Money Management

CDs could make a lot of sense for those approaching retirement. But read on to see how to set yours up. [[{“value”:”

When you’re in the process of saving for retirement, certificates of deposit (CDs) can be a poor choice. The reason? Even if CDs were to keep paying the way they’re paying today, those CD rates would still pale in comparison to the stock market’s typical return.

The stock market’s performance can vary tremendously from one year to the next. But overall, over the past 50 years, the market’s average annual return has been 10%. Even if CD rates were to hold steady at 5% over time, that’s nowhere close to 10%. And if you were to put $20,000 into CDs earning 5%, in 20 years, you’d have $53,000 — as opposed to $134,000 in a stock portfolio generating a return of 10% per year.

As such, you may want to limit the extent to which you invest your long-term savings in CDs. But once you’re within a year or so of retirement, it absolutely makes sense to move some of your money out of stocks and into CDs — especially when rates are high. Furthermore, it makes sense to keep money in CDs during retirement as a means of limiting your risk.

But if you’re going to hang onto CDs as a senior, it’s important to take the right approach. And here’s the one rule of thumb it pays to consider.

Why CDs are a great bet for seniors

During retirement, it’s a good idea to set yourself up with income that’s as risk-free as possible. And CDs fit that bill to a large degree.

If you open a CD at an FDIC-insured bank, your deposit is guaranteed, provided it doesn’t exceed $250,000 — meaning, if your bank fails, you won’t lose a dime. And that limit doubles to $500,000 if you have a joint account.

So, let’s say you put $20,000 into a 12-month CD paying 5%. Right there, you’re earning a risk-free $1,000 in a year. That’s $1,000 you can count on and use to pay near-term bills.

Furthermore, while you should leave some money in a regular savings account as a senior, the reason you may want to keep most of your cash in CDs is that your interest income will be far more predictable. With a savings account, you could start out with a given interest rate on your money, only to see it change with market conditions. With CDs, you’re locking in a guaranteed rate. When you’re on a tight budget, which is the case for many retirees, that’s helpful.

The one strategy you need to employ with CDs

When you’re in the process of building a retirement nest egg, you should plan to not touch that money. But once you’re in retirement, you’ll probably be tapping your savings regularly to cover your ongoing expenses — because that’s what that money is there for. And that’s why it’s so important to set up a CD ladder, rather than put a huge sum of money into a single CD.

When you ladder your CDs, portions of your cash come due at different times. This gives you regular access to your money, which you need in retirement. Remember, it’s very common for banks to impose penalties for cashing out a CD before it matures. You don’t want those penalties eating away at your retirement income. But with a CD ladder, that’s a situation you can avoid.

So, let’s say you want to keep $30,000 in CDs as a retiree. What you may decide to do is open a 12-month CD every month in the amount of $2,500. This way, you have 1/12 of your money becoming available to you roughly every 30 days. If you were to put $30,000 into a single 12-month CD, you could end up facing a penalty should you need to use some of that money before the one-year mark.

And to be clear, you can make your CD ladder continuous from year to year. You can also play around with different intervals — CD terms usually range from three months to five years, so there is a lot of flexibility. The point, however, is to make sure you have access to your money consistently.

All told, CDs can be a great income-generating tool for seniors. But definitely take the laddering approach so you get the benefit of predictable income, risk-free income, and the flexibility to withdraw your money when you need to.

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Saving money doesn’t need to be difficult. Check out the simple financial habits that have paid off for me. [[{“value”:”

When I was younger, I didn’t manage money well. There wasn’t a lot to manage, to be fair. I was making an entry-level salary and living in Los Angeles, so it’s not as if I had much disposable income. But my financial habits weren’t helping me, either.

I spent most of my earnings, and saving anything was a struggle. I still remember how disappointing it was to reach the end of the month and see how little progress I’d made.

Eventually, I realized that the only way to make real progress was to change my financial habits. I made some drastic changes, and they’ve had a huge impact. Nowadays, there are five things I do on a monthly basis that have made me successful.

1. Invest in an index fund

I used to think that investing meant analyzing companies, learning about things like P/E ratios, and making savvy stock picks. Then I learned that it’s a whole lot easier, and less time-consuming, to just buy index funds.

An index fund invests your money in a basket of stocks, so you don’t need to pick them yourself. I invest in a total stock market index fund with Vanguard. It follows the performance of the U.S. stock market as a whole, which has historically averaged a return of about 10% per year.

