Money Management

If you’re facing an expense you have to put on a credit card, does it make sense to break your CD term early to cover it? Find out here. [[{“value”:”

When you put your money into a certificate of deposit (CD), you agree not to pull it out until the CD matures. In exchange for the bank guaranteeing your interest rate, you must promise to pay a penalty if you cash in the CD early.

In most cases, avoiding that penalty is best, so you don’t lose your investment gains or even risk losing some of the money that you put into the CD. But there are exceptions to this rule.

If you’re in a situation where you have a pressing expense you can’t cover with cash and are faced with a choice between putting it on a credit card and cashing in your CD early, you’ll have a difficult decision to make.

Here’s how you can decide whether cashing in your CD to avoid credit card debt makes sense.

The case for cashing in your CD

Credit cards, in general, charge very high interest rates. The average rate card issues charged as of February 2024 was 21.59%.

CD penalties, on the other hand, vary depending on your situation. Federal law sets minimum penalties, but there are no maximum penalties, and the fees are sometimes pretty hefty. For example, you might end up owing 90 or 180 days of simple interest on the money you withdraw early.

While that’s a big hit, the cost of early withdrawal from a CD isn’t going to be as high as the interest on your card if you’re going to take a while to pay off what you owe. Plus, if you get yourself into credit card debt, this can leave you with less income going forward as you make the payments. You may have less to invest in the future. This can hurt your ability to accomplish long-term financial goals.

To avoid paying these high credit card interest charges and limiting your future options, it may be worth taking the one-time hit of the CD penalty to cover the pressing expense.

The case against cashing in your CDs

While there’s a solid argument to make for cashing in your CD early, there are also some reasons not to do it.

For one thing, you aren’t just losing the money you pay for the penalty; you’re also losing any future returns you would have made on the invested funds. Say you have a 5-year CD paying a really great rate and you cash it in to cover credit card debt now. You’ll lose that rate

and may not be able to buy a CD with a similar yield when you’re ready to invest again in the future. You’ll lose all the gains you would have earned on the CD over time.

You may also have other options to avoid credit card interest besides raiding your investment. For example, there are credit cards that offer a 0% promotional APR on purchases made within the first 12 months of opening them. If you can qualify for one, you may be better off opening a new card and paying off your purchase over time with no interest rather than cashing your CD in — as long as you’re confident that you can pay off the balance in the time given.

The bottom line is, there are disadvantages to cashing in a CD, so it’s not an easy call to do it just to avoid debt. You should look into all your options before you act. And you never want to cash in a CD or put something on your credit cards that you can’t pay off if it’s not an absolutely essential purchase. So unless you have a pressing expense to cover, try your best to save for a purchase first instead of making either of those two moves.

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I enjoy relying on a lot of credit cards when I’m at home, but I stick to one when I’m overseas. Learn the features of the best cards for foreign travel. [[{“value”:”

Over the last year and a half, I’ve gotten a lot better at maximizing my credit card usage to earn points and cash back. I often strategize about which card to use for which purchase. In fact, when I traveled to Hawaii earlier this year, my travel companion and I used four different cards between us to boost the rewards we earned.

You might expect me to be chomping at the bit to do the same when I travel abroad — but I just returned from a trip to Northern England, and I relied on just one card for the entire trip (including booking my flight and a two-night hotel stay before I left the U.S.). I did bring a backup credit card, just in case I encountered a mishap or lost the card I was planning to use for everything, but as it turned out, I didn’t need to use it. Here’s why relying on just one card for an international trip can work in your favor.

It saves you time

First and foremost, only using one credit card for a vacation abroad is a great time-saver. At home, I have more time to ponder which card is best for which purchase, based on the type and amount of rewards it earns (often expressed as points per dollar or a certain percentage of cash back).

But I don’t get out of my own country very often, so that time is special — I would rather pull out the same card for every purchase, hotel stay, or restaurant meal than worry I’m losing out on rewards by not using a different card in every situation.

It’s easier to track your spending

I had set a strict budget for my England trip, so I needed to keep a close eye on my spending while I was out of the country. Using the same credit card meant that I only needed to log into one mobile app to see how much I spent every day of my trip — and since the app automatically converts GBP to USD, I didn’t have to do the math myself.

It aggregates your points for future travel

Finally, I relied on just one card for this trip because I wanted to build up as many points as possible for future travel. And this card in particular is a travel superstar — its highest bonus categories are travel booked through the issuer’s portal, dining out, and other travel expenses, like public transit.

All other purchases earn a base rate of 1 point per $1, so I was earning points every time I whipped out my card to cover any expense. Best of all, now all the points I earned are sitting in my account, waiting for me to turn them into hotel stays or experience bookings through the card issuer’s portal.

Three qualities of the best travel credit cards

Have I convinced you that using just one card on an international vacation is the way to go? Here are a few features shared by the best travel credit cards — so you can pick the right one for your adventures.

1. No foreign transaction fees

OK, this one is absolutely crucial because foreign transaction fees have the potential to make your vacation a lot more expensive. A typical percentage for these fees is 3% — so if you spend $1,000 in a foreign currency, you’ll pay an extra $30. I’d rather spend $30 on a cheap pub lunch during my trip than on a silly fee.

2. A high credit limit

Unfortunately, you won’t know what credit limit you’ll be given until you apply for a card and get approved. But if you have several travel credit cards and are trying to pick the right one, I recommend going with the one with the highest limit. That way, you’re less likely to bump up against it in the course of your spending. Keep in mind that using more than 30% of your credit limit is a short trip to credit score damage.

