Money Management

CD rates are through the roof. Read on to find out how you can do better elsewhere. [[{“value”:”

If you’re looking for a safe place to put some additional cash, certificates of deposit (CDs) are a great option. Many of them are paying annual percentage yields (APYs) above 5.00% right now, which is an easy way for your cash to outpace the negative effects of inflation.

But even with sky-high CD rates available, there are good reasons to put your hard-earned money elsewhere. Here are three fantastic reasons to sit out CDs right now.

1. You want easy access to money for large purchases

I recently went on a trip and pulled some money out of my savings account to help cover the cost of the beach vacation, a baseball game, and way too much pizza. Moving money from one account to another is a normal part of life, but it can get tricky if you’re using a CD.

If you leave your money in a CD for the entire term, you won’t be charged, but take some of your money out early, and you’ll pay. Many CDs charge a penalty fee of 90 days of simple interest for CD terms of two years or less and 180 days of interest for CDs with longer terms.

While some CDs don’t charge an early withdrawal fee, they often pay a lower APY in exchange. This means that if you want easy access to your money for home or car repairs, a home down payment, or a fun time at the beach, a savings account is a better option than a CD.

2. Stock market returns can be much better

If you want to earn a significant return on your money, a CD isn’t the best place for it. Sure, 5% is a pretty good return, but it doesn’t hold up to the stock market’s historical returns.

The S&P 500 has a historical rate of return of 10.2%, more than double some of the highest CD rates. There’s no guarantee you’ll earn that much, and you could earn less, but if you have a long investment timeline, there’s no better place to put your money than the stock market.

For example, the S&P 500 has gained about 29.5% over the past two years. If you had invested $5,000 over that period, you’d now have about $6,476. Meanwhile, the same amount in a 2-year CD paying 5.00% would give you just $5,512.

3. Paying off debt is a better use of the money

I recently paid off some credit card debt, and I’m glad I did. My credit card company was charging me a staggering 19.5% annual percentage rate (APR). That’s bad enough, but it’s lower than the average APR of 24.8% right now.

Since credit card APRs are astronomically high, it’s a smart move to put extra money toward debt payoff, rather than into a CD.

The average American has about $7,951 in credit card debt right now. Let’s assume you owe about half that — $4,000 — in credit card debt with an APR of 24.8%. If you pay $400 per month, it will take you one year to pay off the balance, and it’ll cost you $508 in interest.

In contrast, if you put $4,000 into a 1-year CD earning 5.00%, you’ll earn just $200. And you’ll still have the credit card balance to pay off. Womp womp.

Savings accounts are a better bet for most people

Can CDs be a good place to put your money? Absolutely. If you have extra cash that you don’t need for emergencies and are just looking for a safe place to keep some money to outpace inflation, CDs are great.

But many people would probably benefit more from using that cash to pay off debt or invest in the stock market. And considering that many high-yield savings accounts currently have APYs of 5.00% or higher, that’s probably a better place to store your money.

You’ll have easy access to your funds, still earn a significant return, and won’t have to pay any fees for withdrawing your cash.

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Can you really retire on less than $200 a month in savings? It depends on how you invest your money and how many years you save for. [[{“value”:”

One of the trickiest aspects of saving for retirement — aside from finding the money, of course — is figuring out how much to save. And part of the reason it’s hard to determine how much to save is that you may not know what your future expenses will look like. So your best bet in that regard may be to just push yourself to save as much as possible.

Recent data from Equitable finds that workers today are saving $175 a month for retirement. And at first, that might read like a pretty small sum. But actually, you may be able to retire very comfortably on that amount of savings — under the right circumstances.

Where can $175 a month in savings get you?

If you start saving $175 a month for retirement in your 50s, you may not manage to build up a very large nest egg. Similarly, if you start saving $175 a month at a younger age but you invest your savings very conservatively (meaning, you largely stay away from stocks), then you may end up with an income shortfall later in life.

However, you shouldn’t assume that you won’t manage to enjoy a nice retirement by saving $175 a month. If you do so over many years and are able to generate strong returns in your IRA or 401(k), then you might retire with plenty of money to accomplish your retirement goals.

