High-yield Accounts Archives - Hanover Mortgages

March 3, 2021

How to Open a Money Market Account

Money market accounts can offer a high interest rate and easy access to your savings.*

If you’re reviewing your finances and decide you want to earn more interest while still having easy access to your savings, you may want to consider opening a money market account.

“A money market account is like a hybrid checking and savings account,” says Sarah Li-Cain, who specializes in financial writing and runs a personal finance podcast called Beyond the Dollar.

A benefit of a money market account is that it can offer a higher interest rate than your average savings or checking account. At the same time, you’ll typically receive a debit card or checks that you can use to spend the money stashed in your money market account.

This hybrid option is a good choice if you want to grow your money with interest but also need easy access to your cash. If this sounds like you, your next thought might be, “how do I open a money market account?” Easy. “It’s no more difficult than opening a savings or checking account,” Li-Cain says.

If you're wondering how to open a money market account, it's really no different than opening a checking or savings account.

You can start the process of opening a money market account by comparing account offerings from different financial institutions.

Choosing the right money market account

While opening a money market account is a pretty straightforward process, rates, fees and requirements may vary from financial institution to financial institution. Before you open a money market account, you may want to compare your options to determine which account will best suit your needs.

“There are lots of great online comparison websites where you can search according to location, features and even how much money you intend to open the account with,” Li-Cain says. These websites can help you narrow in on your top choices.

As you learn how to open a money market account and compare offerings, you may want to consider the following:

The account’s annual percentage yield (APY). Your account’s APY indicates how much interest you will earn on your savings. The higher the APY, the more interest you will earn. This could be an especially important factor if you’re keeping larger funds in your money market account. As you compare APYs, make sure you understand if there are any balance requirements. For example, you could earn one APY for balances under $100,000 and a higher APY for balances that surpass that threshold.
Minimum balance requirement. Some money market accounts may have a minimum balance requirement that’s higher than your checking or savings account. If you don’t maintain the balance, you might have to pay a monthly fee, and it could impact your APY if the account has a balance threshold to trigger a higher rate. If you don’t want to closely monitor your balance and worry about your deposits and withdrawals, you could consider an account with no minimum balance fee.
Withdrawal options. If you’re most excited about opening a money market account for the access to cash, confirm that the funds in your money market account can be accessed by ATM, debit card and check. If you’re all about withdrawing from the ATM, make sure the financial institution has conveniently located, no-fee machines. With Discover’s Money Market Account, for example, you have access to over 60,000 no-fee ATMs, some of which are located at the stores you may already frequent.^** Note that with a money market account, federal law limits the number of certain types of withdrawals to six per calendar month. The limit doesn’t apply to ATM withdrawals or official checks that are mailed to you.^*
Account fees. Understand when and why you may have to pay a fee. Not hitting a minimum balance requirement, withdrawing money at affiliated ATMs, check writing and excessive withdrawals could trigger fees, for example. Some financial institutions also charge a fee for bank checks, stop payments and wire transfers. If fees are a concern, note that with Discover’s Money Market Account, you won’t be charged an account fee.***

How to open a money market account

If you’re learning how to open a money market account, know that the exact steps will depend on where you open your account. Here’s a rundown of the general process to open a money market account:

Submit an application. “You should be able to open most money markets online, over the phone or at a local branch,” Li-Cain says. For example, you can open a Discover Money Market Account online or by calling the U.S.-based customer service line at 1-800-347-7000. When filling out an application to open a money market account, you may have to share or decide:
- Your personal information, such as your name, date of birth, taxpayer identification number/Social Security number, mother’s maiden name, address, employment status and income.
- Whether you want to add a joint owner. If yes, you may need their personal information.
- Whether you want to add a beneficiary who will receive the money in the event of your death. You’ll also need your beneficiary’s personal information.
- If you want to receive checks to use with your account.
- How much you want to deposit or transfer into the account.
Complete any verification requirements. You may have to submit or upload copies of identification or income-related documents to confirm the information from your application. For example, to verify your address, a utility bill or lease with your name and address on it may be needed.
Fund your new money market account. When you open a money market account, you may have to set up an initial deposit to meet the minimum funding requirement. If your funds weren’t deposited during the application process, you’ll need to do that soon after your account is open.

Once you open your money market account, you can arrange automatic transfers from other accounts to make use of its higher APY. You may also be able to ask your employer to directly deposit your pay, or a portion of it, into the account.

After you open a money market account, you can access your money from an ATM.

Putting your money market account to work

Since opening a money market account can mean a competitive APY and access to your cash, it can help you save for certain types of large purchases—while still having liquidity if needed. A money market account may also be a good place to keep your emergency fund.

“The funds will only be drawn down in the event of a large, unexpected event and will allow for easy withdrawal when the cash is needed, while earning a higher interest rate over your checking and general savings account,” says Matthew Fizell, a financial planner with Irvine Wealth Planning Strategies. Note that most experts suggest you keep enough cash in your emergency fund to cover at least three to six months of expenses.

“Money market accounts are a great option for those who consistently have extra cash on hand in their personal checking accounts,” Fizell adds. A checking account, however, could be a better fit for day-to-day spending.

If you’re ready to learn more about a Discover Money Market Account, click here.

^*Federal law limits certain types of withdrawals and transfers from savings and money market accounts to a combined total of 6 per calendar month per account. There are no limits on ATM withdrawals or official checks mailed to you. To get an account with an unlimited number of transactions, consider opening a Discover Cashback Debit account. If you go over these limitations on more than an occasional basis, your account may be closed. See Section 11 of the Deposit Account Agreement for more details.

^**Some ATMs have limited hours and/or restricted access. You may be charged a fee by the ATM owner if you use an ATM that is not part of our no-fee network. If you encounter any issues using the ATMs displayed on this site, please contact us at 1-800-347-7000.

*** Outgoing wire transfers are subject to a service charge. You may be charged a fee by a non-Discover ATM if it is not part of the 60,000+ ATMs in our no-fee network.

Source: discover.com

January 24, 2021

401(k) Hardship Withdrawal: What You Need to Know | Discover

If you’re thinking of withdrawing money from your 401(k), it’s important to understand if you’re eligible, how the process works and what the potential downsides are before tapping into retirement savings.*

In a perfect world, your finances and goals are completely mapped out, and your journey from milestone to milestone is a smooth ride. But no matter how much you plan, life’s unexpected hardships are just that: unexpected. A financial speed bump can be a jolt to the system, but it doesn’t have to bring you to a stop.

When you need cash, one of your first instincts may be to tap into savings. If you have an emergency fund saved up, that should be your first choice. But if you don’t and are thinking about drawing from your retirement savings, you’re probably wondering: What is a 401(k) hardship withdrawal and should I take one?

With help from Arielle O’Shea, investing and retirement specialist at NerdWallet, and Sam Dogen, founder of personal finance website Financial Samurai, here’s what you need to know about a 401(k) hardship withdrawal and how it may affect your retirement planning:

401(k) hardship withdrawal: What it is and how to know if you’re eligible

A 401(k) hardship withdrawal is an early distribution from a 401(k) account to pay for an “immediate and heavy financial need,” as defined by the IRS.

A 401(k) hardship withdrawal can help you address an immediate and heavy financial need.

While it’s typically difficult to pull out funds from your 401(k) before age 59½, some employers and plan providers allow hardship withdrawals for plan participants with qualifying financial needs. But, if you decide to withdraw early you’ll likely face penalties, which can be steep. (After age 59½, the IRS allows penalty-free withdrawals.)

If you’re considering a 401(k) hardship withdrawal, here’s what you need to research:

Understand what qualifies

The IRS offers guidance around what constitutes a qualifying financial need. Each 401(k) plan will define its own qualifications and determine if you’re eligible for a 401(k) hardship withdrawal given your particular situation, O’Shea says. As you’re learning 401(k) hardship withdrawal rules, note that common qualifying financial needs include:

Costs directly related to the purchase of a home (excluding mortgage payments)
Payments to avoid home foreclosure or eviction
Funds to cover significant damage to your home caused by a natural disaster
College tuition, fees or room and board for you, your spouse or dependents
Medical bills
Funeral and burial expenses

Learn about withdrawal limits

When determining how much to withdraw from your 401(k), it’s important to know that your withdrawal is limited to the amount you need to cover the expense, according to the IRS.

The 401(k) hardship withdrawal rules of your plan may vary from those listed by the IRS.

While there isn’t technically a limit on the number of 401(k) hardship withdrawals you’re allowed in a year, you are limited by whether you qualify and whether you have enough money in your 401(k) to cover the qualifying hardship amount. You’ll also have to work with your plan sponsor and/or HR department to prove your hardship and provide proper documentation, per the plan’s 401(k) hardship withdrawal rules.

