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Apache is functioning normally

May 29, 2023 by Brett Tams

When I worked for my old brokerage firm, I was a W-2 employee and the retirement plan options were simple. I had the 401k and could also do a Traditional or Roth IRA outside of it. Things changed a bit when I started my own company.

I officially became a small business owner and had man more choices on retirement plans. What options do hands-on owner-operators have and which one is the best for you? If you have a small company and want a retirement program, you want to consider these plan choices.

Traditional or Roth IRA

I know what you’re thinking. A traditional or Roth IRA isn’t exactly a “business retirement plan”. But, if you are self-employed or own a business, you can still take advantage of these retirement accounts. An IRA is an Individual Retirement Account and can be a great way to save for retirement while also taking advantage of tax benefits.

There are two types of IRAs: traditional and Roth. With a traditional IRA, you will make your contributions with pre-tax dollars, reducing your taxable income for the year. The money will then grow tax-free until you withdraw it in retirement, at which point all of the withdrawals are taxed as ordinary income. With a Roth IRA, you will make contributions with after tax dollars (reducing your take home pay). The money will still grow tax-free until you withdraw it in retirement, but the difference is that all of your withdrawals are tax free.

With either type of IRA, there are contribution limits and other rules you should be aware of before setting up an account. It’s also important to do research on different providers so you can find an IRA with low fees and good investment options.

Feature	Roth IRA	Traditional IRA
Tax Treatment	Contributions are made with after-tax dollars and grow tax-free. Distributions in retirement are tax-free.	Contributions are made with pre-tax dollars, reducing your taxable income. Distributions in retirement are taxed as ordinary income.
Income Limits	Contributions are limited based on income. In 2023, the phase-out range for single filers is $130,000-$145,000 and for married filers is $195,000-$205,000.	There are no income limits for contributions, but there are limits on tax deductions based on income and participation in an employer-sponsored retirement plan.
Required Minimum Distributions	Roth IRAs do not have required minimum distributions (RMDs) during the account owner’s lifetime.	Traditional IRAs have RMDs starting at age 72, which require the account owner to take a certain amount of money out of the account each year.
Early Withdrawals	Contributions can be withdrawn at any time without penalty. Earnings can be withdrawn penalty-free after age 59 1/2 and after 5 years of account ownership.	Early withdrawals before age 59 1/2 may be subject to a 10% penalty, in addition to income taxes.
Contribution Limits	In 2023, the contribution limit is $6,500 per year ($7,000 for those age 50 or older).	In 2023, the contribution limit is $6,500 per year ($7,000 for those age 50 or older).

The SIMPLE IRA

These plans are very easy to create, and they have very low administrative costs and no annual IRS reporting requirements. You set up traditional IRAs for each eligible employee; they can contribute to the IRA on a tax-deferred basis (via payroll deductions, and you can either match the contributions of plan participants or contribute a fixed percentage of all eligible employees’ pay. The employees own the money in their IRAs.

I had considered going with the Simple IRA initially, but the one item I didn’t like is that it has a 25% early withdraw penalty for the first two years. This is well over the standard 10% all other plans have. In the event I did get into a bind, I didn’t like the idea of having to pay the extra to get it out.

The SEP IRA

A Simplified Employee Pension plan lets you make contributions toward your retirement and your employees’ retirements. (You can even have a SEP and another kind of retirement plan at your business simultaneously.) A SEP allows business owners annual tax-deductible contributions equal to 25% of your compensation (if you have a corporation) or 20% of self-employment income (for a sole proprietor).

This is currently what I have and should satisfy me for a few more years. I even opened up two separate accounts so I could invest with Betterment and another where I control my own investments. Pretty soon I hope to graduate to the next level…

The Solo 401(k)

Are you ready to fly solo? As in a “Solo” 401(k). Yes, you can have a 401(k) when you are self-employed. A business owner may establish one and include their spouse in the plan, provided the spouse is an employee of the business. A solo 401(k) throws in a profit-sharing twist on the standard 401(k). Solo 401ks may be funded by the employee (deferred compensation) and the business (a percentage of profit).

As an employee of your business, you can contribute an amount up to the standard yearly 401(k) contribution limit (catch-up contributions permissible if you are 50 or older). Additionally, solo 401(k) plans allow you to make tax-deductible profit-sharing contributions equal to 25% of your compensation (corporate entity) or 20% of self-employment income (sole proprietor). It is even possible to have a solo Roth 401(k). These plans do require a TPA (third-party administrator).

Ultimately, the Solo 401(k) will allow me to contribute the most pre-tax, but my income has to get me there first 🙂

Here’s one way to compete with larger companies for prime employees. Contributions are usually deductible at both the federal and state levels, with contribution limits equivalent to a SEP. Contributions aren’t mandatory. If your business has a bad year, you don’t have to make them. The assets placed within the plan grow tax-deferred. Again, annual tax-deductible contributions may be made according to the 25%/20% rule depending on your business entity.

New comparability plans

Basically, this is a form of profit-sharing plan that rewards senior or key employees more than others. The classic situation for this plan is when you have a small business whose multiple owners take home similar earnings but are of different ages. The plan must be tested to meet Internal Revenue Code nondiscrimination requirements, of course. It allows different levels of compensation to different groups within a small business.

Plan Type	Description	Contribution Limits	Employer Contributions	Employee Contributions	Eligibility Requirements
401(k) plan	An employer-sponsored retirement plan that allows employees to save for retirement on a pre-tax or after-tax basis.	$22,500 per year (2023), with catch-up contributions allowed for those over 50.	Employers can choose to match employee contributions up to a certain amount, or make a profit-sharing contribution.	Employee contributions can be made on a pre-tax or after-tax basis.	Available to any business, including self-employed individuals.
Traditional IRA	An individual retirement account that allows individuals to save for retirement on a pre-tax basis.	$6,500 per year (2023), with catch-up contributions allowed for those over 50.	None, but some employers may offer a SIMPLE IRA option for employees.	Contributions are made by the individual.	Available to anyone under age 70 1/2 who has earned income.
Roth IRA	An individual retirement account that allows individuals to save for retirement on an after-tax basis.	$6,500 per year (2023), with catch-up contributions allowed for those over 50.	None, but some employers may offer a SIMPLE IRA option for employees.	Contributions are made by the individual.	Available to anyone with earned income below a certain threshold.
SEP IRA	A Simplified Employee Pension Plan that allows employers to make tax-deductible contributions to a traditional IRA for each eligible employee.	The lesser of $66,000 or 25% of employee compensation for the year.	Contributions are made by the employer.	None, but employees can contribute to a traditional IRA outside of the SEP plan.	Available to any business, including self-employed individuals.
SIMPLE IRA	A Savings Incentive Match Plan for Employees that allows employers and employees to make contributions to a traditional IRA.	$15,500 per year (2023), with catch-up contributions allowed for those over 50.	Employers can choose to match employee contributions up to a certain amount, or make a non-elective contribution.	Contributions are made by the employee.	Available to businesses with 100 or fewer employees.
Defined Benefit Plan	A retirement plan that provides a specific benefit amount at retirement, based on factors such as salary and years of service.	Contributions are determined by an actuary based on funding requirements.	Contributions are made by the employer.	None, but employees may be required to meet certain eligibility requirements, such as a certain length of service.	Generally available to larger businesses with the ability to fund ongoing plan obligations.