In fact, let’s say you’re able to generate a 10% average annual return in your retirement account, which is in line with the stock market’s average return over the past 50 years. Let’s also assume you want to retire at age 65. Here’s the amount of money you might end up with by saving $175 a month, depending on the age you start saving at.

Northwestern Mutual reports that the average baby boomer today has $120,300 in retirement savings. Even the lowest number in the table above well exceeds that total.

Consistency is key

So you can retire with a nice amount of money, even if you’re never able to contribute more than $175 a month to your long-term savings. But if you’re going to limit your IRA or 401(k) contributions to $175 a month, then it’s important to commit to saving and investing that money consistently.

You should also recognize that in time, you may be able to ramp up your retirement plan contributions as your income increases. If you’re earning $50,000 a year right now, by saving $175 a month, you’re allocating 4.2% of your income to retirement. If your salary rises to $55,000 and you stick to that percentage, you’ll be kicking in about $192 a month instead.

But even so, you’re not doomed to a cash-strapped retirement if you stick to a $175 monthly contribution for good. That sum could go a long way if you invest heavily in stocks and contribute to your nest egg for the majority of your career.

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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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Is your credit score higher or lower than the average American’s? Read on to find out. [[{“value”:”

Your credit score is a number you may not think about until it’s time to apply for a loan or credit card. But the higher that number is, the easier it becomes to borrow — and the more affordable your loan options are apt to be.

The average consumer credit score rose in 2023 compared to 2022. And if you’re curious to know how your score compares to the average, we’ve got you covered.

The average consumer has good credit — but not great credit

Experian reports that the average consumer credit score was 715 in 2023. That’s a one-point increase from 2022.

It’s actually encouraging to see that credit scores rose between 2022 and 2023 given that living and borrowing costs also increased. But it’s also worth noting that according to Experian, a credit score of 715 is considered “good.” By comparison, it takes a score of 781 to 850 to be considered “excellent.”

Why should you care? Well, if your credit score is currently close to the average consumer’s but you’re able to raise it to a 795, you might save serious money on the next loan you sign. A lender may be willing to offer you a lower interest rate because it feels you’re not such a risky borrower. So it could pay off to bring your credit score up.

How to boost your credit score effectively

If you already have a credit score in the “excellent” range, you may want to focus on maintaining it more so than raising it. Chances are, once your score reaches the high 700s, it won’t matter so much if it climbs a bit higher. With a 790, for example, you’re very likely to get approved the next time you ask to borrow money, and you’re also likely to snag a favorable interest rate on whatever type of loan you sign.

But if your credit score is only in “good” territory, or, worse yet, if it’s not even considered “good” (which Experian says is the case if your score is a 660 or below), then it definitely pays to try to bring it up. And you can do that by:

Paying all bills on time. If necessary, set calendar reminders so you don’t pay late due to forgetfulness.Keeping your credit utilization low. Ideally, aim to keep your credit card balance to 30% of your total spending limit or less. You can do this by paying more than your card’s minimum monthly payments when your bills arrive.Checking your credit report for errors. You’re entitled to a free copy every week, though checking every few months is perfectly reasonable. Go to annualcreditreport.com to access your credit report from Experian or one of the other two credit bureaus — Equifax and TransUnion.Getting added as an authorized user on an established credit card account. If you’re fairly young and don’t have much of a credit history, this could help your score even if you don’t actually use the card in question.

There’s absolutely nothing wrong with a credit score of 715. But it could benefit you to aim higher.

Remember, though, that boosting a credit score can take time. Don’t get discouraged if you don’t see that number climb quickly. Just keep making the moves above, and in time, you may end up very happy with the level your credit score reaches.

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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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I’m a firm believer in having life insurance. But read on to see why I won’t consider a whole life policy. [[{“value”:”

Buying life insurance wasn’t really a task that was on my radar until I had my kids. Sure, my husband and I shared a mortgage and other expenses. But the way I saw it, he was capable of fending for himself, so why buy a policy to protect him only? (Sorry, honey.)

But when kids came into the mix, my husband and I both got serious about applying for life insurance. And we’ve had a policy in place for many years now — a term life policy, that is.

