Money Management

Today, you can take your bank along on your next adventure. 

As the name suggests, an online bank exists entirely online. While there are no physical branches, online banks offer many of the same services as traditional brick-and-mortar banks. However, as the internet-only banking industry grows, it’s clear that some shortcomings remain. Here, we’ll outline both the advantages and disadvantages associated with online banking.

Advantages

Online banks have the following great features.

1. Available anywhere

If you’re a digital nomad, a frequent vacationer, or simply a person who does not care to be tied down to one geographical location, online banking makes it easy to take care of business on the go.

2. Provides services you’ve become accustomed to

As long as you have internet access, you can pay bills, transfer money, open new accounts, check balances, download monthly statements, and more. The primary difference is that you don’t have to go into a bank branch to accomplish these tasks.

3. Easy money transfers

Online banking makes it easy to transfer funds from one bank account to another. Let’s say you’re on vacation and realize that you should have moved more from savings to your checking account before leaving home. Within minutes, you can easily set up the transfer.

Or, imagine you have a child away from college who occasionally needs cash for meals or books. As long as you have their bank account linked with your online account, you can seamlessly move money from your bank to theirs.

4. Banking with low or no fees

Online banks don’t have the overhead carried by traditional banks (for example, they don’t have physical branches to maintain). They can pass those savings on to you through lower fees. Many online banks don’t charge fees for everyday banking services.

5. Higher rates on accounts

Again, due to low overhead, online banks often offer the highest APY on things like certificates of deposit (CD) and high-interest savings accounts.

6. Easy access to customer service

Like traditional banks and credit unions, online banks offer access to customer service. If you have a problem, you simply give the bank’s customer service department a call.

Disadvantages

Here are some of the disadvantages associated with online banking.

1. Technology disruptions render banking unavailable

Let’s say you’re backpacking through Europe and hit a “dead zone,” a spot where there is no access to internet service. You can only get to your online banking account once you have internet service again.

The same is true if there’s a power outage and you lose internet service or the bank experiences server issues.

2. You won’t know anyone

If you’ve done business with the same bank or credit union for years, it’s nice to know you can walk into a branch, sit down with a bank officer you know, and receive help with banking issues.

Because there is no physical location, you’ll never build a relationship with online bank employees. And for some people, it’s nice to have a specific person you can call when you want to begin a new loan application or make a financial decision.

3. Don’t help build your community

Credit unions and small local banks are known for being civic-minded, helping to build the communities they serve. If that’s important to you, you will have a different experience with an online bank.

4. Cannot help with a “wet” signature

Banks do more than move money around. They’re also places you can go to have a will, trust, adoption papers, or insurance benefits notarized. But first, the notary will need to watch you sign the document. This is called a “wet” signature. It’s not a service an online bank can offer.

Whether or not an online bank is right for you boils down to what you need. If you only need basic banking services, opening an online bank account may be the right move. On the other hand, if you want a bank that can do it all, from witnessing a signature to providing a safe deposit box, sticking with a traditional bank is your best bet.

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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.Dana George 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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Is Ramsey right that buying coverage is crucial in this situation? 

There are many different reasons to buy life insurance, and most people should have a policy in place. In fact, anyone who has loved ones who rely on them to provide services or income should have term life insurance.

For some people, it may be especially important to buy coverage though. In fact, finance expert Dave Ramsey says it’s crucial to have a life insurance policy in one particular situation.

Here’s when Dave Ramsey believes life insurance is essential

Although Ramsey recommends life insurance for most people, he believes consumers “need it all the more,” if they have debt.

“Listen: If you have debt, you still need life insurance,” Ramsey said. “A lot of people feel like they should wait until they’re debt-free to buy insurance, but this would be a giant mistake.”

Ramsey explained that people are “most vulnerable” in circumstances where they owe money because they have this outstanding obligation that would need to be dealt with when they die. “Think about it, if you died and left your family with nothing to live on and a mountain of debt, how would they get by?” Ramsey asked.

Because of the risk of leaving loved ones with a lot of creditors to pay back, Ramsey believes it is worth paying the premiums for a policy even if that means it would be necessary to pay less to creditors since this money would be going to a life insurer instead. Even though it takes a little more time to become debt free, loved ones would be protected from the debt — and that’s worth it.

Is Ramsey right?

Ramsey is right that debt can sometimes cause surviving family members problems — but that’s not necessarily always the case.

