Money Management

If the Federal Reserve doesn’t lower interest rates, CD rates will remain high. Find out why this could be a drawback if you have a lot of savings. [[{“value”:”

As of March 18, 2024, the average rate on certificates of deposit (CDS) ranged from 0.22% on a 1-month CD to 1.81% on a 12-month CD. There are opportunities to earn much more with a CD, though. In fact, many of the best CDs are currently offering yields above 5.00%.

That was unheard of just a few short years ago. In fact, during the COVID-19 pandemic, the best rates were around or below 1%, and in the pre-pandemic times, a CD offering around 3% was considered a great deal.

While it’s impossible to predict the future, rates could stay at this 5.00% level for at least a few more months and potentially for most of 2024. That’s great news for savers, right?

Actually — not really. Persistent high CD rates may be bad news for those with a lot of money in the bank. Here’s why.

Here’s why CD rates are so high

To understand why persistent high CD rates aren’t good news for savers, it’s helpful to understand why the yields are so high right now.

Rates aren’t up for no reason. They rose sharply beginning mid-2022 because the Federal Reserve (the U.S. Central Bank) began to raise interest rates to fight rising inflation.

The table below shows inflation rates (year-over-year price increases), CD rates, and Federal Funds rates (the rate at which banks can borrow from each other overnight).

When inflation took off in 2021, the Fed reacted by raising rates in March, May, June, July, September, November, and December of 2022, and by raising them again in January, March, May, and July of 2023. CD rates went up along with the Federal Funds rate.

Here’s why CD rates may stay high

Once inflation began to cool, the Federal Reserve paused rate hikes. And the Fed has actually signaled an intent to lower its rate, predicting three rate cuts in 2024. That may not happen, though.

That’s because the Federal Reserve believes a sustainable rate of inflation is around 2.00%, and inflation remains stubbornly above that target. Further, the economy has stayed pretty strong even with today’s high rates, showing solid job growth. That creates less pressure for the Fed to act.

Several Fed officials recently made clear they don’t feel a need to cut rates any time soon, indicating they’d prefer more information about the direction of the economy first. And some officials expressed a preference for just one rate cut late in the year, or even none at all.

If the Fed doesn’t lower rates, there’s no reason to believe CD rates will fall. In fact, rate hikes have been paused since July of 2023, and CDs have continued to offer those competitive yields.

Here’s why high CD rates are bad news for savers

If CD rates stay high, savers benefit right? They get to put their money into a CD offering 5.00% or more with no risk and earn a great return.

The problem is, if that happens, it’s likely going to be because inflation is still above what the Fed prefers. The Federal Reserve chief, Jerome Powell, (along with several other officials) said hitting the inflation target is the key factor that will prompt the Fed to lower rates.

And inflation is generally bad for savers. When prices go up, money has to grow at least as fast as prices rise or you lose ground. And even if it grows just as fast or a little faster, you aren’t really making much.

With a current inflation rate around 3.15%, all your invested funds must earn that much to break even. And even if every dollar is in an account paying 5.00%, your real return after accounting for inflation is just 1.85%. Unfortunately, most savers don’t earn such high yields on all their savings, as 5.00% is well above the national average rate for both savings accounts and CDs.

To compound the problem, many people can’t save as much in these high-yield accounts because they’re stuck paying today’s higher prices. And when the Fed does start cutting rates, savings account yields will fall but prices likely won’t come back down; they just won’t go up as fast as they have been. You’ll be stuck with these elevated prices and no longer getting the 5% returns on your saved cash.

What should you do?

The best option you have right now is to put as much as you can in investments providing the best possible returns so you don’t lose as much ground. To do that:

Open a brokerage account and invest. If you have money you won’t need for at least five years, it belongs in a brokerage account. While you can earn around 5.00% with some CDs right now, you can expect to earn 10% over the long haul if you put your money into an S&P 500 index fund (that’s in line with the stock market’s average return). That’s a much better return on investment that will do more to help you maintain your buying power.Make sure your saved cash is beating inflation. You cannot afford to keep your money in a savings account paying less than what the current inflation rate is. If you’re earning less than 3.15% APY, your money is losing value every day. Open a high-yield savings account today. The Ascent has a list of more than a half-dozen of the best savings accounts to choose from.Put as much money as possible into CDs. If the Federal Reserve does cut interest rates, savings account yields will fall, as they are variable. But CD rates are locked in for the length of your CD term. If you can keep earning 5.00% even as interest rates fall, you’ll gain more ground. Just remember, you cannot withdraw funds from your CD early or you’ll be penalized, so only invest money you’re sure you can leave alone for the duration of the CD term. Check out The Ascent’s top CD picks to find multiple options paying above 5.00%.

The sooner you make sure your money is properly invested, the better off you’ll be, even if the Fed doesn’t act and interest rates and CD yields both remain at their current levels.

