Money Management

Both options offer investors decent returns. Learn how to choose the right one for your needs. [[{“value”:”

There are many excellent options for investors right now, including high-yield certificates of deposit (CDs) and mutual funds.

CD rates are unusually high right now, with many paying an annual percentage yield (APY) of 5.00% or higher. Meanwhile, mutual funds give you access to a large portfolio of different investments, like stocks and bonds, with the potential to grow your money over the long term.

But which is the better investment choice right now? It depends on your financial goals. Here are some benefits of mutual funds and CDs, and when each is the right choice.

The case for CDs

One of the main benefits of a CD is that you’ll earn a (mostly) guaranteed return. If you put $5,000 in a 2-year CD that pays 5.00%, you can basically bet on the fact that you’ll earn $512.50 in interest over the CD term.

Another benefit is that you won’t lose any money as long as you don’t withdraw funds early. Few investment options guarantee your rate of return and ensure that you’ll get the full amount you initially deposited (plus interest).

The only caveat is if you take some of your money out early. Most banks will charge you three months of simple interest on the amount you withdraw for CD terms of two years or less. For CDs with longer terms, the fee usually increases to six months of simple interest.

Generally speaking, CDs are a great option if you want a safe place to put your money and let it earn interest to outpace inflation.

The case for mutual funds

One of the best reasons to buy a mutual fund is that they’re simple. You don’t have to know anything about investing to own a mutual fund. You can choose a fund that tracks the S&P 500 or a target date fund that automatically adjusts your investments based on when you expect to retire.

Another benefit of mutual funds is that they can help you diversify your investments. Mutual funds may have a large mix of stocks and bonds in different sectors and companies, giving you a well-balanced portfolio.

Finally, mutual funds offer great earning potential. For example, if you bought a mutual fund that tracks the S&P 500, your investment would have earned about 30% over the past two years.

The downside to this is, of course, you can lose money, too. If you put $5,000 into a mutual fund and its value drops 8% over a year, your investment is now worth $4,800. It’s also worth mentioning that mutual funds usually charge an expense ratio to cover administrative costs and to pay managers. These can range from 0.12% for passively managed funds to 1.5% for some actively managed funds.

Verdict: Pick mutual funds for growth, CDs for preservation

Knowing where to put your money right now depends on your financial goals. CDs can be a good option if you’re retired or near retirement and want to preserve your money.

With many CD rates above 5%, putting some of your money into a CD will help your cash outpace the negative effects of inflation without putting you at financial risk of losing the money.

But if retirement is a long way off, you’re probably better off putting your money in a mutual fund. Buying a low-cost index fund in your brokerage account is a great option. The S&P 500 has a historical rate of return of 10.2%, giving you a lot of potential to earn significant returns in the coming years.

Of course, it’s not a guaranteed return, but if you have many years left before you retire, you’ll have plenty of time to ride out the market’s ups and downs and likely come out ahead in the end.

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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 easiest thing to pack could be the most valuable. See what your cards can do for you this summer. [[{“value”:”

There are a lot of good reasons to use a credit card to book your summer travel. For one thing, credit cards offer more protections than using a debit card, including against fraud. You also have more options if you have a problem with a booking or purchase.

Beyond security, good travel credit cards can actually make your travel easier, cheaper, and more enjoyable. Here’s how.

1. Rewards make anything possible

Some cards I have for perks, some for benefits — but many I have just for the travel rewards. Because those rewards help me travel for free. Indeed, they even help me travel in business or first class and stay in 4- and 5-star hotels.

The best way to earn lots of rewards in a relatively short period of time is through welcome bonuses. These are bonuses you can earn as a new cardholder by hitting a set spending requirement. The requirements vary by card.

For example, you might earn 100,000 points by spending $5,000 in the first three months of opening your account. Depending on the rewards, that could be enough to pay for a big chunk of your vacation in one go.

