Money Management

Savings account rates are already dropping with more Fed cuts expected. But here’s why it’s worth leaving your money alone anyway. [[{“value”:”

The Federal Reserve recently slashed the federal funds rate for the first time in four years, which means borrowing money should become more affordable. The downside to this move is that savings account and CD interest rates will decline too.

Some see this as a sign that they should open a CD now before rates fall even further. That’s one option to consider. But before you make your decision, you have to weigh the CD’s guaranteed interest rates against the savings account’s biggest perk.

It’s hard to put a price on access to your cash

CDs lock in your interest rate for the whole CD term, but the tradeoff for this is that you lose access to your cash during this time. Technically, you can withdraw it early if you need to. But you’ll pay an early withdrawal penalty. This is usually equal to several months of interest payments. It makes CDs less than ideal for emergency savings and cash you may need at some point during the CD term.

Savings accounts, on the other hand, generally let you withdraw your cash whenever you need to. Some banks impose a limit on the number of free monthly withdrawals, and this used to be required by federal law. The government waived that during the pandemic. Since then, some banks have done away with this or raised it above the previous limit of six monthly withdrawals.

Because of this freedom, savings accounts don’t lock in your interest rate. You’ll start earning less interest as soon as the bank drops its rates. But the difference might not be as significant as you think. If you have $1,000 in savings and rates drop from 4.50% to 4.00%, you’re only getting $5 less per month.

How to decide which account is right for you

The right type of account for you right now depends on what you plan to use that money for. You should always keep emergency funds in a savings account because you never know when you’ll need them. It’s usually wise to keep money you plan to spend in the next few years in a savings account, as well.

If you go this route, choose a high-yield savings account from an online bank. This won’t prevent you from experiencing rate cuts, but it’ll ensure you continue to earn a rate that’s above the national average.

A CD is still an option if you don’t need your cash in the next couple of years. But it’s probably not your best bet for long-term savings. Consider investing these funds so you can earn a higher rate of return.

A retirement account is a good choice for savings you don’t plan to use for decades. It comes with valuable tax breaks that could save you money today or in retirement. However, if you expect to use your cash before age 59 1/2, consider keeping it in a taxable brokerage account instead. Unlike retirement accounts, these accounts don’t charge you a 10% early withdrawal penalty if you’re under this age. But they also don’t offer the same tax breaks.

It’s fine to spread your money between a few accounts, too. Just make sure you give some thought to the purpose of each chunk of money so you can best decide where to put it.

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The 2023 Consumer Expenditure Survey is out — and boy has it got some things to tell us about how we’re spending our money. Read on to learn more. [[{“value”:”

Over the last four years, most of us have experienced such staggering growth in expenses that it’s hard to stay within a reasonable budget most of the time. In fact, I was just looking over my own expenses the other day and wondering just how I got to be such a reckless spender, when I used to be a very careful financial planner.

As it turns out, it’s not just me — or you. The most recent release of the Consumer Expenditure Survey from the U.S. Bureau of Labor Statistics is out, and boy, it’s not pretty. Although the income for households in 2023 was up to $101,805, a $7,800 gain, expenses are up, too. American households spent $77,280 last year, up $4,300 from 2022.

The average household size for this year was 2.5 people, with 1.3 wage earners and 0.6 children per household. All that considered, let’s take a look at what households are spending on, so we can compare how we’re doing.

1. Food

Americans are still eating out, but they’re also eating in. Food overall cost about $10,000 for the average household, $6,000 of which was for food at home — including purchases like home-cooked meals, snacks, and non-alcoholic beverages. Another $4,000 was spent eating out. Americans also spent $637 on alcoholic beverages in 2023.

Each of these figures is up from 2022, which should surprise no one who has been to a grocery store, a restaurant, or even logged onto social media recently.

Pro tip: Cash back apps like Ibotta can help you save more money on groceries, especially when paired with digital coupons from your favorite grocery store. Double win!

