Money Management

I’ve never considered myself a CD girl, but fear of missing out finally convinced me to open one. Read on to learn more about my reasoning. [[{“value”:”

I’ll be frank — I like to keep my finances simple, and I’ve never considered certificates of deposit (CDs) to be the right account type for me. With high-yield savings account rates elevated now, and my personal rate being a fantastic 5.15%, I just didn’t see the point in CDs.

But after hearing recently that the Federal Reserve expects the federal funds rate to be a full 2 percentage points lower by the end of next year, I began to question things.

What will I do next year if my savings rate has plummeted to the mid-3.00% range, or even lower? Will my chance to lock in the 5.00% rates of today be gone for good? Ultimately, my fear of missing out on locking in a high rate convinced me that opening a long-term CD at today’s rates — before they begin to drop — would be worth it.

What’s happening to rates?

The Federal Reserve raised rates 11 times beginning in 2022 to help fight inflation caused by the COVID-19 pandemic. As a result, rates on deposit accounts are some of the highest we’ve seen in more than two decades.

But the rate of inflation has decreased in recent months, so the Fed plans to begin lowering the federal funds rate as a result — with the first cut expected next month at the Fed’s September meeting.

When the federal funds rate begins to drop, rates on deposit accounts are likely to follow. While the federal funds rate will drop gradually over time (rather than all at once), it could be a good idea to lock in as high a rate as possible today, before that first decrease happens.

Taking that advice, I decided to lock in the highest rate I could find on a 5-year CD to guarantee myself today’s APYs until August 2029. The rate I scored was a very respectable 4.30% (you’ll find it on our 5-year CD list linked above). But what will that mean for my savings over that five-year period?

A couple scenarios

To better show what led to my decision to open a 5-year CD, let’s take a look at a couple possible scenarios.

In the first scenario, I have $15,000 in a high-yield savings account earning 5.15% in year one, but dropping gradually each year thereafter — a reasonable illustration of how rates could fall over the next five years.

As you can see, as my savings account APY gradually drops, so does my interest earned each year. At the end of five years, my savings account balance will be $17,765.97 and I will have earned a total of $2,765.97 in interest on my initial $15,000 deposit.

In the second scenario, I have that same $15,000 in a 5-year CD with a locked-in 4.30% APY for the duration of the term.

The trend in this scenario is the opposite. My APY stays the same, but my interest earned each year increases due to compounding interest. At the end of my 5-year CD term, I’ve earned $3,514.53 in interest for a grand total of $18,514.53. That’s about $750 more than I stand to earn in the first scenario.

Things to keep in mind about CDs

For me, running these numbers made the 5-year CD the slam-dunk option. But there are a few things to keep in mind if you’re considering going the same route.

You won’t have access to your funds: Money you put in a CD needs to be left alone for the entirety of the CD’s term. Put money you may need in the next five years in a high-yield savings or money market account instead where it will be accessible.Early withdrawal penalties apply: If it turns out you absolutely must withdraw your money before the CD term ends, you’ll be subject to early withdrawal penalties. These vary by bank and CD term, but at the very least you’ll lose a portion of your interest earned, which could nullify the whole reason for opening a CD to begin with.Rates are not guaranteed: OK, so your CD rate is guaranteed. Whatever rate you lock in now will stick until your CD term is over. But what I mean is that the federal funds rate (and corresponding deposit account rates) is only a projection of what could happen in the future. If the economy tanks or unemployment skyrockets before five years is up, we could very well see the federal funds rate start to inch back up instead of moving downward.

There’s no surefire way to tell what rates will look like five years from now, or even by the end of next year. But we can make educated predictions.

It was based on those predictions that I took a gamble and made my own CD decision to cushion my savings from falling rates. Don’t find yourself regretting your own savings decisions in the coming years; consider a long-term CD today.