When we were shopping around for life insurance, the advisor we worked with had walked us through our options and explained the difference between term life policies and whole life policies. But I knew going into it that whole life insurance wasn’t for me.

When life insurance costs a fortune

I’ll cut right to the chase. The reason I’d never buy whole life insurance is due to the exorbitant cost.

Policygenius says that a 30-year-old non-smoking male can expect to pay $26 per month, or $312 per year, for a 20-year term life insurance policy with a $500,000 benefit. Want to know what the same whole life policy might cost? Try $451 a month, or $5,412 per year.

Now I’ll admit that I don’t remember what I was quoted for whole life insurance back when I applied as opposed to the term life policy I wound up with. I just remember it being a lot more.

To be fair, whole life insurance has a couple of benefits that term life insurance doesn’t. With a whole life policy, the person insured is covered forever. With term life insurance, as the name implies, coverage only lasts for a limited period of time.

Also, whole life insurance accumulates a cash value. This gives those with that type of insurance the option to eventually take the money and run, or borrow against a policy. Term life insurance doesn’t accrue a cash value. Someone with a 30-year term policy who doesn’t pass away during that time gets no money, nor do their beneficiaries (though that person gets the benefit of living, which isn’t too shabby).

But while I can recognize the upside of whole life insurance, no part of me can justify the cost. And though some people say that whole life insurance can serve as a backup form of savings, I’d rather use other tactics to build savings myself.

The appeal just isn’t there

The idea of getting some sort of payday from a life insurance policy no matter what is a nice prospect. And whole life insurance allows for that. But the way I see it, rather than be locked into expensive premiums for whole life insurance, I can instead take the money I’m not spending and invest it in stocks or other assets.

Let’s say I’m saving $400 a month by sticking with term life insurance (in reality, I’m probably saving more, but let’s use that number anyway). If I were to invest $400 a month in a stock portfolio over 30 years, all the while generating an average annual 10% return, which is a bit below the stock market’s average, I’d end up with about $790,000.

So in that case, why should I pay a life insurance company more money when I can take savings matters into my own hands? And who knows? If I’m good at picking stocks, I might do even better than a 10% return in my portfolio.

Plus, this way, if I run into a period where I can’t swing the extra $400 a month to invest, it’s no big deal. With a whole life policy, not making payments for several months could mean losing coverage. It’s a risk I don’t want to take.

I’m not going to say that whole life insurance is a disastrous idea for everyone. And those who aren’t sure about it should talk to a financial advisor and see what they say. But I know that whole life insurance isn’t the right option for me.

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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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Have retirement savings in multiple places? Read on to see which account to access first. [[{“value”:”

The average American today has $88,400 in retirement savings, according to Northwestern Mutual. Ideally, you’ll be starting off your retirement with more savings than that. But you may have your retirement savings spread among more than one account.

The nice thing about retirement plans like IRAs and 401(k)s is that they let you save in a tax-advantaged manner. But they also come with annual contribution limits. This year, if you’re under age 50, those limits are $7,000 and $23,000, respectively. So it’s conceivable that you might have some retirement savings in a regular brokerage account if there were a few years when you wanted to contribute more than what your IRA or 401(k) allowed for.

But now that you’re retired, which of those accounts should you withdraw from first? Here are a couple of strategies you can use to maximize your savings.

Let your tax-advantaged accounts keep growing

Generally speaking, it’s best to leave an IRA or 401(k) alone for as long as possible during retirement and first turn to a brokerage account for income. This especially applies to a Roth IRA or Roth 401(k), because investment gains in these accounts are completely tax-free.

Of course, in time, you’ll be forced to start withdrawing from your IRA or 401(k) if you don’t have a Roth account. The age when that happens is 73 or 75, depending on when you were born (older retirees had to start taking required minimum distributions at an even younger age). But until then, it pays to turn to your taxable brokerage account and leave your IRA or 401(k) alone.

You can tap your Roth account first if money is very tight

While the above advice is optimal for many retirees, you may be an exception if you’re only looking to withdraw a small amount and need every dollar of it. And if you have a Roth IRA, you may want to turn to it before another account — even a brokerage account that isn’t tax-advantaged.

The reason? Roth IRA withdrawals are tax-free. With a brokerage account, you don’t pay taxes on withdrawals per se, but you pay capital gains taxes.

