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Hanover Mortgages

Hanover Mortgages

The Refined Mortgage Lending Company & Home Loan Lenders

Tag: money market accounts

Posted on February 5, 2021

Compound Interest Calculator

Compound interest is one of the most important concepts to understand in investing. It’s something about investing that many people aren’t familiar with, but it plays an essential role in making investments profitable. 

If you’re curious about compound interest and how it works, good for you — you’re on the right track. In this post, you’ll find a compound interest calculator that can quickly and clearly show you how much money you might make by investing in an account that delivers compound interest. 

Use the calculator below to get a sense of your potential earnings, then read the sections below to gain more insight into how you can make money through compound interest. 

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Compound Interest Calculator
First, tell us about your investment plan by filling in the fields below.
Investment Plan:
Starting Amount:

Years to Accumulate:

Contribution Amount:

Rate of Return:

Compound Frequency:

Years to Accumulate:

Your Investment Results:
Ending Amount: $0
Total Investment
Compound Interest Earned
Simple Interest Earned
Investment Growth Over Time
Investment Breakdown
Total Investment
Compound Interest Earned
Simple Interest Earned

How to use a compound interest calculator

Using the compound interest calculator is simple. Follow these steps to see what you might earn through compound interest investing. 

  1. Enter your initial investment. It can be any value that you like, but it’s helpful to make it a realistic amount. For instance, if you’re saving up to invest right now, you can put the amount that you plan on investing once you’ve saved up enough. 
  2. Next, enter the amount you plan on adding to your investment portfolio each month. This can also be any value you like, but it’s most useful if you enter an amount that you can budget for. Even if that’s just an extra $10 a month, it makes a difference. 
  3. Choose whether you want your interest compounded annually, compounded monthly, or compounded daily. (If you don’t know what that means, stay tuned for the definitions below.) 
  4. Input the estimated rate of return. This can vary considerably, but index funds and similar investment vehicles can yield between 2% and 10% returns. 
  5. Input your time horizon — the amount of time until you withdraw or use your investments. 

Once you’ve filled out the calculator, you should see an estimate of the amount you’re likely to have when the period of compound investing is up. If you’re a little confused about how we got this number, or what you need to do to grow your money in this way, check out the definitions, guide, and FAQs below. 

Investment definitions

  • Compounding: This occurs when the money that is made from an investment is reinvested, increasing the total amount of interest yielded the next time your interest is compounded. 
  • Index fund: Index funds are bundled investments that roughly track the growth of a market index, which is a collection of publicly-traded companies. They are often considered lower-risk investments.
  • Interest: The money you make on your investments; essentially, the money you earn for investing in the success of a company, a government bond, or a fund.
  • Principal: The amount of money that you start out with when you begin investing.
  • Rate of returns: The rate at which you accrue interest — for example, 3% returns would mean that, for every $100 invested, you would earn $3. 
  • Returns: The money that you earn on your investments. 
  • Time horizon: The amount of time that you plan on investing.

Now that you have a few key compound interest definitions in mind, we can explain how it works. 

How does compound interest work

Having more money can help make you more money — that’s the principle behind compound interest. Here’s how that breaks down. Let’s say that you have $1000 to invest. You put it in an account (let’s say a money market account) that yields 2% interest, compounded monthly. At the end of the first month, you’d have $1020. So far, so good.

But here’s where it gets really interesting. That 2% rate of return now applies to the $1020 total, not just the principal investment of $1000. So, after the end of month 2, you’ll have $1040.40 — an added $0.40 compared to the previous month. 

That might not sound like a lot, but it starts to add up. Have you ever rolled a snowball down a hill? The same idea applies. As your money grows and adds to itself, the amount that it can add to itself the next time your interest compounds is more. It may not be a get-rich-quick scheme, but it’s a reasonably secure way to start building your net worth in the long term. 

Plus, you’re not limited to money market accounts with rates as low as 2%. If you’re willing to put a little more risk on the line, you can get returns as high as 10% in some cases. We’ll cover that more in a later section. But first, time for a little math homework (just for those who are curious!). 

Compound interest formula

Compound interest is really mathematically interesting. Here’s the formula: A = P(1 + r/n)(nt)

If you want to try to see what’s going on behind the scenes in our calculator, here’s how to do the math yourself using the compound interest formula. 

  • The A in the formula is the amount you’ll end up with; this comes last. 
  • The P in the formula above stands for your principal, that’s the amount that you start with. 
  • Multiply P by 1 + your interest rate r (given in a decimal; so 4% would be 0.04) divided by n, the number of times your interest is compounded in a given period. 
  • Raise all of that to the power of n times t, where t is the number of time periods elapsed. 
  • For example, if you’re investing for 12 months, and your account interest is compounded daily, n would be roughly 30, and t would be 12 if you want to know how much you’ll have in a year. 

Try the formula out yourself, and see what result you get compared to the result in our calculator to check your work!

Compound interest accounts

Now that you understand the basics of compound interest, you’re probably wondering how you harness it to increase your net worth. The key is to use accounts that offer compound interest. Here are a few examples:

  • High yield savings and money markets. These are essentially savings accounts. They aren’t investment accounts (which we’ll discuss in a minute), but they do use a similar principle to grow your money. Rates on these can be fairly low compared to other options, but your money remains accessible, so you won’t have to worry if you need access to your cash fast in an emergency.
  • Retirement accounts. If you have a 401k or IRA opened right now, good news: you’re already accessing the power of compound interest. Most retirement accounts use a diversified and stable portfolio to grow your money over time, investing in index funds, government bonds, and dividend stocks to help you build your nest egg. 
  • Investments. Of course, one of the most aggressive and effective ways to utilize the power of compound interest is to start investing. There are a number of different ways you can invest — be sure to read our guide to investing for beginners for a more thorough explanation — but all can involve compound interest. For example:
    • Dividend stocks sometimes allow you to reinvest the payout from your dividends, increasing the amount of your dividend the next time there is a payout. 
    • Index funds, like mutual funds and ETFs, also often allow investors to reinvest their earnings, harnessing compound interest in their favor. 
    • If you invest directly in stocks, you can always use the money that you earn to reinvest or invest in another stock — be aware that this is a riskier option, however. 
    • Whether you choose an in-person brokerage or a trendy new robo-advisor, you’ll likely be able to use the power of compound interest to grow your capital. 

Compound interest is a mathematical force that can help you build your net worth over time. You can get started today by finding the right investing or saving vehicle for your personal finances. And don’t forget to download the Mint app, where you can conveniently track your investments all in one place. 

Compound interest FAQs

How do I calculate compound interest?

You can calculate compound interest in one of two ways: you can use the formula listed above to calculate it by hand, or you can use the compound interest calculator to figure out your total more quickly. Just be sure you know the necessary variables:

  • The principal amount
  • Your interest rate
  • How often it’s compounded
  • The number of compounding period that will occur

What will $10,000 be worth in 20 years?

That totally depends on how much interest your account produces and whether you invest more as time goes on. 

Let’s assume an average return rate of around 7%, and assume that you don’t add in any more money. In that case, your $10,000 could turn into $40,547 — still an impressive amount. That’s the power of compound interest. 

How do you calculate compound interest monthly?

