Money Management

Investors have an unprecedented opportunity to buy short-term CDs at yields that are higher than long-term CDs. Find out why this helps you. [[{“value”:”

There are some long-standing rules of thumb for investing in certificates of deposit (CDs). One of those rules was in effect between 1989 and May of 2023. However, in May of last year, the “rule” was broken and the norms haven’t been restored since.

So, what is this rule of thumb that no longer applies despite the fact it has been the standard for decades? Here’s what you need to know.

CDs are breaking the term premium rule

The basic rule of investing in CDs is that you typically need to buy a certificate of deposit with a longer term to get the best rates. Between 1989 and 2023, 6-month CDs always offered a lower yield than 5-year CDs did.

This makes good sense. After all, if you agree to lock up your money for five years — and take the chance of losing out on a better yield if rates go up during that time — you should be rewarded for your long-term commitment.

The higher yields offered by the longer-term CDs were compensation for losing your liquidity. That compensation was called the “term premium.”

However, in May of 2023, things changed. Shorter-term CDs now offer higher rates than longer ones do.

If you look at the best 6-month CD rates, you’ll see numerous offerings with rates topping 5.00%.By comparison, 5-year CD rates are still competitive, but they’re typically in the range of 4.00% or below.

These are for high-yield CDs, but overall averages across the CD industry all show the same thing: Right now, you’ll do better investing for a shorter time than a longer one.

Why are short-term CDs offering better rates now?

When short-term CDs offer better rates than long-term CDs, it’s called an “inverted yield curve.” Normally, an inverted yield curve is a harbinger of bad news, as it can suggest a recession may be on the horizon.

Right now, that may not be the case, as we’re currently facing an unprecedented situation where inflation surged due to pandemic relief measures but the economy as a whole is generally doing pretty well.

Regardless of the broader implications of the inverted yield curve, the basic fact is CD rates are very high because the Federal Reserve repeatedly raised the federal funds rate in response to an unprecedented rise in prices that occurred post-COVID-19. The Fed has signaled it’s going to be lowering rates as soon as it can, though, and there could be one rate cut in 2024 followed by several more in 2025.

Since banks know that rates are probably going to go down soon, they don’t want to offer long-term CDs at today’s very high rates. Short-term CDs are available at these rates, though, as rates above 5.00% are the prevailing rate, so banks have to offer that to get people to buy their CDs.

This means you have a great opportunity to buy a CD with a very short time commitment, so you’re taking very little interest rate risk, and earn a great return. You do need to be OK with not touching your cash for the duration of the CD term, but you won’t have long to wait if the CD you’re buying matures in a few months.

If you have spare money that you don’t want to put into the stock market but that you don’t need right away, the opportunity that CDs present right now may simply be too great to pass up.

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Want 5% out of a CD? You’d better move quickly. Read on to see why. [[{“value”:”

I can totally see why 5% certificates of deposit (CDs) appeal to so many people. I mean, you’re getting that 5% risk-free, provided you bank somewhere that’s FDIC-insured and limit your deposits at that institution to $250,000 or less.

And sure, you could do better with a stock portfolio. Over the past 50 years, the stock market’s average annual return has been 10%. But with stock investments, you’re taking on risk. You could put $10,000 into the market only to see your balance fall to $8,000 a month later.

If you open a $10,000 CD, your balance can’t fall below $10,000 unless you remove funds and incur an early withdrawal penalty. So it’s easy to see why you might choose a CD over stocks, especially in the context of saving for a shorter-term goal.

But while today’s CD rates may be super appealing, they also may not stick around as long as you’d expect. In fact, there’s a chance CD rates will start to fall as early as August. So if you want that 5% CD, now’s the time to act.

Why it pays to open your next CD in July

Why is it so urgent that you open a CD before the end of the month, as opposed to right after it? Well, there’s a reason.

The Federal Reserve is scheduled to hold its next policy meeting on July 30 and 31. During that meeting, the Fed may decide to do something it’s talked about since the start of the year — cut interest rates.

The reason CDs — and savings accounts, for that matter — are paying such high rates right now is that the Fed raised the federal funds rate numerous times in 2022 and 2023 to cool inflation.