It’s possible to take a tax-free withdrawal from a brokerage account in the sense that if you bought a stock 20 years ago for $1,000 and it’s still only worth $1,000, there’s no gain to tax you on. Otherwise, you have to pay capital gains taxes when you liquidate investments in a brokerage account that are worth more than what you paid for them initially (unless your income is low enough to exempt you from those taxes).

Similarly, traditional IRA or 401(k) withdrawals are subject to taxes. The amount of tax you’ll pay will depend on your tax bracket.

If you don’t have a lot of savings and can therefore only take a very small withdrawal from a retirement account as a new retiree, then you may want to use your Roth for the simple reason that it’s the only option that gives you all of your money without having to worry about the IRS getting a cut.

For example, if you’re in the 22% tax bracket, a $5,000 traditional IRA or 401(k) withdrawal will cost you $1,100 in taxes. If you withdraw $5,000 from a brokerage account and half of that is long-term capital gains, you’re generally looking at paying 15% on that $2,500, or $375. But if you take a $5,000 withdrawal from a Roth IRA or Roth 401(k), you lose $0 of that to taxes.

It’s important to be strategic when managing your retirement savings if you have money in multiple places. If you’re not sure what to do, you may want to speak to a financial advisor who can give you some guidance based on your personal situation.

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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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Net worth is an important measure of a person’s wealth. Take a look at how the wealth of the top 10% stacks up to the average American’s. [[{“value”:”

People often use annual income as a way to compare people’s relative wealth, but there’s a problem with this. Someone earning $100,000 might seem significantly wealthier than someone earning $50,000 per year. But if the person earning $50,000 saves diligently and puts $10,000 away for their future each year, they’re in a better financial position than a $100,000 earner who lives beyond their means and is hundreds of thousands in debt.

That’s why many consider net worth a more accurate measure of a person’s wealth. Below, we’ll talk about what that is and how your net worth stacks up to the wealthiest Americans’.

What is net worth?

Net worth is a measure of a person’s wealth that looks at the value of the assets they hold and the total balance of any liabilities. Assets include cash in your name, like your savings account funds, as well as possessions you could theoretically turn into cash. For example, your house, your car, and your investments also count as assets. Liabilities could include your mortgage, credit card debt, or unpaid medical bills.

To calculate net worth, subtract the total value of your liabilities from the total value of your assets. For example, if you had $200,000 in assets and $50,000 in liabilities, your net worth would be $150,000.

What’s the typical net worth of the wealthiest Americans?

Unsurprisingly, those with higher incomes tend to have higher net worths. The following table breaks down median net worth by percentile of usual income according to 2022 data from the Federal Reserve.

The seven-figure net worth among the top 10% of Americans might not be all that surprising. But what is surprising is the difference between the wealthiest and least wealthy Americans. The top 10% has a net worth that’s more than 182 times the net worth of those in the lowest quintile by earnings.

How can you boost your net worth?

There are ways that people of all backgrounds can boost their net worth and improve their financial quality of life. These tactics fall into two categories: increasing the value of your assets and reducing your liabilities.

Increasing the value of your assets

Some ways you can increase the value of your assets include:

Boosting your savings, perhaps by negotiating a raise or starting a side hustle and saving the extra cashInvesting your savings either in a taxable brokerage account or a retirement accountInvesting in your career development so you can boost your future earnings

Reducing your liabilities

Reducing your liabilities is all about paying down debt. Obviously, you’ll need extra cash to do this. But there are other budgeting tools that could be helpful, including:

Balance transfer credit card: These cards have 0% introductory APRs for a certain number of months, so they’re a good choice for those trying to pay down credit card debt.Personal loans: You can use personal loans to pay off credit cards or other high-interest loans, like payday loans, so you have predictable monthly payments going forward.Mortgage refinancing: If your mortgage has a high interest rate, then refinancing when rates drop could help you pay off your debt more quickly.

Most of us probably won’t achieve a net worth that puts us in the top 10% of Americans even if we take the above steps. But that’s OK. Even if you only manage to boost your net worth a little, you’ll likely enjoy a better standard of living going forward.

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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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