2. Perks give you status and upgrades

Your card’s ability to make your vacation better doesn’t stop at booking — at least, not when you have a perk-heavy travel card with lots of benefits. Here are just a few of my current favorite travel benefits:

Hotel elite status: Higher status with hotel brands can mean everything from room upgrades to breakfast credits.Airport lounge access: Spending time in airport lounges is so much better than the gate that I’ve paid cash for the privilege when my cards didn’t get me in.Priority boarding: Being one of the first people on the plane makes it easier to secure overhead bin space for my bag and avoid gate checking it.

Some of the very best travel cards also pack in lots of credits to help you save money. For example, a lot of hotel cards offer free night certificates. You may also get airline fee credits, credits to use towards a Global Entry or TSA PreCheck membership, property credits, or even general travel credits that can be used toward any kind of travel.

3. Travel protections offer peace of mind

Rewards and perks are flashy and full of easy appeal. But don’t underestimate the potential value of good travel protections.

Top travel cards offer various travel insurances and coverages that can be worth a lot of money should something go wrong on your trip. For example, if your flight is delayed overnight, your card’s coverage could help reimburse you for related expenses, like a surprise hotel stay.

Or, worse, what if you need to cancel a trip, either last minute or while already traveling, due to a medical emergency? Trip interruption and cancellation protection could help cover the cost of any nonrefundable travel expenses paid for with your card.

Start your summer off right

There is still plenty of time before summer vacation to pick up some new travel rewards cards and collect a few good welcome bonuses. Earning just one or two bonuses can be enough to cover the cost of a fun trip — if they’re the right bonuses.

Decide where you’d like to travel. Then, do a little research into which airlines or hotels you’d like to use. This will give you an idea of which rewards you need to collect. For example, if you know you’re going to stay in a Hyatt property, you need to collect Hyatt rewards points.

Once you know which rewards you need, just pick the cards with the most useful welcome bonuses. Cobranded cards will earn airline miles or hotel points directly. Flexible travel rewards cards earn points that can be turned into miles or hotel rewards through partner transfers. Both types can play a role in getting you on your dream vacation.

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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.Brittney Myers has no position in any of the stocks mentioned. The Motley Fool recommends Hyatt Hotels. The Motley Fool has a disclosure policy.

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Many retirees live on a fixed income. Read on to see how Costco can help you make the most of yours. [[{“value”:”

The average baby boomer today has $120,300 in retirement savings, reports Northwestern Mutual. If your savings look similar, then you may be heavily reliant on Social Security to make ends meet. But seeing as how the average monthly benefit among retirees was just $1,907 at the start of 2024, you may be struggling to cover your living costs if your savings aren’t particularly robust.

That’s why it could pay to consider a Costco membership if you’re largely living on Social Security. Here are a few ways Costco could work wonders for your budget.

1. Savings on medication

Costco’s pharmacy could save you a nice amount of money, depending on the prescriptions you take. In fact, the Member Prescription Program could result in up to 80% savings on popular medications.

Now, you should know that this program is not available to you if you’re enrolled in Medicare. But Medicare eligibility doesn’t begin until age 65, and some seniors retire on Social Security before reaching that age. And while going without health insurance is a risky move, if that’s the boat you’re in, you can potentially lower your medication costs substantially by taking advantage of Costco’s Member Prescription Program.

2. Savings on supplements

Many seniors take supplements regularly to promote joint health or good health in general. Costco offers a world of savings on vitamins and supplements. For example, Kirkland Signature Glucosamine & Chondroitin costs just $0.10 per tablet when ordered online for a 280-count bottle. And in-store prices are usually cheaper. On Amazon, you’ll pay $0.17 per pill.

3. Discounted gas

Once you’re retired, you may not drive as frequently as you did while you were working. But you still need to get places. And Costco can help you get around town for less thanks to its low-cost gas. If you decide to join, it pays to time your Costco shopping trips to when your tank is getting low.

4. Affordable eyeglasses

Costco’s optical center offers a range of affordable eyeglasses at competitive prices. You can also get a low-cost eye exam at Costco. That’s important, because if you’re a retiree who gets health coverage through Medicare, eye exams and glasses are not a covered service. So if you’re forced to pay out of pocket, you might as well pay less.