What plan is best for your business?

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If you are reading this, you are probably thinking about putting a plan into place or switching to a retirement program more easily administered than the one you have now? But which one should you choose – and what is the next step? Take a big step today and take advantage of all that is available in the marketplace – consult an independent financial professional and a CPA to review your options and find the program that fits your needs.

Source: goodfinancialcents.com

Apache is functioning normally

May 28, 2023 by Brett Tams

When it comes to different types of retirement plans there are far more options out there than you might be aware of: 401k’s, 403b’s, Keogh Plans, DB(k)’s. Is your head spinning yet?

One lesser know retirement plan is the 457 Plan, which is often referred to as a Deferred Compensation plan or Deferred Comp. It’s a lesser known retirement plan because it is only offered to certain types of employees.

What is a 457 Plan?

A 457 plan is a type of tax-advantaged retirement savings plan offered by governmental employers in the United States. It is named after Section 457 of the U.S. Internal Revenue Code and allows employees to set aside a portion of their salary into an account that is exempt from federal income taxes until it is withdrawn at retirement.

The accounts are regulated by the IRS, and employers can choose to offer them as part of their benefits package.

State and local public employees and sometimes nonprofit organization employees are often offered the 457 retirement plan. Only employers who are exempt from paying federal income taxes and non-church organizations can offer 457 plans, including:

State and local governments
Hospitals
Educational Organizations
Charitable Organizations or Foundations
Trade Associations

The 457 is similar to the more widely known 401(k) plan, where you can choose to contribute to the 457 plan through automatic deductions from your paycheck before the taxes are taken out. Also, like the 401(k), money grows tax-deferred in a 457 retirement account until the time you withdraw the money.

Contribution limits and early withdrawals are treated differently for 457 plan holders, however. which we’ll take a look at here.

457 Contribution Limits

If your employer offers only a 457 plan as your retirement account option, you can contribute a maximum of $22,500 in 2023 if you’re under the age of 50, and up to $30,000 if you’re over the age of 50.

If your employer also offers either a 401(k) or a 403(b), you have the option of contributing to both the 457 plan and one of the other available retirement accounts. I have several clients who are employed by the local university and they have the option of contributing to both the 457 plan and a 403(b). You can invest up to the maximum limit for each account!

This means you could contribute $22,500 in the year 2023 to your 457 plan, and another $22,500 into the 401(k) or 403(b) plan if you’re under the age of 50. This probably goes without saying it, but you do have to have enough income to be able to contribute this amount.

This is a great option for people who are starting their retirement savings later than planned, or who just want to take advantage of tax breaks or employee matching as much as possible.

For 2023 and future years, the maximum contribution for these plans will increase by $500 increments, and indexed for inflation.

Catch Up Contribution Limits for 457 Plans

If you’re over the age of 50 before the end of the calendar year, you’re eligible for a “catch-up contribution” in 2023. You can contribute an additional $7,500 if you have a governmental 457 plan.

Year	403(b) Maximum	Catch-Up Contribution	Maximum Allocation
2023	$22,500	$7,500	$66,000
2022	$20,500	$6,500	$61,000
2021	$19,500	$6,500	$58,000

Early Withdrawals from a 457 Plan

Money saved in a 457 plan is designed for retirement, but unlike 401(k) and 403(b) plans, you can take a withdrawal from the 457 without penalty before you are 59 and a half years old. This is a very important rule that often times goes overlooked with the 457 plan.

I had one encounter with an individual that had retired early and had rolled their 457 plan into an IRA based on a recommendation from their former advisor. (Notice I said “former”). By rolling into the IRA, you lose the ability to cash out early to avoid the penalty in case you need access to your funds.

There is no penalty for an early withdrawal, but be prepared to pay income tax on any money you withdraw from a 457 plan (at any age).

Just like other retirement plans, you do need to start taking distributions from your 457 plan by the age of 70 and a half years old.

How to Invest in a 457(b) Plan

If you’re looking for investment options, you can’t go wrong with a 457 plan. A 457 plan offers an array of different investments, including stocks, bonds, mutual funds and even annuities. By diversifying your portfolio within the 457 plan, you can make the most of your money by balancing both short-term and long-term gains.

And if that sounds too tricky, some plans even offer the option to use a professional financial advisor to manage your portfolio – so let them navigate the turbulent investing waters while you kick back and relax.

Can You Roll a 457 Plan Into an IRA?

As I mentioned above, you do have that option if you are a government employee. The process is very similar to rolling over a 401k into an IRA. As a reminder, you just need to be cautious if you retire early for the reasons noted above.

If you don’t need the money immediately it’s in your best interest to leave the money in the account to compound until you are ready for retirement, but it’s nice to know that you won’t pay a 10% penalty on early withdrawals should there be no other option.

If you do decide to roll your 457 plan into an IRA, I recommend a platform like M1 Finance.

Can You Roll Your 457 Plan Into a 403b or 401k?

Yes, you can roll your 457 plan into a 403b or 401k. However, it is important to note that the rules for doing so vary depending on the plan and provider.

If you are considering rolling over your 457 plan into a 403b or 401k, you should contact your plan administrator for more information about whether this option is available to you and how it works.

The Bottom Line – 457 Retirement Account Rules

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The bottom line of the 457 Retirement Account Rules is that it offers a variety of tax benefits for those who take advantage of them. Contributions to a 457 plan are not subject to Social Security or Medicare taxes, making them a great way to save for retirement.

Withdrawals from the account are federally income tax-free after age 59 1/2 as long as certain criteria have been met. Employers may offer matching contributions, adding even more to your retirement savings.

Participants should be aware that if they withdraw money before age 59 1/2, they will likely incur an early withdrawal penalty and any earnings on that amount will be subject to federal income tax as well as state penalties.

457 Plan	Description
Type of plan	A type of retirement plan available to employees of state and local governments, as well as certain tax-exempt organizations.
Contributions	Employees can contribute up to the IRS annual limit ($22,500 in 2023) through pre-tax or after-tax (Roth) contributions.
Catch-up contributions	Employees age 50 or older can make additional catch-up contributions up to $7,500 in 2023.
Withdrawals	Withdrawals can begin at age 59 1/2 without penalty, and must begin by age 72 (or retirement, if later). Withdrawals are subject to income tax.
Loans	Some 457 plans allow for loans, with repayment typically required within five years.
Rollovers	Funds can be rolled over from another 457 plan or a qualified retirement plan, such as a 401(k) or 403(b).
Employer contributions	Some employers may offer matching contributions or non-elective contributions to employee accounts.
Advantages	Offers tax-deferred growth potential, flexibility in contributions and withdrawals, and may offer lower fees and expenses compared to other retirement plans.
Disadvantages	Limited to employees of state and local governments and certain tax-exempt organizations, may have limited investment options, and may be subject to certain withdrawal restrictions.

FAQs on 457 Retirement Account Rules

Who is eligible for a 457 plan?

Eligibility for a 457 plan depends on the employer’s plan and the type of employer. Government employers, tax-exempt organizations, and some non-profit organizations may offer 457 plans.