2. Housing

Housing is another huge expenditure for Americans, and that didn’t change this year. It’s up again, from $24,300 in 2022 to $25,400 in 2023. That’s nothing compared to the gain in food costs, though, so at least that’s something we can all kind of be happy about.

Homeowners paid about $8,700 on average for their property, renters shelled out about $5,370. Everybody combined spent about $4,600 on average for utilities, including telephone service, and about $2,500 for household furnishings.

Pro tip: Whether you own your home or rent, you can spend a few dollars on winterization to help reduce your utility costs year-round. As a homeowner, you may also qualify for tax deductions or credits for high-efficiency upgrades.

3. Clothing

We spent about $2,000 last year on clothing for our households, which comes down to about $800 per person. Not surprisingly, women’s clothing cost the most at $655 and footwear clocked in at $444.

This might seem like a lot, but consider it’s about $167 monthly per household for clothes and shoes — if your work-from-home wardrobe consists of more than worn out sweats, that’s really easy to spend. Don’t get me started on what it costs to actually go into the office every day.

4. Transportation

It costs a pretty penny to own a car in America, especially in 2023. The average cost per household for transportation was $13,000, most of which was taken up by car purchases ($5,500), gasoline ($2,694), and auto insurance ($1,775).

If you’re a public transportation devotee, the picture is a lot sunnier. You only spent $1,096 last year on transportation, but that’s way up over 2022’s $845 and more than double 2021’s $452.

Pro tip: You can keep your auto insurance prices in check by regularly shopping your insurance policy or adjusting your coverages to better suit your current financial picture.

5. Healthcare

Healthcare is another big expense for Americans, though it didn’t rise significantly in 2023. Healthcare overall was $6,159, up from $5,850 the year prior. Health insurance was the biggest cost at $4,000, with medical services a distant second at $1,252. We also spent about $600 on drugs and $267 on medical supplies.

Pro tip: Check out prescription drug coupons from places like GoodRX to help cut your healthcare spending. Many pharmacies also keep a low-cost drug list for common meds, which can be different between pharmacies.

6. Entertainment

Now that life is kind of back to normal, spending on admission fees for events is going up, too. Of the $3,600 spent on entertainment in 2023, almost $1,000 was on fees and admissions, up from $654 in 2021.

We also spent $876 on our pets and $975 on audio/visual equipment and services.

Pro tip: Pet insurance can help you save huge on your pets medical bills, especially if your plan has wellness coverage.

7. Retirement

We were thinking a lot about retirement and life insurance last year, with a whopping $9,556 spent on personal insurance and pensions. Over $9,000 of that was just money contributed to pensions and Social Security, and $546 was spent on life and other personal insurance.

Spending is up, but inflation is cooling

The fact that spending is up may feel terrible, but it’s because inflation has been so high over the last few years, and that’s driven the cost of everything else up. The monthly inflation rate peaked at 9.1% in June 2022, but is now back down to a more reasonable 2.5% and dropping, so even if you spent a lot more than you expected last year, relief is in sight for us all.

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The singles tax is everywhere, even in housing. If you thought having a roommate was enough, think again. Find out how much you’re spending here. [[{“value”:”

Being single in modern America is a tricky line to walk. Everything costs more, even if it’s not supposed to, and it feels like you’re being taxed just for choosing to not settle down, or for having left a relationship that was wrong for you.

So when the most recent Consumer Expenditure Survey, published this week by the U.S. Bureau of Labor Statistics, showed that single people spend more on housing than married people, I was absolutely not shocked. This is true across the board, whether you’re renting or you have a mortgage.

How much more do singles pay for housing?

First of all, before we talk about what singles pay for housing, let’s talk about what people pay for housing in general. In 2023, the overall cost of housing was $25,436 per household, which includes both shelter-related expenses and utilities.

Homeowners paid about $8,699 per year, up from $8,230 in 2022 — which makes sense, seeing as how mortgage rates have been holding steadily high until recently. Renters paid $5,370 in 2023, up from $4,990 the year before. It’s a 5.7% gain for homeowners and a 7.6% gain for renters.