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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 no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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Housing affordability is the worst it’s been since the 1980s. Find out why falling rates could help, as long as property prices don’t increase even more. [[{“value”:”

If you’ve been trying to get a foot on the property ladder, you don’t need me to tell you we’re in a housing affordability crisis. The triple whammy of high property prices, limited inventory, and high mortgage rates have made life extremely difficult for new buyers in recent years.

The good news is that the coming months might bring some respite — at least in terms of rates. This time last year, the 30-year fixed-rate mortgage had hit nearly 8%. Now, according to Freddie Mac, it is hovering around the 6.5% mark. And most analysts believe it will fall further.

The Fed is almost certainly going to cut the federal funds rate at its next meeting on Sept. 17 and 18. It may also continue to cut it further in November and December. The Fed does not set mortgage rates, but it does influence them. As such, would-be buyers are hopeful for a drop in mortgage rates. The big question is whether that will make homeownership more affordable.

Why is it so hard to afford to buy?

Housing affordability is multi-faceted. Mortgage rates are part of the picture, but their impact is exacerbated by record-high house prices. According to Redfin, the median price of a home hit an all-time high of $397,482 in July. JPMorgan says it hasn’t been this hard to afford a property since the 1980s.

There aren’t enough homes for sale. On top of this, there’s a knock-on impact from the flurry in housing market activity during the pandemic. Many would-be sellers are trapped because moving would mean they’d lose the low mortgage rates they locked in a few years ago.

Inflation hasn’t helped the situation, either. It is the reason the Fed has kept rates so high for so long. It also impacts construction costs. And higher living costs also impact buyers, as they have less available cash. That’s another reason for optimism — inflation seems to be coming under control.

Will falling rates fix the housing affordability crisis?

Falling rates will certainly reduce one of the pressures on home buyers. Let’s say you took out a 30-year mortgage on a $400,000 property with $100,000 down. The difference between last year’s mortgage of 8% and today’s of 6.5% is already considerable:

Your monthly principal and interest payment on the 8% loan would be $2,201. And you’d pay $492,466 in interest over the life of the loan.Your monthly principal and interest payment on the 6.5% loan would be $1,896. And you’d pay $382,633 in interest over the life of the loan.

The difficulty is that mortgage rates are only one part of the puzzle. Falling mortgage rates could translate into increased demand, which would mean even higher property prices.

Without bamboozling you with numbers, Goldman Sachs predicts that house prices will rise by 3.7% in 2025. And Fannie Mae says mortgage rates will go down to 6.3% by the third quarter of next year. That would mean the cost of that $400,000 property would rise to $415,000. In that scenario, your overall costs would be slightly higher than today’s example above.

Your monthly principal and interest payment on the 6.3% loan would be $1,950. And you’d pay $386,915 in interest over the life of the loan.

Don’t try to time the housing market

Putting the hypothetical scenarios to one side, we don’t know how much rates might go down. Nor do we know what impact rate changes could have on house prices and inventories. With so many unknowns, it isn’t possible to pick the best time to buy. Especially if you’re buying the property with a plan of living there for the foreseeable future.

Focus on the mortgage rate factors you control. These include your credit score, the size of your down payment, and loan amount. Shop around to get mortgage pre-approvals from several top mortgage lenders.

If you find a property within your price range on a mortgage that you can afford, it often makes sense to jump in and start building equity. You can always refinance if rates drop.

If you can’t find an affordable property, don’t give up. Use the time to improve your credit score, pay down debt, and build your down payment. That way when the right home appears on the market, you’ll be ready to make your move.

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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 no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Goldman Sachs Group. The Motley Fool has a disclosure policy.

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Don’t let September’s stock market losing streak scare you. Here’s how to gear up for what may or may not be a turbulent month. [[{“value”:”

Some people dislike the month of September because they associate it with the end of summer (especially parents who don’t relish the back-to-school routine). Others love it because it’s a precursor to fall and all its pumpkin-filled glory.