How does a 457 plan differ from other retirement plans

457 plans are similar to 401(k) plans in terms of tax benefits and investment options, but there are some differences such as eligibility, contribution limits, and early withdrawal rules.

Are there any penalties for early withdrawal from a 457 plan?

Distributions from a 457 plan before age 59 1/2 may incur a 10% early withdrawal penalty in addition to regular income tax.

What investment options are available in a 457 plan?

Investment options in a 457 plan vary, but they usually include mutual funds, exchange-traded funds (ETFs), and individual stocks. The options available depend on the specific plan.

Can you roll a 457 plan into a Roth IRA?

Yes, you can roll a 457 plan into a Roth IRA. This means that you will withdraw money from the 457 account and then contribute it to a Roth IRA. However, keep in mind that there may be tax implications when rolling over a 457 plan into a Roth IRA. The tax implications are very similar to rolling a 401k into a Roth IRA.

This information is not intended to be a substitute for specific individualized tax, legal or investment planning advice. We suggest that you discuss your specific tax issues with a qualified tax advisor.

Source: goodfinancialcents.com

Apache is functioning normally

May 28, 2023 by Brett Tams

Confession time: Despite a financial and business education more comprehensive than most, I never invested. I grew up poor and just couldn’t wait for my first “serious” job and those big bucks. It was so bad, I decided to drop out of college in my senior year. “None of this ivory-tower crap is going to make me any more money,” I told everyone who would listen. Fortunately, both of them were able to talk me off the ledge. One of them was my future wife, bless her little gizzard.

After graduation, my illusions were shattered: There are no high-paying jobs in a recession for someone with just a bachelor’s degree. There are hardly any jobs at all. Carol Burnett came up with the formula: Comedy = Tragedy + Time. That explains why I’ve been able to entertain so many guests after dinner with the now-humorous details of my early career. Bottom line: It took several years to set up a household on entry-level wages. My big break came when, in the final year of my MBA, I landed a job that tripled my income. (No matter what all the critics say, no single degree makes you as much money as an MBA.)

Finally, we were rolling in it. The top restaurateurs in town knew us by name. You would think that someone with such a solid education (in accounting and finance, no less) would realize the time had come to start investing. You would be wrong. We had accumulated us some Joneses along the way, up with which we had to keep, and we did some serious “keeping” for the next few years.

Of course, we told ourselves we were “investing.” (All big spenders do that.) You could call that spectacular wooded plot in the Cape (Town, not Cod) for our next dream custom-built home an investment. We did. You can call anything you spend money on “an investment” — nice cars (they will be collectible one day, you know), good wines (more valuable when aged), jewelry, and any number of other wanna-haves — investments, one and all.

Deluding yourself that what you’re doing is smart is not hard. Wise readers know where that journey ended: Our debt tripped us up in our 40s, and we got wiped out in yet another recession.

That’s when I got mad.

And that’s when I got smart. I discovered the more you make, the more you spend. And it’s true what they say: Money can’t buy you happiness. Lack of money, though, doesn’t bring you barrels of fun, either. I haven’t heard too many people say that, because it sounds materialistic; but take it from someone who’s lived on both sides of that railroad track. There is more peace in the house when the finances are in order.

This post was started in response to a question from a reader, who asked: How do you get started investing? Penny stocks, maybe? In response, I wrote a nice, sterile post with the five-point plan to get started. But after reading it over, I did the electronic equivalent of crumpling it up and tossing it in the wastepaper basket.

Why? Because I’ve heard that all before and it never got me to start when I should have started. Why, then, would it help the non-investing reader?

Everybody has heard the message that you’ve got to invest. And if I have a dollar for every “get-started” plan written, I’d be one of the sharks on “Shark Tank.” And yet, it is equally well documented how Americans are headed for retirement disaster because they don’t invest.

Why not?

1. Passion

Because none of those articles, lectures, books, posts, speeches, or admonitions addresses the starting point: passion.

Until you get mad, you’re not going to change. That’s true for any lifestyle improvement: losing weight, quitting smoking, getting fit… or investing.

So, Step One is making a passionate decision. It doesn’t matter if it’s fear, anger, humiliation, or even (dare I say it?) greed. Investing is a long, long grind. Along the way, you’ll face thousands of temptations to derail you, and very few to keep you on track. In the face of that barrage, you’ll only stay the course if you have a steely resolve, and we human beings are wired in such a way that pretty much the only way to maintain that steely resolve is to have it fueled with a long-term fire in your belly. Nothing but that passion will neutralize the onslaught of temptations coming at you day after day… after day.

Once you’ve made that resolve, pretty much anything you invest in can work. My father-in-law only invested in a savings account. You could argue with him all you want (“C’mon, Dad, you can double your earnings with any other investment!”) but a savings account was the only investment he felt passionate about. He made it work. With passion, you can make anything work.

2. Foreground

I started (late, to be sure) with a savings account. I wanted to open a brokerage account, but back then you needed a couple thousand or some huge number like that to open a new account. Along the way, I discovered a nice thing about a savings account: there’s no minimum to start, or to deposit. When we got a $15 refund for something, I could deposit that into the savings account and nobody would frown. It became a game: how high can we make it grow this month? Saving became a foreground activity, not a background activity as so many people think it ought to be.

And that, I think, is Step Two: Make your investing an intentional, “foreground” part of your life. Facing my mid-40s with nothing forced me to admit that my lifestyle was proof that I’m not a natural saver/investor. And so, just like a recovering alcoholic, I need to be very deliberate in staying off the spending wagon. No more fancy cars, no more fancy nothing… and no more Joneses.

I began measuring my worth in things other people couldn’t see.

We were surprised to see how quickly our savings grew when it became an endeavor of passion. So we signed up for 401(k) plans where we worked, and went for the maximum deductions, matching or no matching.

Mechanically, I think it’s important to start with safe investments, like a savings account, a 401(k) plan at work, stock market index funds — stuff like that. For the first four or five years, the lion’s share of your investment value will be your contributions, not your returns. You can always change your investments along the way.

The important thing is picking a safe investment you’ll feel the most passion for. Then learn as much as you can. You’ll find out soon enough what generates the most passion. Then study that for a few years and you’ll be good.

3. Opportunities

There’s something else very few people talk about, and that’s opportunity. J.D. wrote about it recently, but he’s one of very few. I discovered this a few short years into my now-passionate investing career: Once you make investing a foreground part of your life (i.e., you think about it a lot) it’s natural to want to learn more. As you do that, you become aware of things that passed over your head before. And one of those things is… opportunities.

Life brings everyone a string of opportunities. Until I became conscious of investing and made it a priority, I was totally oblivious to them. When someone would mention something that sounded like an investment opportunity, I’d cut them off with a put-down like, “Oh, that’s just a scam. Nothing could be that good. What a waste of time. Wall Street’s just a casino!” And then I’d continue debating whether this great chef’s new restaurant would be as good as his previous one.

When you’re thinking of buying a Honda, what do you see? Hondas all around you. Same with investment opportunities. It’s a well-known trait of the human brain that once you’re conscious of something, you notice much more of it. Every person has a few outstanding investment opportunities that come their way. So I’d say Step Three is to keep your eyes open for all investment opportunities that come along. Be prepared to pass on 90 percent of them, but be ready to pounce on a good one when it comes along. Being prepared comes naturally with anything you’re passionate about because you love to read about it, talk about it, and think about it.