5. Affordable hearing aids

Hearing aids are another thing that Medicare won’t pay for, even though many older Americans need them. Costco’s hearing aid centers allow you to get your ears tested, and from there, you can work with a specialist to find an affordable hearing aid that’s best for you. When you buy hearing aids through Costco, you’re also eligible for free remote follow-up services, such as if your hearing aids need to be adjusted (believe it or not, this can often be done remotely).

6. Competitively priced vacation packages

Once you’re retired, you may have more time on your hands to travel. If your income consists mostly of Social Security, it may not be enough for you to jetset around the world multiple times a year. But you may be able to swing a nicer vacation once every couple of years. And in that regard, it pays to use Costco’s travel service, which gives you access to hundreds of affordable cruises and vacation packages. Use the right travel rewards credit card to book and you could also enjoy points or miles for your next trip.

7. Bulk grocery discounts

At this point in your life, you may be an empty-nester with just yourself or yourself and a spouse or partner to feed. But still, you need to eat. And it could pay to buy certain grocery staple items at Costco for the bulk savings.

If you eat a lot of produce, for example, and you also tend to cook with it often, then it could make sense to buy greens and other vegetables at Costco. Similarly, you may find that your favorite cereals, grains, and cooking oils are more affordable at Costco on a per-ounce basis than at your regular grocery store.

It’s worth considering a Costco membership

Many seniors worry about money. If you’re on a fixed income, it could pay to consider joining Costco for the savings involved.

Unfortunately, Costco does not offer senior discounts on memberships. But a basic membership at Costco costs just $60 a year, while an Executive membership that gives you 2% cash back on your purchases costs $120. So even though you’ll spend some money to get access to Costco, you might more than recoup that outlay via the savings you reap all year round.

And if you find that your Costco membership isn’t paying off, you can cancel for a full refund after the fact. So there’s really no risk to giving Costco a try.

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.

Click here to read our expert recommendations for free!

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.John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Maurie Backman has positions in Amazon. The Motley Fool has positions in and recommends Amazon and Costco Wholesale. The Motley Fool has a disclosure policy.

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HELOC balances grew in 2023. Read on to see why that’s a problem. [[{“value”:”

Owning a home can be an expensive prospect. You have to pay a mortgage, cover the cost of a property tax bill, and deal with issues like maintenance and repairs.

But one of the benefits of owning a home is that it can potentially serve as a cash source for you. If you have enough equity in your home, you may be able to borrow against it via a home equity loan line of credit, or HELOC.

However, taking on too much HELOC debt can backfire on you. Recent data shows that HELOC balances grew in 2023 compared to a year prior, which isn’t a very encouraging sign.

Are homeowners putting their properties at risk?

When you sign a HELOC, you get access to a line of credit you can tap for a predetermined period. The more money you take out of your home via your HELOC, the more money you have to pay back to a lender.

The problem, though, is that borrowing rates have been elevated across the board in recent years following the Federal Reserve’s series of interest rate hikes. And since HELOCs don’t offer the benefit of a fixed interest rate, signing one means opening yourself up to ongoing payments that have the potential to climb.

Meanwhile, Experian reports that the average HELOC balance in 2023 was $42,139. That’s an increase of 2.7% from a year prior. But it also means that a growing number of homeowners may be putting themselves at risk of losing their homes.

The higher a given HELOC balance climbs, the harder it can become to keep up with it. But failing to repay a HELOC could put you at risk of losing your home.

To be clear, you’re not going to land in foreclosure after a single missed HELOC payment. But in time, enough missed payments could lead to that unwanted result. So it’s important to be careful when signing a HELOC. You may want to avoid tapping your home equity and pursue a different means of borrowing if you have a pressing need for money.

A personal loan could be a smarter move

When you sign a personal loan, you’re committing to repay a sum of money the same way you are with a HELOC. But there are a few key differences.