To calculate compound interest monthly, simply set the “compounding frequency” setting on the calculator above to “monthly.” Alternatively, you can use the formula above and set n equal to 1 and t equal to 12 to find out how much money you’ll have if interest is compounded monthly for a year. 

Sources

Wealthsimple | Investor.gov

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Source: mint.intuit.com

Posted on February 4, 2021

6 Free Online Checking Accounts: No Opening Deposit Required

A checking account is a must-have tool, but these accounts can come with monthly maintenance fees that can quickly add up. Many banks also require that you make a minimum initial deposit when you open a new account.

The following six checking accounts are free to open and don’t require an initial deposit, so they’re ideal if you’re just getting started and don’t have much money to put down. They also come with other benefits, like higher than average interest rates and early direct deposit options.

Chime Spending Account

Chime, a mobile bank, offers a Chime Spending Account that you can open in less than two minutes. This account is completely free and available to U.S. citizens ages 18 and up.

With the Chime app, you’ll be able to manage your banking and can sign up for this Spending Account (and a Chime Savings Account, if you’d like). Your Spending Account will come with a free Visa debit card. You can even set up direct deposit to further streamline your banking.

Benefits of the Chime Spending Account:

  • No initial deposit
  • No minimum balance and no monthly maintenance fees
  • Fee-free overdraft
  • Get paid up to 2 days early with direct deposit
  • Access to more than 38,000 fee-free ATMs

Axos Bank Essential Checking

Axos Bank is an FDIC-insured bank that’s been in business for 20 years. NerdWallet recognized Axos as offering the best checking account, and Go Banking Rates awarded Axos the title of the Best Online Bank.

With the Essential Checking account, you’ll be able to bank entirely online. Axos’ innovative banking platform integrates with apps like Mint and Venmo and allows you to aggregate multiple accounts into a single, simplified view. If you invite a friend to join, you and your friend can get $20 for every referral.

Benefits of the Axos Essential Checking Account:

  • No opening deposit requirement
  • No minimum balance requirement and no monthly maintenance fees
  • No overdraft fees
  • Unlimited ATM reimbursements
  • Early direct deposit up to 2 days ahead of payday
  • Free checks and Visa debit card when you open an account

Discover Cashback Debit

While Discover is traditionally known for its credit cards, this online bank also offers a Cashback Debit checking account that’s full of perks. Opening an account is simple and requires no initial deposit.

The real value of this account lies in its debit card rewards, though. You can receive 1% cash back on up to $3,000 in purchases every month. If you open a Discover Online Savings Account, you can elect to have those rewards automatically deposited into the savings account. Or, just opt to get the rewards back as cash.

Benefits of the Discover Cashback Debit Account:

  • Get 1% cash back on up to $3,000 of debit card purchases every month
  • No initial deposit
  • No monthly fee and no minimum balance requirement
  • No fee for transfers to external banks
  • No fee online bill pay and no fee check orders
  • Access over 60,000 no-fee ATMs

Capital One 360 Checking

With its 360 Checking account, Capital One offers many perks and versatile options. It’s possible to open and maintain this account entirely online, but Capital One’s local branches also offer in-person assistance if you should need it. The 0.10% APY on all account balances is above average, and there’s no fee for foreign transfers.

Capital One also offers a network of more than 40,000 ATMs plus mobile check deposit for convenient banking. You can also choose from three overdraft coverage options depending on what’s best for you.

Benefits of the Capital One 360 Checking Account:

  • No minimum balance or initial deposits
  • No monthly maintenance fees
  • 0.10% APY on account balance
  • No fee for foreign transactions
  • Mobile check deposit with the Capital One app
  • Multiple overdraft protection options
  • 40,000 fee-free ATMs

Ally Interest Checking Account

Ally’s Interest Checking Account offers some of the highest interest rates in the industry. Balances of less than $15,000 are eligible for 0.10% APY, while balances of $15,000 and up are eligible for a 0.25% APY. With no minimum opening deposit and no monthly maintenance fees, it’s easy to open an account, and

Ally is very transparent about its fees. Be aware that Ally does have an excessive transaction fee. This fee goes into effect if you exceed six transactions with money market accounts (like online and mobile banking transfers) per statement cycle.

Benefits of an Ally Interest Checking Account:

  • No minimum opening deposit
  • No monthly maintenance fees
  • 0.10% APY on less than $15,000 minimum daily balance, and 0.25% APY on $15,000 minimum daily balance
  • Ally eCheck Deposit allows for check deposits from your smartphone
  • Free use of 43,000 Allpoint ATMs and up to $10 reimbursement for other ATM fees per cycle

Chase College Checking

The Chase College Checking account offers many perks for college students. Designed for students ages 17 to 24, there’s no monthly service fee for up to five years while the student is in college. Alternatively, the account carries a $6 monthly fee, or that fee is waived for a monthly direct deposit or if the account holds an average ending day balance of at least $5,000.

The Chase Mobile app allows for convenient banking, but Chase also has almost 4,900 branches nationwide. Chase also offers many other products that are ideal for college students, like the Chase Freedom Student Card.

Benefits of the Chase College Checking Account:

  • No initial deposit
  • Monthly service fee is waived for college students ages 17 to 24
  • Access to 16,000 ATMs and almost 4,900 branches
  • Chase Mobile app allows for mobile deposits
  • Quickly and easily send and receive money to friends and family with Chase QuickPay

Choosing the Right Account

The above checking accounts don’t require initial deposits, and each offers slightly different benefits. When choosing the account that’s right for your needs, consider how you’ll use the account, the type of balance you plan to carry, and what types of features you most value. Be sure to pay attention to details like overdraft protection, fees for excessive transactions, and other potential expenses you could face.  

Source: crediful.com

Posted on February 2, 2021

What Is a Money Market Account? (+ Our Top 5 Picks for 2021)

If you’ve built up your cash reserves and simply have it all sitting in a traditional savings account, it may be time to reconsider how you’re storing your money. Opening a money market account is a step up from a savings account once you’ve accumulated a certain amount of cash.

savings

There are certain pros and cons with this type of account, so it’s important to understand what it is and how it works. You just might find that your money can better work for you when it’s in a more growth-oriented account such as an MMA. Ready to learn more?

What does a money market account do?

The most appealing aspect of opening a money market account, particularly compared to a savings account, is that it typically offers a higher interest rate. At the same time, it still provides you with the flexibility to access your money as you need it.

Money market accounts are FDIC-insured up to $250,000, so they’re considered a low-risk way to store your money, just like a regular savings account. If you open an account through a credit union, your funds are similarly insured by the National Credit Union Administration.

Depending on your financial institution, your interest can accrue daily, monthly, quarterly, or annually. The more frequent the accrual, the more money you’ll earn over time because of the effects of compounded interest.

How to Set Up a Money Market Account

To deposit cash into your money market account, you can use any method you use with other savings accounts, including electronic transfer. If your account is with a financial institution that has physical branches near you, you can also make cash and check deposits.

You will usually receive both a debit card and a checkbook that are linked to your account. This will allow you to make withdrawals at your convenience. That is another benefit that a savings account doesn’t usually offer.

This keeps your funds extremely liquid so you can quickly access them during a financial emergency. There are some limitations on how often you can make withdrawals, so keep reading to familiarize yourself with the restrictions that occur when you have a money market account.