The nutshell

As I said, it doesn’t really matter which particular investment vehicle you pick to get started, as long as it’s not too risky. Success in the long run will come from:

Passion
Putting investing in the foreground of your mind
Preparing yourself to take advantage of unique opportunities which will, almost inevitably, cross your path. Preparing includes learning how to distinguish between get-rich scams and real opportunities.

No two of the people I know who succeeded in their investing followed the same path to success, or invested in the same things. But all of them were passionate about it, thought about it a lot and took advantage of at least one good opportunity which gave them that boost you can never plan for.

It’s easy to talk yourself out of anything and find fault with any option. Those who succeeded didn’t talk; they acted. To misquote my good friend Vern: thinkers think and doers do. Until thinkers do and doers think, investing is just another word in the overburdened vocabulary of broke Americans.

Source: getrichslowly.org

Apache is functioning normally

May 27, 2023 by Brett Tams

When I worked in management consulting, one of my responsibilities was to help my company figure out ways to make money while we slept. As a consulting business, our revenue stream came from selling the hours of the people who worked at our company. But to grow our margins, we knew we had to scale our time. This is where I first learned about passive income — the Holy Grail of the business world.

Now that I’m in my 30s, I think a lot about how to direct my active streams of income into passive income opportunities. Here are some things I’ve learned about active and passive income in my wealth-building journey.

What’s Ahead:

What Is Active Income?

Active income is earned by trading your time for money. Most people at the beginning of their careers are focused solely on earning active income to make a living.

What Is Passive Income?

Passive income is earned from income-producing assets. Someone who has passive income is not trading their time for money. Instead, the assets they own produce income without much involvement from the owner of the asset.

With the rise of financial influencers and the FIRE movement, finding ways to earn passive income has become a popular topic in the personal finance community.

Is Any Income Truly ‘Passive’?

The idea of earning truly passive income sounds amazing, right? But what’s often not discussed about passive income is that unless you inherit passive income-producing assets, creating passive income streams actually requires a substantial amount of active work.

Famous American entrepreneur Gary Vaynerchuk has gone as far as to say that truly passive income doesn’t exist outside of passive public market investing and rental income.

I tend to agree with Gary that the term ‘passive’ income is something of a misnomer. Creating passive income is never truly passive; there is no free lunch when it comes to financial mobility!

But thinking of income in active and passive terms might nonetheless have some benefits for those who are assessing their current financial status and crafting their wealth-building strategy. For that reason, I’ll break down the broad differences between active and passive income streams, as well as the most prominent ways to generate active or passive income.

Pros & Cons of Active Income

Pros

Allows you to develop a specific skill or expertise consistently
May provide social interaction and camaraderie associated with a traditional worksite

Cons

Trades time for money
Takes time away from doing other things
Cannot scale income potential beyond time constraints
Can be taxed at high rates

Pros & Cons of Passive Income

Pros

Generates money while sleeping, vacationing, etc.
Frees up more time for recreational activities
Subject to potential tax deductions
Scales income potential beyond time constraints
Does not require physical presence at a work site

Cons

Often requires you to create active income first
Usually harder to create than active income

Types of Active Income

Salary and Wages

The most basic and obvious form of active income is the salary that you earn from a typical job. A salary is a fixed amount received for working a regular schedule like 9 to 5, Monday through Friday. While a salary is a consistent form of active income, it can be taken away at a moment’s notice due to layoffs or downsizing. Most people earn their living from this type of income.

Bonuses and Commissions

Bonuses and commissions are other forms of active income. This type of income is not fixed and can vary dramatically based on the type of work performed. Many jobs can have a bonus or commission element added to a base salary, while other jobs can be 100% commission based.

Real estate agents, commercial real estate sales professionals, and other types of salespeople tend to fall into this income category. 100% commission-based jobs tend to have higher earning potential compared to salaried positions. However, they are also highly competitive, and their profitability is subject to ups and downs based on the economy, seasonality, and other factors.

Read more: How to Become a Real Estate Agent

Consulting and Freelancing

Freelancing and consulting fees are other types of active income that can either make up 100% of one’s income or serve as a side hustle. Those with valuable skills in high demand are often able to build side businesses, selling their time for specific short-term projects or long-term contracts. As of August 2021, there are 57 million freelancers working in the U.S., with 10 million more considering freelancing.

Looking ahead, more and more businesses are noting they’re willing to hire freelancers to support their mission, growth, and revenue.

Being a freelancer or consultant requires an entrepreneurial spirit, as this type of work can be very inconsistent and requires building a strong brand/reputation. Some of the most popular types of freelance work include graphic design, software development, copywriting, and photography.

Read more: 35+ Side Hustle Ideas

Equity Compensation

Equity compensation is a type of bonus that is given out at public or private companies to senior individuals or particularly valuable employees. Different types of equity compensation include straight shares, stock options, and Restricted Stock Units (RSUs).

It’s not uncommon for equity compensation to make up most of an individual’s income. For example, in 2020, 85% of an average CEO’s income was stock-related compensation.

Capital Gains

Buying and selling certain types of assets, like stocks and real estate, can generate capital gains if the asset’s sale price was higher than its original purchase price. For example, you might buy shares in a company while its stock price is low and then sell those shares later after the stock’s price has increased. The difference between the price you paid and the price you sold at is a capital gain.

Generating capital gains as a means of consistent income requires a significant amount of work, expertise, and risk-taking. Capital gains also have different tax treatments depending on how and when they are generated.

Read more: Claiming Capital Gains and Losses

Renting Out Property

Listing your property on sites like Airbnb can help you earn active income. While listing your property for rent may not require a significant investment of time and energy upfront, it’s not a set-it-and-forget-it income source.

Actively managing your listings, communicating with renters, and maintaining your property certainly requires active effort (unless you have a property manager).

Old Goods and Furniture Flipping

I’ve seen lots of people recently on TikTok and Instagram building side businesses by taking old or broken furniture, refurbishing it, and selling it for a profit. If you are handy and have an eye for design, this can be a great way of making active income given the low startup costs.

In addition to making money from selling the furniture, after you’ve built an audience you can sign brand partners and feature their products on your social media pages to generate even more income. Lastly, this type of business is a great way to help recycle old products that would have otherwise been thrown out.

Types of Passive Income

Interest and Dividends

Interest from your savings can be generated from high-yield savings accounts or by investing in CDs or bonds.

Dividends are paid to the shareholders of public companies. Not all companies pay dividends and the amount of dividends paid varies significantly. While earning dividends is passive income, choosing the right investments that generate dividends is a very active and time-consuming process.

In my experience, those looking to earn dividends can typically expect returns of 1–5%.

Rental Income

You can earn passive income from real estate by investing in rental properties, commercial real estate, public real estate investment trusts, or real estate crowdfunding platforms. Income-generating real estate can also provide landlords with tax benefits by deducting depreciation costs, property management expenses, insurance, and other expenses.