These savings accounts are FDIC insured and could earn you 11x your bank

Many people are missing out on guaranteed returns as their money languishes in a big bank savings account earning next to no interest. Our picks of the best online savings accounts could earn you 11x the national average savings account rate. Click here to uncover the best-in-class accounts that landed a spot on our short list of the best savings accounts for 2024.

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.Christy Bieber has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Target. The Motley Fool has a disclosure policy.

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If you’re looking for cheap swimwear, Costco could help you save. Here’s why your next swimsuit should come from Costco. [[{“value”:”

Costco might not be the first place that pops to mind when you think of buying a bathing suit. In fact, depending on what your warehouse stocks, you may not even see them at your local store. But Costco sells a variety of men’s and women’s swimsuits online, at prices that are generally hard to beat. Although the selection isn’t vast, here are three reasons Costco might just become your next swimsuit outlet.

1. Prices are very low

Costco generally has the lowest prices for specific swimwear that it sells. For example, here’s a quick price comparison for three ladies’ suits it’s currently selling online.

Keep in mind that the size of a bathing suit could determine its price on Amazon. For example, while the Hurley swimsuit was more expensive in a large, it was also slightly cheaper in a size small ($20.35). Also, since Amazon has dynamic pricing, you might find a cheaper bathing suit at a time when no one is buying them versus when they’re in high demand.

For men’s bathing suits, Costco had significantly cheaper prices than Amazon when I compared the same products. Here’s a quick breakdown of what I found.

Although Costco has cheaper prices when we’re comparing two brand name swimsuits, it’s not always true that Costco has the cheapest swimsuits on the market. Its cheapest swimsuit for men is its Kirkland Signature Men’s Swim Short, which costs $15.99 online. If you’re not picky about appearance, you can find swim shorts on Amazon for less than $10. You might be wearing shorts with flamingos or sail boats, but if you’re okay with that, you could charge less to your credit card.

2. Get extra savings online

Every now and then Costco will run big sales on clothes. Typically, it doesn’t cut prices on individual items. Rather, it will give you a hefty discount when you buy a certain number of clothes all at once.

Recently, Costco ran a “Buy More & Save” on clothes purchased online. If you had bought five to nine items, you would have saved $20, while 10 or more would have scored you $50 in savings. This involves mixing and matching different clothes, from swimwear to shirts and shoes, so replenishing your wardrobe during one of these online events could help you cut the clothing line in your budget.

Keep your eyes on the Costco website for more clothing sales like this. Or, better yet, download the Costco shopping app and enable notifications to stay up to date on future sales.

3. Generous return policy

If you do find bathing suits at a Costco warehouse, you’ll probably notice there are no changing rooms. Fortunately, Costco has a 100% satisfaction guarantee. This enables you to return your swimwear to Costco at any time for a full refund. The same applies if you purchase a swimming suit online: You can return these products in a warehouse or through Costco.com to get your money back.

Another benefit of buying a swimsuit at Costco is that you could get an extra 2% in cash back if you’re an Executive member. Combine this purchase with your Costco credit card and you could score up to 4% back on your swimwear purchases. That’s a good amount of cash back, especially if you’re already saving money by purchasing it at Costco.

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

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Saving for retirement may seem impossible. Learn how you can successfully invest for your future on a low income. [[{“value”:”

It can be difficult to save for retirement when you don’t have a high income, especially if you’re working hard just to make ends meet. In fact, the U.S. Government Accountability Office (GAO) found that only 1 in 10 low-income households near the retirement age bracket (ages 51 to 64) had a retirement account in 2019. This was down from the 1 in 5 who had a retirement account in 2007.

But while having a high income can certainly help you save money for your future, there are ways for all earners on the income spectrum to save. If it’s been difficult for you or your family to save for retirement on your current income, here are some steps that could help you get started.

1. Open a retirement account

A retirement account is a savings account that comes with certain tax benefits, like tax-free growth on your investments. While retirement accounts are often offered by employers, you can also open one for free at most online brokers. Employee-sponsored retirement plans come as 401(k)s, while those available through brokers and banks are typically traditional and Roth IRAs.

If your employer doesn’t offer a 401(k) plan, it might be worth exploring your IRA account options. IRAs come in two types: Roth and traditional. With a Roth IRA, you’ll pay taxes on your contributions at your current tax rate. Since you pay taxes upfront, you won’t have to pay taxes when you withdraw money in retirement. This is the opposite of traditional IRAs. With these accounts, contributions are tax deductible, but you’ll pay taxes on distributions in retirement.

Generally speaking, a Roth IRA makes more sense if you expect your tax bracket to be higher in retirement than it is now, as you can pay taxes upfront while your tax rate is low. On the contrary, high-income earners typically benefit more from traditional IRAs, as they can defer tax payments to a time when their tax bracket is potentially lower. However, if your income is modest, it could make more sense to take the tax deduction with the traditional IRA, as doing so might mean getting more savings with the Saver’s Tax Credit, as we’ll discuss below.

2. Automate your contributions

Whichever retirement account you choose, it’s crucial to set up a contribution schedule. Most employers can do this automatically with your 401(k) plan, depositing a portion of your paycheck into your account. Likewise, you can also set up automatic transfers from your checking account into your IRA.