This has been one of the most impactful changes I’ve made. I invest a portion of my income every month. And if I have any extra money, which I often do, I invest that as well.

2. Transfer money to a high-yield savings account

I had trouble saving money for a long time. Like many people, I told myself I’d save whatever was left over at the end of the month — an approach that rarely works out well.

There were two key changes I made here. I started paying myself first, meaning I save a portion of my income right after I get paid. No more waiting until the end of the month to see what’s left.

I also opened a high-yield savings account. This is an especially important move to make right now because rates on savings accounts are currently extremely high. Some of the best high-yield savings accounts offer rates 10 times higher than the national average. Because my account has a high APY, it grows my savings much more. This also gives me extra motivation to put money in the account.

3. Use a rewards credit card for all my purchases

I pay for almost everything with rewards credit cards. The only exceptions are bills that can’t be paid with credit cards, or when there’s a surcharge for paying this way. But for my everyday spending, I’m pretty much always pulling out a rewards card.

Since I love to travel, I’m partial to using travel rewards cards. They usually save me $5,000 or more on travel expenses every year. Most people don’t save that much, but I enjoy learning about travel rewards programs and seeing how I can use my points for luxury trips.

If you want something simpler, cash back credit cards are another great option. Let’s say you get a cash back card that earns 2% back on purchases. If you spend $3,000 per month on your card, that’s $60 in cash rewards. That’ll add up to $720 per year you could add to your savings or invest.

4. Pay my credit card bill in full

Speaking of credit cards, there’s another important habit to make it all work. When my credit card bill is due, I always pay the full balance. If I wasn’t paying off my card every month, the card issuer could charge me interest. The average credit card APR is 21.59% right now, so that would wipe out the value of all my rewards.

Rewards credit cards only save you money if you pay them off every month. You need to pay the full statement balance to avoid credit card interest charges.

5. Set ambitious income goals for myself

The amount you can save depends on how much you earn. If you earn an above-average income, it makes life much easier. You’ll have more money to save, invest, and spend on things that make you happy.

As a freelancer, I have some control over how much I make. Because I’m trying to aggressively build wealth, I set high income goals every month.

While you may not have as much control over your income if you have a full-time job, there are still ways to earn more. You could look for promotion opportunities or a new job. You could take on extra hours. Or you could start a side business.

Those are the financial habits that have worked well for me. Investing and paying yourself first are both moves that can benefit just about anyone. Using rewards credit cards are an easy way to save money, provided you pay them off in full consistently. And if you want to speed up the saving process, increasing your income can help with that.

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It’s a good time to be putting money into savings. Read on for ways to free up cash for that purpose. [[{“value”:”

Each year, many people pledge to boost their savings. But if you didn’t manage to meet that goal in 2023, you’re no doubt in good company.

Last year, inflation continued to surge, driving living costs upward and making it difficult for a lot of folks to carve out funds for savings. This year, inflation is still elevated. March’s Consumer Price Index, which measures changes in the cost of consumer goods and services, rose 3.5% on a year-over-year basis, which indicates that it’s still more expensive to function.

The problem with not increasing your savings at a time like this, however, is twofold. First, if you don’t have an adequate emergency fund, you risk landing in debt if unplanned bills land in your lap or if you end up laid off and out of work for a period of time.

Secondly, savings accounts are paying generously these days following multiple interest rate hikes from the Federal Reserve. But the Fed is expected to cut rates later this year, so your window for earning a higher amount of interest on your money may be dwindling.

That’s why it’s so important to do what you can to increase your savings now. Here are a couple of tactics that could leave you with more cash reserves by the end of 2024.

1. Do a spending audit

A lot of people will tell you that if you want to boost your savings, you’ll need to cut your spending. That’s not bad advice by any means, but it’s tough advice to apply. A more reasonable approach may be to simply start with a spending audit, where you take a look at the various expenses you’re paying for and make sure each one of them is worth it.

To do this, just pull up bank account and credit card statements from the past six to 12 months so you can see where your money has been going. Chances are, you’ll be able to identify at least one area where you can either cut back or stop spending altogether without negatively impacting your life.

For example, maybe you forgot you were paying for Disney+ and can’t remember the last time anyone in your household actually watched its content. Canceling it could be an easy way to pump a little more money into your savings.