Limitations of a Money Market Account

While a money market account does offer a degree of flexibility, there are some restrictions as well. Most notably, you may not make more than six withdrawals each month. This is a federal rule, not one made up by the banks. You could receive a fine if you exceed this limit.

On top of that, you’ll start to receive formal warnings from your financial institution. If you continually exceed the withdrawal limit after being warned, the bank is eventually required to move your funds into a checking account, so be aware of your behavior and plan accordingly.

Account Minimums

Another restriction imposed by some banks (but not necessarily all of them) is an account minimum. Many banks require that you open an account with at least $10,000. On top of that, you may also be required to maintain a certain balance threshold. If you don’t, you could again be subject to a fee from the bank.

If you don’t meet the minimum to open an account but still want one, you may be able to pay a monthly fee to bypass the deposit minimum. Just check to make sure it’s worth it.

There’s no sense in paying an expensive fee that exceeds the interest you accrue each month. If that happens, you’re probably better off keeping your cash in a free savings account or other similar product. Take the time to do the calculations to know exactly how much you’re earning (or paying) to determine if the money market account makes financial sense for your funds.

Is a money market account right for you?

There are a lot of factors involved in whether or not a money market account is right for you. Start off by looking at your holistic financial picture. Do you have a healthy buffer in your checking account or other savings account?

Money markets are often used for savings that don’t need to be accessed regularly, so make sure you have cash stored somewhere if you need it more frequently. Once you start to save on a larger scale, you can consider opening a money market account.

Money Market Rates

Another thing to think about with a money market account is how competitive the yield rate stands. Years ago, MMA rates were much more competitive than a standard savings account. But today, interest rates across the board are extraordinarily low.

money market rates

While this is great if you’re borrowing money, it’s not so great when you’re trying to save money and benefit from a high yield account. Many money market accounts today are below 1% and are oftentimes even less than that. It’s definitely worth some research to determine which banks are currently offering better rates.

The bottom line is that a money market account does have its limitations. If you can’t meet the minimum threshold without paying a fee or you need to withdraw your funds frequently throughout the month, then you might look for another type of account.

But if you want to diversify your savings while still receiving a nominal return, then consider a money market account. It’s low-risk and easy to access, so you get that flexibility to make withdrawals when you need to — just not every day.

What are the best money market accounts for 2021?

Check out our in-depth guide to 2021‘s best money market accounts. There’s a great variety of banks offering different minimum deposits and some of the most competitive APYs on the market. Here is a brief overview of each of our top picks to help get you started.

CIT Bank

CIT Bank offers one of the lowest minimum balances among the online money market leaders. Open your account with at least $100 and enjoy a 0.85% APY. Plus, there are no fees at opening or for monthly servicing.

Sallie Mae

With no minimum deposit with an MMA from Sallie Mae, you can earn a 0.90% APY on your funds. They also have a slightly more flexible overdraft policy compared to other financial institutions.

AbleBanking

This is a money market account with a low minimum deposit of just $250. Paired with a 0.80% APY, it’s ideal for beginning savers. An added bonus is that you get same-day transfers if you have another AbleBanking account.

Ally Bank

Ally offers a money market account with 0.50% APY and daily compounding interest. And unlike most MMAs, there’s no deposit minimum, no monthly fee, and the APY applies to all balance tiers.

TIAA Bank

With one of the higher APYs, money market account holders at TIAA Bank (formerly EverBank) earn 0.75% for the first year. To qualify, you need a $1,500 initial deposit from a non-TIAA Bank account. After the first year, your interest rate drops to just 0.70%.

Alternatives to Money Market Accounts

While a money market account can be a great savings tools, it’s smart to familiarize yourself with similar options. A savings account usually offers less interest than an MMA, but this isn’t always the case — it really depends on the financial institution.

Savings Accounts

A savings account doesn’t let you write checks like a money market account does, but you don’t generally need a minimum deposit. Both types of account are considered low risk and insured by the FDIC up to $250,000. They also have the same withdrawal restrictions of up to six times per month.

CDs

Another comparable product is a certificate of deposit, or CD. The savings rate with a CD is generally higher than that of a money market account, but here’s the catch: you have to commit to a certain time frame before withdrawing funds from a CD.

Unlike an MMA, you’ll receive a penalty for making a withdrawal from your CD before the term matures. You can choose your term length, typically lasting between six months and five years.

While placing funds in a CD could certainly be a part of your savings strategy, it’s not meant to replace liquid cash assets. You probably shouldn’t put any money in a CD that you would expect to need before the maturity date. But the longer term you commit to, the more interest you can expect to earn, so there are definitely merits involved as long as you have a holistic savings plan.

Money Market Accounts vs. Money Market Funds

These two financial products are actually completely different, so be careful not to confuse a money market account (MMA) with a money market fund (MMF). While an MMA serves as a low-risk account for savings, an MMF is an investment in a mutual fund, which is typically done through a broker.

While an MMA is insured by the FDIC, an MMF is not. There’s no guarantee that you’ll even receive back your entire principal, let alone any earnings. Still, they are low-risk on the spectrum of investments, but there’s no financial safety net in terms of insurance.

So what exactly do money market funds invest in? Most commonly, they focus on U.S. Treasury bills, commercial paper, and other short-term debt securities. These aren’t turbulent investments by any means, and they’re starting to see higher yields as the Federal Reserve begins to raise rates.

Final Thoughts

Like all savings vehicles these days, savers aren’t seeing dramatic differences among many of these products. Whether you’re considering a money market account or anything else, be sure to check on exactly what terms the financial institution is offering and don’t be afraid to shop around.

If you’ve been saving since before the recession of the mid-2000s you might remember APYs that actually made you a decent return. But today’s markets are different as the country still sifts through economic recovery. For all savers, that means taking a closer look at what kind of interest you can expect to receive.

It also means making sure you don’t actually end up losing money by paying hefty fees or tying up money in low-yield accounts with too many restrictions. In many cases, a money market account could be the next step up in your overall savings plan.

Source: crediful.com

Posted on January 27, 2021

What Is a Savings Account & What Are the Different Types?

Instead of keeping all of your money in an easily accessed checking account where you’re more apt to spend it, it’s smart to spread some of the excess into a savings account.

piggy bank

There are a few restrictions, but you have the chance to earn interest on the money within the account. That’s why it’s better to place your cash reserves in this type of account rather than simply letting it sit in your checking account.

When deciding on your savings account, it’s important to know that you’ll have three different types to choose from. We’ll go into those in greater detail, as well as other factors you should consider during the selection process.

You’ll also learn more about how interest accrues and how to open either an online savings account or one at a physical bank. When you’re finished reading, you’ll have a solid understanding of how savings accounts work and the best way to use one for your own finances.

How does interest accrue in a savings account?

Interest on a savings account doesn’t accrue once per year; instead, it’s compounded over multiple intervals. The exact frequency depends on the specific account you choose. The best option, assuming all other features are equal, is a daily compounding rate.

Other options include monthly or quarterly compounding. So how exactly does compounding interest work? You earn interest on your account for each interval.

Annual vs. Daily Compounding Rate

Let’s say you open a savings account with $5,000 that earns a 1% interest rate. If your interest-only compounded annually (once per year), you’d earn just $5 at the end of the year.