When a person dies, their family doesn’t necessarily assume their debt obligations. If there was joint debt, such as a shared mortgage or car loan or personal loan, then surviving co-borrowers would need to continue to make payments. Likewise, if a deceased person had secured debt, such as a car loan, surviving family members would need to pay off the loan in order to keep the vehicle.

But if there was no collateral for the debt and it wasn’t jointly owed, creditors could come after the estate — but not after surviving loved ones. If there is money in the estate to pay off the debt, then surviving loved ones would lose those assets from their inheritance. But if there wasn’t money in the estate, then creditors just wouldn’t be able to collect. They can’t try to make heirs pay out of their own pockets.

Still, in many circumstances, it is definitely better to have life insurance to pay off unpaid debt — especially because often people die with joint loans or because they want their money to go to heirs instead of to debt payoff.

So, Ramsey is mostly right, but simply having some credit card bills doesn’t necessarily mean it’s absolutely necessary to go out and buy a life insurance policy if doing so doesn’t otherwise make sense. Think about the big picture when deciding how much coverage, if any, is needed, and consider debt as just a part of that decision to make the most informed choices.

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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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The Black Swan author says Bitcoin is part of a Disney-esque asset bubble, amongst other things. 

Black Swan author Nassim Nicholas Taleb lashed out at Bitcoin (BTC) in a recent interview. The well-known risk analyst compared the leading cryptocurrency to “malignant tumors” and said it’s a “magnet for idiots.”

Credited with predicting the 2007/2008 financial crisis, Taleb, who writes about probability and risk, was once a fan of Bitcoin. He thought it could offer an alternative to centralized monetary policy at a time when he didn’t agree with the Fed’s decisions. But as time went on, he lost faith, as he explained in a recent interview with L’Express in France.

Here are some of the reasons he now compares Bitcoin to cancer.

1. It doesn’t work as a currency

Taleb says that Bitcoin hasn’t managed to become a “currency without government,” in spite of the hype. He points out that it doesn’t work as a store of value or guard against inflation — two common selling points we hear from Bitcoin advocates. “Worse than anything,” he says, “It does not remotely constitute a shield against government tyranny or a vehicle to protect against catastrophic episodes.”

There are a lot of arguments around whether Bitcoin works as a currency. On the one hand, it’s extremely volatile. If you’re using Bitcoin to pay salaries or pay your rent, it becomes problematic if it gains or loses 50% of its value in a short space of time. It’s also relatively slow in processing transactions and transaction fees can be expensive.

On the other, Bitcoin fans believe it could become the currency of the internet, or function as a form of digital gold, and say there are tech solutions that will reduce transaction times and costs. It’s also been adopted by countries like El Salvador and the Central African Republic as legal tender (though there are questions about how successful those moves actually were.)

2. It’s part of a Disneyland-eque asset bubble

Taleb believes the low interest rates we’ve seen in the past 15 years have distorted the way we see investments. “Lowering rates creates asset bubbles without necessarily helping the economy,” he argues. According to Taleb, Bitcoin has flourished in a speculative environment where people have lost any sense of what long-term investments really are. He goes further, claiming that young Bitcoiners do not understand finance. He says some young people who bought Bitcoin early “got temporarily rich without knowing anything except computer programming.”

3. It attracts scammers

The idea that crypto is a hotbed for fraudulent activity is nothing new. Even Coinbase CEO Brian Armstrong said last year that the industry was suffering a black eye because of the numbers of fraudsters involved. Taleb says, “I think the crypto universe attracts manipulators and scammers.”

Bitcoin fans would argue it’s not fair to slam the entire crypto industry just because Bitcoin has been used by bad actors — in the same way that you can’t you couldn’t criticize the U.S. dollar because some criminals use it. Scammers have used crypto just as they would use any new technology where there are high expectations and a relatively low knowledge base. That said, the lack of regulation in terms of the functioning of individual cryptocurrencies and trading on crypto exchanges has opened the door to a disproportionate number of bad actors.

Is he right?

Many crypto investors have seen the value of their portfolios drop significantly in the past year, particularly those who bought for the first time during the frenzy of 2020/2021. It isn’t surprising that some people regret their crypto purchases and wonder if Bitcoin still has long-term potential.

The difficulty is that nobody knows for sure. Taleb raises important questions about Bitcoin’s utility, which is fundamental to its ability to do well in the coming 10 or 20 years. But the idea that it’s an asset bubble or that it has attracted scammers doesn’t necessarily rule out an eventual recovery.