But there’s always an active element of real estate investing, no matter what type of real estate you invest in. This includes property management, dealing with tenants, managing relationships with lenders or investors, ensuring upkeep, or simply picking the right real estate projects to invest in. Some forms of real estate investing can become so time consuming that many personal finance experts question if real estate investing can be considered passive at all.

Read more: How to Invest in Real Estate

Peer-to-Peer (P2P) Lending

Peer-to-peer lending has attracted investors looking for an alternative to persistently low interest rates on savings accounts and bond yields. With P2P loans, investors make unsecured personal loans to others and can earn high returns.

While P2P lending has exploded in popularity (check out Lending Club and Prosper), these investments are very risky. The loans are often not secured against collateral, are not FDIC insured, and money invested in P2P lending can be difficult to access in times of economic stress.

Digital Product, Online Course, or Community Development

Creating digital products, courses, or online communities can be one of the best ways to earn passive income if you can package your skills and knowledge and sell it to a group of customers. In today’s digital age, the costs of creating a course, digital product, or community have never been lower, and all you really need is a computer and some creativity.

While there are lots of instances of everyday people earning millions on their digital products, don’t forget that getting to that point likely required a lot of work. Keeping these types of products relevant and up to date after launch also requires time, effort, and attention, not to mention having to market your product and keep up community engagement.

If you are interested in starting something like this up, platforms like Thinkific, Teachable, and Patreon are all options to explore.

YouTube/TikTok Ad Revenue

I became fascinated by the prospect of earning money on YouTube after coming across financial influencer Graham Stephan. Earning money on YouTube or Tik Tok generally comes down to building your channel’s audience and monetizing content through ads or affiliate marketing links. Once your presence meets a critical mass, every video you create has the potential to become an income-generating asset.

On the surface, making money on YouTube seems amazing, but again, it takes a lot of work and dedication to get there. For example, Graham has mentioned having to post videos at least three times a week for several years to get traction. And it often takes audiences of tens of thousands or hundreds of thousands of followers to earn any money.

But there’s lots of potential to earn sizable passive income from YouTube after you build an audience. The average YouTuber can make $3 to $5 per 1,000 video views and the top YouTubers can make millions annually.

Final Thoughts

Passive income can be a great way to earn more while working a regular 9 to 5, or it could fully replace your current stream(s) of active income entirely.

When it comes to building real wealth, however, the discussion around active vs. passive income is more nuanced.

According to a five-year study of 233 wealthy individuals, a common thread between them was that self-made millionaires generated income from multiple sources. 65% of them had three streams of income, 45% had four streams of income, and 29% had five or more streams of income.

These figures suggest that when it comes to building wealth, it’s not just a question of prioritizing passive vs. active income. Rather, it’s about generating multiple streams of income and scaling your time.

Personally, I have four streams of income:

The income I make from my 9 to 5
Investment capital gains
Dividends
Freelancing work

You can leave it to your own creativity and aspirations to find what constellation of passive and active income streams works best for you. But remember, whether you are looking to create passive or active income, there is no free lunch, and any source of income that ultimately becomes passive will likely start as a highly active pursuit.

Apache is functioning normally

May 25, 2023 by Brett Tams

The Roth 401(k) may appeal to workers willing to forego a tax break now in return for getting one at retirement. As its name implies, the Roth 401(k) combines features of a traditional 401(k) with those of a Roth IRA. If you have access to both, which one is best for you? Let’s take a closer look at a Roth 401(k) vs. the traditional 401(k).

Like a traditional 401(k), workers enjoy the convenience of contributing through payroll deduction. But similar to a Roth IRA, contributions are made on an after-tax basis and withdrawals after age 591⁄2 are tax free and penalty free for workers who have maintained their account for five years. There is also a Roth 403(b) plan for workers in the nonprofit sector.

How a Roth 401(k) Works

The Roth 401(k) follows many of the same rules as a traditional 401(k). For the 2010 tax year, federal laws permit a maximum annual contribution of $16,500, although your employer may impose a lower limit. Your employer may provide a matching contribution as part of a Roth 401(k) offering, although you will be required to accept the matching contribution in a traditional, and not a Roth, account. If you are age 50 or older, you may contribute an additional $5,500 for a total of $22,000 in 2009. You may continue to maintain a traditional 401(k) while directing all or a portion of new contributions to a Roth 401(k). Your contributions to a Roth 401(k), however, are irrevocable—once made, they cannot be transferred to a traditional 401(k) account and funds in a traditional 401(k) cannot be switched to a Roth 401(k). Both Roth and traditional 401(k)s require distributions after age 701⁄2. There is a 10% penalty for early withdrawals prior to the age of 591⁄2, and taxes may apply for traditional IRAs.

Planning for Retirement

Choosing Between Tradtional 401k Vs. Roth 401k

Choosing Between Traditional 401k Vs. Roth 401k

A Roth 401(k) may present a significant benefit when it’s time for retirement—the funds can be rolled over directly to a Roth IRA with no tax payment. Assets in a traditional 401(k) can now be converted to a Roth IRA, but the conversion requires you to pay taxes on the portion of the rollover that has not yet been taxed.

To Roth or Not to Roth?

If you’re considering a Roth 401(k), you may want to review the following points before making your decision:

Although future tax rates are difficult to predict, you may benefit from a Roth 401(k) or 403(b) if you anticipate being in a higher tax bracket during retirement.
Even if your marginal tax rate remains relatively stable, you may face a higher tax bill in retirement if you will no longer claim deductions for dependents, mortgage interest and others frequently utilized by families. If this sounds like a likely scenario, a Roth 401(k) may be to your advantage.
Will you need your retirement assets for living expenses during your later years? If not, a Roth 401(k) offers the opportunity to roll over funds directly to a Roth IRA, which does not require distributions after age 701⁄2. This situation may enhance the potential tax-free growth of your assets and enable you to bequeath a larger portion of your assets to your heirs.
You are not required to meet income thresholds to participate in a Roth 401(k). In 2009, Roth IRAs are limited to single taxpayers with $120,000 and married couples with $176,000 or less in adjusted gross income. A Roth 401(k) may have some appeal if you desire tax-free withdrawals but your income exceeds the threshold for a Roth IRA.
The longer you remain invested in a Roth 401(k), the more you are likely to benefit from tax-free growth. If you plan to retire in five years or less, a shorter-term time horizon may limit the benefit of tax-free withdrawals, whereas your account may get a bigger boost from tax-free savings if you plan to continue working for a longer period of time.

Capitalizing on every option available to you may make it easier to pursue your long-term savings goal. If tax-free withdrawals could potentially benefit you and your employer makes a Roth 401(k) available, consider adding it to your retirement planning mix.

Points to Remember

A Roth 401(k) offers the option of investing for retirement on an after-tax basis. In return for foregoing a tax deduction when the contribution is made, participants are able to make withdrawals free of penalties and income taxes during retirement.
Workers may elect to make all or a portion of their 401(k) contribution to a Roth 401(k). Once made, however, a contribution cannot be transferred to a traditional 401(k) and assets in a traditional 401(k) cannot be switched to a Roth 401(k).
The annual maximum contribution for 2009 is the same as for a traditional 401(k): $16,500 plus an additional $5,500 catch-up contribution for employees aged 50 and older.
Employers who provide a matching contribution are required to allocate the match to a traditional 401(k), not a Roth account.