But regardless of your personal feelings, one thing you should know about September is that it’s often a tough month for investors. That’s because it’s historically been associated with stock market declines.

The Stock Trader’s Almanac reports that on average, September is the month when the stock market’s three major indexes — the S&P 500, Dow Jones, and Nasdaq — usually perform the poorest. And that doesn’t bode so well for the coming month.

But one thing you should know is that September is not guaranteed to be a bad month for stocks. And given that there was a major sell-off in August, investors could be in for smoother September this time around. But it’s important to prepare for a September downturn — just in case.

How to gear up for stock values to drop

Regardless of the time of year, it’s important to be ready for a decline in stock values at any time. And one of the best ways to do so is to make sure you have enough money in your savings account to cover three to six months of essential bills.

What does the state of your savings account have to do with your brokerage account? It’s simple.

You can’t lose money during a stock market decline if you leave your portfolio alone. You only lose money when you sell off stocks or other assets at a price that’s less than what you bought them for.

If you have enough money in emergency savings to cover unplanned expenses, then you shouldn’t have to liquidate investments in your stock portfolio for cash. And in that case, you should be able to sit back and ride out periods of market volatility without having to risk taking losses.

Another important way to prepare for a stock market decline is to make sure your portfolio is diversified. This won’t automatically spare you from seeing an on-screen loss when you log into your brokerage account, because if there’s a broad market drop, it could impact pretty much every stock you own. But having a diverse investment mix protects you from major declines in a single industry or from a specific company.

What does this September have in store?

Without a crystal ball, it’s impossible to know how stocks will fare next month. On top of September being a historically volatile month, this is also an election year. And that alone tends to lead to stock market upheaval.

But no matter what happens this September, just know that it’s common for stock values to fluctuate at different times — for better and for worse. If we end up in a “for worse” situation, your best bet is to sit back and do nothing. Leaving your portfolio alone is a great way to ride out market declines without taking losses.

That said, if stock values drop steeply, there may be buying opportunities. So a final good thing to do right now is keep some extra cash in your brokerage account if you have it to spare. That way, if an opportunity arises to buy stocks on sale, you’ll be able to jump on 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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A CD ladder can be a great way to combine reliable income and financial flexibility. Here’s how much interest you can expect. [[{“value”:”

A CD ladder can be an excellent way to combine financial flexibility with risk-free, steady income. A CD ladder consists of dividing your money into several CDs of staggered maturity terms. The idea is that every year, some of your money will mature and can be either used or reinvested, while the bulk of your money takes advantage of stable interest income.

With CD interest rates still at their highest levels since before the 2008 financial crisis, it’s possible to set up a CD ladder that produces a relatively high income stream. Here’s a look at how much you can make with $10,000 in a CD ladder, and a couple of things to keep in mind before you start opening accounts.

An example of a $10,000 CD ladder

The exact amount of money you can make from a CD ladder depends on the CDs you choose, as well as the prevailing interest rates at the time.

Depending on when you’re reading this, CD rates could be significantly higher or lower than they are as of this writing (Aug. 9).

Having said that, here’s an example of a CD ladder using some of the best readily available CD rates from our top online banks, and what it could mean for your income:

In this example, our CD ladder would produce a total of $440 in interest income over the course of one year.

A couple of things to keep in mind

First and foremost, if you’re starting a CD ladder with any amount except exactly $10,000, simply multiply or divide the figures in the chart accordingly. As an example, if you want to create a $50,000 CD ladder, multiply the income by five to get a good idea of what you could make.

Second, keep in mind that this is just the CD ladder’s first-year income, and it can get difficult to accurately project what you could make beyond one year. There are two main reasons for this:

Your 1-year CD will mature, and you’ll roll it into a new 5-year CD. There’s no way to know what the prevailing 5-year CD rates will be at that point.With all your other CDs, you can either collect the interest income they earn to cover your expenses, or you can leave it in the account to compound. There’s no right or wrong way to do it, but the option you choose will have an impact on your income in year two and beyond.