But when the interest on the same account compounds daily, your money starts to earn a bit more. Your 1% interest is divided up over every day of the year, technically amounting to 1/365th of a percentage point daily.

Over the course of the year in this scenario, it becomes the difference between making $50 in interest with an annual compounding rate and $50.25 with a daily compounding rate. The difference may seem laughable, but over time, that change can really add up.

Adding More Money & Rising Interest Rates

This is especially true when considering two variables. The first is that you’ll continue adding more money to your savings account. By doing so, you’ll continue the snowball effect that small additional amounts of interest will accrue into much larger amounts over time.

The other variable is that interest rates will rise over time. While earning even 1% interest right now is a rarity, savings account rates have historically been much higher.

As the years progress and the economy hopefully continues to strengthen, so too will the benefits of compounding interest. As with most things, patience is a vital component of your financial longevity.

Are there any restrictions on a savings account?

Yes, there are restrictions on savings accounts. Some apply across the board to all accounts, while others depend on the specific account you choose.

Broadly, the federal government imposes a limit on how many transfers or withdrawals you can make each month, specifically ones that are deemed “convenient.” This includes any type of transfer, whether it’s online or by check or debit card.

ATM Withdrawal Limits

An ATM withdrawal from a savings account, however, does not count as a convenient transfer. You may only perform six such transfers each month, otherwise, you’ll be hit with a fee from your bank.

Unfortunately, there’s no way around the transfer and withdrawal restriction, so try to plan your monthly needs in advance. Think ahead about what major financial events you have coming up in the next few weeks, and try to batch your withdrawals together.

Say you’ll need money from your savings account to buy a wedding gift for a friend one weekend, then take an out of town trip the next. Go ahead and take out all of the money from your account at once, even though the two events are spread out.

Minimum Balances

On top of federal restrictions, other rules regarding your savings account may come directly from your financial institution. Some may require that you maintain a minimum daily balance. This is especially true with accounts that have higher interest rates or other features associated with it.

Before signing up for a particular account, be sure to understand these and any other requirements, along with the penalty for breaking them. You don’t want to rack up fees because you constantly dip below the minimum daily balance. A bit of knowledge can go a long way in keeping your finances in order.

What kind of savings account can you choose from?

As we mentioned earlier, banks and credit unions offer three types of savings accounts: basic savings, money market, and CDs.

Each one has different pros and cons associated with it, so it’s good to learn about all of them to find the best fit for you. Some people even prefer to spread out their savings over several different types of accounts.

It all depends on what you plan on doing with your money and when you want to access it. Understanding all of the details of each plan type can prevent you from getting stuck in a financial pinch later down the road.

Basic Savings Account

A basic account is just that — an easily accessible account that allows you to store your money separate from your checking account. While you do earn interest with it, don’t expect it to be much.

In fact, on the low end, you’ll receive just 0.01% while a high yield account still only earns about 1% APY. Still, the dismal interest rates are compensated by easy to access funds. You can withdraw them directly from your bank’s ATM with a debit card if you have a physical branch near you.

Even if you save through an online bank, an electronic transfer can go through as quickly as the same day. It may take a bit longer in certain situations, like if you complete the transaction late at night or on a weekend or holiday.

Another advantage is that they come with low or no balance minimums. If you’re just starting to save, this is a convenient and cost-effective way to store your money. Saving money is easy and fast for beginners and seasoned savers alike with a basic high-yield savings account.

Check Out Our Top Picks:

Best Savings Accounts of 2021

Money Market Account

For a slightly more sophisticated savings product, consider a money market account. You’ll need a higher deposit to get started than you would with a basic account, but you’ll benefit from a better interest rate.

You’ll likely be able to find a money market account with an APY ranging between 0.75% and 1.2%. Just like a regular savings account, you can access your money anytime you’d like — as long as you maintain the minimum balance requirements.

Check Out Our Top Picks:

Best Money Market Accounts of 2021

These accounts are also subject to the federal withdrawal and transfer limits, so plan accordingly. To get an account started, expect to commit to an initial deposit of $1,500 or more.

Many banks tier their deposit levels so that the more cash you put into your account, the better interest rate you’ll receive. If you have larger levels of savings that you don’t anticipate digging into too much in the near future, it could be a good option for you.

Certificate of Deposit

To get the highest rate on a savings account, you can consider a certificate of deposit, also called a CD. Depending on the bank or credit union, rates start at 0.5% and can go just above 1.0%. There’s typically no fee to open an account and the risk is low since most banks issuing CDs are FDIC-insured. So what’s the catch?

When you open a CD, you must select a commitment period in which you won’t make any withdrawals. The longer term you select, the better rate you’ll receive. Most CD terms range anywhere between six months and five years, so you definitely need to have a financial plan.

If you do decide to withdraw the money early, you’ll be hit with a fee charged as a deduction of interest from a certain amount of time. For example, if you take out money early, your bank might withhold the interest earned from the last three months.

How should you choose a savings account?

There are a few different considerations to think about before jumping into a savings account. Start off by thinking about your savings as a whole and how you might need to access your money.

If you’re just starting to save, keep those emergency funds in an accessible account that doesn’t take time or accrue fees whenever you make a withdrawal. As you save more, consider diversifying your account types and putting funds in a higher yield fund — even if it means larger deposits or a term limit commitment.

Maintaining a large minimum balance might sound difficult, but if you’re setting aside money for a long-term goal, it may keep you from the temptation to spend the funds on something else. And unless there’s a term limit, you can always close the account when it’s time to withdraw so you don’t have to pay a maintenance fee.

Moving Money Around

Don’t worry about getting it all right the first time. That’s the great thing about most savings accounts — you can open and close them as needed to suit your needs.

You might look for signup bonuses and simply move your money around once or twice a year. Or you could purchase CDs in varying lengths so that you get on a schedule of having the term end consistently.

While choosing your savings account does take planning, it also takes regular adjusting. Make a decision, and in a few months, check-in with yourself and see how it’s working.

How do you open a savings account?

Depending on the bank or credit union, you can either open an account online or in-person. Most places allow you to do this over the Internet, but smaller banks and credit unions may require you to go in person.

Either way, the process is simple. You just need your ID, social security number, personal information, and the required minimum deposit. The process is even simpler if you already have an online savings account with the bank since they already have your basic information.

Online & Mobile Banking

Once you’ve opened your bank account, you can sign up for online banking and download an app if the bank offers one. This can make it easy to access your account on the go, plus scan and deposit checks from anywhere. You can also link your savings account to your checking account so that you can transfer money easily.

Opening one or more savings accounts can be an extremely useful tool in managing your finances. It can help you stay on top of your savings goals while also having easy access to your money when you need it. Take a few minutes to consider your options, then get started with the best choice today — there’s no reason to wait.

Source: crediful.com

Posted on January 26, 2021

12 Best Money Market Accounts of 2021

A money market account is a type of savings account that typically requires a higher minimum deposit and daily balance, yet it offers higher interest rates than most standard savings accounts.

Ready to get started saving? Check out our top picks for this year’s top money market accounts.

Top 12 Money Market Accounts

CIT Bank

If you don’t have a large nest egg but still want to take advantage of high money market rates, consider CIT Bank.

The minimum opening balance is just $100 and the APY is 0.50%. With no opening fee or monthly service fee, you’ll only pay fees for wire transfers, overdrafts, excessive transactions, and stop payments.