Overall, housing represented 32.9% of annual expenditures per household in 2023, which has been part of a downward trend since 2020, when it was at 34.9%. That’s great news. But, maybe not for everyone.

As a share of average expenditures, households of single people spent 36.3% of their yearly expenses on housing, as opposed to married couples with no children, who paid 31.2% of their expenses on housing.

The only people who have a larger percentage of their expenses dedicated to housing than single people with no children are single parents, who dedicated 37.3% of their expenditures on housing for themselves and their minor child or children.

Breaking down the math

To put that into more concrete numbers, if we assume everyone is paying $77,280 — the average annual consumer expenditures for 2023 — married couples with no children pay $24,111.36, or $2,009.28 per month, for housing and related expenses, where single people with no children pay $2,337.72 monthly for housing and related expenses (this includes single people that split expenses with roommates).

All things being equal, singles pay way more for housing and housing related expenses than their married counterparts. Here’s a chart!

Tips for reducing housing cost creep

These high housing prices for singles haven’t just happened overnight — they’ve been building to this point.

If you want to buy

The most important thing you can do to control your housing costs is to buy a home of your own. Watch out for HOAs (homeowners associations) that can assess special fees that lead to skyrocketing payments, and choose instead properties where you have control over as many expenses as possible.

It’s hard to buy a home right now, but it’s not impossible. Call your favorite mortgage lender and get pre-approved for financing. You may find that you qualify for a better house today than you did even a year ago, due to a recent decline in mortgage rates.

You may also find that if you look for homes that are in less popular areas, or that need a little sprucing up (I don’t mean a complete gut-job or tear down, but paneling in the living room won’t kill you), you’ll be able to save a lot more.

First-time home buyers often qualify for special financing assistance through state or municipal programs, so check that if you’ve not got a down payment saved up. Your housing costs are only going to grow over time if you’re renting, so the sooner you move on taking control of your finances, the better off you’ll be.

If you want to keep renting

If you’re not ready to buy yet, you can also look for rentals that are offered by individuals, rather than large corporate owners. My father, for example, owns three rental properties. He’s like many small landlords who prefer to have good tenants locked in for a long time than to get every nickel the market will give him, and this is how he’s funding his retirement.

You’ll find these folks by driving around looking for signs, or through word of mouth, so keep an ear to the ground to help reduce the price you pay to be single.

Whether you rent or you buy, thinking outside the box can help you save more on housing and mitigate the singles tax.

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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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Wondering if Fed rate cuts will make the stock market go up? See why there is reason for optimism for stock market investors. [[{“value”:”

What does the Fed’s 0.50% rate cut mean for the stock market? On the one hand, no one knows for sure. Stocks go up and down for complicated reasons. There are no guarantees that a Fed interest rate cut, or even several more rate cuts in 2024 and 2025, will make stocks go up.

But if you’re a long-term investor, your stock portfolio is likely to keep going up after Fed rate cuts. That’s because stocks usually go up in the long run — the S&P 500 index has delivered a 10.7% compound average annual growth rate for the past 30 years.

Let’s look at a few reasons why this period of Fed rate cuts could be a good time to keep putting money into your investment accounts.

The stock market (usually) goes up

Is now a good time to invest in the stock market, or are Fed rate cuts a sign that the economy is weakening? I don’t know the answer to that question — no one knows for sure. But if you look at the history of the stock market, if you’re a long-term investor, there is almost never a “bad time” to buy stocks.

Financial advisor Ben Carlson put together a chart on his blog that shows how, most of the time, the S&P 500 index goes up over a several-year time horizon. Yes, the stock market can go down on any given day, month, or year. The S&P 500 index lost about 19% of its value in 2022, for example — if you invested $1,000 in the S&P 500 at the start of 2022, those stocks were only worth $810 by the end of the year.

But the stock market came roaring back and gained about 24% by the end of 2023, and gained another 20% as of Sept. 20, 2024. That $1,000 invested in the S&P 500 index on Jan. 1, 2022 would be worth about $1,200 today. Even a bad year for stocks is still not a “bad time” to buy stocks — if you’re investing for the long term.

