Money Management

Her choice is probably going to surprise you. 

Some of the big banks definitely don’t have the best reputations. There are plenty out there that pay paltry interest rates and ding clients with costly fees. So, when the subject of the worst bank in the world comes up, you might already have a name that springs to mind.

No matter which bank you’re thinking of, financial influencer Vivian Tu says “you’re wrong.” On her social media channel, Your Rich BFF, she recently revealed that the worst bank in the world is Starbucks. Wait, what? Yes, she’s talking about the coffee giant, and she has an interesting point here.

Why Vivian Tu says Starbucks is the worst bank in the world

Starbucks may not actually offer bank accounts, but it does hold on to a whole lot of its customers’ money. It does so thanks to physical and electronic gift cards. Customers have the option of buying physical gift cards or loading money to an electronic gift card through the Starbucks app using its “Scan & pay” option.

Here’s the shocking part — Starbucks has about $1.6 billion in outstanding gift card balances. That info comes courtesy of its annual 10-K filing with the SEC.

This essentially means Starbucks is getting a $1.6 billion loan from its customers at a 0% interest rate. And it’s paying that loan back in coffee, not cash.

It’s already a great deal for Starbucks, but it gets even better. Some customers don’t end up redeeming their gift card balances, which means the coffee chain doesn’t even need to pay back the full “loan” amount. For the 2022 fiscal year, Starbucks reported $196 million in breakage, meaning unused gift card balances.

With numbers like that, it’s understandable why Tu calls Starbucks the worst bank in the world. It’s holding $1.6 billion, which is far more than what many banks and credit unions manage. It also doesn’t need to pay out any interest, and in fact, it often gets to keep over 10% of that money.

Don’t bank with Starbucks

One of the reasons why customers load money to Starbucks cards through the app is because they earn more rewards this way. You get two stars per $1, compared to the normal Starbucks Rewards rate of one star per $1.

Even with this incentive, there’s still no good reason to give Starbucks a loan. If you want to earn some extra rewards, load money through the app right before you go to Starbucks, and only load the amount you need. If your usual order costs $10, load $10. That way, you get two stars per $1, without leaving unused funds on a Starbucks card.

Or, you can keep it simple and scan your Starbucks Rewards membership when you make a purchase. You’ll earn one star per $1, but it’s easier, and there’s no risk of having money on a Starbucks card that you forget to use.

Whether you agree with Tu calling Starbucks a bank or not, she’s right about one thing. Starbucks isn’t the place to put your money. Keep your cash in quality checking and savings accounts, where it will earn interest and you can access it at any time.

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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.Lyle Daly has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Starbucks. The Motley Fool recommends the following options: short January 2023 $92.50 puts on Starbucks. The Motley Fool has a disclosure policy.

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There’s relief to be had in the new car market, but that doesn’t mean a new car is right for you. 

Any time you have a disconnect between supply and demand, the price of a given item has the potential to rise significantly. That’s what’s been happening in the automobile market. An ongoing chip shortage has resulted in a limited supply of new vehicles, forcing buyers to pay up.

But these days, there’s finally relief to be had when it comes to buying a new car. One year ago, an estimated 80% of new car buyers had to pay above sticker price, according to data from Edmunds. Nowadays, only 36% of new car buyers are paying above sticker.

All told, new car buyers paid an average of $300 under sticker prices in December. And while that relief is nice, it’s still considerably less than the $2,600 under sticker that buyers were saving on average in 2019, before the pandemic wreaked havoc on new vehicle supply.

If you’ve been looking to replace your car, you may be inclined to move forward with a new vehicle purchase now that buyers finally have some wiggle room. But is buying a new car your best bet? Not necessarily.

There are pros and cons to buying new

When you buy a new car, you get the reassurance of driving away in a vehicle that’s in prime condition. Plus, it’s common for new cars to come with a three-year or 36,000-mile warranty that protects you from having to pay for major repairs during that time. And often, it’s easy enough to purchase an extended warranty that gives you similar protection for five or seven years (or the proportionate amount of mileage) at a fairly reasonable price point.