Interest compounds daily so you can maximize your already-high yield. When you’re ready to make a transaction, simply use People Pay online or through the mobile app. Like other money market accounts, you’re allowed to make six withdrawals or transfers from your CIT Bank account for each statement cycle.

With minimal fees and an extremely competitive yield, CIT Bank’s money market accounts are ideal for savers of all kinds, especially those starting off with smaller amounts of funds.

BBVA

BBVA offers a competitive introductory APY for their money market account, with no minimum balance required.

You just need $25 to open your account. For the first 12 months, you’ll earn a 0.15% APY on the funds in your account. Once the introductory period ends, you’ll receive a standard rate on your account.

When you open a money market account with BBVA, you’ll have to pay a $15 monthly fee, unless you meet one of two exemptions.

The first is if you maintain a daily minimum balance of at least $10,000 each quarter. The other option is to set up a minimum $25 monthly transfer into account. The funds must come from your BBVA checking account.

You can also link it to your checking account to serve as overdraft protection. With most savings accounts, you can make up to six withdrawals each month.

Axos Bank

Earning 0.60% APY, Axos Bank is another example of a money market account with no minimum monthly balance.

There’s not even an initial deposit required to open the account, so you get access to the benefits without having to save a lot ahead of time.

Axos Bank’s money market account allows you to earn more interest than it’s high-yield savings account, and it also offers more flexibility in accessing your cash. For example, you get limited free check writing abilities and a free Visa debit card.

These two features let you use your savings as a checking account while still earning interest. Of course, if you’re likely to overspend on your savings when it’s unnecessary, you may not want such easy access to your funds.

They offer automatic bill pay directly from your account, as well as mobile banking and mobile deposit services.

That makes saving even easier because you can deposit checks into your account straight from your smartphone. Axos is a great choice if you like to have quick, easy access to your funds while still earning interest on what you have.

Sallie Mae

Did you know Sallie Mae doesn’t just service student loans? It has a whole area of banking features. One of these is a money market account with a 0.55% APY.

There’s no minimum deposit required so you can either start saving from scratch or transfer over existing funds when you open your account. Plus, you get to write checks directly from your account. Add to that no monthly fees and you have a strong contender for your savings goals.

To make a deposit, simply choose one of four convenient options: depositing a check electronically through your mobile phone, setting up a direct deposit, transferring funds electronically, or mailing in a check.

You can easily transfer funds from your money market account to your linked bank account and the process only takes 2-3 business days to post to your other bank.

If you overdraw your account due to insufficient funds, Sallie Mae charges a $19 fee, or whatever funds are remaining in your account so that your balance doesn’t go below zero.

This is quite a generous policy compared to many other financial institutions. For quick transfers and relatively low overdraft penalties, Sallie Mae is worth considering for your money market needs.

AbleBanking

AbleBanking’s money market account offers a 0.50% APY with a below standard $250 minimum deposit to open your account.

This is a really accessible threshold for a money market account, so it’s a great way to get your foot in the door without needing an extremely high opening balance.

However, you can only link your account to one external U.S. bank, so you must be comfortable with transferring money from only one location.

On the plus side, transfer times are quick, with same-day transfers occurring before 5:00 p.m. on your AbleBanking money market accounts. Plus, it’s just a 2-3 day wait when transferring to and from an external bank. Compare that to a 5-10 day wait with other banks, and it’s not really that long.

On top of that, they also make it easy for charitable giving. In fact, every time you open a new account, AbleBanking donates $25 to the charity of your choice. It must be a 501c(3) organization, but other than that, you can pick whatever non-profit you’d like.

Also, if you refer a friend to open an account with AbleBanking, you get an additional $25 to donate on top of your friend’s donation as a new customer.

You also can donate to non-profits directly from your money market account without incurring any hidden fees. AbleBanking is a great choice if you’re looking for a strong money market account with a good dash of altruism.

UFB Direct

UFB Direct is a division of Axos bank, and it offers an online money market and savings accounts for consumers. And like many online banks, UFB is able to offer much higher rates than what traditional brick-and-mortar banks can offer.

For instance, the UFB Premium Money Market boasts an APY of 0.20%. Customers have limited check-writing privileges, and the account comes with a complimentary debit card.

It’s free for customers to transfer money between accounts. And UFB Direct’s mobile app makes it easy to manage your money and deposit checks.

However, you’ll need to have a minimum balance of $5,000 to open the account. And you’ll only earn the 1.90% APY if you maintain an account balance of $25,000 or higher. If your account balance is less than $25,000, you’ll receive a 0.50 APY.

And if you have other accounts through Axos Bank, you’ll need to check to make sure you don’t exceed FDIC guidelines.

Discover Bank

Discover Bank is mostly known for offering credit cards, but it also provides a host of online banking products, including a money market account. One of the best things about opening a money market account through Discover is that there are no account fees.

If you have more than $100,000 to save, then you can earn a 0.40% APY. For balances that are under $100,000, you can still receive a 0.35% APY. And with Discover, you’ll have access to over 60,000 ATMs across the country.

Discover also offers a mobile app that makes it easy to track your funds even when you’re on the go. The app lets you deposit checks, temporarily freeze your debit card if it’s lost or stolen, and keep track of your account balance.

TIAA

TIAA Bank (formerly EverBank) offers a high APY of 0.45% to new customers in the first year, but there is a maximum balance of $250,000 to receive that rate.

After the 12-month introductory period is over, your APY depends on your account balance.

Another interesting feature by TIAA Bank is its pledge to keep its APY in the top 5% of money market rates offered by its main competitive accounts.

To open a money market account with TIAA Bank, you must have an initial deposit of $1,500, and you only qualify for the 0.70% introductory APY if those funds are transferred from a non-TIAA Bank account. Still, there’s no monthly fee for this high interest rate, so if you have the money available, it could be a wise move.

You also get a pretty wide range of ATM freedom with TIAA Bank. You can use your Visa debit card at any TIAA Bank ATM throughout the country for free. Any non-TIAA Bank ATM fee you incur is reimbursed in full when you keep your balance above $5,000.

If you’re frequently on the go and want easy access to your cash, it’s a benefit worth remembering while making your decision.

Betterment

Betterment is best-known as a robo-advisor, but they also offer a high-yield savings account. There’s no minimum balance required to open the account, and you can earn a rate of 0.40% APY.

When you bank with Betterment, there are no monthly fees, and any ATM fees you incur will be reimbursed. You can transfer money between your accounts as much as you need to. And your account is eligible for up to $1 million in FDIC insurance.

And best of all, Betterment is planning to release a checking account and debit card very soon. So this could be the perfect complement to your Betterment savings.

However, you won’t have access to any branch locations, which some people may consider a downside. And you won’t be able to write checks from your account.

Capital One 360

Capital One 360 money market accounts earn 0.50%. There’s no minimum deposit required, but you must have some type of balance to consider the account officially ‘opened’ (even if it’s just a penny).

Currently, Capital One doesn’t offer debit cards or personal checks for the money market account, but you can take advantage of mobile check deposits through your smartphone. Deposits can also be made via electronic transfer, over the phone, by mail, or through approved wire transfers.

Additionally, you can access your account online or through the mobile app. As for withdrawals, you can request them either online or over the phone.