Stick with your financial plan

Try not to “time the market.” Some investors might be nervous right now, wondering if now is a bad time to buy stocks, and if Fed rate cuts are a sign that the economy is about to go into recession. It’s true that the job market could weaken, American consumers could put away their credit cards and stop spending, and the economy could go into a downturn that would take stock prices down with it.

But it’s also possible that the stock market could just keep going up in 2025. America’s economy could experience a higher level of growth thanks to lower interest rates.

When borrowing costs are lower, consumers might spend more money. Businesses might be more likely to invest in growth — hiring more people, buying more equipment, creating more opportunities. All of this would likely be good news for the stock market — and good news for your 401(k), IRA, or brokerage account.

Bottom line

No one knows what’s going to happen tomorrow, next month, or for the next few years with the stock market. Interest rate cuts can coincide with stock market gains, or losses. Past performance is no guarantee of future results.

But in general, if you’re investing for retirement or for other long-term goals, you should not be afraid to keep buying stocks as part of your overall financial plan. Fed rate cuts and lower interest rates could be good news for your investment accounts in the long run — and maybe even in the short run.

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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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Sometimes, you just have to say goodbye — to your bank. Here are a few ways to tell you need a new financial institution. [[{“value”:”

A typical American has $8,000 in deposit bank accounts, according to research collected by The Motley Fool Ascent. This includes checking accounts, savings accounts, and more specialized accounts like CDs. Since it holds the money you use to live your life, being happy with your bank is important.

If your bank has been making you unhappy lately, fear not. It’s pretty easy to switch banks, and doing so can give you the chance to earn a higher interest rate on your savings, enjoy better customer service, and use cool mobile apps to manage your money. Here are four signs you need to change banks.

1. You’re paying fees

You should not have to pay money to keep your cash in a bank account — period. Unfortunately, some banks charge monthly maintenance fees just to keep the account open. They might also charge you a fee for overdrafting your account (which is surely when you need to be charged more money, right?), for not making enough transactions, or for using an out-of-network ATM.

Good news! Some banks don’t charge fees like these. You can expect to pay a fee for a wire transfer or a cashier’s check — but it’s likely you don’t use those services often enough to worry too much about those fees. But why pay money for the privilege of using a particular bank account when you don’t have to? Switch banks if yours charges these fees.

2. Customer service is no help

Sometimes you need help with your bank account. Maybe a check you deposited was never credited to your checking account, or you noticed a suspicious charge you didn’t make. Either way, it’s time to talk to a human. If your bank’s customer service department is hard to reach or staffed with folks who just aren’t great at problem solving, you’re likely to end up frustrated.

It’s worth exploring your options for banks that offer excellent customer service.

How can you find out about this? Read reviews of banks you’re considering, from both professionals and people just like you. And explore those banks’ websites to see how you can reach help — it might be via online chat, phone, or even via social media.

3. Your APY lags behind

As of this writing, you can find CDs, money market, and savings accounts paying upward of 4% on your saved cash. While we have just seen our first Federal Reserve benchmark interest rate cut in years, that rate is still quite a bit higher than it has been in a long time, so some banks (especially online ones) are still offering those higher APYs on savings products.

Meanwhile, more traditional brick-and-mortar banks pay such low rates on savings products that they’re hardly worth bothering with. Here’s a breakdown of what you can expect to earn with $5,000 in a high-yield savings account vs. a traditional savings account:

Keeping your $5,000 in a bank account that pays 4.00% APY means you earned $200 for doing nothing other than leaving the cash alone. Meanwhile, will that $0.50 earned from a traditional savings account even buy you a gumball these days?

If your current bank pays a ridiculously low APY on your savings, it’s time for a change.

4. The mobile technology is lacking

If you have accounts with a small local credit union or bank, you might not be privy to the best in financial technology. This is understandable — locally based institutions tend to put more energy and focus into offering excellent customer service and doing right by their communities, rather than catering to banking customers who live elsewhere.