Look into eligibility requirements

Another key consideration is whether you’re eligible for a 401(k) hardship withdrawal. Keep in mind that not all 401(k) plans and employers allow hardship withdrawals, and, among the plans that do, qualifications and 401(k) hardship withdrawal rules may vary from those listed by the IRS.

“Here’s the tricky thing: Each plan sets the rules around this separately,” O’Shea says. “Your 401(k) plan documentation is the best source to find out what qualifies for a hardship under your plan’s rules.”

Stay up to date on legislative changes

Lastly, if you’re considering taking one, realize that 401(k) hardship withdrawal rules can change. For example, the Coronavirus Aid, Relief and Economic Security (CARES) Act made it easier for those affected by COVID-19 to take hardship withdrawals without penalties in 2020.

“Your 401(k) plan documentation is the best source to find out what qualifies for a hardship under your plan’s rules.”

– Arielle O’Shea, investing and retirement specialist at NerdWallet

Be sure to do your research to understand if a law or policy change will make it more or less advantageous to take a withdrawal.

After researching 401(k) hardship withdrawal rules and whether you’re eligible for a hardship withdrawal, your next step should be assessing the potential impact on your finances.

The downsides of taking a 401(k) hardship withdrawal

Even if a 401(k) hardship withdrawal is available to you, it’s not something you want to do on a regular basis, if at all, says O’Shea. Given the penalties and taxes, “Taking a hardship withdrawal is generally a last resort,” she says.

In addition, Dogen notes, you’ll be depleting your retirement savings—a decision that can have long-term ramifications.

If you're considering a 401(k) hardship withdrawal, be sure to think through its potential future effects.

If you are thinking about a 401(k) hardship withdrawal, be sure to consider how taking money out now may affect your future. Here are some of the factors you should consider as you decide whether it’s right for you:

You’ll likely pay penalties and taxes

It’s important to note that you’ll typically have to pay an early withdrawal penalty of 10% plus taxes if you make a 401(k) hardship withdrawal.

“Because of the penalties and taxes you’ll incur, you should only consider a hardship withdrawal if other options aren’t available to you and you genuinely need this money,” O’Shea notes.

On the tax side, hardship withdrawals may be subject to an automatic withholding of 20%.

It can take time to rebuild your savings

Another potential downside is the fact that you can only contribute a limited amount of money to your 401(k) each year due to IRS limits. You can’t immediately put all the money back into your account, according to the IRS.

“If you pull a big chunk of money out, even if you have the money to max it out every year, you’ll have to replenish the funds very slowly over time,” O’Shea says.

For example, in the 2020 tax year, you can contribute a max of $19,500 to your 401(k) account, the IRS says. If you’re over 50, you can also take advantage of catch-up contributions—up to an additional $6,500 per year.

That means, if you’ve taken $52,000 out of your 401(k) account to cover a hardship, it may take two years to put that amount into your account if you’re over 50 and maxing out your contributions, and almost three years if you’re under 50.

You’ll miss out on potential ROI

When you take funds out of your 401(k), you’re also taking them out of the market. Imagine you receive a 5-8% average annual return on your 401(k) each year. When you pull a chunk of money out of that account, those funds can no longer compound and earn a return. This may be the biggest downside to taking a hardship withdrawal, Dogen says.

O’Shea also says that, depending on how the market is performing, you may end up selling your investments at a loss. “You have to sell the investments in your account in order to cash that money out, and so if the investments are down when you sell, you’re locking in that loss,” O’Shea says.

3 alternatives to 401(k) hardship withdrawals

Given 401(k) hardship withdrawal rules and the financial ramifications of a 401(k) hardship withdrawal, it’s crucial to fully vet any other ways you could obtain the funds to cover the hardship. “You would want to exhaust all other options first,” O’Shea says.

Consider these alternative sources of liquid funds:

Withdraw funds from your savings account

When you’re in need of money for unexpected expenses, first consider pulling funds from an emergency fund or a savings account, O’Shea says.

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If that’s not available to you, she recommends you see whether you’re able to withdraw funds from a certificate of deposit or money market account. If you do pursue those types of withdrawals, look into what fees and penalties you would incur before you pull out your money.

Tap into your other retirement accounts

If you have a Roth IRA, you might want to explore a contribution withdrawal from that account as an alternative to a 401(k) hardship withdrawal, O’Shea notes. That’s because you can withdraw contributions you’ve made into a Roth IRA at any time without paying taxes or IRS penalties, O’Shea explains. The reason? You’ve already paid taxes on those contributions.

Borrow from your 401(k) with a 401(k) loan

If your 401(k) is the only funding you can access to cover your hardship, you may consider borrowing from your 401(k) with a 401(k) loan, O’Shea says.

Rather than taking a 401(k) hardship withdrawal, you may want to consider borrowing from your 401(k) with a 401(k) loan.

How much you can borrow from your 401(k) depends on your plan. Account holders can typically borrow up to 50% of their 401(k) account balance or $50,000—whichever is less, O’Shea says. You can take out a 401(k) loan before age 59½ with no penalty, Dogen explains.

Unlike a 401(k) hardship withdrawal, a 401(k) loan requires you to repay the funds you’ve borrowed back into your account. That’s actually a benefit, because your money goes back into your 401(k) once you repay the loan. In most cases, you’ll have five years to repay a 401(k) loan.

Still, keep in mind, borrowing from your 401(k) is not a risk-free option. If you can’t pay the loan back and you’re under 59½, it may be deemed an early distribution by the IRS, and you could owe taxes and a 10% early withdrawal penalty, O’Shea says. Consider consulting a tax advisor to discuss your specific situation.

“You can ask your HR department for an estimate as far as when you might be able to get the money—it’s going to vary by plan.”

– Arielle O’Shea, investing and retirement specialist at NerdWallet

The 401(k) hardship withdrawal process

If you’re considering a 401(k) hardship withdrawal and are still employed, O’Shea recommends speaking with your company’s HR department to understand your specific 401(k) hardship withdrawal rules.

If you’re unemployed, you’ll need to speak to your plan provider to determine if you can take a 401(k) hardship withdrawal, ‬O’Shea says. ‪From there, it’s a matter of filling out paperwork to submit your request, O’Shea says. ‬‬‬

Note that there’s always a chance your request will be denied. Some employers may require you to prove that you’ve exhausted all other options for funding. If your employer doesn’t deem your hardship as immediate or necessary, your request can also be turned down, O’Shea says.

The entire process may take a few weeks, she adds. “You can ask your HR department for an estimate as far as when you might be able to get the money—it’s going to vary by plan.”

You can learn more about your plan's 401(k) hardship withdrawal rules from your company's HR department.

Rebuilding your savings after a 401(k) hardship withdrawal

After taking a 401(k) hardship withdrawal, it may take a while to regain your financial footing. That’s to be expected. But once you’re back on your feet after your hardship, O’Shea recommends you ramp up savings efforts as quickly as possible. That will help you sidestep some of the most common retirement savings mistakes.

So you don’t get behind on your retirement savings, make sure you’re contributing enough to your 401(k) to take advantage of an employer match, if possible. Eventually, try to max out your annual 401(k) contributions—including catch-up contributions if you’re over 50, O’Shea says.

“This period is really about trying to recover, focusing on getting yourself financially stable and doing everything you can to catch up,” O’Shea says.

As you look to the future, you’ll want to strengthen your financial situation so you can avoid taking another 401(k) hardship withdrawal. Looking for a good place to start? Learn how to start an emergency fund in four steps.

* The article and information provided herein are for informational purposes only and are not intended as a substitute for professional advice. Please consult your tax advisor with respect to information contained in this article and how it relates to you.

Articles may contain information from third-parties. The inclusion of such information does not imply an affiliation with the bank or bank sponsorship, endorsement, or verification regarding the third-party or information.

Source: discover.com

January 24, 2021

Money Market Account or Checking Account: Which Is Best For You?

Depending on how you plan to spend and save, a money market or checking account—or both—could suit your needs.

If you’re looking for a new bank account that allows you to easily store as well as access your cash, you might be thinking about opening a money market account or checking account. But how do you know which to choose? Decisions, decisions. Both types of accounts have unique advantages, depending on your savings and spending goals.

“Think about how you will be using the money within the account,” says Jill Emanuel, lead financial coach at Fiscal Fitness. “Is this money for daily, weekly or monthly use? Or is it money that will not be needed regularly?”

When comparing a money market account vs. a checking account, consider how often you'll need to access the funds in the account.

You’ll probably need a little more to go on before answering the question, “How do I decide between a money market account or checking account?” No worries. Our roundup delves into the features of both types of accounts to help you determine which one could be right for your financial plans, or if there’s room for both in your money mix.

Get easy access to your funds with a checking account

In simple terms, a checking account allows you to write checks and make purchases with a debit card from the money you deposit into the account. That debit card can also be used to withdraw cash from the account via an ATM.

