Money Management

Someone needs to pay for the cash rewards and points that credit card issuers offer. Find out who foots the bill and how to ensure it’s not you. [[{“value”:”

From a consumer’s perspective, credit card rewards are an amazing perk. Earning 2% or more back on your purchases definitely beats earning 0%. Many rewards cards also have welcome offers to sweeten the deal, such as a $200 bonus if you spend $500 in the first three months.

It raises the question: Who really funds these rewards programs? Thanks to a report by the Consumer Financial Protection Bureau (CFPB), we have the answer. If you want to make sure you come out ahead with credit card rewards, it helps to know what goes on behind the scenes.

How credit card issuers fund their rewards programs

Credit card issuers technically pay for the rewards they issue. It’s no small sum, either. They paid out over $40 billion in credit card rewards in 2022, according to the CFPB.

But they make much more in fees than those rewards cost them. Here’s where the money that pays for those rewards comes from.

Interchange fees paid by the merchants

Every time you pay with a credit card, the merchant pays an interchange fee. The exact amount varies depending on a number of factors, but it’s usually about 1% to 3%, according to research on credit card processing fees by The Motley Fool Ascent.

So, if you make a $100 purchase on your credit card, the merchant pays about $1 to $3 in interchange fees. In 2022, U.S. credit card companies earned $126.4 billion in processing fees charged to merchants.

That’s already enough to cover the cost of credit card rewards three times over. It’s also why some argue that merchants effectively fund rewards programs in the fees they pay. But there’s another sizable source of income for credit card companies.

Interest and other fees paid by cardholders

There are quite a few fees that cardholders can incur when using credit cards. The largest is credit card interest. Others include annual fees, cash advance fees, and balance transfer fees. Credit card issuers charged over $130 billion in interest and other fees in 2022, according to the CFPB.

It’s fair to say that cardholders also help fund credit card rewards programs, since they’re paying so much in fees. But not all cardholders. It’s primarily “revolvers,” a term for cardholders who carry balances on their cards.

Revolvers pay a staggering 94% of the total interest and fees card issuers charge. They only earn 27% of the total credit card rewards. “Transactors,” or those who pay their credit cards in full every month, pay a mere 6% of total interest and fees while earning 73% of the rewards.

Always pay in full with rewards credit cards

If you want to save money by using rewards credit cards, the CFPB data makes it clear what you need to do. Pay your credit card’s entire balance every month. When you do that, you can earn rewards without paying any interest to your card issuer.

The CFPB found that consumers who carry a balance on their rewards cards almost never come out ahead. You’ll still be earning rewards, but you’ll also be getting charged interest. That’s a losing battle because of how high credit card interest rates are. The average is currently 21.59%, according to the Federal Reserve.

If you have credit card debt, give that your full attention until it’s paid off. Rewards cards can be a great financial tool, but only when you’re able to be a transactor and pay your cards off in full.

Alert: our top-rated cash back card now has 0% intro APR until 2025

This credit card is not just good – it’s so exceptional that our experts use it personally. It features a lengthy 0% intro APR period, a cash back rate of up to 5%, and all somehow for no annual fee! 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.The Motley Fool has a disclosure policy.

“}]] Read More 

Giving up free money makes no sense. Here’s how to stop doing it. [[{“value”:”

If someone were to walk up to you on the street and hand you a $100 bill, would you take it? Or would you say “no thanks” and continue on your way?

The reality is that you’re probably not going to encounter a random stranger looking to hand you $100 for nothing in return. But there may be other opportunities in life where you can get your hands on free money. Here are three ways you may be missing out on free money — when you absolutely shouldn’t be.

1. You’re not claiming your 401(k) match

Vanguard says 95% of employer retirement plans on its platform offer some type of matching incentive. If you’re not contributing enough money to your 401(k) to claim your full employer match, you’re saying no to free money, which makes little sense.

Remember, too, that when you give up an employer match, you also give up investment gains on that match. The stock market’s average annual return over the past 50 years has been 10%. If you load up on assets like S&P 500 index funds in your 401(k), you might enjoy that same return.

Meanwhile, let’s say that this year, your employer will match up to $2,500 in employee 401(k) contributions. If you don’t put in $2,500, you won’t get that $2,500 match. But remember, if invested at 10% a year, that $2,500 could be worth about $43,600 in 30 years’ time. And that’s a lot of retirement income to give up.

2. You’re not swiping the right credit cards in the right places

Different credit cards have different rewards programs. But it’s important to be mindful of those details so you don’t pass up the chance to get the maximum amount of cash back on your purchases.