Investors like Ark Invest’s Cathie Wood still believe Bitcoin could reach $1 million by 2030. Ark cites several industries where it could take a portion of the market — such as the international remittance market or working as a currency in emerging markets. But it’s impossible to guess at the impact of increased regulation. Regulation is just one of several hurdles that crypto needs to cross. For example, right now, crypto isn’t that easy to use, which stops it reaching new users.

One thing is clear. Bitcoin remains a high-risk investment and it is important to listen to critics like Taleb as well as advocates like Wood. If you do decide to buy Bitcoin, make sure it only makes up a small percentage of your portfolio. If you only invest money you can afford to lose in high-risk assets like crypto, you won’t be knocked off course financially if they eventually fail.

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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.Emma Newbery has positions in Bitcoin. The Motley Fool has positions in and recommends Bitcoin. The Motley Fool has a disclosure policy.

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Climate change has a role to play. 

Home prices hit all-time highs in 2022, with the median price increasing by 50% from January 2020. High mortgage rates have slowed down the housing market considerably, with Redfin predicting that the median U.S. home price could drop by close to 4% in 2023, posting the first year-over-year decline in a decade. Home sales will also decline, falling to the lowest level since 2011, a drop of 30% from 2021. While many areas are already experiencing a decline in prices, some are expected to be even more expensive this year.

Places where prices will drop the most

Pandemic migration hotspots like coastal cities and those in the Sun Belt saw the biggest increases in the housing market frenzy in the aftermath of COVID-19. Home prices in Malibu, California surged by 82% from the first quarter of 2021 to 2022. The East Coast also saw record gains, with the average home price of the Hamptons in New York increasing by 25% and the number of homes available falling to a record low.

Home prices went up the most in cities such as Austin, Boise, and Phoenix, areas that were prime destinations during the initial phase of the pandemic. These places are expected to see the most volatile prices since there is a lot more room for prices to drop compared to areas that didn’t see as much growth.

Prices that will see prices go up

Climate-risky areas like the hills of California and oceanfront property in Florida will see prices continue to go up primarily due to high insurance costs. According to Redfin’s data, disaster insurance premium rates will continue to rise, offsetting any price declines in these areas. Insurance premiums in Florida increased by 33% last year, and are expected to go up even more due to Hurricane Ian, the deadliest hurricane to strike the state of Florida since 1935. The hurricane was also the costliest in Florida’s history, causing $113 billion in damages.

Many insurers have stopped issuing policies on high fire risk homes in California. This means that the only insurance companies homeowners in these areas have to access are two to three times more expensive. Even FEMA flood insurance premiums have gone up. With disaster insurance required for a mortgage in these high-risk areas, the majority of those who can afford these types of homes are the wealthy all-cash buyers.

Purchasing a home is the most expensive purchase many people will ever make in their lives. When taking into consideration the total expenses of homeownership, make sure you take into account insurance, property taxes, and maintenance fees before you pull the trigger on buying a home. The dramatic increase of insurance premiums will offset any home price decreases seen in some areas. Buying a home should be based on your personal financial situation and it is important to budget all the costs you can expect to incur.

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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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If you have a credit card gathering dust, here’s what to expect. 

From time to time, you may find that you have a credit card you’re just not using anymore. This often happens after people improve their credit scores and get better cards with more benefits. For example, if you have a cash back card, it doesn’t make much sense to keep using an old card that doesn’t earn any rewards.

You could cancel the old card, which is what a lot of people do in this situation. But closing a credit card can impact your credit score, so you might prefer to keep it. What about if you simply stop using a card but never cancel it? Let’s go over what could happen in this situation.

What happens if you never cancel a credit card

If you never cancel an unused credit card, there are two possible outcomes:

The card issuer cancels the card. Card issuers will usually send a notification in advance of the pending cancellation. The notification will let you know that if you don’t use your credit card by a specific date, it will be canceled.Nothing changes. That’s right. Your credit card could just remain open, despite the lack of activity.

The most likely scenario is the card issuer notifies you by letter or email that it plans to cancel your credit card. If you want to prevent that, you’ll need to make a purchase by the date in the notification.

The amount of time that can pass before you get this type of notification is anybody’s guess. It could take six months of inactivity, a year, or five years. While card issuers don’t make their timelines public, Wells Fargo has at least provided a general idea of its cancellation policy. A spokesperson told Money that Wells Fargo generally closes credit card accounts after two to three years of inactivity.