When deciding between a money market account or checking account, Emanuel says most people use a checking account for the primary management of their monthly income (i.e., where a portion of your paycheck is deposited) and daily expenses (often small and frequent transactions). “A checking account makes the most sense as the account where the majority of your transactions occur,” she adds. This is because a checking account typically comes with an unlimited number of transactions—whether you’re withdrawing cash from an ATM, transferring money to a savings account or swiping your debit card.

While a checking account is a good home base for your finances and a go-to if you need to easily and quickly access your funds, this account type typically earns little to no interest. Spoiler: This is one key difference when you compare a money market account vs. a checking account.

“If you plan to use your account for monthly bill payments and day-to-day transactions, you would be better suited with a checking account, as these support daily and frequent use.”

– Bola Sokunbi, certified financial education instructor and founder of Clever Girl Finance

Grow your balance with a money market account

When you’re comparing a money market account vs. a checking account, think of a money market account as a savings vehicle that allows you to earn interest on the balance you keep in the account.

“A money market account is an interest-bearing bank account that typically has a higher interest rate than a checking account,” says Bola Sokunbi, certified financial education instructor and founder of Clever Girl Finance.

With some money market accounts, you can even earn more interest with a higher balance. Thanks to its interest-earning potential, a money market account can be the way to go if you’re looking for an account to help you reach your savings goals and priorities.

If you’re deciding between a money market account or checking account, you may think that a money market account seems like a typical savings account with your ability to earn, but it also has some features similar to a checking account. With a money market account, for example, you can withdraw cash from an ATM and use a debit card or checks to access money from the account. There are no limits on ATM withdrawals or official checks mailed to you.

You can withdraw cash from ATMs and write checks with a money market account or checking account.

Before you decide to use this account for your regular bills and your morning caffeine habit, know that federal law limits certain types of withdrawals and transfers from money market accounts to a combined total of six per calendar month per account. If you go over these limitations on more than an occasional basis, your financial institution may choose to close the account.

Don’t need regular access to your funds and want your money to grow until you do need it? Then the benefits of a money market account could be for you.

Deciding between a money market account or checking account

Still debating money market account or checking account? Here are some financial scenarios to help you determine which account may best suit your current needs and goals:

Go with a checking account if…

You want to keep your funds liquid. If you’re thinking money market account or checking account, know that a checking account is built for very regular access to your funds. “If you plan to use your account for monthly bill payments and day-to-day transactions, you would be better suited with a checking account, as these support daily and frequent use,” Sokunbi says. Think rent, cable, utilities, groceries, gas, maybe that morning caffeine craving. You get the idea.
You want to earn rewards for your spending. When you’re comparing money market account vs. checking account, consider that with some checking accounts—like Discover Cashback Debit—you can earn cash back for your debit card purchases. The best part is you are earning cash back as you keep up with your regular expenses—no hoops to jump through or extra account activity needed. Then put that cashback toward fun things like date night, lunch at your favorite spot or a savings fund dedicated to something special.

Learn More

You want to deposit and withdraw without the stress of a balance requirement. If you do your research when comparing money market accounts vs. checking accounts, you’ll find that some checking accounts don’t require a minimum balance (or much of one). However, you may be required to maintain a minimum balance (and potentially a higher one) with a money market account in order to avoid a fee. If you’re accessing your money frequently and need to make large withdrawals, a checking account with no minimum balance requirement is a convenient option.

Go with a money market account if…

You want to earn interest. “If your money is just sitting there, it should be earning money,” Emanuel says of the money market account or checking account question. “I spoke with a woman recently who told me she’d had around $50,000 sitting in her checking account for at least the last 10 years, if not longer. If that money had been in a money market account for the same period of time, she would have earned thousands of dollars on it. Instead she earned nothing,” Emanuel says.
You want to put short-term savings in a different account. If you have some short-term savings goals in mind (way to go!), you may benefit from keeping your savings separate from your more transactional checking account so you don’t dip into them for a different purpose. That whole out of sight, out of mind thing. “A money market account is the perfect place for money that will be accessed less frequently, such as an emergency fund [a.k.a. rainy day fund], a vacation fund or a place to park money after you’ve received an inheritance or proceeds from selling a home,” Emanuel says.
You need an account to fund your overdraft protection. If you’re comparing money market account vs. checking account, consider that a money market account could also cross over to support spending goals. One way is in the form of overdraft protection. If you enroll in overdraft protection for your checking account, for example, you could designate that funds be pulled from your money market account to cover a balance shortfall.

“A money market account is the perfect place for money that will be accessed less frequently, such as an emergency fund [a.k.a. rainy day fund], a vacation fund or a place to park money after you’ve received an inheritance or proceeds from selling a home.”

– Jill Emanuel, lead financial coach at Fiscal Fitness

Using both accounts to achieve your financial goals

Speaking of crossover. Both spending and saving are vying for your attention, right? Consider leveraging both types of accounts if you have needs from the checking and money market account lists above.

“Personally, I use my checking account for bill payments, my day-to-day spending, writing checks and for any automatic debits I have each month,” Sokunbi says. She’s added a money market account to the mix “because of the higher interest rate—to store my savings for short-term goals, for investing or for money I’ll be needing soon,” she explains. Maybe it’s not about deciding between a money market account or a checking account, but getting the best of both worlds.

Before opening a money market account or checking account, do your research and compare your options to see which bank offers the best package of low or no fees and customer service, in addition to what you need from an interest and access to cash perspective.

Source: discover.com

January 23, 2021

Money Market Account vs. Savings Account: Which Is Best for You?

It all depends on your financial goals and how you plan to manage your money.

Reasons to save money seem to be never-ending—college, emergencies, retirement, vacation. However, about 20 percent of Americans don’t save any of their annual income at all, according to a Bankrate survey. So if you’ve buckled down, cut your expenses and finally saved up a nice chunk of change, great! Now, the next step is finding a good place to put it.

While researching where to store your hard-earned cash, you’ll probably come across two potential account types: money market accounts and savings accounts. Many banks offer both types of accounts, but deciding between a money market account and a savings account may depend on your particular savings goals and needs, says Jeff Rose, CFP^®, founder of the financial education blog Good Financial Cents.

“Both types of accounts have different rules about maintaining minimum balances,” Rose says. He adds that these factors can vary depending on the particular bank.

Deciding between a money market account and a savings account? Follow our guide to determine which fits your financial situation and goals.

You may even find that making a decision between a money market account vs. a savings account is too hard and you want both types of accounts. (Don’t worry, we’ll get to that later). For now, asking the question, “How is a money market account different from a regular savings account?” is a good place start.

Here’s what you need to know to decide between a money market account and a savings account:

Money market account: Maintain growth and easy access

Not to be confused with money market funds, which are a type of investment, money market accounts are a type of deposit account.

“A money market account, traditionally, has been a high-yield savings account with higher-than-usual opening deposit requirements and/or monthly minimum balance requirements,” says Brynne Conroy, blogger for the women-focused personal finance website Femme Frugality.

You can think of the benefit of a money market account as a savings-checking hybrid. This is an important piece of the money market account vs. savings account story. On the savings side, with a money market account, you can typically earn interest on the balance you have stashed away. If the bank offering the account is FDIC insured, then your deposits are insured up to $250,000 or the maximum allowed by law.

When you’re thinking money market account vs. savings account, note that one of the unique features of a money market account is that you can access funds with a debit card as well as through an ATM and checks—just like you would with your checking account. It’s important to note that federal law does limit certain types of withdrawals and transfers from money market accounts to a combined total of six per month per account. There are no limits on ATM withdrawals or official checks mailed to you. You can also make an unlimited number of deposits.

Money market accounts may require that you open the account with a minimum amount, as well as maintain a minimum balance. If your balance falls below the required minimum, you could be charged a fee, and your account could actually be closed if you regularly dip below the minimum.

Not all banks have these requirements, though. When considering the difference between money market accounts and savings accounts and shopping for a money market account, you may be able to find one with no minimum balance requirements and with tiered interest rates, Conroy says.

A Discover Money Market Account, for instance, doesn’t charge account fees, including minimum balance fees.¹ Plus, a larger deposit can put you in a higher interest rate tier, allowing you to earn even more on your savings. These are all things that can guide you when deciding between a money market account and a savings account.

A key difference between money market account and savings account is knowing how often you’ll want access to your funds.

Still need some help weighing money market account vs. savings account? See if any of the following scenarios jump out as describing your financial needs.