That said, more and more of our lives are lived on the internet, and if you’re frustrated by a prehistoric mobile app (or perhaps none at all), switching banks could give you the opportunity to join the online banking revolution. Imagine checking your balance, paying bills, and transferring money while you’re on the go. Or depositing a paper check by snapping photos of it with your smartphone. If you’re being let down by your current bank’s technology offerings, change banks to one firmly planted in the 21st century.

It can be hard to say goodbye, but if your current bank is charging you fees, offers unhelpful customer service, or pays you pennies (or fractions of them) on your savings, it’s time to find a new bank. You have a world of options out there, so do some research and find one that works better for your money and your life.

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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 interest your CDs pay you is usually subject to taxes. Read on to see how you can legally get out of paying them. [[{“value”:”

Even though the Fed just lowered its benchmark interest rate, CD rates remain fairly competitive. It’s true that 5% CDs may be gone at this point. But you can still earn a 4.50% APY, or something in that vicinity, if you shop around. With a $10,000 deposit, a 12-month CD paying 4.50% puts $450 in your pocket.

But there’s a big drawback to putting money into a CD. The interest it pays you is subject to taxes — and not just any taxes.

CD interest is taxed as ordinary income, which means it’s subject to the highest marginal tax bracket you fall into based on your earnings. So if you fall into the 24% tax bracket and earn $450 in interest from a CD, you’re looking at losing $108 of that to the IRS.

The good news, though, is that there’s a way to get out of paying taxes on your CD earnings — without breaking the law or lying to the IRS. But you’ll need to see if this strategy makes sense for you.

A perfectly legal way to get out of paying taxes on CD earnings

Opening a CD through your bank isn’t your only option for owning one. You can also see if your IRA allows you to hold CDs in your account. If so, you have options for easing your tax burden.

An IRA is an individual retirement account, and there are rules you need to follow if you decide to save in one. Not only are there contribution limits that can change every year, but you generally have to keep your money in an IRA until age 59 1/2 to avoid an early withdrawal penalty. However, the reason for these restrictions is that IRAs offer big tax benefits.

With a traditional IRA, your contributions go in tax free, and gains in your account are tax deferred. This means you don’t pay taxes until you take withdrawals. With a Roth IRA, your contributions go in on an after-tax basis, but gains in your account are tax free, and so are withdrawals.

If you decide to invest in a CD in a traditional IRA, you won’t pay taxes on your interest until you start taking withdrawals in retirement. And if you invest a Roth IRA in a CD, you won’t pay taxes on your interest income at all.

Is it wise to invest your IRA in a CD?

People generally fund IRAs to build savings for retirement. Because of this, you’ll need to think about whether a CD is an appropriate investment or not.

It’s generally best to invest your retirement savings in stocks for maximum growth. While CDs may be paying 4.50% today, the S&P 500’s average annual return over the past 50 years is 10%. That return accounts for years when the market soared and years when it tanked. But if you have a long investment window ahead of you, stocks are usually a better tool for growing retirement savings than a CD.

That said, if you’re very close to retirement, it’s generally wise to start scaling back on stocks and putting your money into safer investments. And CDs fit that bill.

That’s because with a CD, you’re not investing in an asset whose value can rise or fall over time. Your principal is generally protected as long as your CD is FDIC insured and your deposit falls within the FDIC’s $250,000 limit. With stocks, the value of your shares can change from one day to the next.

So if you’re 64 years old with plans to retire at 65, opening a 12-month CD in your IRA isn’t a poor choice — especially if you have a Roth IRA. That way, you get the benefits of a CD without the taxes. But if you’re 34 years old and retirement is a good 30 years away, then a CD probably isn’t where you want to put your money.

All told, using an IRA to hold a CD could either defer your tax obligation or get you out of it entirely. But if you don’t want to invest your IRA in a CD and you decide to just open one at your bank, plan for the taxes you’ll have to pay.

Set aside a portion of your interest payments for the IRS as you see them hit your account. That way, you won’t face any unpleasant surprises when you file your tax return.

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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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