If you don’t have a lot of money to invest, think small. Even saving 1% of your income can go a long way in helping you prepare for retirement. For example, if you invested $35 per month and managed an annual average 10% return, you would have $113,830.00 at the end of 35 years. If you could manage $100 per month, your investment return would increase to $325,229.00.

3. Look for ways to cut costs

For those living paycheck to paycheck, even squirreling away $35 monthly may not be possible. If so, it might be time to look squarely at your monthly budget to see if you make room for a retirement contribution.

While some costs might be fixed, like housing payments or rent, others might be due for a trimming. For example, you might be able to save money on car insurance. While having a car insurance policy is legally required in most states, you might find a cheaper rate by switching to a new company. In fact, in some cases, it might make sense to go with a pay-per-mile company, especially if you don’t drive frequently.

You could also save money by earning rewards on your everyday spending, such as with cash back apps or credit cards. If you have the right credit score to apply, certain credit cards, like those that earn a high rate of cash back on groceries, could help you get closer to that $35 monthly contribution through spending you’re already doing. Just be careful not to charge more than you can pay back. Interest earned from credit card balances can easily wipe away rewards.

4. Check out the Saver’s Credit

The Saver’s Credit is a non-refundable tax credit that can help you save up to $1,000 (or $2,000 if married filing jointly) per tax year. To be eligible for the 2023 tax year, your adjusted gross income (AGI) cannot exceed these limits:

Single: $36,500Head of household: $54,750Married filing jointly: $73,000

Depending on your AGI, you can claim 50%, 20%, or 10% of your maximum contribution amount. For example, if you’re single and your AGI doesn’t exceed $21,750 for the 2023 tax year, you could claim 50% of your contributions for a total savings of $1,000. If you managed to contribute $2,000 within the year, you would get the maximum credit. For the specifics on credit rates and thresholds, head over to the IRS website.

Saving for retirement isn’t a luxury afforded to only those with some extra cash — it’s a necessity accessible to a majority of Americans if you know where to start. If you’ve struggled in the past to set aside money for retirement, open one of the best online brokerages and start automating your savings today.

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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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This writer has more than one savings account earmarked for unplanned expenses. Read on to see why. [[{“value”:”

When I needed a root canal in my early 20s, the cost was more painful for me than the procedure itself. It was from that point onward that I pledged to always do my part to maintain emergency savings.

At the time, that $2,000 withdrawal constituted a large chunk of my cash reserves. But I spent years building up my emergency fund to where it is today. And having that money in the bank gives me peace of mind in the face of life’s many unknown expenses.

Many people have a single emergency fund they tap for unplanned bills. I, however, have two separate emergency funds. Here’s why.

When you’re after complete protection

You’ll often hear that your emergency fund should contain enough money to cover three months of essential living expenses at a minimum — costs like rent or mortgage payments, groceries, and utilities. The logic is that if you were to lose your job, it might take three months to find work again. So if you have enough money in your savings account to cover three months of bills, you can conceivably avoid having to rack up costly debt during that time.

However, your emergency fund is also supposed to be able to cover expenses like home repairs, car repairs, and unplanned medical bills. And if you have enough cash on hand to pay for three months of general expenses, then chances are, you have the money to pay for one of these things, too.

But what if you happen to lose your job at the same time your heating system at home goes kaput? Suddenly, you might have to cover three months of general living expenses while you look for work and spend thousands of dollars on a new heating system.

That’s why I like to maintain two separate emergency funds. The first one is what I call my income replacement fund, and it has enough cash in it to cover multiple months’ worth of bills.

My second emergency fund is my home repair/car repair/medical emergency fund. That one has a lump sum of money in it that gets whittled down and replenished as needed. When things go wrong with my car or home, or medical bills pile up, I dip into that account and get the peace of mind of not having to tap my income replacement fund.

A system you might prefer, too

Data from SecureSave notes that 63% of Americans don’t have enough savings to cover an unplanned $500 expense. If you have a three-month emergency fund (or more), then you’re clearly in a much more solid place.

But still, you may specifically want your emergency fund to be able to get you through a period of unemployment. And if so, then you may want to create a separate emergency fund for additional surprise expenses that could apply to you.

For example, if you drive an older car, you may inevitably end up having to replace or repair certain components before you’re ready to get a new car altogether. If you don’t like the idea of dipping into your main emergency fund to cover these expenses, then building a separate one could make sense.

Ultimately, an emergency fund should do two things for you — keep you out of debt and give you peace of mind. So if having two separate accounts achieves the latter purpose, then you might as well go that route like I do.

These savings accounts are FDIC insured and could earn you 11x your bank

Many people are missing out on guaranteed returns as their money languishes in a big bank savings account earning next to no interest. Our picks of the best online savings accounts could earn you 11x the national average savings account rate. Click here to uncover the best-in-class accounts that landed a spot on our short list of the best savings accounts for 2024.

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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