Let’s say one of your credit cards gives you 3% back at the pump, only you get into the habit of using a card that gives you 1% back instead. If your fill-ups normally cost $30 a week and you spend about $1,500 a year on gas, you’re losing out on $30 for no good reason. And while you can argue that $30 isn’t a life-changing sum, if you’re someone with little savings, it could go a long way.

3. You’re sticking to a brick-and-mortar savings account

If there’s a brick-and-mortar bank you’ve long held your accounts at, it can be tough to make a switch. But you’ll often be eligible for a higher interest rate on your money if you open a high-yield savings account online rather than stick with a physical bank.

Since online banks don’t usually have the same overhead as physical banks, they can often offer better rates. So let’s say you have $5,000 in savings. If you’re only getting 2.00% on your money, that’s about $100 in interest for the year. If you’re able to get 4.50%, which is more than feasible today, you’ll be looking at about $225 instead.

Most people don’t give up free money because they don’t need the cash — they give it up because they don’t realize they’re making a mistake. So from now on, make an effort to contribute enough money to your 401(k) to score your full company match. Also, be mindful of the credit cards you swipe, and research savings account options if yours isn’t particularly generous with the interest it pays.

Alert: our top-rated cash back card now has 0% intro APR until 2025

This credit card is not just good – it’s so exceptional that our experts use it personally. It features a lengthy 0% intro APR period, a cash back rate of up to 5%, and all somehow for no annual fee! 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.The Motley Fool has a disclosure policy.

“}]] Read More 

Many consumers use rewards cards, but not everyone comes out ahead. Find out what you need to do to make money from credit card rewards. [[{“value”:”

Rewards credit cards are popular, but there’s debate over who really makes money with them. Some say you’re not going to beat the banks at their own game. Others argue it’s possible to come out ahead if you know how to work the system.

In a way, both sides are right. Credit card issuers win overall. They paid out over $40 billion in rewards in 2022, but they charged over $130 billion in fees and interest, according to a report by the Consumer Financial Protection Bureau (CFPB).

But the CFPB also found that some cardholders profited from their credit card use. So you can make money from your rewards — it all depends on what type of cardholder you are.

Revolvers pay, transactors get paid

The CFPB classifies credit card users as either revolvers or transactors. Here’s the difference:

Revolvers carry (revolve) a balance on their cards from month to month. The card issuer charges interest based on the balance and the card’s APR.Transactors pay the full statement balance on their cards every month. Because they pay in full, they avoid interest charges.

It’s much better to be a transactor. The CFPB found that transactors earn 73% of total credit card rewards and pay only 6% of the total interest and fees charged. Revolvers, on the other hand, earn just 27% of the rewards but pay 94% of the interest and fees. They’re bearing the brunt of the costs while earning a much smaller chunk of the rewards.

When you pay credit card interest, that cuts into any money you’ve made on rewards. And credit cards have extremely high interest rates — the average is 21.59%, according to the Federal Reserve.

Because of those high rates, rewards rarely outweigh interest charges. The CFPB reported that “when a consumer revolves a balance on their credit card, the cost of interest and fees almost always exceeds the value of rewards the consumer may have earned.”

How to be a transactor with your rewards cards

If you want to make money with credit card rewards, the key is to be a transactor and pay in full. But if it was easy, everyone would do it.

I love using travel credit cards, so I know how important it is to pay off your full balance. Here are the best methods I’ve found for making this a habit.

Use your rewards card for your regular bills

Don’t change your spending habits just because you have a rewards card with a sky-high credit limit. A good way to stay safe is to keep everything exactly the same, except you start paying your bills with your rewards card. If you pay the same bills as before, you shouldn’t have trouble paying them back.

Only make purchases you can afford with money in your bank account

You’ll probably want to splurge on a big purchase every now and then. Maybe you’ve had your eye on a new laptop, or you want to treat yourself to a vacation.

There’s nothing wrong with this, if you can afford it. Before you make an expensive purchase, check that you have enough money in your bank account for it, and that money isn’t already set aside as your emergency fund. It’s fine to spend money on yourself when you can pay in full and don’t need to go into debt for it.

Build financial stability

Overspending isn’t the only reason people end up in credit card debt. It’s often caused by emergencies or just getting overwhelmed by bills.

Another crucial part of staying out of debt is building your financial stability. Specifically, save money toward an emergency fund so you’re prepared for anything. A good rule of thumb is to have enough in your emergency fund to cover three to six months of living expenses.

Also, make sure you can comfortably pay your bills every month. Look for places to reduce spending if necessary. When your bills take up most of your income, any added expense will cause issues.

Coming out ahead with credit card rewards

It’s certainly possible to profit from rewards credit cards. Plenty of cardholders do it by earning cash back or points that they use to save themselves money. It’s not complicated to come out ahead, either. Pay your credit card bill on time and in full, and you’ll be one of those transactors who earns rewards without any expensive interest charges.