First, personal loans are fixed-rate loans, so you don’t have to worry about your monthly payments increasing over time. Secondly, personal loans are unsecured, so they’re not tied to a specific asset you own. And while there can certainly be negative consequences associated with falling behind on a personal loan, like credit score damage that prevents you from borrowing again in the near term, you’re not putting your home at risk the same way you are with a HELOC.

Of course, right now, personal loan rates, like all borrowing rates, are elevated. It’s a good idea to wait to sign a loan if you’re able to sit tight. The Federal Reserve is expected to start cutting interest rates at some point in 2024. Once that happens, the cost of borrowing could decline to some degree.

But regardless of when you choose to borrow, think carefully before committing to a HELOC. And consider whether a personal loan is a more suitable choice.

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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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Shrinkflation is a popular strategy for small businesses to manage inflation without raising prices. See why small business owners are using shrinkflation. [[{“value”:”

The past few years of supply chain problems and rising prices have been hard on consumers — but they’ve also created huge challenges for small businesses. No matter what industry you’re in, your small business has likely had to balance higher costs of raw materials, inputs, inventory, and supplies with the need to stay price competitive. Not every business can pass cost increases on to customers. Sometimes businesses need to try a different strategy.

According to a new survey from Clarify Capital, some small businesses are turning to “shrinkflation” — where they charge the same prices, but sell a smaller size, volume, or quantity of product. The Clarify Capital study found that 12% of small businesses have tried “shrinkflation” as a cost control and pricing strategy — and another 20% are planning to.

Shrinkflation can be a valid way to stay cost competitive for your customers — but it poses some big risks, too. But with small business cost structures still high and price-sensitive customers getting more reluctant to reach for their credit cards, some business owners might feel that shrinkflation is their best option.

Let’s look at the biggest reasons why small businesses are trying “shrinkflation” in 2024.

1. Profitability (64%)

The Clarify Capital survey found that, among businesses that have tried “shrinkflation,” 64% of these small business owners said their reason for using this tactic was “to remain profitable.”

Shrinkflation can help improve profitability because it involves charging the same price per unit sold (and receiving the same revenue) while reducing cost per unit sold. Instead of raising prices on your products, shrinkflation keeps sticker prices the same (or only slightly higher), while boosting your profit margins.

2. Production and supply chain costs (44%)

Almost half (44%) of business owners using “shrinkflation” told Clarify Capital that they are doing it “to offset rising production and supply chain costs.” The past few years of supply chain disruptions, plus parts and workforce shortages, have been particularly challenging for small businesses. If your business lacks scale and leverage to negotiate a better deal from suppliers, it’s easy to get overlooked — and fall behind on your production goals.

3. Improve business operations (32%)

Nearly a third (32%) of business owners that are employing “shrinkflation” as a strategy said that they’re doing it to “keep their business operational.” If staying profitable for one more week or month can be the difference between staying in business and going out of business, then shrinkflation might be your best bet to keep more money in your business checking account.

4. Price competition (24%)

Some consumers seem to think that high inflation just means “bigger profits for corporations.” But this is not always true for small businesses. Many small businesses struggle to raise prices; they might fear that their customers are more price sensitive than expected, or less loyal to the brand. Business owners often feel pressure from both rising costs of production and financially-stretched customers who can’t stomach another price hike.

For these reasons, 24% of small business owners using this tactic said that “market competition/pricing pressure” was one reason why.

5. Less availability of materials (24%)

Supply chain problems are hard for small businesses to overcome, because they put a big kink in the global economy’s logistics systems. Depending on what your business makes and sells, you might be relying upon global supply chains to source raw materials, supply parts, and ship these materials to your business facilities. Whatever your small business needs, chances are those materials, supplies, and inputs have gotten harder (and more expensive) to obtain.

And there are massive, complex problems happening all over the global economy right now. The past few months have seen ominous headlines about everything from Houthi rebels cutting off shipping in the Red Sea, to skyrocketing prices of cocoa (bad news for candy companies), to climate change making it harder (and more expensive) to grow crops and commodities like coffee.