Go with a money market account if…

You want to easily access your funds.² As you consider the difference between a money market account and a savings account, note that the debit and check-writing capabilities of money market accounts make them great for accessing your money conveniently. “A money market account makes more sense when you want to maintain liquidity and to grow your savings over time,” Rose says. Need to pay the handyman for a new water heater or access cash from your emergency fund? You don’t have to worry about keeping a ton of cash in your checking account—simply write a check directly from your money market account, or stop by the nearest ATM.
You have a large balance. Since money market accounts can require a higher minimum balance than regular savings accounts, it might be a good fit for you if you plan to keep enough money in your account to meet the requirement and avoid fees. Plus, if you plan to make large withdrawals from your account, it’s important that you keep enough funds in it so that you don’t dip below the minimum balance. “Know that if you’re not meeting minimum balance requirements, you’re more likely to have to pay a monthly maintenance fee,” Conroy says.
You want one account with the flexibility of two. If you’re liking the ability to swipe a debit card and write checks—but are also looking to earn interest on the cash you’re parking in the account—then a money market account could be for you. “A money market account may offer you the higher interest rates you would get in a savings account, plus the debit card and check-writing abilities of a traditional checking account,” Conroy explains.

Savings account: Get your nest egg started

Savings accounts are a basic deposit account where you can keep extra cash. Like money market accounts, you can earn interest on the money you have parked in the account. If you have a savings account with a bank that is FDIC insured, you’ll have that same insurance on your deposits as was described above.

Savings accounts are also subject to the same limit on withdrawals and transfers, Conroy notes. Similar to money market accounts, there are no limits on ATM withdrawals or official checks mailed to you.

Now on to the differences between money market accounts and savings accounts. For one, you can’t write checks or pay for things with a debit card when using your savings account. To access your funds, you’ll need to transfer them to another account, visit the bank or ATM to make a withdrawal or withdraw via official bank check.

Another key difference between a money market account and a savings account: The minimum deposit to open a savings account and ongoing minimum balance required for savings accounts may be lower than money market accounts. You may even be able to find savings accounts with no minimum balance requirement.

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Earning interest is a goal. When debating money market account vs. savings account, know that some savings accounts could offer higher interest rates than you’d find with money market accounts. “Historically, money market accounts have offered higher interest rates in exchange for higher minimum balance requirements,” Conroy says. That’s not necessarily the case anymore, she notes. “The lines are blurring as high-yield savings accounts, typically those offered by online-only banks, get ever more competitive with money market accounts.” The Discover Online Savings Account, for example, offers a competitive interest rate and no minimum balance requirement. Plus, there are no account fees.¹
You don’t plan to touch the money often. Though it’s easy to transfer money in and out of a savings account, there are more limitations to accessing your money if you’re considering the difference between a money market account and a savings account. So if you’re working on building up your emergency savings or simply don’t want to be tempted to dip into your funds regularly, a traditional savings account might be the better option. “If you know having access to your funds is not a good thing because [you tend to spend more than you should], then leaving them in a savings account makes more sense,” Rose says.
You are concerned about balance requirements. Since savings accounts can have small or no minimum balance requirements, this account type could be right for you if you’re just getting started building a nest egg and don’t have a ton to deposit yet. If you plan to make a big withdrawal, such as for a down payment on a car or security deposit on your new apartment, you don’t have to worry about dipping below a minimum balance.

How to use both accounts to your advantage

Because savings accounts and money market accounts have some similar features, deciding between a money market account and a savings account can be difficult. You’ll need to look at your banking habits and financial goals when choosing where to put your money, Rose says.

It doesn’t have to be money market account vs. savings account—you can use both to achieve your financial goals.

But remember, you don’t necessarily have to choose one account over the other. Having both a savings account and a money market account can help you reach various savings goals simultaneously.

If you decide to use both types of accounts, Rose suggests assigning each a specific goal. For example, you could keep a portion of your savings in a money market account so the money is easily accessible for shorter-term goals (saving for the holidays, anyone?) and more frequent expenditures for which you might use your money market debit card, ATM access or checks.

Rose says you could then consider using a savings account for a longer-term goal (the kids will grow up and go to college some day), where the money can sit and generate interest until you need it further down the road.

“Match the financial goals to the account that will serve you best,” Rose says.

Money market account vs. savings account: The best decision for you

When deciding between a money market account and a savings account, be sure to carefully examine each account’s offerings and requirements closely, “comparing things like APY, monthly maintenance fees, minimum balance requirements and any other fees that may be associated with the account,” Conroy says.

If you're deciding between a money market account and a savings account, choose the account that will most help you successfully manage your money.

At the end of the day, whichever account you choose (or both!) should help you reach your financial goals and money management success.

¹Outgoing wire transfers are subject to a service charge. You may be charged a fee by a non-Discover ATM if it is not part of the 60,000+ ATMs in our no-fee network.

²Federal law limits certain types of withdrawals and transfers from savings and money market accounts to a combined total of 6 per calendar month per account. There are no limits on ATM withdrawals or official checks mailed to you. To get an account with an unlimited number of transactions, consider opening a Discover Cashback Debit account. If you go over these limitations on more than an occasional basis, your account may be closed. See Section 11 of the Deposit Account Agreement for more details.

Source: discover.com

January 22, 2021

How Should I Save If the Fed Cuts Rates?

It’s not all bad news for savers in a lower interest rate environment. Here’s why.*

At the end of July 2019, the Federal Reserve (the Fed for short) cut the federal funds rate for the first time in more than a decade, ending a long era of gradual rate increases. The federal funds rate is the short-term interest rate banks charge each other to lend funds overnight. The Fed sets the federal funds rate and decides whether or not to raise or lower this benchmark interest rate in order to reach maximum employment and stable inflation.

Though you may not find the news of a Fed rate cut as exciting as watching your favorite sports team or getting the latest news about the royal family, you might still be wondering, “How does a Fed rate cut impact my savings?” and “How should I save if the Fed cuts rates?” Good questions. Important questions.

When the Fed decides to cut the federal funds rate, banks could cut the interest rates on deposit accounts such as savings accounts and money market accounts. This means you could earn less on the money you’ve stashed in these savings vehicles.

“For most people, this type of rate change in their savings account won’t lead to financial hardship,” says Eric Rosenberg, a former bank manager who now runs the consumer finance blog Personal Profitability.

When it comes to a Fed rate cut and savings account rates, it’s possible you could see interest rates lowered on savings accounts.

A Fed rate cut can also lower the amount of interest you pay to borrow money with credit cards, loans and home equity lines of credit (HELOCs). This means that in a lower rate environment, borrowing is actually less expensive, and the cash that you save could be used for spending or savings priorities. “You should always take a little time to make sure your money is in the best place and working to help you reach your financial goals,” Rosenberg says.

If you’re in a savings mindset, there’s no need to stress. When it comes to a Fed rate cut and your savings account, the news isn’t all bad. By understanding some savings and money management strategies, answering the question of “How should I save if the Fed cuts rates?” won’t be as confounding.

Here’s a primer on how you should save if the Fed cuts rates:

1. Find a competitive savings account rate

When it comes to a Fed rate cut and your savings account, consider looking for a more competitive interest rate. Online-only banks offer high-yield savings accounts that typically have better interest rates than your traditional brick-and-mortars. For example, Discover offers a high-yield savings account with an interest rate over 5x the National Savings Average.¹ So, while rates may go down on average in a low-rate environment, you can potentially earn a higher interest rate on your savings if you research your savings account options.

If you're wondering how should I save if the Fed cuts rates, you may want to consider high-yield savings accounts or fixed-rate CDs.

When you consider a Fed rate cut and your savings account, remember that rate isn’t everything. You’ll also want to keep fees top-of-mind, as fees for maintenance, specific activities and maintaining a minimum balance can really put a dent in your interest earnings. Customer service and the online and mobile banking experience should also be on your list of considerations.

2. Leverage fixed-rate certificates of deposit

If you’re wondering how a Fed rate cut could impact your savings account, you’ll want to get acquainted with a fixed-rate CD. A fixed-rate CD is a deposit account with a set term, typically running anywhere from three months to 10 years. A benefit of a certificate of deposit with a fixed rate is that the interest rate is locked in for the entire CD term. Regardless of what the market does, money you put into a fixed-rate CD will continue to grow at the rate you receive when the account is opened. Nope. It’s not too good to be true.

If you’re planning for how you should save if the Fed cuts rates, consider opening a fixed-rate CD before rates start to drop or drop further. That will allow you to lock in a higher rate than what might be available later.

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“CDs give you the ability to save at a top interest rate with FDIC insurance,” Rosenberg says. “As long as you know you won’t need the money for a certain period of time, you can open up a new [fixed-rate] CD and keep earning today’s rate even if rates go down.”

If you save money in interest from lower borrowing costs following a Fed rate cut, you could also consider redirecting your savings to a certificate of deposit. “If your HELOC is linked to prime [which is based on the federal funds rate], then you can funnel your newfound interest savings into a CD,” says author and financial consultant Dr. Tisa Silver Canady.