3. Bonus categories that fit your vacation spending

This one is pretty easy because most credit cards marketed for travelers specifically pay higher rewards rates in the categories that travelers use. These include travel bookings (plane tickets, hotel stays, and so on) and dining out (who doesn’t love a fancy dinner on vacation?).

Travel credit cards can make international travel even better. Take the time to pick the right card for you and reap the benefits.

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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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CD rates are impressive. Read on to discover why they might not be the best option for your money. [[{“value”:”

Right now is a great time to invest in certificates of deposit (CDs). Many CDs pay annual percentage yields (APYs) of 5% or higher, making them a tempting place for many people to store their cash and earn some interest.

But even with these impressive CD rates, I’m skeptical that they’re a good place for my money right now. Here are three reasons I’m content to watch CDs from the sidelines.

1. I’d rather put my money in the stock market

CDs are a relatively safe investment. They’re FDIC-insured, meaning the federal government guarantees your deposit amount, just like a savings or checking account. CD interest rates are also (mostly) guaranteed. You’ll earn the advertised interest rate if you leave your money in the CD for the entire term period.

Despite these benefits of CDs, I’d rather invest my extra cash in the stock market using a brokerage account. The S&P 500’s historical average annual rate of return is just above 10%. There’s no guarantee I’ll earn that much, of course. But I still have plenty of years left before I retire, so I’m OK with weathering market volatility as I try to earn as much as possible.

For example, let’s say the S&P 500 earns a conservative rate of return of 7% over the next five years, compared to a 5% CD APY. If I invest $5,000 into the stock market, I could earn $692 more over that period compared to the CD.

2. CDs aren’t always tax-efficient

The interest you earn on CDs is taxable income for your federal filing. States that have a state income tax may also take a slice of your interest. You can put your CD into an IRA account to defer paying taxes until you take distributions, but this option may be more complicated than the average investor wants to deal with.

As such, CDs aren’t always tax-efficient for investors. I’d rather find other tax-advantaged ways to invest my money that don’t require putting a CD into an IRA. For example, Charles Schwab says that investors in high-tax states, like California and New York, may want to consider investing in Treasury bonds instead. Treasuries are exempt from state income taxes and often pay comparable rates.

Tip: If you opt to open a CD in an IRA, there are many great IRA accounts to choose from. Many of them even have low or no commissions or trading fees.

3. I want easy access to my money

CDs have specific term lengths you must agree to if you want to earn their advertised APY. For example, if a 5-year CD pays a 5% APY, you must leave your money in the CD for the entire five years to earn that interest rate.

If you withdraw money early, you’ll be penalized for the amount withdrawn. The penalty is usually 90 days of simple interest for CDs with terms of two years or less. The fee generally increases to 180 days of simple interest for CDs with terms longer than two years.

I want easy access to my money for emergencies or other unexpected expenses. For these reasons, a high-yield savings account is a better option for me because it doesn’t have the same restrictions as a CD.

CDs aren’t a bad option for your money, but you should compare them to alternative investment options before you open one. Decide ahead of time what your investment goals are, and then compare CDs, savings accounts, or stocks to decide which is the best choice for you.

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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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Picking up staples at discount grocers could save you money. But read on to see why your shopping experience may not be as positive as expected. [[{“value”:”

If you’re spending more money than ever to keep your refrigerator stocked, you’re not alone. The average American household now has to budget more than $1,000 a month for groceries, according to Census Bureau data. And families with children are spending an average of $331 a week at the supermarket. Ouch.

If you’re struggling with the cost of groceries, you may be eager to find ways to save. One option is to turn to discount grocers like Aldi. But while going this route might leave you spending a bit less on food, you might also encounter these unfortunate pitfalls.

1. The selection may be limited

If you’ve never been to a store like Aldi before, you may be surprised at how bare certain aisles are. Discount grocers don’t tend to be as well-stocked as traditional supermarkets. This means that it may require multiple trips to the grocery store each week to purchase everything on your list. Not only might that cost you in terms of time, but if you live in a more rural area, you could end up spending extra money on gas to keep your family well-fed.

2. You may not enjoy your purchases as much

The belief that discount grocers sell items that are lower in quality is a myth. It’s true that these stores tend to carry off-brands that many consumers aren’t familiar with. But a lack of fancy packaging doesn’t mean you’re compromising on quality.

That said, since you may not find your go-to brands at a discount grocer, you may not enjoy your purchases as much if the taste or consistency of certain products is a little different than what you’re used to. In the case of something like pasta, this shouldn’t be an issue — pasta is pasta, and it adopts the flavor of whatever sauce you add to it. But things like cereal or even bread could taste different if you opt for a different brand.

3. Your picky children might refuse to eat foods from brands they’re not familiar with

Families with children are really feeling the brunt of higher food costs these days. So you may be especially eager to save money on the items you buy for your kids, whether it’s boxed macaroni and cheese, granola bars, or fruit snacks.

But if your children are picky, they may not take kindly to the lesser-known brands you’ll find at discount grocers whose products might taste a bit different. And given that kids tend to be fickle about what they’ll eat in general, you may not want to run the risk of them refusing to consume a given item because it’s taste is slightly different. If anything, that could result in thrown-out food — and wasted money instead of saved money.

At a time when groceries cost so much, it pays to do what you can to trim your costs. None of this is to say that shopping at discount grocers is a poor choice. Rather, just be aware of these potential pitfalls so they don’t catch you off guard.

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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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