With all of these disruptions, costs, and complexities happening, it’s no wonder that 24% of businesses implementing shrinkflation said they were doing it because of “decreased product/material availability.”

Bottom line

Small businesses are under pressure to stay profitable without raising prices, and they often lack the scale, leverage, and pricing power that big corporations have to charge more. If your business is considering trying “shrinkflation” as a way to hold the line on your customers’ sticker prices, you’re not alone — 32% of small businesses told Clarify Capital that they either have implemented shrinkflation, or are planning to do it.

But think carefully about how to implement shrinkflation in a thoughtful, transparent way so you can maintain trust with your customers. The Clarify Capital survey also found that 68% of consumers would consider switching brands in response to shrinkflation. Don’t get so aggressive with shrinkflation that you end up driving customers away.

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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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High CD yields could mean a higher tax bill. Find out whether the potential tax savings makes a Roth IRA the right place for holding CDs. [[{“value”:”

High interest rates are good news for CD investors. The best certificates of deposit (CDs) APYs are above 5% right now, which is a pretty sweet deal if you can afford to lock up your money for the full term. The return is essentially guaranteed since it’s not subject to stock market fluctuations, and both your deposits and returns are protected by FDIC insurance.

Given the appeal of CDs right now, you may be wondering: Should I put some of my Roth IRA money in CDs? Here’s why you may want to think twice before doing so.

Why you probably shouldn’t put CDs in your Roth IRA

A Roth IRA is a type of individual retirement account. You can invest the money you deposit in the account in almost anything you choose, including stocks, bonds, mutual funds, exchange-traded funds, and CDs.

It’s a powerful retirement savings vehicle because it offers important tax advantages. You don’t get an upfront tax break for contributions, but if you follow certain rules, all your withdrawals will be tax-free in retirement.

In other words, say you use your Roth IRA money to buy the next Apple or Amazon when it’s selling at $10 a share. If the stock price balloons to $1,000 a share, you won’t owe a penny of taxes when you sell the stock and withdraw your money as long as you’re 59 1/2 and you’ve held the account for at least five years.

The enormous potential tax savings makes a Roth IRA best for investments with high potential growth, and CDs don’t exactly fit the bill. Interest on a CD is taxable as ordinary income, but the potential tax savings from using Roth IRA money for CDs typically isn’t worth it.

Consider that the best 5-year CD rates are currently around 4%. (Shorter-term CDs are currently yielding slightly more, with top CD rates at 5.15%, but that’s because financial institutions don’t want to commit to a higher rate in the long term in case interest rates drop.)

By comparison, the S&P 500 index has average annual returns of about 10%. So if you invested in a low-cost S&P 500 index fund, you’d expect your money to grow by over 60% over five years — and all of that growth can be yours tax-free if you held those funds in a Roth IRA.

It pays to be selective about what investments you choose for your Roth IRA because the account has annual contribution limits. In 2024, you can only contribute $7,000 if you’re 49 or younger, or $8,000 if you’re 50 or older.

Should you invest in CDs right now?

You may want to consider investing in CDs right now while interest rates are high. Here are some situations where putting money in a CD makes sense:

You’re getting close to retirement: If you’re planning to retire in the next couple of years, you typically want to shift some money from higher-growth assets like stocks into fixed-income investments, such as bonds and CDs, so that you have some insulation from stock market volatility. In that case, you may want to put some retirement money in CDs, but check in with a financial advisor to discuss the pros and cons.You can afford to lock up your money for a while. When you put money in a CD, you’ll pay a penalty if you cash out before it matures. That makes CDs a decent choice when you want to earn a guaranteed rate on your savings, but you generally want to avoid putting your emergency fund in CDs.

While CDs aren’t right for everyone, most people can benefit from a Roth IRA. If you’re not taking advantage of the potential tax savings, consider opening one. Many of the best Roth IRA brokers have low fees and minimal upfront deposit requirements, making it easy for you to start investing today.

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Click here to read our full review for free and apply in just 2 minutes.

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.John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Robin Hartill has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Amazon and Apple. The Motley Fool has a disclosure policy.

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