Since the Fed has been reasonably happy with the progress it’s made in slowing the pace of rising living costs, it hasn’t raised interest rates in 2024. In fact, the central bank has repeatedly said that it’s looking to cut rates before the end of the year.

Now, we don’t know exactly when the Fed will move forward with its first rate cut. But once that happens, we can expect CD rates to drop. The same holds true for savings accounts.

Of course, with a savings account, there’s no such thing as locking in a guaranteed interest rate. But with a CD, that’s a big benefit. So if you want to score a 5% return on a CD, you should open one before the Fed’s next meeting, just in case late July is when the central bank decides that it’s ready for its first rate cut of several.

Don’t worry if you can’t open a CD before the end of the month

If you’re sitting on cash you’ve been earmarking for a CD, then it pays to open one before the Fed’s next meeting. But if you don’t have the money to open a CD quite yet, don’t despair.

Just as the Fed’s interest rate hikes were gradual in 2022 and 2023, its rate cuts are also likely to follow that pattern. This means that while CD rates might start to come down once the Fed begins cutting rates, they’re unlikely to drop to a drastic degree.

To put it another way, let’s say you won’t be in a position to open your next CD until the end of the year. Even if you can’t get 5% at that point because the Fed already cut rates once or twice, you may be able to lock in a 4.5% interest rate. That’s still pretty darn good.

The point, rather, is that if you have the money today to put into a CD, and you’ve decided that a CD is the best place to park your cash, then you shouldn’t delay. Waiting beyond the end of July could mean having to settle for less — even if the difference is fairly minor.

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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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Worried about surviving a catastrophic event? Costco’s got you covered. Read on to learn more. [[{“value”:”

If you’re worried about the zombie apocalypse or some other civilization-destroying event, you’re probably not alone. Climate change, political unrest, and a whole host of similar factors have many people worried about a major catastrophic event that could make the famous game show Survivor everyone’s unwanted reality.

Now, the good news is that we’re probably not on the cusp of a zombie invasion. The bad news is that we can’t predict with any amount of certainty what the future has in store. So it’s always smart to be prepared for a far-reaching disaster.

Don’t worry, Costco’s got you covered.

A bundle of emergency meals

Costco is selling an emergency food bucket that’s loaded with a variety of freeze-dried and dehydrated meals. All it takes is a bit of water to turn these pouches into dinner, and your kit comes with 150 servings of food in total.

Between now and July 28, the cost to buy this mega-supply online is $79.99. And you may find a cheaper price at your local warehouse club store, since Costco tends to mark up the cost of its online inventory to account for shipping and handling. However, that $79.99 price represents a limited-time $20 discount, so you’ll normally take a $99.99 hit to your credit card.

Should you buy Costco’s emergency food kit?

It’s always a good idea to be prepared for the worst — even if the worst isn’t a national or global crisis but more of a short-term event like a week-long power outage or a multi-day blizzard. Ideally, your emergency kit should contain essentials that include:

A week’s worth of non-perishable foodA week’s worth of bottled water in case your local supply is contaminated (this should include enough water to both drink and use for hand-washing)Extra medicationsCopies of essential documents, like your health insurance cardFlashlights, batteries, and a radio (remember radios?)A supply of gas stored safely in a canister in case you have a portable generator you might need to run

Whether Costco’s emergency food kit should fit into the above is up to you, though.

Frankly, at the discounted price, it may be a cheap way to set yourself up with a decent food supply so that even if you only need to bust into a few meals at a time, it gets the job done. Also, Costco’s emergency meals have a shelf life of up to 25 years. So you’re not risking food waste the same way you are when you take a chance on a new Costco bulk salad blend.

You don’t necessarily need to work yourself into a panic about a major disaster. But it’s wise to be prepared for weather events and more. Costco’s meal kit might save you money compared to buying the equivalent amount of non-perishable groceries elsewhere. It’s worth considering this purchase for that reason alone, especially while it’s on sale.

Top credit card 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.JPMorgan Chase is an advertising partner of The Ascent, a Motley Fool company. Maurie Backman has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Costco Wholesale and JPMorgan Chase. The Motley Fool has a disclosure policy.