But why keep a credit card open if you’re not using it? The main reason is the way this can affect your credit score.

How a canceled credit card affects your credit score

A canceled credit card doesn’t directly impact your credit score — you don’t lose points because your card was canceled. But it can influence a few of the factors used to calculate your credit score.

The biggest potential issue is how it affects your credit utilization ratio. This is one of the most heavily weighted factors in your credit score. To determine your credit utilization ratio, your card balances are divided by your credit limits. Let’s say you have two credit cards:

Card A has a $5,000 balance and a $10,000 credit limit.Card B has a $0 balance and a $10,000 credit limit.

Your credit utilization would be your $5,000 in balances divided by your $20,000 in combined credit. That’s 25%. Conventional wisdom suggests having a credit utilization below 30%, so you’d be doing well.

But now let’s say that card B gets canceled because you never use it. You’d lose $10,000 in credit. Your credit utilization is now $5,000 divided by $10,000, which is 50%. Because that card was canceled, you now have high credit utilization that could hurt your credit score.

This is only an issue if you carry large balances on your credit cards. If you pay your bill in full, then credit utilization won’t be an issue, even if a card gets canceled.

Another downside that gets mentioned often is that a canceled credit card could reduce your average account age. However, this isn’t as big a deal for two reasons:

Closed credit cards remain on your credit file for 10 years. During that time, they can continue to positively affect your credit.Your average account age is a minor factor in your credit score. Under the widely used FICO® Score system, it counts for 15%. Credit utilization, on the other hand, counts for 30%.

Keeping a credit card open

If you want to make sure a credit card stays open, that’s easy enough. Use it for the occasional purchase, and pay the bill on time. One popular way to do this is making your card the default payment method on a regular bill you have, like your streaming service account.

Now, is this worth your time and energy? Probably not. Any impact on your credit score from a canceled card is fixable, and it won’t be much if you’re able to keep your credit utilization low.

You’re better off finding quality credit cards you like and will use regularly. Ideally, you’ll pay your credit card balances in full every month, too. It’s good for your credit utilization, and you won’t get charged credit card interest. Do that, and you won’t need to worry if an unused card gets canceled.

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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. Lyle Daly 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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There are steps you can take to put back the money you took out. 

Rampant inflation wreaked havoc on consumers in 2022, and many middle-income households had to make changes because of it. For some, that meant taking on debt. For others, it meant cutting back on spending, even to the point of skimping on essential expenses.

Not surprisingly, 51% of middle-income households had to tap their emergency funds last year, according to a recent survey by Primerica. And if you landed in a similar situation, you may be eager to replenish your savings account balance as quickly as possible.

See, we don’t know if a recession will hit the U.S. economy in 2023. But in the aforementioned survey, most respondents said they think conditions will worsen in 2023. And if the economy tanks, you’ll want a stronger emergency fund, not a partially depleted one. With that in mind, here are some steps you can take to replenish your emergency fund after a recent withdrawal.

1. Rework your budget

You may have money allocated to different expenses, from your rent to your car payments to your leisure spending. Clearly, if you’re locked into a lease, there’s not much you can do to lower your rent costs. And if you need a car to function and you own a modest one, then you may be stuck with your $340 monthly payment.

But there may be costs in your budget you can cut temporarily to replenish your emergency fund. That could mean canceling some subscriptions for a period of time until your savings balance grows nicely.

2. Get a side hustle

Despite recession warnings, the gig economy is very much alive and well today. And that gives you a solid opportunity to take on a side hustle and use your earnings to replenish your savings. If you earn enough, you might even land in a position where you have a higher emergency fund balance than you did before your last withdrawal.

And who knows? If you find that your side gig is both manageable and enjoyable, you might decide to keep it even once your savings balance is looking stronger. That could mean more financial wiggle room on an ongoing basis.

3. Bank your next windfall

Believe it or not, the 2023 tax-filing season has already kicked off, and that means that chances are, there’s some sort of refund coming your way from the IRS. Rather than make plans to spend that money, put all of it in the bank to make your emergency fund whole again.

That said, a tax refund isn’t guaranteed. But there may be other small windfalls that will land in your lap in the coming months, like a cash gift for your birthday or a bonus at work. Putting that money into savings could help bring your emergency fund balance back up to where you want it to be.

If you took money from your emergency fund to deal with an unexpected expense or inflation, don’t beat yourself up. But also, do what you can to replenish your savings so you have the solid safety net you deserve.

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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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