If you’re considering a certificate of deposit when answering the question “How should I save if the Fed cuts rates?”, note that not all CDs come with a fixed rate. With a variable-rate CD, for example, you’ll typically earn a percentage based on the difference between the interest rates at the beginning and end of your CD’s term.

3. Consider bonds and stocks

When you’re considering how a Fed rate cut could impact your savings account, you may look beyond savings and into investments like bonds and stocks.

Since the Fed is trying to stimulate the economy when it cuts its federal funds rate, it’s possible that bond prices may increase.

“While [bond] yields will likely drop to some degree, you may also get higher yields than you would on other investments,” says financial expert and writer Miranda Marquit.

Marquit says that when the Fed’s short-term interest rate is cut, the stock market may perform better. If you’re wondering how you should save if the Fed cuts rates, Marquit adds that if you have the risk tolerance for it, the period after a Fed rate cut might be a good time to put a little extra in some of your investment accounts, such as stocks and bonds.

4. Keep some savings liquid

While the interest rate on a traditional savings account could decrease in a lower rate environment, there is still value in parking funds in this type of account. Even if you’re focused on a Fed rate cut and your savings account, there are factors to consider beyond interest income, after all. For example, money in a savings account is liquid, meaning you can easily withdraw cash if you have a short-term savings goal or an unexpected need.²

If you're considering a Fed rate cut and your savings account, plan to keep your emergency fund liquid in a savings account.

Experts typically recommend that you keep at least three to six months of expenses stashed in a savings account for your emergency fund. This is a fund that you draw on for unanticipated costs and curveballs (a plumbing nightmare, car repair, cough you can’t shake… you get the idea).

“If you need your money on short notice, your best choice is a low-fee, high-interest savings account,” says Rosenberg, the finance blogger. “While you may see your rate cut at some point, it is still the ideal for emergency funds and short-term savings.”

5. Pay off debt for long-term savings

If you’re thinking about how a Fed rate cut could impact your savings account, you actually may want to focus on credit and debt repayment. The idea is that with less interest earned on savings, you may want to consider using funds to pay off debt that’s incurring a higher interest rate. By paying off high-interest debt, you’re actually saving money over the long run by reducing interest payments.

If you have existing loans, you can also explore refinancing them. When there’s a Fed rate cut, you’ll often find lower rates than those that were available in a higher rate environment. You can then redirect the savings into a high-yield savings account, fixed-rate CD or investment vehicles like stocks and bonds.

Prepare your finances for a lower rate environment

Understanding how a Fed rate cut could impact your savings account and other aspects of your financial life can be important for your money management decisions. “We often think of policymakers debating things that don’t really impact us. However, the Federal Reserve’s monetary policy does affect our lives, and you need to be prepared for that reality,” Marquit says. By re-examining your savings and investment strategies, and understanding the implications of a Fed rate cut, you’ll be ready to respond.

One opportunity is understanding that the Fed rate cut and your savings account can work together, despite a possible interest rate decrease on your deposit accounts. The flip is that it also lowers the amount of interest you pay on things like credit cards and loans. So responding to those impacts accordingly with smart financial moves can make a positive difference for your hard-earned savings.

* This should not be considered tax or investment advice. Please consult a financial planner or tax advisor if you have questions.

¹ The Annual Percentage Yield (APY) for the Online Savings Account as of 01/01/2021 is more than five times the national average APY for interest-bearing savings accounts with balances of $500 as reported by Informa Research Services, Inc. as of 01/01/2021. Interest rates and APYs are subject to change at any time. Although the information provided by Informa Research Services has been obtained from the various institutions, accuracy cannot be guaranteed.

² Federal law limits certain types of withdrawals and transfers from savings and money market accounts to a combined total of 6 per calendar month per account. There are no limits on ATM withdrawals or official checks mailed to you. To get an account with an unlimited number of transactions, consider opening a Discover Cashback Debit account. If you go over these limitations on more than an occasional basis, your account may be closed. See Section 11 of the Deposit Account Agreement for more details.

Source: discover.com

January 22, 2021

A Step-by-Step Guide to Prepare Your Budget for a Layoff

Preparing financially for a job loss can help keep your budget secure through any hardship.

What would you do if you were laid off from your job today? This question isn’t meant to make you want to hide under your desk, but to encourage you to evaluate your circumstances. What would happen to your financial situation if you suddenly didn’t have an income to rely on?

While it’s not exactly fun to plan ahead for life’s hardships—say, your car breaking down or losing a job—doing so can help you stay afloat financially and avoid taking on debt to remedy an already tense situation.

What can you do to prepare your budget for a layoff? These four steps will help you prepare your budget for a layoff and survive a layoff financially:

1. Put some of your paycheck into savings

In order to prepare your budget for a layoff, one of the best things you can do is learn to live on less when you have your typical paychecks coming in. Living paycheck to paycheck is a reality for many, and a habit many promise to break once they earn more. If you can afford it, consider trying to live off only a portion of your paycheck. That way, you can always depend on having extra money to fall back on in the event of a hardship, like a layoff.

One way to save for an unexpected job loss is to put some of every paycheck into your savings account.

Jill Caponera, a consumer savings expert at coupon platform Promocodes.com, suggests paying yourself first—putting some of each paycheck into savings before you spend any of it—in order to save for an unexpected job loss.

“Put money directly into your savings account the moment you get paid so that you’re never in a position where you’re strapped during a true financial emergency,” Caponera says. Try scheduling an automatic recurring transfer from checking to savings that hits after each payday, or create a direct deposit to savings from each paycheck through your employer.

If living on less isn’t feasible for you right now, start small and focus on taking baby steps to prepare your budget for a layoff. You could start with a money savings challenge and a more attainable goal, like living off of 97 percent of your paycheck and saving the remaining 3 percent. This means that if your take-home pay is $4,000 a month, your goal is to put 3 percent, or $120, into savings monthly and then limit your bills and spending to $3,880. As you get accustomed to that amount, gradually increase the percentage of your paycheck you save each period. Some budgeting experts suggest saving at least 20 percent of your income and living off of the other 80 percent.

If you devote even a small percentage of your paycheck to savings before the bills and discretionary expenses roll in, saving will eventually become habit. You’ll get used to budgeting only with your post-savings take-home pay, and you won’t miss the savings portion of your paycheck.

“Put money directly into your savings account the moment you get paid so that you’re never in a position where you’re strapped during a true financial emergency.”

– Jill Caponera, consumer savings expert at Promocodes.com

2. Save 3 to 6 months of expenses in an emergency fund

Once you’ve gotten used to regularly saving a portion of your income, you can save for an unexpected job loss by building up a solid emergency fund over time—especially if you are using an online savings account with a high interest rate. An emergency fund is a dedicated savings account that you only touch in the event of financial hardship, such as a medical emergency or job loss.

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Christian Stewart, founder of financial coaching site Do Better Financial, recommends having an emergency fund of three to six months of expenses to help you survive a layoff financially.

“The goal is to make sure all your bases are covered, meaning you can pay the bills and proceed with a relatively normal life until you find another job,” Stewart says. She notes the actual amount of money you need to save for an unexpected job loss will vary based on your lifestyle, employment industry and willingness to relocate, since this can dictate how long it could take to find another job.

To build an emergency fund and save for an unexpected job loss, Stewart recommends starting a zero-based budget. This form of budgeting gives every dollar you earn a job, such as paying a bill, funding your emergency account or financing fun and discretionary expenses. In addition to making your emergency fund a priority, this budgeting strategy helps you identify exactly how much you spend within each budget category each month. You can then find areas of careless spending—perhaps an unused subscription service—where you could stand to cut back. You could redistribute those dollars to your emergency fund.

Having an emergency fund in place can help you survive a layoff financially.

“In the event of a layoff, you will have a clear line of sight to regular areas of your spending that can be cut if it takes longer to find a new job,” Stewart says.

After you’re comfortable with the size of your emergency fund and feel like you can survive a layoff financially, you can use any extra savings for a different financial goal, such as saving for retirement or a down payment on a car or home.

3. Find income from a side hustle

Another way to survive a layoff financially is to have a side gig in place. Contrary to what some believe, side hustles do not have to take up an onerous amount of your time. There are actually many side hustles you can do while working full time, such as freelancing in your current field, driving for a rideshare app or tutoring.

Not only do side jobs create extra cash flow to devote toward savings or debt repayment when you have a full-time job, they also give you an added layer of security to help you save for an unexpected job loss. You might not be able to replace your full-time earnings with your music lesson business, but it can provide you with some predictable cash flow while you interview for a new position.

You could even turn your side hustle into a full-time job if you have a passion project you’ve been wanting to turn into a career. Alternatively, your side hustle turned full-time gig could help maintain your income stream if you plan to take additional time off after a layoff—if you decide to go back to school or make a move to a new industry, for example.

4. Know where to turn for assistance

Being laid off can be a traumatic experience, and if it does happen, it is important to know where to turn and how to make decisions that aren’t rooted in fear or emotion.