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An Executive membership at Costco gives you cash back on your purchases. But read on to see why an upgraded membership may not be as great as you thought. [[{“value”:”

Upgrading from a basic membership at Costco to an Executive membership is a move that’s paid off big time for me through the years. With the Executive membership, you get 2% cash back on your Costco purchases. For a frequent Costco shopper like me, that’s a deal that’s worth paying more for.

But while I like having an Executive membership, the program isn’t perfect. Here are a few not-so-great things about Costco’s Executive membership.

1. The price is going up

You may not have heard, but after more than seven years, Costco is gearing up to raise the cost of its memberships. Beginning Sept. 1, 2024, the annual fee for a basic membership will be $65 instead of $60, and the Executive membership will be $130 instead of $120. This means you’ll need to spend more money at Costco during the year to recoup the cost of your upgrade.

Right now, it takes $3,000 in annual Costco spending to make back the $60 it costs to upgrade from a basic membership to an Executive one. Once the new price point kicks in, it’ll take $3,250 in annual spending to make back the $65 difference. If you’ve been barely earning enough cash back to cover your upgrade fee for an Executive membership at the current price point, you might really struggle once the cost goes up.

2. You may be tempted to overspend

When I first got an Executive membership, I was worried I wouldn’t spend enough at Costco to make back the upgrade cost. And I’d make a point to add to my shopping list to ensure that my upgrade fee wasn’t going to waste.

Thankfully, I quickly realized that this strategy wasn’t serving me well financially. It didn’t make sense to purposely buy extra things and rack up a larger credit card bill just to make sure I wasn’t throwing my money away on the higher-cost membership.

But if you decide to upgrade, it may take you a while to reach that same conclusion. And in the meantime, you may end up spending money you shouldn’t on purchases that don’t really add value to your life.

3. You can’t get early Costco access like you could in the past

When I first upgraded to an Executive membership, one of the perks that motivated me to do so was getting to shop at Costco earlier. It’s not that I was so eager to get in the door at 9:30 in the morning instead of 10:00. It’s that early access meant fewer people and shorter lines for those of us like me who could get in and out quickly before Costco opened to its full membership base.

Sadly, Costco did away with that benefit years ago. And I have to tell you, I really miss it. My one gripe about shopping at Costco is that even when I go at seemingly off-peak times, I still inevitably find myself in the company of more people than I’d like.

Getting an Executive membership for Costco might still make plenty of sense for you, despite these drawbacks. But it’s important to know about them so you can make the right decision.

Top credit card 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.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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I used to always fly economy, but now I make sure to book a better seat. Check out my reasons for switching and how to afford an upgrade. [[{“value”:”

When I was younger, I always flew economy. Like a lot of travelers, I was on a tight budget, and I didn’t want to spend more than necessary on airfare. The only exception was when there was a cheap, last-minute upgrade to first class available.

Nowadays, my travel style has done a 180. I pretty much never fly economy, and I book a business- or first-class seat whenever I can. If you’re wondering whether booking more expensive airfare is worth it, here are my reasons for doing so, and how you can save money on an upgrade.

1. I have enough travel rewards for a better seat

I started using travel rewards cards years ago, and they’ve made the biggest impact on how I travel. I pay for all my bills and everyday expenses with my travel cards so I can earn points on them. When I need to book a flight, I transfer my points to an airline, and then use those points to pay for my airfare.

This has made it much more affordable to book a better seat. Business class and first class can cost $750 to $1,000 or more for domestic flights, and potentially several times that for international flights. But these seats are also frequently available for 40,000 to 75,000 miles, plus taxes and fees.

It took me some time to learn how to maximize travel rewards, as well as how to use them to book the trips I want. If you don’t mind a bit of a learning curve, this is a great way to book expensive airfare nearly for free.

2. Travel is one of my spending priorities

It’s almost always more expensive to fly in business class and first class. If you’re paying with travel points, it costs more points than economy would. The same is true when paying in cash.

I’m fine with that. Travel is important to me, and it’s one of the places where I’m happy to spend more money for a better experience. I’ve also prioritized it by setting aside money in a savings account specifically for travel. Since I have a travel fund, I don’t feel the need to book the cheapest airfare.

If you’d like to have more to spend on airfare, or on travel in general, creating a travel fund is a good idea. You could set up a savings account, or a sub-savings account, specifically for travel. Then, transfer some money to it every month.