2. Find a side hustle that pays off

Working a side hustle is a great way to boost your income — that is, if you manage to find a gig that pays well and pays consistently. NetCredit says that freelance website designers make an average of about $162 an hour. If you have the skills to do that sort of work, you may be in a great spot to boost your income — and savings — significantly.

But if you don’t have the skills needed to pull off a side gig with an hourly rate of over $100, don’t sweat it. There are plenty of moderate-paying gigs you can find, too. However, you may want to favor a gig with a preset compensation rate that works for you instead of a rate that’s dependent on the generosity of other people.

Folks who drive for ride-hailing services or deliver groceries often wind up dependent on tips to make a decent hourly wage. If you have a specific savings goal you’re working toward, you may be better off finding a side hustle with a guaranteed hourly wage. For example, if you’re able to work 12 hours a week on top of your main job and have the goal of earning $150 a week for savings purposes, then you may want to limit yourself to gigs that pay at least $12.50 an hour from the get-go.

At a time when basic living costs are still so expensive, it’s not easy to drum up extra funds for savings. But you really don’t want to miss out on the chance to benefit from today’s higher interest rates if you can help it. Do what you can to filter more money into your bank account, whether by cutting out spending that isn’t useful to you, working a side hustle, or both.

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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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Thinking about canceling one of your credit cards? Don’t miss this important step — it could save you money. Find out what you need to do. [[{“value”:”

There may come a time when you decide to cancel one of your credit cards if it no longer meets your needs. The good news is that canceling a credit card account is a straightforward process. But before you rush to cancel a card, there’s one important step you’ll want to take. Doing this could save you money on missed or late payment fees and can make your life easier.

Update your payment methods before canceling your card

Before canceling a credit card, you should check to see what regular expenses are paid with that account. You may have one of your streaming subscriptions or another bill, like a utility service, set to be paid using this payment method.

You may encounter issues if you cancel your card without updating the payment settings for these bills. First, the charge will be declined if the card is no longer active. The biller may also charge you a late or missed payment fee when your payment method doesn’t go through.

Every extra fee you pay impacts your personal finances, so it’s best to avoid them if you can. If you don’t catch the missed payment quickly, some billers might also report your account as unpaid to the credit bureaus, which could result in a negative mark on your credit report.

That’s why you should take some time to update your payment methods for any expenses paid with this credit card. Doing this before you cancel can eliminate fees and missed payments and ensure your services and accounts stay active without disruption.

Here’s how to cancel a credit card

Are you ready to cancel a credit card you no longer need? Here are the steps to take.

1. Update your payment method for your bills

As explained above, updating the payment method for any bills paid with this card is essential. After you do this, you’ll feel confident that your bills will continue to be paid in full and on time.

You can review your recent credit card statements to verify which accounts are paid using that card. Remember to verify whether the payment method needs updating if you have yearly subscriptions or memberships that are charged less frequently than every month.

2. Pay your remaining balance

The best strategy is to pay off the remaining balance for the card you intend to cancel. This will ensure your account is paid in full, so you don’t owe the credit card issuer money or receive a negative mark on your credit report because of an unpaid balance.

If your current account balance is too expensive to pay off, consider transferring the debt to another card before you cancel your account. An excellent strategy is to use one of the best balance transfer credit cards, which provide a 0% APR offer on balance transfers for a set time.

You’ll avoid interest charges if you pay the debt off before the promotional period ends. You’ll pay a balance transfer fee (often 3%-5% of the balance you’re moving), but it can be worth it to save money on interest. Review our list of the best balance transfer credit cards to learn more.

3. Use your credit card rewards

When you cancel your credit card account, you’ll likely forfeit unused rewards. It’s best to use your rewards before canceling your card. If you have another rewards credit card from the same bank, check to see if you can transfer your earned rewards to that account.

4. Cancel your credit card

You can cancel your credit card by calling the number on the back of your card. Alternatively, some credit card issuers allow you to do this within your online account. If you later notice that the card is still listed as active on your credit report, you can report the error to the credit bureau that issued the report and contact the credit card issuer to follow up.

5. Check your credit report

Finally, review your credit report to verify your account was successfully canceled. It may take a few weeks for your report to reflect this change, but it’s wise to double-check.

Canceling a credit card account is that simple. Are you looking for a new credit card to better suit your spending? Check out our list of the best credit cards for inspiration.

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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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