“Sit down with a level-headed friend, spouse and/or counselor to process your new financial reality,” Stewart of Do Better Financial says. “If you’re receiving a compensation package, do yourself a favor and work out beforehand where the money will be spent and how long you need it to last.”

Speaking of work benefits, make sure you utilize all of the benefits possible before your layoff goes into full effect, such as getting an annual physical through your health insurance plan.

“Sit down with a level-headed friend, spouse and/or counselor to process your new financial reality. If you’re receiving a compensation package, do yourself a favor and work out beforehand where the money will be spent and how long you need it to last.”

– Christian Stewart, founder of Do Better Financial

“If you’ve been laid off, or are expecting an upcoming layoff, you should immediately contact your state’s unemployment office to set up your account and start receiving your compensation,” consumer savings expert Caponera says. “While these benefits won’t pay as much as your full-time salary, these funds will certainly help to cover your monthly bills and living expenses while you continue to look for work.”

Each state has different benefits and paperwork requirements, so make sure you’re using your state’s government website to learn more and to survive a layoff financially.

Prepare your budget for a layoff

Facing a layoff can be emotionally and financially draining, especially if you don’t see it coming. The most important thing is to start planning ahead, and prepare your budget for a layoff before it happens.

Source: discover.com

January 22, 2021

4 Questions to Ask Before Choosing a Checking Account

Choosing a new checking account can be an important step toward financial independence. Here’s how to do it right.

You’ve probably had a checking account for most of your life and never gave it much thought. It’s just there to store your everyday cash, right? Not necessarily.

If you’re considering questions about checking accounts as you take a closer look at your current setup and explore opening a new one, it’s important to note that checking accounts are designed with different and unique features. Some may even be more beneficial to you than you realize.

For starters, most checking accounts offer a host of conveniences, providing customers the ability to set up automatic payments for routine bills, schedule electronic transfers and make all deposits and transfers via a smartphone app. Some accounts even allow you to earn cash back on your debit card purchases.

“A checking account can have a long-term impact on your financial well-being, so it’s worth taking the time to figure everything out,” says Jeff Kreisler, money expert and author of the personal finance book “Dollars and Sense.”

You may not even think you have questions about checking accounts if you've had your account for a while—but reviewing your account features can help you decide if you need to switch.

At this point, you might be thinking, “What questions should I ask before opening a checking account?” To help you decide which account is right for you, here are four key questions to ask yourself:

1. What types of checking accounts should I consider?

Before you open a new checking account, do a little homework to learn about the different types of checking accounts offered by banks, Kreisler says. There’s the standard personal checking account that allows you to write checks and make payments with your debit card or electronically. But when thinking about questions to ask when opening a checking account, go beyond the basic features to find an account that best fits your lifestyle and financial goals. Here are some examples:

Online checking account: Ready to bypass the teller lines with the benefits of an online bank? Then this is the checking account for you. Doing your banking from any computer or mobile device is sweet—and since online banks don’t have brick-and-mortar locations, they can often pass their savings from overhead down to you. Just verify that the online bank or credit union supplying the checking account is backed by the FDIC or the National Credit Union Administration.
Rewards checking account: One question to ask before choosing a checking account is if you can earn rewards or incentives for certain activity. Discover Cashback Debit, for example, lets you earn 1% cash back on up to $3,000 in debit card purchases each month.¹ That means your monthly cashback earnings could yield $360 in total rewards each year (finally, dinner and drinks at that new French bistro in town!). Some banks may also offer a checking account bonus just for opening a new account, while others have a variety of reward options based on certain qualifying purchases. A rewards checking account works for almost anyone looking to maximize their debit spend or a balance they regularly hold in their checking account.

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Joint checking account: Most checking accounts can be opened as a joint checking account, which is an account held by two or more people. This can be a convenient solution for couples, minors and their parents and even seniors and their caregivers who are trying to manage a household budget. It does require good record keeping and communication, so make sure you understand the ins and outs of joint accounts before choosing this option.

The above checking accounts are the most standard and usually have appealing benefits. But if you have more questions about checking accounts, there are options that can cater to more specific needs. However, they often have less flexibility. For instance:

Interest-bearing checking accounts are available for those who want to earn some money while their cash is parked in the account. The rate of return is usually low and minimum balance requirements high.
Student checking accounts are often low-cost, but they could come with limitations. Whether or not a student account is available may be a good question to ask before choosing a checking account if you’re looking for a starter account for yourself or your child.
Second-chance checking accounts could be a fit for those who may not be able to get a standard checking account due to their banking or credit history; however, they often have higher fees.

“A checking account can have a long-term impact on your financial well-being, so it’s worth taking the time to figure everything out.”

– Jeff Kreisler, money expert and author of Dollars and Sense

2. Are there fees associated with the checking account?

This is one of the most commonly asked questions about checking accounts. Before choosing a checking account, be sure to research its fees, says Marc Bernstein, financial planner and strategist for MWealth Advisors. Types of fees and fee amounts can vary greatly from bank to bank, and even among accounts at the same bank.

A question to ask when opening a checking account is if the account charges fees for ATM use, automatic bill pay, monthly maintenance, ordering checks, replacing a debit card or ordering official bank checks. Banks may charge any combination of these fees—or none. Discover Cashback Debit comes with no fees. Period.² That means you won’t be charged a fee for any of these services.

Asking about fees is one of the most important questions to ask before choosing a checking account.

Along with including the fee topic on your list of questions to ask before choosing a checking account, you should also consider obtaining “a document outlining the fees you’ll be paying, in case you have any questions, and check the fine print,” Bernstein says. You can also typically find a list of fees (if any) on the bank’s website or in the account agreement.

3. Is there a minimum balance requirement?

According to Bernstein, among the questions to ask when opening a checking account is if it requires an initial minimum balance to open. You’ll also want to know if a minimum balance needs to be maintained to avoid a fee.

Bernstein suggests looking for an account with no minimum balance requirement if you tend to keep less than $1,000 in your account or like to have flexibility when making large withdrawals.

If you’ve asked this question about checking accounts and are still comparing accounts that have a minimum balance requirement, realistically determine how much you can keep in your account per month and what you will be charged if you can’t keep that balance.

Even if your account falls below a minimum requirement, there could be a way to save on fees. If you have multiple accounts at one bank, the bank may allow you to combine the balances to waive checking fees.

The total average cost of withdrawing cash from an out-of-network ATM is $4.68. That’s 36 percent higher than it was 10 years prior, with no signs of decreasing.

– Bankrate’s 2018 checking account and ATM fee study

4. What ATM fees could I incur?

If you frequent the ATM to take out cash, a good question to ask before choosing a checking account is: Where are the bank’s ATMs located in relation to your home and work?

Availability of ATMs is an important question to ask when opening a checking account that can really affect your wallet. For instance, if you decide to withdraw money from an ATM that’s not in your bank’s network, you can get hit with two separate charges: a surcharge from the ATM owner (since you’re not a customer) and a fee from your own bank.

And those fees can really add up. According to Bankrate’s 2018 checking account and ATM fee study, the total average cost of withdrawing cash from an out-of-network ATM is $4.68. That’s 36 percent higher than it was 10 years prior, with no signs of decreasing.

One way to get cash without paying an ATM fee is to use your own bank’s ATMs. The more ATM locations that your bank offers that are conveniently located, the less likely you are to use one that’s out-of-network and rack up unnecessary charges. If you can’t always use your own bank’s ATM, one of the questions to ask when opening a checking account is whether your bank allows you to use a broader ATM network for no-fee transactions.

Find the best checking account for you

Opening a new checking account is an important step toward establishing, or rebuilding, your financial foundation.

Now that you can ask the right questions about checking accounts, you’re one step closer to choosing an account that fits your individual needs. And that feels like money in the bank.

¹ ATM transactions, the purchase of money orders or other cash equivalents, cash over portions of point-of-sale transactions, Peer-to-Peer (P2P) payments (such as Apple Pay Cash), and loan payments or account funding made with your debit card are not eligible for cash back rewards. In addition, purchases made using third-party payment accounts (services such as Venmo^® and PayPal^™, which also provide P2P payments) may not be eligible for cash back rewards. Apple, the Apple logo and Apple Pay are trademarks of Apple Inc., registered in the U.S. and other countries.

² Outgoing wire transfers are subject to a service charge. You may be charged a fee by a non-Discover ATM if it is not part of the 60,000+ ATMs in our no-fee network.

Source: discover.com

January 22, 2021

This is How CDs Workâand How You Can Use Them to Grow Your Savings

If you’re looking for predictable returns at rates that tend to exceed those of savings accounts, then it’s time to find out what CDs are.

If you’ve got savings goals on your mind, then you know they come in all sizes and time horizons.