Alert: our top-rated cash back card now has 0% intro APR until 2025

This credit card is not just good – it’s so exceptional that our experts use it personally. It features a lengthy 0% intro APR period, a cash back rate of up to 5%, and all somehow for no annual fee! 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.The Motley Fool has a disclosure policy.

“}]] Read More 

Some big purchases you make could end up being budget-busters. Read on to see how you can avoid having that happen. [[{“value”:”

Whenever you’re gearing up to make a big purchase, it’s important to run the numbers to make sure it fits into your budget. But sometimes, you might think you’re accounting for all of your costs only to forget about some. With that in mind, here are three things you might spend a lot of money on — and why they might end up costing you even more than anticipated.

1. Your home

Pretty much anyone who buys a home knows to factor the cost of mortgage payments, homeowners insurance, and property taxes into their budget. But when you buy a home, there are numerous costs that might sneak up on you, like maintenance and repairs.

Also, some of the costs you know to initially budget for might rise over time. If you end up having to file a few claims against your homeowners policy, your premiums might increase. And your property tax bill could rise if your home gains value.

That’s why it’s really important to keep your known housing costs to 30% of your take-home pay or less. Those include mortgage payments, property taxes, homeowners insurance, and homeowners association (HOA) fees, if applicable to you. If you stick to that rule of thumb, you may end up in a better position to absorb the added costs of homeownership that sneak up on you.

2. Your car

When you’re financing a car, factoring your monthly auto loan payments into your budget is obvious. But your car might end up costing more than anticipated when you consider the cost of routine maintenance, parking fees, and repairs.

Also, don’t forget auto insurance. Some people buy a car without first researching auto insurance costs in their areas. That’s a mistake. Before you buy a car, get some quotes for insurance so you know how much extra you’re dealing with.

3. Your next vacation

Many people’s vacation budgets account for expenses like airfare, lodging, food, and entertainment. But there are certain costs you might forget about in the course of budgeting for a vacation.

For one thing, how are you getting to and from the airport at home and at your destination? If you’re planning on hailing a ride, that could be a few hundred dollars, depending on distance.

Also, what if you forget to pack a key item and end up having to buy it at an inflated price at the resort you’re staying at? That might happen, so it’s good to have some wiggle room for incidental purchases.

Finally, don’t forget about the cost of trip insurance. It might seem like a needless expense, but it could be one worth paying for the medical coverage alone, especially if you’re traveling internationally.

And don’t assume that you don’t need trip insurance because you have a good credit card you’re using for your trip. It’s a smart idea to check and see what coverage your credit card offers, but a separate trip insurance policy might offer you the coverage you need beyond that point.

Any time you’re talking about spending a lot of money, it’s important to look at the big picture. So don’t forget about the aforementioned factors that could cause your home, car, or next trip to cost more than expected.

Alert: our top-rated cash back card now has 0% intro APR until 2025

This credit card is not just good – it’s so exceptional that our experts use it personally. It features a lengthy 0% intro APR period, a cash back rate of up to 5%, and all somehow for no annual fee! 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.The Motley Fool has a disclosure policy.

“}]] Read More 

Costco is selling one-ounce gold coins for about $2,400. Is it a good investment? Keep reading for the details. [[{“value”:”

There has been an increased interest in gold and silver as investments, mainly due to recent inflation and economic uncertainty. And Costco is getting in on the action.

In fact, it might surprise you to learn that Costco now sells between $100 million and $200 million worth of gold and silver per month, according to estimates by Wells Fargo. The retailer is currently offering one-ounce gold coins for sale.

But should you buy gold from Costco if you can fit the purchase into your budget? In this article, we’ll dive into the gold coins Costco is selling, how the discount retailer’s prices compare to the competition, and whether gold should be a part of your investment strategy.

Costco’s gold coins

Costco is selling 2024 1 oz American Eagle Gold Coins, which are produced by the U.S. Mint and contain one ounce of pure gold.

As of this writing, Costco is selling these coins for $2,469.99 each. It is limiting purchases to one transaction per membership, and up to five gold coins can be bought in that single transaction. It’s also worth noting a few things:

The price could change by the time you’re reading this if the spot price of gold fluctuates.Costco doesn’t apply any sort of price adjustments to gold coins.Costco clearly states on its website that this price includes shipping and handling, and that the gold coins might be available in person for a lower price, since Costco won’t have the expense of making sure they’re delivered safely.

Costco’s price per ounce vs. current gold prices

With those prices in mind, consider that the spot (market) price of gold at the same time was about $2,406 per ounce. So, you’re paying about $64 more than the current market value for one ounce of gold.