There are no monthly or annual fees charged. However, you should note that there is no overdraft protection offered and you must agree not to withdraw more than your current balance.

As long as you consistently keep track of your balance and don’t mind having a few restrictions in accessing your funds, then the Capital One 360 money market account could be a good option to consider.

Ally

Ally offers a low entry money market account that gives you quick and easy access to your money. Unlike the bank’s traditional savings account, you can access your money with both a debit card and personal checks.

And if you maintain a minimum daily balance of $25,000 or more, you can qualify for a higher savings rate of 0.50% APY. This option is tailored to those just getting started saving and who need easy access to the funds in their money market accounts.

Ally doesn’t charge any monthly maintenance fees and has some nice ATM benefits. Any Allpoint ATM in the country is available for use free of charge, and even if you use another ATM, Ally will reimburse your fees up to $10 each cycle.

Some common fees include a $25 charge if you overdraw from your account (but that is limited to one per day) and a $10 excessive transaction fee if you take out funds over the federal monthly maximum of six times.

Santander

You’ll have to come in with a strong deposit to take advantage of Santander Bank’s best money market rates.

While the opening deposit is just $25, you’ll need a minimum balance of at least $100,000 to qualify for a high interest rate of 0.10% APY. If your balance is less than $10,0000, you’ll earn on a tiered basis:

  • $1 to $9,999.99: 0.10% APY
  • $10,000 to $49,999.99: 0.22% APY
  • $50,000 to $99,999.99: 0.30% APY

You’ll also need that $10k balance to avoid a $10 monthly fee assessed on your account. The other way to avoid that monthly fee and not worry about your minimum balance is to open a checking account at the bank.

So if you are in need of a new bank altogether for both checking and savings, or you need a high yield account for your larger savings fund, Santander Bank is certainly a great place to start looking.

What is a money market account?

A money market account is a savvy way to save, especially if you’ve already accumulated a fair amount of funds to put away.

You also get to retain the convenience and flexibility of a regular savings account by making withdrawals as you need them without the wait time of other savings accounts. You might even be able to write a few checks from your account, depending on the bank.

This makes your funds much more accessible compared to an account like a CD with a predetermined term. There are never any penalties so you can get your money when you need it while still earning above-average yields.

lady on laptop

Bottom Line

Money market accounts certainly have more restrictions than your typical savings account but because they generally come with better interest rates, it can be a great way to save money.

As with any account, it’s essential to make sure you find the best money market account for your needs that banks and credit unions have to offer.

Source: crediful.com

Posted on January 25, 2021

How to Use Your Debit Card Cash Back to the Fullest

Ever wish you had money to play with? More cash to save? Here’s how to make the most out of those extra dollars you earn.

What if you could pay for your next date night or trip to the grocery store—without having to dip into your budget? If you use cash back to your advantage, these benefits could become a reality.

In the past, you had to swipe a credit card to earn cash back. But with Discover Cashback Debit, you can earn cash back by spending with your debit card (you read that right: debit card), allowing you to reach your financial goals without the risk of going into debt.

To best use this budget bonus, you might be wondering, “What should I do with my debit card cash back?” According to Eric Rosenberg, financial consultant and founder of the website Personal Profitability, “You could put [your cash back] into savings or treat yourself to something from your wish list.”

Read on for things to do with cash back to help you achieve the right balance of responsibility and fun:

1. Save for a rainy day

Sometimes it seems like everything goes wrong all at once: You get a flat tire. The sink starts leaking (ugh, again!). You get a parking ticket. Since life can throw unexpected, costly curveballs your way, it’s important to have an emergency fund. Also known as a rainy day fund, an emergency fund is cash that’s set aside to cover unplanned, yet crucial, expenses.

If you're not sure how to use your debit card cash back, consider adding it to your rainy day fund.

“So many people can’t afford the cost of an emergency from their savings,” Rosenberg says. If you don’t have this type of fund to fall back on, starting an emergency fund (or adding to an existing fund) could be a top priority when evaluating what to do with your cash back from a debit card.

When thinking about building an emergency fund as a thing to do with cash back, note that experts typically recommend putting aside at least three to six months of living expenses for this purpose. To maximize your emergency fund, you may want to consider moving these savings (and the cash back you’re putting toward this fund) to a high-yield savings account. That way, your emergency fund can steadily grow with interest until you need it. (P.S. More to come on how to automatically move your cash back into savings.)

2. Pay down your debt

If you owe, it can be tough to climb your way out of debt. Whether it’s from credit cards, student loans or a mortgage, interest is accruing and costing you money. Learning how to use your debit card cash back to offset debt can help you save on those interest payments down the road.

Learning how to use your debit card cash back to offset debt can help you in the long run.

According to consumer money-saving expert Andrea Woroch, when you’re focusing on paying off debt, “It’s natural to cut back where you can. But you may eventually hit a wall where you can’t find ways to tackle expenses any further,” she says. That’s where learning how to use debit card cash back comes into play. Since a debit card with a cash back feature can allow you to earn for your everyday spending, those earnings can become a new source for paying down debt, Woroch adds.

3. Shore up for those special moments

You know you’d like to have more nights out, but they don’t come cheap. What to do with your cash back could include spending on special outings, Woroch says. Is there a restaurant you and your significant other have been dying to try? Is there a concert the whole family is super eager to see? There may also be larger events with family and friends to think about—planning a milestone birthday or anniversary or that getaway with college buds. You can set aside your debit card cash back and earmark it for your relationships to create memories that will last a lifetime.

4. Support your children’s allowance

If you have kids, you’ve probably heard this one before: “Mom, Dad, can I have some money?” Sometimes it can feel like you’re a walking ATM. One thing to do with cash back is to set aside an allowance for your kids. You can then use this cash to teach your children good savings habits and how to manage money on a monthly basis for the things they need and want, says Rosenberg of Personal Profitability. The best part: The money isn’t really coming out of your budget since you’re earning it for your everyday expenses and from money you’d be spending anyways. Win-win.

5. Stockpile funds for the holidays

In thinking about what to do with your cash back, spending it on gift-giving and holiday expenses may be a good goal. “Some people go into debt during the holidays. To help avoid that circumstance, use your cash back to get ahead,” Woroch says.

And, really do think ahead if holiday spending is on your list of things to do with your cash back. The earlier you stash your cash back away for the holidays, the longer it will have time to accrue if you put it in a savings account for safekeeping. Season’s greetings may be the last thing on your mind while you’re flipping burgers on the 4th, but planning ahead could really impact your end-of-year festive spending.

How to maximize your cash back

Now that you know what to do with your cash back—whether it’s going to work for your emergency fund or funding emergency holiday gifts—consider steps you can take to get the most out of your extra dough. For example, find a rewards program that matches your spending style. With Discover Cashback Debit, you can earn 1% cash back on up to $3,000 in debit card purchases each month.1 That’s up to $360 a year. Not too bad for just going about your daily debit card spending.

Get 1% cashback on Debit from Discover. 1% cashback on up to $3000 in debit card purchases every month. Limitations apply. Excludes Money market accounts.Discover Bank,Member FDIC.Learn More

To make the process of saving that extra cash even easier, consider opening a Discover Online Savings Account. If you sign up for Auto Redemption to Savings, your cash back will be automatically deposited into your savings account every month.