As you consider all of your options for hitting those goals—from savings accounts to stocks and bonds to stuffing your cash under the mattress—certificates of deposit stand out among the pack thanks to their competitive rates and safety.

“The reason that people are really drawn to CDs is that you can get a higher return than you would get in either a traditional checking account or traditional savings account,” says Kimberly Palmer, personal finance expert at NerdWallet.

Steady returns, in fact, are among the top benefits of CDs. Plus, Palmer adds that CDs are usually FDIC-insured, typically up to $250,000 for each depositor (or the maximum allowed by law).

What is a certificate of deposit? It's a savings product that provides a guaranteed rate of return over a fixed term.

With all those benefits in mind, you might still be wondering if a CD is the right fit for your savings strategy. So, what is a certificate of deposit and how does it work?

What is a certificate of deposit?

A certificate of deposit provides a guaranteed rate of return (the interest rate) on your money as long as you agree not to withdraw the funds you deposited (the principal) until after a specified amount of time (the term).

“It’s best for someone who doesn’t need their money immediately,” Palmer says. “In exchange for that longer period of time where your money is inaccessible, you earn a higher return.”

How does a certificate of deposit work?

Before you can start using certificates of deposit to keep your savings growing at a fixed rate, it helps to know how CDs work. It’s time to familiarize yourself with this one-of-a-kind savings product.

CD minimum deposit

While you can find savings accounts with no minimum deposit requirement, most banks require a minimum deposit to open a certificate of deposit. As you learn how certificates of deposit work, note that minimum deposits can vary depending on the financial institution, but at Discover it’s $2,500.

CD terms

Once you open a CD, your money grows until it matures at the end of its term. Discover CD terms start at three months, and the longest term available is 10 years.

CD rates

In addition to getting a higher rate than you can on many savings accounts, CD rates are fixed, which means there’s no risk of the rate going down during the term. (Keep in mind they can’t go up, either.) Generally, the longer the CD term, the higher the interest rate you can lock in for your money.

CD early withdrawal penalty

Understanding CD early withdrawal penalties is key to answering the “How does a certificate of deposit work?” question.

You can typically find competitive rates for CDs because your financial institution is counting on having that money for the full term. For that reason, if you pull out any money in your CD before the term ends, you could be hit with a penalty.

Understanding CD early withdrawal penalties is key to answering the “How does a certificate of deposit work?” question.

The early withdrawal penalty often depends on the length of the CD’s term, and it’s a good idea to check with your bank to understand its specific withdrawal penalties.

Got the gist of what a certificate of deposit is? Now it’s time to put this account to work toward your unique savings goals.

How can you use CDs in your own savings strategy?

Because CDs are offered across a wide range of terms, you have the opportunity to get creative with how you take advantage of them. Whether your savings goals are big or small, long- or short-term, there’s a CD savings strategy that will work for you.

Using CDs for short-term goals (less than three years)

“CDs are good for short-term or near-term liquidity needs,” says Philip Gibson, an associate professor of finance.

Let’s say you want to have money ready to spend on an engagement ring a year from now. Putting that money into the stock market could be risky, because if there were a market dip, you’d be out of luck—and you wouldn’t be the only one disappointed!

Instead, Gibson says, you can put that money into a 12-month CD and ensure that it will be there a year from now.

How does a certificate of deposit work out to be a better short-term option than cash, you ask? Money within a CD will have grown thanks to the competitive interest rate. Cash, Gibson points out, typically loses value over time due to inflation.

However, CDs aren’t ideal for storing cash that you might need at a moment’s notice. Remember: If you pull out your money from a CD before the end of its term, you could be on the hook for an early withdrawal penalty. If quick access is a priority, you’d be better off using a checking account or savings account.

Using CDs for medium-term goals (3-5 years)

CDs can be an effective way to save for medium-term goals, but you need to choose your CD term wisely.

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“You want to make sure the CD term you choose matches the time horizon of your goal,” Palmer says.

For example, if you’ll need that money for a down payment on a home in three years, it would make sense to put your money into a CD with a three-year term. A three-year CD would likely give you a higher return than a one- or two-year CD, and your money will be accessible when you are ready to buy a house.

Palmer adds that because money in CDs is only accessible after they mature at the end of their terms, you’ll want to make sure you have three to six months of emergency savings available for unexpected short-term needs before opening a CD with a three- to five-year term.

Using CDs for longer-term goals and retirement

The longer your time horizon for your goals, the more time you have to take advantage of the power of compounding in a CD. Plus, given how certificates of deposit work, longer terms usually have higher interest rates.

If you’re looking even further ahead to retirement, you can open an IRA CD. IRA CDs give you the same reliable growth of regular CDs with the tax advantages of IRAs.

How does a certificate of deposit work when you have multiple savings goals? That's where a CD ladder can be helpful.

Using a CD ladder to support multiple goals

While the above examples show how CDs work to save for specific financial goals, there is a way to use CDs to continually grow your savings as you reach multiple savings goals with varying time horizons. At the same time, with this strategy you can:

Keep your funds liquid.
Take advantage of interest rates if they go up.
Lock in the higher CD rates associated with longer terms.

It’s called a CD ladder, and Palmer says this CD strategy is growing in popularity among savvy savers.

With a CD ladder, you don’t try to guess exactly when you’ll need your funds to be available. Instead, you open multiple CDs with varying maturity dates.

“You might have one CD that matures in six months, one that matures in a year and then another in 18 months,” Palmer says. “That means that the terms keep coming due, and you continually have access to your money.”

What is a certificate of deposit ladder? It's a strategy of opening multiple CDs with varying term lengths to stay flexible.

Every time a new CD matures, you have the option of putting that money toward something you have been saving for, such as a house.

If you aren’t ready to use that money when a CD matures, then you simply open a new CD with a longer term than any CDs you currently have. That new CD is added to the “ladder,” and your money grows at longer-term rates as older CDs approach maturity.

Once you get into a groove with a CD ladder, you can enjoy all the benefits of CDs without worrying about finding a single CD that perfectly matches up with your financial goals.

Ready to get started with a CD?

Now that you have a handle on what a certificate of deposit is and how CDs can work for you, it’s time to get your savings plan started.

Learn how a Discover Certificate of Deposit can help you reach your savings goals, with flexible terms from three months to 10 years.

Source: discover.com

January 21, 2021

How to Manage Your First Salary and Grow Your Savings

After months spent scouring career boards and hours of networking, interviewing and submitting applications, landing your first job is a major relief—and a big accomplishment. It also brings new responsibilities as you learn how to manage your first salary, budget for your lifestyle and develop the smart savings habits that will serve you your entire life.

As you prepare for your first day, it’s critical to start thinking about how much of your paycheck you should save.

To help you find the answer, financial experts provide tips on how to manage your first salary, offer strategies to help you save money at your first job and explain how to adjust your savings as your career flourishes.

Learning how to manage your first salary can make a major difference as you advance through the rest of your career.

Save money at your first job: The case for starting now

You may feel intimidated by the commitment to save money at your first job, especially if you’re carrying student debt or feeling like you aren’t making quite enough. Joy Liu, head trainer at personal finance company Financial Gym, certainly felt that way.

“When I got my first job, I made $35,000 a year,” Liu says. “It was easy to just throw my hands up and say, ‘I can’t save right now on this salary.’” But she urges young savers to reconsider.

“Looking back, with the knowledge that I have now, I could have made it work if I knew that saving was something I needed to do,” she says.

In fact, saving money at your first job will put you in a better place when you’re a seasoned professional, Liu says. When you deposit some of your paycheck into a savings account, you’ll earn interest on the balance. Your now larger balance will itself earn interest (you’ve got compound interest to thank for that). The earlier in your career you start to save, the more time you’ll have for your money to grow exponentially.

When learning how to save money at your first job, it's easier to build good habits without large financial commitments.

Saving money at your first job might also make sense because you likely aren’t juggling the large financial commitments you’ll face later in life.

“You may have student loans, you may have some credit card debt, but you most likely don’t have a mortgage, which is a huge lifelong commitment,” says Ashley Dixon, a CFP^®and lead planner at financial planning firm Gen Y Planning.

Determine how much of your paycheck you should save

You now know you need to sock away part of your earnings from your new job, but how much of your paycheck should you save?

While your specific savings rate will depend on your goals and circumstances, Dixon recommends saving 20 percent of your monthly take-home pay. If that’s too challenging, start with 10 percent, Liu says.

If you don’t think you have enough to save, review your essential expenses, like rent, student loan payments, utilities and groceries. Save from whatever cash is “left over” each month, and see how close you can get to that 10 to 20 percent goal.

When determining how much of your paycheck you should save, you might initially find that there isn’t enough cash left over. If that’s the case, create a budget to keep your spending and savings on track, or review your existing budget to see which unnecessary expenses you can cut.