Source: goodfinancialcents.com

Apache is functioning normally

May 25, 2023 by Brett Tams

Purchasing mortgage points from your lender can lower your interest rate and make your monthly mortgage payments more affordable. If you’re considering a home purchase or refinance, mortgage points could save you tens of thousands of dollars over the life of the loan.

In this article, we’ll explain what mortgage points are and present the pros and cons of buying mortgage points

What Does Buying Points Mean in a Mortgage?

Mortgage points, also called discount points, are an upfront fee that a borrower pays their mortgage lender to cut down the interest rate on their loan.

Borrowers can lock in a lower interest rate on a purchase or refinance loan and pay less on their mortgage over time. This may make more sense for borrowers who plan to stay in their homes for a long time.

How Much Is One Point on a Mortgage?

One point typically costs 1% of your loan amount and lowers your mortgage interest rate by about 0.25%. For example, on a $100,000 loan, one point would cost $1,000. Mortgage points also don’t have to be round numbers — they can also be fractions of a point.

How much each point lowers your mortgage interest rate varies by lender. It also depends on the type of loan product as well as the current interest rate environment. This is why it pays to shop around with a few lenders and compare quotes.

You can also purchase discount points for an adjustable-rate mortgage (ARM) loan, which works the same as it would for a fixed-rate mortgage. However, most ARMs adjust after five or seven years.

Mortgage points are paid at closing and according to Consumer Finance, they are listed on your Loan Estimate and your Closing Disclosure on page 2, Section A. By law, the points listed on these documents must be connected to a discounted interest rate.

Pros and Cons of Buying Points on a Mortgage

Pros of Buying Mortgage Points

The biggest benefit of buying mortgage points is lowering the interest rate on your loan, no matter your credit score. This saves you money not only on your monthly mortgage payments but also on total interest payments.

Buying down your rate also reduces the total cost of the home. Paying an extra $3,000 upfront could save you thousands more over the life of the mortgage loan.

Mortgage points are also tax-deductible. The IRS considers mortgage points to be prepaid interest, which may be deductible as home mortgage interest if you itemize deductions. If you deduct all interest on your mortgage, you may be able to deduct all of the points.

Calculate how much you can save on your mortgage payments with Total Mortgage.

Cons of Buying Mortgage Points

Buying mortgage points isn’t recommended for everyone. If you don’t have the extra cash reserves, paying for mortgage points on top of your closing costs and down payment could drain your savings.

If you’re purchasing a house and putting less than 20% down on a conventional loan, the added expense of private mortgage insurance (PMI) may not make much financial sense. It may be better to put those funds towards your down payment.

It could also take a while to break even, which is the time it takes for the monthly savings to pay for the points.

For instance, let’s say you purchased 3 mortgage points for $9,000 on a $300,000 home loan financed over 30 years. This lowered your interest rate from 3.5% to 2.75% and saves you $122 per month. However, your break-even point is a little over six years and if you move or refinance before then, you may not recoup that upfront cost.

Also, interest rates fluctuate. If rates go down after purchasing mortgage points, then the value of the points would essentially be worthless.

Mortgage Points vs. Lender Credits

You may also come across lender credits, which are similar to mortgage credits but in reverse. Your lender may offer a higher interest rate in exchange for extra funds to offset your closing costs. Lender credits mean you pay less upfront but you pay more over time in interest.

Lender credits are also calculated the same way as mortgage points, but they may appear as negative points on the Lender Credits line item on page 2, Section J of your Loan Estimate or Closing Disclosure.

Should You Buy Mortgage Points?

Although mortgage points can potentially save you money over the long run, they aren’t for everyone and it could take between five and 10 years to recoup the cost of the points.

Here are some instances where buying mortgage points may be worth your while:

You have the extra money to put down without draining your savings
You plan to live in your home for a long time
Your credit score doesn’t qualify you for the lowest possible rate
You need to lower your interest rate to make your monthly mortgage payments more affordable

Here are some reasons why you shouldn’t buy mortgage points:

You’re planning on selling your property in a few years
You’re going to pay extra on your mortgage payments
You don’t have the money to buy mortgage points
It would reduce your down payment amount

If you’re deciding whether to direct extra funds toward your down payment or buy mortgage points, a larger down payment usually has more benefits compared to mortgage points.

A bigger down payment can get you a better interest rate, cheaper PMI (or none), or lower mortgage payments.

Build Your Perfect Mortgage With Total Mortgage

Mortgage points can potentially save you money on your mortgage loan, but the monthly savings will depend on the interest rate, the amount you borrow, and the term of the loan. However, mortgage points may not be the best financial move for your situation.

The right mortgage can save you thousands. Get a free rate quote from Total Mortgage for a home purchase, refinance, or home equity loan.

Carter Wessman

Carter Wessman is originally from the charming town of Norfolk, Massachusetts. When he isn’t busy writing about mortgage related topics, you can find him playing table tennis, or jamming on his bass guitar.

Source: totalmortgage.com

Apache is functioning normally

May 25, 2023 by Brett Tams

There are numerous ways to save money, but many people think putting funds away is difficult. Rather than stopping themselves from opening a savings account, they could start with easy ways to save money and build their funds to meet their financial goals.

5 Easy Ways to Save Money

I’m writing to you sitting next to a jar. This jar is stuffed full (okay, imagine it gently filled — it’s a small jar) of $5 bills. I do not feel proud that this is the best way I’ve found yet to save money consistently. Somehow, having it sit there on the window sill is a gentle reminder that there are more important things to spend my cash on than the x, y, and z that usually make the list:

X = a new wireless router; mine is working, just not sparklingly
Y = a quick run to the shop on the corner for a thermos of coffee
Z = delivery pizza for dinner instead of leftovers.

I can’t quite figure out why this works, but I feel that there is some deep insight here. The thing is, there is “saving” money and then there is “saving money.” In one case you’re putting money away that you intend to spend later (much, much later if all goes well). In another case you are spending money, but not quite as much as you would have otherwise. The trick is to move the extra money from the latter to the former.

1. Save Every $5 Bill

The $5 bill jar is one way, and I found it on Pinterest. Every time you come into possession of a $5 bill, usually as change from another purchase, you save it and put it in a jar.

Some savers have an envelope in their wallet (that won’t work in my tiny wallet, but anyway…) and, every $50 or so, transfer it to a high-yield savings account. Other savers have a goal in mind, like Christmas presents, and the money is for that. I’m combining two Pinterest ideas, and I’ve painted chalkboard paint on my jar so I can write in what I’m saving for.

Related >> Research the best options for a high-yield savings account.

Result of the $5 Pinterest Challenge

I was encouraged to do this by my nine-year-old, who told me one day shortly after Christmas that he had an idea.

“Why don’t you pick an amount every time you get money, like $20, and put it in a jar to save?” he asked.

“What am I saving for?”

“Christmas presents! That way you’ll have a whole lot of money!”

The world conspired to create my jar. I haven’t counted, but there must be $30 or $40 already after just a few weeks. I think this works by setting an easily followed rule that creates an emotional barrier between me and the money. If I spend a $5 bill, I’ve betrayed my own set of internal rules.