Having said that, Costco’s prices are quite low compared with other ways to buy the same gold coins. You’ll always pay more for a U.S. Mint-produced gold coin than you would for a one-ounce bar of gold because of the coin’s value as a collectible. For comparison, major precious metals exchange APMEX charges $2,532.59 (as of this writing) for one 2024 1 oz American Eagle Gold Coin, which includes shipping.

Is gold a good investment?

The short answer is that it depends on what you mean by “investment.” Gold can be a good way to store value and protect against economic crashes, but it is unlikely to deliver comparable performance to the stock market over time. For example, since 2010 gold has increased in value by 91% through April 19. That might sound like solid performance, until you learn that the S&P 500 produced a return of 484% in the same period.

Legendary investor Warren Buffett once explained why he doesn’t think of gold as a great investment.

In short, he classifies gold as an “unproductive asset.” It doesn’t produce anything of value (like a business would) and it doesn’t generate income (like dividend stocks do). Other than making jewelry — which a very small percentage of gold is actually used for — it has little practical utility. Its value is simply based on what someone else is willing to pay for it.

The bottom line

Gold can be an excellent store of value and could work as a hedge against inflation. And to be fair, it’s certainly a better investment than most purchases I’ve made at Costco. Its value also tends to hold up well in uncertain times and market crashes. The bottom line is that buying some of Costco’s gold coins could be a smart idea, but it’s important to realize that it doesn’t replace a smart long-term investment strategy.

Alert: our top-rated cash back card now has 0% intro APR until 2025

This credit card is not just good – it’s so exceptional that our experts use it personally. It features a lengthy 0% intro APR period, a cash back rate of up to 5%, and all somehow for no annual fee! 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.Wells Fargo is an advertising partner of The Ascent, a Motley Fool company. Matt Frankel has positions in Wells Fargo. The Motley Fool has positions in and recommends Costco Wholesale. The Motley Fool has a disclosure policy.

“}]] Read More 

The Federal Reserve is widely expected to start lowering interest rates soon. Find out what it could mean for your CDs. [[{“value”:”

The interest rates on 1-year CDs are at their highest level in more than 15 years. It wasn’t long ago when a 1.00% APY would have seemed generous, but it’s rather easy to find high-yield CDs that offer APYs of 5.00% or even higher now.

One common question I get asked these days is, “Should I open a CD now before interest rates start to fall?”

To be sure, there isn’t an easy answer to that question. Locking in an interest rate now could seem like a genius move if interest rates start to plunge, but that’s a big “if.” Here’s a rundown of what is expected to happen with interest rates between now and the end of the year, and what you should keep in mind before opening a CD.

Why you might want to open a 1-year CD now

The Federal Reserve is widely expected to start lowering rates later this year. While the interest rate policy moves of the central bank don’t directly impact the interest rates banks pay their CD customers, it’s important to note that the rates tend to move in the same direction.

This is why CD rates were near all-time lows in 2021 when the federal funds rate was set at near-zero levels. It’s also why they have climbed to their highest level since the 2008 financial crisis as the federal funds rate was rapidly increased by more than 5 percentage points during the 2022-2023 period.

The Federal Reserve is widely expected to start lowering rates later this year as inflation has fallen significantly from the multi-decade highs we saw in 2022. If that happens, it’s virtually certain that CD rates will start to trend downward, so locking in today’s 1-year CD rates could be appealing to savers who want predictable returns on their money. After all, savings account interest rates can change at any time.

One big caveat

To be clear, I’m not at all saying that opening a 1-year CD right now is a bad idea. It isn’t. If you have savings that you almost certainly won’t need for the next year, a 1-year CD could be a great place to put your money.

What I’m saying is that opening a 1-year CD specifically in anticipation of interest rates falling is by no means a guaranteed way of maximizing your income.

Nobody — not even the Federal Reserve policymakers — knows for sure if and when they are going to start lowering interest rates in 2024. It’s entirely possible they won’t lower rates at all, and in certain scenarios, they could end up raising benchmark rates even further.

In fact, at the start of 2024, the median expectation was for six quarter-percentage-point rate cuts this year. Recent economic data shows inflation staying significantly higher than expected, and rate cuts are now all but off the table until at least July. And now, the median expectation is for just one interest cut this year. There’s a real possibility that if inflation stays stubbornly high, we won’t get any rate cuts at all, or that interest rates could end up increasing between now and the end of the year. If that happens, you might come to regret “locking in” a 1-year CD rate today.

The bottom line

If you want to open a CD today to get a steady income from your savings with no risk, go for it. But before you open one because you think rates are as high as they’ll get and will only go down from here, it’s important to understand that while that is the most likely scenario, it is by no means guaranteed.

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.

“}]] Read More