3. I don’t want to be uncomfortable when I travel

I enjoy the first-class experience. Some people don’t care about all the bells and whistles, but I like the better service, the free drinks, and how it feels a little more luxurious.

But the difference in comfort is the main reason I don’t fly economy anymore. There’s no debating that economy seats are less comfortable than premium economy, business class, and first class. They have much less space, and since I’m tall, an economy seat feels cramped. Having barely any room to move isn’t how I want to spend an hour, much less five or more.

I like having plenty of room to stretch out, and I love flying in a lie-flat seat. If you’re not comfortable in economy, then it’s worth looking for ways to book a bigger seat.

How to get a better seat for less

I realize that lots of travelers would fly in business class or first class if they could afford it. Here are a few ways to get these seats at a lower cost:

Pay with travel rewards instead of cash. As I mentioned earlier, getting credit cards that earn travel rewards was a game-changer for me. With many of these cards, the sign-up bonus alone is enough to cover a first-class seat.See if you can upgrade an economy seat. This isn’t always an option, but when it is, it’s usually much more affordable than buying a first-class ticket outright would’ve been. Start checking your reservation about a week before your flight, and keep an eye on your email to see if any upgrades are available.Shop around using low-fare calendars. You can often find much lower flight prices just by adjusting your travel dates by a day or two.

There’s nothing wrong with flying economy. It’s affordable, and it gets you to your destination just as fast as a first-class ticket. But it can be nice to book a better seat with more legroom, at least on occasion.

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

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It’s nice to earn extra interest on your cash in a savings account. But read on to see why putting some of your money elsewhere could be a much smarter move. [[{“value”:”

A lot of people I know are pretty happy about the interest they’re earning from their savings accounts today. Many high-yield savings accounts are paying APYs upward of 4.00%. And some are even paying as much as 5.00%. That’s pretty outstanding considering that with a savings account, your deposits are protected (provided your bank is FDIC insured and your balance isn’t above $250,000) and you get the flexibility to add money or withdraw it at any time.

But while you might think a savings account is the best place for your money today, there’s a different option that may be even better. So you may want to move some money out of your savings account and explore that alternative.

A CD could be a better bet

Even though you can earn a nice amount of interest in a savings account right now, you should know that savings account rates aren’t set in stone. The 4.25% APY you’re enjoying today could tumble to 4.05%, and then 3.85%, and so forth, as interest rates decline in general. And that’s precisely what’s expected to happen over the next year.

The reason savings account rates are so high is that the Federal Reserve raised its benchmark interest rate numerous times in 2022 and 2023 to cool inflation. At this point, inflation has calmed down enough that the Fed seems ready to start lowering its benchmark interest rate. And we could see that happen well before the end of 2024.

Once that occurs, we can expect savings accounts — and CDs, for that matter — to start paying less. And that’s why now’s a good time to take some money out of your savings account and transfer it over to a CD.

The nice thing about CD rates is that they’re set in stone. If you sign a 12-month CD at 5.00%, you’re guaranteed to earn 5% interest on your money for the year that follows. With a savings account, you could end up earning less interest than expected, depending on market conditions.

Be strategic when opening CDs

One advantage savings accounts have over CDs is that you can take out your money at any time without having to worry about a penalty. With CDs, you’re usually dinged for an early withdrawal. For example, you could be looking at losing three months of interest for cashing out a 12-month CD before it matures, depending on your bank.

Of course, that puts you in a potential bind if you open a CD but end up needing your money unexpectedly a few months down the line. A good way to avoid that issue, though, is to set up a CD ladder.

All this means is that instead of opening one CD, you split your money up into various CDs with staggered maturity dates. To put it another way, rather than open a 12-month CD with $3,000, you may instead want to open four CDs worth $750 each with the following terms: three months, six months, nine months, and 12 months.

This way, you have $750 freeing up every three months. Using this tactic won’t completely eliminate the risk of an early withdrawal penalty, but it should help minimize it.

Although savings accounts are looking pretty appealing these days, keeping all of your money in one isn’t necessarily the best move. You should definitely keep enough cash in a regular savings account to cover three to six months’ worth of essential bills (your emergency fund). But beyond that, it pays to look at CDs so you’re able to lock in a guaranteed amount of interest before rates start to fall.

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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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