“The hardest part about saving for many people is remembering to make a transfer or take the cash to the bank,” Rosenberg says. “If you can automate it, you are setting yourself up for success. It’s like saving while you sleep.”

If you’re still considering how to use your debit card cash back to the fullest, Woroch suggests paying for group purchases when you’re out with family or friends. “Whether you’re going to dinner or renting a condo, cover the entire expense on your card and ask friends and family to pay you back with cash or [via mobile payment],” Woroch says. “This way you can benefit from earning more rewards.”

When it comes to how to use your debit card cash back, the key is to make sure you have enough in your account and aren’t spending too much if you offer to temporarily foot the bill. You don’t want to overextend in order to earn, as you could be hit with overdraft fees or not have enough in your account to cover bill payments, Woroch says.

Get ahead with a combination of strategies

If you’re looking for things to do with cash back, using these tactics can help you improve your financial foundation and have some fun along the way. Understand your needs and goals to help you create a cash back plan, and then maximize your strategy with tools to help you automatically direct your cash back to savings to limit the temptation to spend the money elsewhere.

“We are all so busy these days, and managing money is often pushed down on the to-do list,” Woroch says. Learning how to use your debit card cash back can help you put money management front and center. Start earning!

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™, who 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.

Source: discover.com

Posted on January 24, 2021

Deciding When to Use Your Emergency Fund: Is Now the Right Time?

Personal finance expert Jim Wang offers tips and best practices on how to use your emergency fund.

When the coronavirus pandemic hit the U.S., it sent shock waves throughout the economy and people’s pocketbooks.

Millions have lost their jobs or taken pay cuts, causing families to make hard financial decisions. For those with emergency cash saved up, it has become an important lifeline. But it’s not always obvious how and when to spend your emergency fund. So if you’re wondering, “How should I manage my emergency fund during a recession?”—you’re not alone.

“Sometimes [emergencies] can be foreseen, but most often they come out of the blue,” says Jim Wang, founder of personal finance blog Best Wallet Hacks. “It’s okay to use [your emergency fund]—that’s what it’s there for.”

Emergency cash can be an important lifeline. But it’s not always obvious when to use your emergency fund.

This economic crisis came out of the blue for many families. A May 2020 AP-NORC poll1 found that 49% of Americans say they or someone in their household has lost wages either through being laid-off, having a wage or salary reduction, working fewer hours or having unpaid time off.

In response, the U.S. government acted quickly to introduce financial relief, sending stimulus checks to taxpayers and providing qualifying businesses with loans to help them meet payroll. And in a sweeping change to a law called Regulation D, the Federal Reserve Board suspended enforcement of the monthly limit for certain types of withdrawals or transfers from savings deposits. Financial institutions may opt to suspend the six-transfer limit, but are not required to do so.

All of these factors are impacting considerations around emergency funds and may have you questioning how to use your emergency fund. To help steer you through whatever uncertainty you might be facing, Wang offers insight into when to use your emergency fund, how to manage your emergency fund when times are tough, how the Regulation D change may affect you and tips on how to build (or rebuild) your emergency fund.

To spend, or not: When to use your emergency fund

Commonly known as a last-resort reserve, an emergency fund is supposed to be there for you when you’re in a jam.

This can mean large, unexpected expenses, like when your fridge springs a leak, your stove is on the fritz or you need emergency dental work. But expenses come in all shapes, sizes and moments of your life. So how can you tell when to spend your emergency fund—especially during a recession?

It can be hard to know when to spend your emergency fund because expenses come in all shapes, sizes and moments of your life.

Simply put, if you think your short-term checking account isn’t going to cover any essential bills or expenses, such as housing, utilities and food, then you should use your emergency fund. Products and services that aren’t essential, such as TV streaming services or magazine subscriptions, fall into the “want” category. They should not be paid for with emergency funds.

“You really want to make sure you keep your emergency fund for emergencies that must be addressed right now,” Wang says.

In fact, as you consider when to spend your emergency fund, you should be actively removing costly nice-to-haves from your life. Not sure what expenses to cut? Sort through your monthly statements and highlight anything that isn’t absolutely required. “While it may be hard to cut some subscriptions, just tell yourself that it’s only temporary and you can sign back up at a later time,” Wang says.

As you decide how to use your emergency fund, Wang advises against dipping into the fund for minor or non-essential expenses with the expectation to rebuild after another paycheck—especially during times of financial hardship or in the middle of a recession.

Make the Regulation D change work for you

In April 2020, the Federal Reserve Board suspended enforcement of the monthly six-transfer limit in Regulation D. While not a requirement, the interim rule gives financial institutions the option to waive the monthly limit. This could allow consumers more flexibility with the savings accounts containing their emergency funds. This was the first change to Regulation D transaction limits since 2009, during the financial crisis.

“You really want to make sure you keep your emergency fund for emergencies that must be addressed right now.”

– Jim Wang, personal finance expert

If you’ve ever transferred or withdrawn money from savings or money market accounts and received a warning that you’ve hit your transaction limit, you’re probably more familiar with Regulation D than you think.

“I ran into this myself a year ago,” Wang says. “It happened to be my seventh transaction and I received a warning from my bank.”

Prior to the change, certain types of withdrawals and transfers from savings and money market accounts were limited to a total of six times per calendar month per account.

With the limit temporarily suspended, consumers may now be allowed an “unlimited number of convenient transfers and withdrawals from their savings deposits at a time when financial events associated with the coronavirus pandemic have made such access more urgent,” according to the Federal Reserve Board.

If you’re considering when to use your emergency fund, this is great news if you keep your fund in a savings or money market account. If the monthly limit has been suspended by your financial institution, you may have the flexibility to use your emergency fund to ease financial stress and cover unexpected, high-priority expenses without having to worry about the fees or account closures that can sometimes come with an excessive number of withdrawals.

To decide how best to use your emergency fund, be sure to check with your financial institution to confirm whether the monthly transaction limit on your savings or money market account has been suspended.

To provide easier access to funds during the crisis, Discover is not currently enforcing the monthly transaction limit on the number of certain types of withdrawals and transfers out of a Discover Online Savings Account or a Discover Money Market Account. You can rest assured knowing that your account won’t be at risk of closure due to excessive limited transfers out of your account.

Keep in mind that there is no set timeframe on if (or when) the transaction limit may be enforced again.

Keep saving during a recession if you can

When dealing with a financial emergency, it’s only natural to wonder if you should pull from investments, retirement funds or savings accounts not designated for emergencies.

But while it might be tempting to dip into investments and cash out, it’s important to focus on the long term as you decide when to use your emergency fund. After all, you alone can’t keep the market from going up, down or sideways, but you can keep your investments on an upward trajectory. “Think about your investment as a time capsule,” Wang says. “You can put stuff in, but you can’t take anything out.”

Opting to use your emergency fund instead of dipping into other high-priority, often long-term savings or investment vehicles will allow the accounts to grow over time without disruption.

As you decide how to use your emergency fund, you may want to dip into it, rather than long-term investment vehicles, to deal with a financial emergency.