2. Save Money ‘Older Than You’

This is a natural outcome from the inspiration given to me by my first work mentor, Herb Althouse. He was a managing director in the loan syndications group at First Union. It was my very first job out of college. I was not even 22 when I started work, and he thought of me as impossibly, adorably young.

To emphasize my adorable youth, he would regularly dig in his pocket and give me all the coins that were older than me. Ever since, I’ve very carefully saved all the coins older than me. I won’t spend a 1970 quarter, even if that means I have to use inexact change. It’s an emotional tribute to Herb.

I realize that this won’t probably result in saving a ton of money (especially if you were born before the ’60s). But it helped me establish the limits that are now keeping me from spending my fives.

3. Set Up Automatic Savings From Paycheck

I remember when I first got a paycheck for my work as a counter girl at the Arctic Circle, a fairly tiny, local fast-food chain that is now even tinier. (Occasionally, I make pilgrimages to one of the last remaining outlets in the coastal town of Newport, Oregon, but it’s not as good as I remember.)

I, displaying my adolescent quant-jock nature, had carefully calculated deductions based on the hours I’d added on my time card. Every two-week pay period, I would multiply my hours by my hourly rate. Then I’d deduct 0.06 for social security, 0.165 for unemployment and a tax rate based on the last paycheck. I knew how much, to the last nickel, would be in my check. It was so frustrating to know how much the gross income was and then be able to spend only the net. I had a cheerleading uniform to save for, after all!

Related >> See how to spend your tax refund.

But I couldn’t spend the money, and one gets used to that post-deduction amount after awhile.

Unlike the 14-year-old me, most adults don’t sit with a notebook, a pencil, and a calculator, figuring out what each check will look like. You get used to only seeing the amount in the “net” line and forgetting the deductions. That’s why it’s so useful to take advantage of whatever automatic savings plan your employer might offer. These include a 401(k) or a simple automatic deduction into a savings account that you designate.

The Army has a fantastic savings plan for military members deployed in designated combat zones that allows soldiers to earn up to 10% interest on $10,000. Pre-paycheck deductions allow you to create that emotional distance from the money you need to keep it in the savings account.

4. Set Up Saving Habits Based on Behavior

My nine-year-old was probably inspired by the summer we saved for his Nintendo DS. I was reluctant to get him a game machie. But with his dad deployed for the first time, the two of them agreed we would tie it somehow to goals we had for his behavior.

So we decided that, each time either Dad or I got paid, we would put $20 in a special envelope toward the DS: if he had been helpful over the preceding period. If he was unusually patient or wonderfully helpful, I’d add in a little extra, $5 or $10. While we were somewhat generous in assessing helpfulness, he was also quite helpful. And because I’d promised to tie the reward to his behavior, and promised him he’d eventually get the Nintendo, I had a powerful emotional incentive to keep my word.

It’s easiest to use promises to motivate your savings behavior when the term for the goal is somewhat short and the other party to the promise can monitor your progress. The physical act of putting the money in the envelope was something I did in front of my son. We only had a few months’ time to reach our goal. You could also, if you promised a spouse or an older child, put money in an online savings account to which you both have access.

Another more institutional equivalent would be if you file your taxes very early. For example, putting some amount of money in your IRA before tax day in April. I did this for both myself and my husband this year. No motivation like not having to file an amended tax return!

5. Come Up With Penalties as Motivation to Save

Yes, we’re motivated best by positive stimulus (This is my best lesson from parenting three boys with cognitive development delays.) But adding penalties is sometimes the best way of forcing ourselves to do things.

I am, for instance, a wonderful saver. I can transfer money into my online savings account with the best of them! I’m rather awful at keeping myself from accessing that money if I really want to take advantage of this one-time-only offer on super awesome film for my vintage Polaroid SX-70. Or if my friends are organizing a group buy of wool comforters.

So it’s best if I put my money in an account from which I will not be able to withdraw money easily, or without penalties. Sure, sometimes there are limits on withdrawals from savings accounts. But those don’t kick in until the end of the account cycle, so that’s not necessarily a good enough penalty. I find that the “penalties” (in both brokerage fees and time for the sale to clear) of selling stock in my Sharebuilder account are far more effective as a deterrent. It has to be that I don’t have money for food or the mortgage before I’ll do that.

You could think of a large number of ways to add in withdrawal penalties. These include structural ones like the military’s savings plan that only allows withdrawals every 120 days, or a 401(k). Or practical ones like adding money to some online savings or payment account like Paypal or Dwolla. These will take a few days to get back if you need it, giving yourself a buffer to rethink your decision.

Adding penalties to the front end is trickier. But savers can accomplish this by automatic bank drafts that are available from online savings and investment accounts. The Sharebuilder account will withdraw a fixed amount of money each month from your bank account to invest in a pre-selected group of investments. You can cancel or delay it, but it will still trigger that opportunity to rethink your decision. If you’re trying to save cash, you’ll have to make your own self-imposed penalty. Maybe if you spend a $5 bill, you have to go without something the next day. (For me, chocolate works as a powerful motivator!)

We All Want to Save. We Just Need Help.

I don’t think there is a single Get Rich Slowly reader who doesn’t have a desire to save and to keep that money in savings accounts until the emergency occurs or they reach a goal. But it’s really hard, on both counts. I’d be willing to bet that a surprisingly large percentage of GRS readers don’t save (or don’t save nearly enough). Starting small and easy is best. Keep in mind that we have a strong set of emotional tools at hand to help us along the way.

How can you set up emotional connections to savings, both on the front and the back end?

Source: getrichslowly.org

Apache is functioning normally

May 25, 2023 by Brett Tams

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The savings offers that appear on this site are from companies from which MoneyCrashers.com receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MoneyCrashers.com does not include all savings companies or all savings offers available in the marketplace.

Years ago, finding a bank meant heading downtown and choosing from whichever options were available there. The Internet dramatically lessened the importance of physical branches and made it possible to bank from anywhere at any time.

Virtually all banks with physical locations have online portals, but a growing number now do the bulk of their business online. Some have ties to community banks and may have physical branches in select regions. Others exist only in the digital realm and have no physical branches.

What follows is a list of the best online banks on the market today.

Best Online Banks of May 2023

These are the best online banks on the market right now.

Each does at least one thing really well, whether it’s offering a potent lineup of budgeting and money management tools or delivering savings and CD rates well above the national average. Our top pick offers the most value for the greatest number of potential customers, in our opinion.

Unless otherwise noted, all the accounts on this list come with FDIC insurance up to $250,000 per account.

Best Overall: American Express® National Bank, Member FDIC

The American Express® High Yield Savings Account has a solid yield on all balances with $0 maintenance fees, a $0 minimum opening deposit, and a $0 minimum balance. The current savings yield is 3.90% Annual percentage Yield (APY) as of May 16, 2023.

Want to tie up your money for a while at a higher interest rate? Choose from seven CD options ranging from six months to five years.

CD yields are very good across the board: 3.00% Annual Percentage Yield (APY) on the longest-term product (60 months or 5 years) and 4.25% on the 12-month CD. Early withdrawal penalties are:

90 days’ interest for terms under 12 months
270 days’ interest for terms between 12 and 48 months (four years)
365 days’ interest for terms between 48 and 60 months (five years)
540 days’ interest for terms of 60 months or longer

Additional features:

Extensive lineup of personal credit products, including premium credit cards like The Platinum Card® from American Express
Move money between up to three external bank accounts in short order
24/7 customer service

Apply Now

Best Credit Union: Alliant Credit Union

When is an online bank not an online bank? When it’s an online credit union.