The bottom line

A CD ladder can be an excellent way to take advantage of the income visibility of long-term CDs, while still maintaining financial flexibility and a high level of current income.

Your income from a CD ladder depends on how much money you have, the bank(s) at which you open CDs, and the interest rate environment both now and in the future. But it can be a great way to set up a recurring income stream without locking all of your money up for several years.

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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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Trying to decide whether to join Costco or Sam’s Club to save on gas? The gas at these retailers differ. Find out why Costco may be a better gas station. [[{“value”:”

Many shoppers invest in annual warehouse club memberships to save money on everyday purchases like food and drinks, clothing, cleaning supplies, and toiletries. But there are additional ways Costco and Sam’s Club members can use their membership benefits to save money.

Both warehouse clubs also offer discounted gasoline to members. Whether you drive a sedan or an SUV, getting a discount every time you fill up your tank can be a win for your checking account.

Are you trying to decide whether to join Costco or Sam’s Club? If you plan to use the gas discount perks, you may want to consider the differences between each warehouse club’s gas stations. Let’s explore why Costco gas stations are better than Sam’s Club’s.

Costco sells high-quality gasoline

The quality of gasoline sold at gas stations can differ significantly. The American Automobile Association (AAA) recommends that drivers use gasoline that meets TOP TIER™ standards. TOP TIER™-certified gasoline meets the fuel performance standards set by engine manufacturers.

You can research which retailers sell gas that meets TOP TIER™ standards online. If you’re particular about the quality of the gasoline you put in your gas tank, consider joining Costco instead of Sam’s Club. Costco is a TOP TIER™-approved retailer.

According to the TOP TIER™ website, Costco sells TOP TIER™ gasoline at its clubs in the United States and Puerto Rico, Canada, Mexico, and Japan. Unfortunately, Sam’s Club isn’t included on the TOP TIER™-approved gasoline list.

Costco has more locations

Costco and Sam’s Club continue to expand their presence across the United States. The number of clubs that each brand has in the United States and Puerto Rico is close — but Costco takes a slight lead with more club locations.

Sam’s Club notes on its website that the retailer has almost 600 clubs in the United States and Puerto Rico. Meanwhile, a May 2024 news report from Costco notes that the retailer has 605 club locations within the United States and Puerto Rico.

While not every Costco or Sam’s Club has gas stations, many do. Since Costco has more clubs, you may find there are more opportunities to fill up your tank with gasoline. Regardless of which warehouse club you join, it’s a good idea to check to see if your closest club sells gas.

Compare membership perks and gas prices

You may be unsure which warehouse club to join if you have Costco and Sam’s Club locations near your home. Consider whether the quality of the gasoline you put in your tank matters to you. If not, there are other things to consider.

You can research gas prices in your local area to help decide which warehouse club is ideal for you. Both retailers list gas prices for each location on their websites, so you can check to see which brand offers the biggest savings.

You can also compare membership perks and prices on each retailer’s website. You’ll spend $50 or $110 to be a Sam’s Club member. Costco membership prices cost $60 or $120 annually.

However, starting in September, Costco membership costs will increase from $5 to $10 to $65 and $130 per year.

Members-only deals found at warehouse clubs can help you get all the essentials you need, including gasoline, without racking up an expensive credit card bill.

Plus, you can use one of the best credit cards for Costco to earn rewards when you swipe your card. This can be a great way to maximize your savings.

Top credit cards to use at Costco (and everywhere else!)

If you’re shopping with a debit card, you could be missing out on hundreds or even thousands of dollars each year. These versatile credit cards offer huge rewards everywhere, including Costco, and are rated the best cards of 2024 by our experts because they offer hefty sign-up bonuses and outstanding cash rewards. Plus, you’ll save on credit card interest because all of these recommendations include a competitive 0% interest period.

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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.Natasha Gabrielle 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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