“I have a rollover IRA that I won’t access until I’m in my 60s—that’s over 20 years away,” Wang says. “If I look back 20 years, we’ve had the dot-com bubble bursting, the financial crisis and the Great Recession, and we’re currently going through the coronavirus pandemic, but [my] IRA is still up because of the massive bull market between the Great Recession and this year. It’s best to leave it be because trying to time everything is going to be a lot of stress you don’t need at a time when you’re already dealing with other stresses.”

Recession-proof your budget

As you determine when to spend your emergency fund and how, you’ll also want to rework your budget to reflect your new normal—especially if you’ve experienced a change in your income. To extend the life of your emergency fund and determine how to use your emergency fund more effectively, seek money-saving alternatives or work to earn short-term, supplementary income.

In addition to cutting back on expenses, try to find ways to save money in your daily life. Maybe you can cook at home instead of ordering delivery, or you can finally tame your online impulse buying. If your financial situation gets more severe, you can also seek out community resources, like a local food pantry, to offset essential expenses that may be difficult to cover at the moment.

As you plan when to spend your emergency fund, you should also rework your budget to reflect your new normal, especially if your income has changed.

If you’re employed and have some extra time to spare, a side hustle can turn things you already do, whether at home or at work, into extra money. This option is a great way to supplement your current income and keep up with minor expenses without having to spend your emergency fund or dip into your savings accounts.

“After you’ve cut your expenses, you can look for ways to earn a little extra income, which may take the form of odd jobs, like walking dogs or delivering food,” Wang says. “You can also try to find jobs that are strictly online, like transcription or becoming a virtual assistant. If you’re willing to do a little extra digging, there are plenty of opportunities.”

Rebuild your emergency fund

After you’ve determined when to spend your emergency fund, you’ll likely be motivated to get it back to the state it was in before the emergency. The approach to replenishing lost funds is no different than building your funds, Wang says, and it starts by establishing a financial plan that helps you reach your goal in a sustainable time period.

“Experts say you should aim to get six to 12 months of expenses into an emergency fund, but you can’t be expected to get that [amount] within a month,” says Wang.

“Think about your investment as a time capsule. You can put stuff in, but you can’t take anything out.”

– Jim Wang, personal finance expert

If your budget has $100 of surplus each month after you’ve cut back on expenses, found money-saving alternatives or explored a side hustle, you can save your first $1,000 in 10 months. During that same time frame, if you can, try to find ways to cut expenses further so that you can reach that amount sooner or put your money-saving alternatives or extra income to use.

Start an emergency fund from zero

Forty-one percent of U.S. adults report that they would tap into their savings to cover an unexpected $1,000 expense—and the higher the household income is, the more likely they are to use savings to pay for unanticipated costs, according to a January 2020 Bankrate survey.

While the task may seem daunting, especially during rough times, you should consider building your emergency fund now.

Start with a goal that makes sense for your financial situation and don’t force yourself into saving up your entire emergency fund amount immediately, Wang advises. “It comes down to treating it like a savings goal and building a surplus into your budget so you can put it in an emergency fund.”

If you’re deciding when to use your emergency fund, but starting from zero, you may be able to build one by selling unused items.

If you don’t have a surplus, make one. Do you have a winter coat you haven’t worn in years or an old computer, coffee machine or television that still works but you don’t use? Sell them and reap the rewards of extra cash and a roomier closet.

Your emergency fund: There when you need it

Ultimately, an emergency fund offers an important financial cushion. Not only does it help cover unexpected expenses, it can also keep you afloat during rocky times. No matter the situation, if you’ve found yourself in a financial position where you need to act now, then now may be the right time to spend your emergency fund.

Now that you know how to use your emergency fund during a recession, you may want to master some more recession-proof strategies. Keep reading to find out how parents can learn how to protect their retirement savings from a recession.

1 The Associated Press-NORC Center for Public Affairs Research. May 2020. Economic Attitudes as the Country Starts to Reopen. https://apnorc.org/projects/economic-attitudes-as-the-country-starts-to-reopen/

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Source: discover.com

Posted on 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.
Get 1% cashback on Debit from Discover. 1% cashback on up to $3000 in debit card purchases every month. Limitations apply. Excludes Money market accounts.Discover Bank,Member FDIC.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.

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Source: discover.com

Posted on January 23, 2021

Compounding Your Savings for Retirement

With compounding interest, you can build your savings faster—and save even more.

In olden days, people stashed away extra money in their mattresses or cookie jars which is not a good idea if you have a flood or fire or even a lapse in memory. Fortunately, you now have many choices for storing your money—in reliable retirement accounts. These choices not only provide stability and security, but also give the important bonus of earning interest and compounding the value of your money, which means increasing the value of your retirement savings well beyond the amount you have deposited.

How Compound Interest Works

When you have money in an account with compound interest, it allows you to build upon your savings quickly because you earn interest not only on the amount you have contributed, but also on the interest you have earned in prior periods. Within each period you’re earning interest on the total balance in your account, not just on what you have managed to save. With this in mind, saving early is critical to meeting your retirement goals. Saving early can also reduce the need for you to contribute large sums to your savings as you near retirement.

Couple riding bikes along the water

As an example, if you put $1,000 into an account with simple interest of 2.34% Annual Percentage Yield (APY), you will have $1,702 after 30 years. If, however, you have that same $1,000 in an account with compound interest of 2.34% APY, you will have $2,018 after 30 years.

Now let’s talk about how to save for retirement.

Choices For Retirement Accounts

Once you start saving for retirement, you have several choices of retirement accounts: 401(k), Roth IRAs or Traditional IRAs.

  • 401(k). Many companies now offer 401(k) savings opportunities for employees rather than pensions. With a 401(k) you have money withheld from your paycheck for a retirement account managed by the company’s financial partner. Often your contributions are withheld pre-tax, lowering the amount of taxable income in your paycheck and maximizing the amount you contribute to your retirement account. Also, it is common for companies to match a percentage of your total contribution.
  • Roth vs. Traditional IRA. The Traditional IRA is funded with pre-tax funds, meaning that you don’t pay tax on the money that you put into this account now, but you will pay tax on it when you withdraw the funds from your account later on. The Roth IRA is taxed up-front, so you don’t get a tax savings on your deposit now but you won’t pay taxes on qualified distributions in retirement. Check with your financial or tax advisor for help making the best choice for your personal needs.

Whichever path you choose, try to set up regular salary contributions with a fixed amount from every paycheck going into your retirement account. The IRS has a limit on annual contributions based on age and marital status, so check to see what applies to your personal and family situation to avoid overestimating the amount you can contribute.

Couple looking at compounding interest calculations on a mobile phone

IRA Interest Rates/APY

Because retirement accounts are established to meet long-term savings goals, banks and other financial institutions typically consider retirement accounts to be less risky than other consumer deposit account types, such as savings and money market accounts. What that means for you is that banks may offer slightly higher IRA interest rates than regular savings accounts rates. This is another way that retirement accounts make your savings grow faster.

Any financial institution will give you current information on IRA interest rates or APY. They can’t predict the future, but with a fixed-rate IRA CD, you know exactly what interest rate your money will earn over the term you select. Like other consumer savings accounts, IRA deposits are protected by FDIC insurance, to the maximum allowed by law, making them far more secure than the money in your mattress.

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.

Source: discover.com

Posted on 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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Still deciding between a money market account and a savings account?

Go with a savings account if…

  • 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

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