“Being mindful of where you’re spending your money and keeping track of spending in real time is the hardest part and is where people struggle the most,” Liu says. “But knowing where your money is at any given point is how you stay on track, whether that’s creating a spreadsheet or using a budgeting app.”

How much of your paycheck should you save? Experts recommend starting with 10 to 20 percent.

If you’re not able to hit these savings benchmarks right away, don’t sweat it. The key is to save what you can, and you can gradually work to increase your savings over time.

Define your savings goals to gain momentum

To help you get in a groove saving money at your first job, define exactly what you’re saving for. Need some ideas?

When learning how to manage your first salary, Liu recommends prioritizing an emergency fund. A top reason you need an emergency fund is the stability and peace of mind that this stockpile can offer, Dixon says. Should you face an unexpected expense like a costly car repair or lose your job in the future, you’ll then have a backup fund to dip into.

“If you’re young and single, you should try to strive to save six months of living expenses in your emergency fund as a guideline, but that can be different for every individual depending on where they live and family situations,” Dixon says.

Consider your emergency fund one of multiple savings accounts, or buckets. “You want to have all of these different buckets of money set aside for different goals, and move and prioritize how much money you save for each goal based on their priority level to you and what is realistic within your budget,” Liu says.

As you learn how to manage your first salary, don't forget to build up an emergency fund.

In addition to your emergency fund bucket for life’s surprises, you can also save money at your first job and contribute to other funds that align with your financial goals, like a car fund to help you buy new wheels or a vacation fund to save up for a getaway.

However you define your goals, the important thing is that they’re clear to you and that you’re actively saving money at your first job. This positive momentum can guide smart savings habits even once your first day of work is a distant memory.

Use automation to make saving a habit

Even with the best savings goals and intentions, it can be easy to get tripped up. Enter automation. By automating your savings, you reduce your chances of overspending or skipping savings altogether.

There are a couple ways you can use automation to help manage your first salary. You could set up a weekly or a monthly automatic transfer from your checking account to your savings account, Liu suggests. Or, you could ask if your company’s payroll department allows you to split your direct deposit, sending some of each paycheck into your checking account and some into savings.

Choose a high-yield savings account

Another consideration when learning how to manage your first salary is where you’ll keep your hard-earned funds. Many people opt to open a savings account from the same bank where they have their checking account, but Dixon says that’s not always the best approach.

“You want to look for a high-yield savings account,” she says.

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By keeping your money in a high-yield savings account, it will earn a higher-than-average interest rate. Remember compound interest? The higher your interest rate, the more your money will be able to grow over time.

As you do your research to find the right savings account for saving money at your first job, Dixon recommends comparing interest rates from different banks.

“Typically, online banks offer higher interest rates than traditional brick-and-mortar banks,” Dixon says. “Most online banks don’t have an actual storefront for you to visit so they’re saving overhead costs and are able to pass that interest down to the customer.”

In addition to interest rates, pay attention to fees and required minimum balances, says Liu. Fees can eat away at interest earnings, and you may not want to worry about keeping a minimum balance when you’ve just landed your first job and are gradually ramping up your savings.

Lastly, consider your access to your funds. “Because your savings account is separate from your checking account, consider how long it may take to get your funds,” Dixon says.

If you’re looking for a high-yield savings account, the Discover Online Savings Account has no minimum balance requirement and no fees¹, so you can turn your savings from your first job into something meaningful—without any hassle or stress.

Keep retirement in mind

As you manage your first salary, saving for emergencies and other short- and medium-term goals is essential. But you also want to start saving for retirement, even if that seems like ages away. Thanks again to compound interest, time is on your side, Dixon says.

“When you’re in your 20s, you don’t see the large effect compound interest will have because you are just starting your savings; all you see is the money sitting there,” she says. “But when you get to your 60s, that account’s going to glow because it’s been growing over time.”

In addition to contributing to your savings account, enroll in your employer-sponsored 401(k) plan and take advantage of employer matches if they’re offered, Liu says. Your 401(k) contributions automatically come out of your paycheck, so you won’t even have time to miss the funds.

How much you save for retirement depends on your goals and age, but when it comes to benchmarks for 401(k) contributions, many personal finance experts recommend saving 10 to 15 percent of your income, according to the Financial Gym. That said, be careful to not overfill your retirement “bucket” and run the risk of locking away money you may need in the short term for your emergency fund or other priorities.

Adjust your savings strategy as your career flourishes

As you advance in your career, you’ll likely see an uptick in your take-home pay. After a bonus, promotion or new job, your first inclination may be to spend more because you’re earning more.

“You don’t want to create a lifestyle that you can’t keep up or maintain,” Dixon says.

As your career evolves, the answer to "How much of your paycheck should you save?" will naturally change too.

While you deserve to celebrate your career wins, determine how you can maintain (or even accelerate) your savings progress as you increase your earning potential.

If you’re earning more and you’re maintaining a manageable cost of living, Dixon recommends putting extra income toward your 401(k) or another savings goal—like going from renter to homeowner—rather than spending.

If you keep these tips on how to save money at your first job—and beyond—in mind, you’ll gain financial security and be prepared to hit all or your financial goals.

Now that you know how to manage your first salary, learn how to negotiate your next one. Here are four tips to successfully negotiate your salary as your career grows.

¹ Outgoing wire transfers are subject to a service charge.

Source: discover.com

January 21, 2021

Considering a 401(k) Hardship Withdrawal? Hereâs What You Need to Know

401(k) hardship withdrawal: What it is and how to know if you’re eligible

A 401(k) hardship withdrawal is an early distribution from a 401(k) account to pay for an “immediate and heavy financial need,” as defined by the IRS.

A 401(k) hardship withdrawal can help you address an immediate and heavy financial need.

If you’re considering a 401(k) hardship withdrawal, here’s what you need to research:

Understand what qualifies

Costs directly related to the purchase of a home (excluding mortgage payments)
Payments to avoid home foreclosure or eviction
Funds to cover significant damage to your home caused by a natural disaster
College tuition, fees or room and board for you, your spouse or dependents
Medical bills
Funeral and burial expenses

Learn about withdrawal limits

When determining how much to withdraw from your 401(k), it’s important to know that your withdrawal is limited to the amount you need to cover the expense, according to the IRS.

The 401(k) hardship withdrawal rules of your plan may vary from those listed by the IRS.

Look into eligibility requirements

Stay up to date on legislative changes

“Your 401(k) plan documentation is the best source to find out what qualifies for a hardship under your plan’s rules.”

– Arielle O’Shea, investing and retirement specialist at NerdWallet

Be sure to do your research to understand if a law or policy change will make it more or less advantageous to take a withdrawal.

After researching 401(k) hardship withdrawal rules and whether you’re eligible for a hardship withdrawal, your next step should be assessing the potential impact on your finances.

The downsides of taking a 401(k) hardship withdrawal

In addition, Dogen notes, you’ll be depleting your retirement savings—a decision that can have long-term ramifications.

If you're considering a 401(k) hardship withdrawal, be sure to think through its potential future effects.

You’ll likely pay penalties and taxes

It’s important to note that you’ll typically have to pay an early withdrawal penalty of 10% plus taxes if you make a 401(k) hardship withdrawal.

“Because of the penalties and taxes you’ll incur, you should only consider a hardship withdrawal if other options aren’t available to you and you genuinely need this money,” O’Shea notes.

On the tax side, hardship withdrawals may be subject to an automatic withholding of 20%.

It can take time to rebuild your savings

“If you pull a big chunk of money out, even if you have the money to max it out every year, you’ll have to replenish the funds very slowly over time,” O’Shea says.

You’ll miss out on potential ROI

3 alternatives to 401(k) hardship withdrawals

Consider these alternative sources of liquid funds:

Withdraw funds from your savings account

When you’re in need of money for unexpected expenses, first consider pulling funds from an emergency fund or a savings account, O’Shea says.

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Tap into your other retirement accounts

Borrow from your 401(k) with a 401(k) loan

If your 401(k) is the only funding you can access to cover your hardship, you may consider borrowing from your 401(k) with a 401(k) loan, O’Shea says.

Rather than taking a 401(k) hardship withdrawal, you may want to consider borrowing from your 401(k) with a 401(k) loan.

“You can ask your HR department for an estimate as far as when you might be able to get the money—it’s going to vary by plan.”

– Arielle O’Shea, investing and retirement specialist at NerdWallet

The 401(k) hardship withdrawal process

The entire process may take a few weeks, she adds. “You can ask your HR department for an estimate as far as when you might be able to get the money—it’s going to vary by plan.”

You can learn more about your plan's 401(k) hardship withdrawal rules from your company's HR department.

Rebuilding your savings after a 401(k) hardship withdrawal

“This period is really about trying to recover, focusing on getting yourself financially stable and doing everything you can to catch up,” O’Shea says.

Source: discover.com