Here are some tried-and-true money-saving tips I’ve used for years for road trips in both the United States and Canada.

1. Figure out your pit stops ahead of time

This is a more recent addition to my road trip arsenal, but it’s been such a help for both my checking account and my mental health. When you’ve got a long day of driving planned (say, eight to 12 hours), it can be easy to get lost in that big number and feel as if you’ll never reach your destination. Here’s the secret: When you’re planning your route, decide on places to stop along the way, ideally aiming for a break about every two hours. This way, you’re never more than two hours from a bathroom, the chance to stretch your legs, or a bite to eat.

This will help you save money by giving you the chance to plan for cheaper stops. If you wait until everyone in the car is starving before looking for a place to have lunch, you won’t take the time to compare the menu prices of multiple restaurants. If you know you have $60 to spend on lunch for you and three family members, you can find a fast food joint that will help you stick to that and add it as a stop on your route.

2. Pack your cooler

Another way to save on those drinks, snacks, and meals along the way is to rely on your trusty cooler and a few bags of ice. You can make sandwiches at home and have them ready whenever anyone needs a quick bite. If this is a bit too thrifty for your tastes, consider this: Even only using the cooler for drinks can result in a lot of savings. I can buy a 24-pack of bottled water at my local grocery store for just $4.79. Just $0.20 per bottle sounds a lot better than gas station prices that could be 10 times that.

3. Book the right hotels/motels — BEFORE you leave

Going along with the first tip, I also highly recommend planning where you’ll sleep ahead of time. My most frequent road trip companion these days prefers the school of “drive until we’re tired, THEN find a place to sleep,” but that’s against everything I stand for. My motto? Be prepared.

By booking before you leave, you get a set destination (and number of miles to cover). I usually choose a hotel with a loyalty program I belong to, earning me points to redeem for future stays. Plus, I can check rates for hotels in a set area and pick the one offering the best combination of price and amenities.

4. Use the right credit card for fill-ups

The right credit card can earn you cash back and other rewards on your regular spending, and this is absolutely the case for road trips, too. I’d actually warn against opting for a co-branded card for a major gas station brand because these are sometimes “closed loop,” meaning you can only use them at that type of gas station. And you can usually earn better rewards with a credit card that offers a high rate of return on gas purchases anyway.

If you’ve got a spring or summer road trip planned, note that per the U.S. Energy Information Administration, gas prices are up at this time of year. So any bit of money back you can get for buying cash will surely help.

5. Get your car tuned up

While you might be groaning at the prospect of spending yet more money on your road trip, it’s crucial to ensure the vehicle you’ll be taking is in good shape before you leave. Jiffy Lube notes that a full tune-up will likely cost you between $200 and $800, depending on your vehicle and where you live. But it would be nice to know ahead of time if something might be wrong with your car.

Depending on the problem with your vehicle and its age, any repairs you might need could be covered under warranty. But even if they’re not, do you really want to have to find a repair shop in a hurry while you’re away from home?

In addition to checking out the engine, ensure your tires get some special attention. The tires are the only part of the car that touches the road, and you want them to have good tread and be properly inflated for your trip. I actually just dumped another $650 into my old car for new tires because I have a road trip vacation coming up soon, and it was time for new tires anyway.

Road trips are fun, and they can certainly be cheaper (especially if you’re traveling with a group) and often less stressful than flying. Use the above tips to shave your costs even more and remember to drive safe!

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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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