But while buying a new car might mean not having to deal with near-term costly repairs, you’re apt to just plain spend a lot more money on a new car than a used one. In December, the average new car buyer spent $49,507, according to Kelley Blue Book. Meanwhile, Edmunds says the average used car price in December was $29,533. That’s a massive difference.

Even if you’re not buying a car outright, purchasing a used one over a new one could mean coming up with a much lower down payment and enjoying more affordable auto loan payments. And seeing as how auto loan rates are up (because all borrowing rates are up, that’s a big deal).

Plus, you might spend a lot less on auto insurance for a used car than a new one due to its lower value. You might think the opposite would be true, since a new car could conceivably be in much better shape and have more safety features. But actually, safety features don’t always lead to lower car insurance rates. Often, those features are expensive to replace, so insurers won’t necessarily cut you a break just because your car is loaded with them.

Should you buy a new car today?

If you’re not desperate to replace your vehicle right away, then it could pay to keep tabs on the vehicle market and see if new car prices continue to drop. There are benefits to buying a car that no one has owned before, but if you’re not in a major rush, why not wait things out a bit longer and see if conditions become more favorable to buyers?

It’s good to see that most new car buyers are finally paying below sticker prices. But they’re not paying that much less right now, so waiting to buy isn’t an unreasonable thing to do if your circumstances allow for it.

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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 average American’s tax refund is likely to be much smaller this year. 

Tax season 2023 is now underway, and the IRS has started accepting returns for the 2022 tax year. Refunds should begin showing up in Americans’ bank accounts within the next few weeks.

Unfortunately, many Americans could be in for an unpleasant surprise when they file their returns this year, as some of the key tax breaks that caused refunds to rise in the past two years have gone away. Here’s a rundown of what has changed, and what it could mean for you.

Some valuable tax breaks went away for the 2022 tax year

In response to the COVID-19 pandemic, Congress passed several valuable tax breaks designed to help American families weather the economic disruption caused by the pandemic.

The biggest benefits were directed at families with children. The Child Tax Credit, which is normally worth up to $2,000 per year, per child under 17, was expanded to $3,000 for children under 18 or $3,600 for children under six for the 2021 tax year.

The Child and Dependent Care Credit, which helps offset childcare expenses, will also drop back to its pre-pandemic level, as will the Earned Income Tax Credit, or EITC. In fact, the maximum Child and Dependent Care Credit was $8,000 in 2021. For the 2022 tax year, it was just $2,100. Eligible taxpayers with no children could receive a $1,500 EITC in 2021, but this is dropping back to $500 for 2022 and beyond.

There was also a special tax break for charitable deductions in 2020 and 2021. Charitable contributions are typically only available for taxpayers who itemize, but a special rule allowed up to $300 in deductible contributions ($600 for married couples) even if they took the standard deduction.

RELATED: Best Tax Software

Finally, there have been no economic impact payments, also known as stimulus checks, since 2021. While these were typically given as separate payments, many taxpayers who didn’t get them directly deposited received them as a credit on their tax refund instead.

Small business owners also received some temporary tax breaks, such as the ability to defer some of their 2020 self-employment taxes, and the ability to claim a credit for work missed due to the pandemic. But these have also gone away.

Will your tax refund be smaller in 2023?

The short answer is “it depends.” But it’s fair to say that on average, tax refunds will be significantly smaller for the 2022 tax year than they were in 2021. The average tax refund for the 2021 tax year (the return you filed in 2022) was $3,176. Now, because most tax breaks are returning to pre-pandemic levels, it’s reasonable to expect the average tax refund to gravitate back towards the $2,549 average for the 2019 tax year.

That’s the average. Some taxpayers might not be affected at all and could even end up with higher refunds in some cases — for example, if you have investment losses to report due to the poor stock market performance in 2022, while you previously had investment gains in 2021 when the market was strong. But it’s likely that many households, especially those with children, will see significantly smaller tax refunds this year, and some could even unexpectedly end up owing money.

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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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