There’s no better branchless option than Alliant Credit Union. As a credit union, Alliant exists for its members rather than stockholders so they will always put you first.

Alliant has a comprehensive lineup of checking and savings accounts, like:

High-Rate Savings, a high yield savings account for goal-oriented savers (currently 3.10% APY¹)
High-Rate Checking, a checking account with competitive interest rates
Certificates of Deposit, which help you earn more with set interest rates for a fixed period of time (currently yielding 5.00% APY)
Kids Savings, a custodial account that helps you teach sound money management concepts to kids 12 and younger
Teen Checking, a joint account for kids aged 13 to 17 — there when you’re ready to loosen the reins

Additional features:

Get access to over 80,000 in-network ATMs with Alliant
No monthly service fee with eStatements
Low minimum deposit and balance requirements
Bank anywhere, anytime with the Alliant mobile app

Sign Up for Alliant Savings

Insured by NCUA

(¹For important additional disclosures, please refer to the corresponding footnote at the Sign Up link directly above.)

Best for High Yields: CIT Bank

CIT Bank offers several different accounts with category-leading yields:

Savings Connect has one of the best yields of any bank account, online or off: 4.50% APY.
Platinum Savings has an outstanding yield when you maintain a balance of $5,000 or more (4.75% APY) and a so-so yield when you don’t (0.25% APY).
Savings Builder yields up to 1.00% APY for accountholders who can meet minimum balance or deposit requirements.
The CIT Bank Money Market account has a very good yield on all balances (currently 1.55% APY) with no monthly maintenance or service fees.
Multiple CIT Bank CDs offer above-average yields, led by the 11-month CIT No Penalty CD at 4.80%

Additional features:

No monthly service fee
No early withdrawal penalty for No Penalty CDs
No ATM fees in-network
CIT may reimburse up to $30 in outside ATM fees
Earn interest on eligible eChecking funds

Sign up for CIT Bank

Best for Investors: Wealthfront

Wealthfront is a next-generation banking service that’s ideal for day-to-day money management. Its Cash Account features high-interest checking, no account fees, and a host of value-added features — and you can open an account with just $1.

But Wealthfront made its name in the investment business, and there’s where it continues to shine. Key features include:

Build semi-customized, automatically rebalanced, globally diversified portfolios of low-cost index funds optimized with daily tax-loss harvesting
Just $500 minimum to invest
Pay an annualized management fee of 0.25% assets under management (AUM) on all balances
Choose from individual and joint taxable accounts, IRAs, and 529 college savings plan accounts
Portfolio line of credit that lets you tap up to 30% of your account value once you have $25,000 or more under management
Consolidated view of all your accounts through Wealthfront’s free DIY financial planning tool

Additional features of the Wealthfront Cash Account include:

4.55% APY (variable) on all balances
$1 minimum opening deposit
No account fees
No overdraft fees
FDIC insurance on balances up to $5 million
Get paid up to two days early with direct deposit
Put your money to work in the market within minutes when you use your Cash Account to invest in a Wealthfront Investment Account
Mobile check deposit
Free bill pay and peer-to-peer (P2P) transfers
Complimentary debit card and free in-network ATM access
For a limited time, get $30 bonus cash when you open a Wealthfront Cash Account and fund your new account with at least $500 in new money. Terms apply.

Sign Up for Wealthfront

Money Crashers, LLC receives cash compensation from Wealthfront Advisers LLC (“Wealthfront Advisers”) for each new client that applies for a Wealthfront Automated Investing Account through our links. This creates an incentive that results in a material conflict of interest. Money Crashers, LLC is not a Wealthfront Advisers client, and this is a paid endorsement. More information is available via our links to Wealthfront Advisers.

Best for Customer Support: Albert

Albert is a powerful financial app that makes spending, saving, and investing easy. It’s among the growing crop of financial solutions that offer early payday with eligible direct deposit, and its automated savings and investing features put it well ahead of the pack.

But where Albert really shines is on the customer service front. The platform has a dedicated team of in-house financial experts — called Geniuses — to help you make sense of your money. That puts it heads and shoulders above its crop of fellow digital money management apps.

Additional features:

Albert Cash. This is the place to manage your day-to-day spending money with Albert. Earn up to 20% back on eligible debit card purchases and get paid up to two days early with qualifying direct deposit. Use the Albert Instant cash advance feature to get up to $250 from your next paycheck with no hidden fees.
Albert Savings. Albert’s Smart savings engine sizes up your cash flow and sets aside funds automatically so that you’re always moving toward your financial goals. Set specific goals within the app, such as building an emergency fund or saving for your next vacation. And get cash bonuses on your Albert Savings every year.
Albert Investing. Start investing with as little as $1 using Albert’s guided investment platform. Choose your own stocks or themes, or have Albert do it for you.

Sign Up for Albert

Best for Debit Card Rewards: GO2bank

GO2bank is a low-friction online bank with a mobile-friendly bank account (no monthly fee with eligible direct deposit) and impressive yields on savings (4.50% APY²on savings up to $5,000).

Eligible electronic gift card purchases in the app earn up to 7% cash back; Amazon eGift Card purchases in the app earn 3% cash back. Terms and conditions apply.

Additional features:

No minimum opening deposit or ongoing balance requirement
Avoid the $5 monthly fee with an eligible direct deposit
Get paid up to two days early with ASAP Direct Deposit^{TM 3}
Deposit cash at participating retail stores, subject to fees and deposit limits
Enjoy up to $200 in overdraft protection with opt-in and eligible direct deposit.*
Earn 4.50% APY paid quarterly on savings up to $5,000 — over 10 times the national average savings rate²

* $15 fee may apply to each purchase transaction not repaid within 24 hours of authorization of the first transaction that overdrafts your account. Overdrafts paid at GO2bank’s discretion.

Sign Up for GO2Bank

¹Active GO2bank account required to receive an eGift Card. eGift Card merchants subject to change.

²GO2bank, Member FDIC. Interest paid quarterly on the average daily balance of savings during the quarter up to a $5,000 balance and if the account is in good standing. 4.50% Annual Percentage Yield (APY) as of April 2023. APY may change before or after you open an account. The average national savings account interest rate of 0.39% is determined by the FDIC as of 4/18/23. Visit https://www.fdic.gov/regulations/resources/rates/ to learn more. Fees on your primary deposit account may reduce earnings on your savings account.

³Direct deposit early availability depends on the timing of the payor’s payment instructions and fraud prevention restrictions may apply. As such, the availability or timing of early direct deposit may vary from pay period to pay period. The name and Social Security number on file with your employer or benefits provider must match your GO2bank account exactly or GO2bank will decline your deposit.

Best for No Account Fees Ever: Rewards Checking via Upgrade

Rewards Checking via Upgrade⁴ has a slew of user benefits, but its defining feature couldn’t be simpler: no account fees, ever.

That’s right. As a user, you pay no account fees — no annual fees, overdraft fees, transfer fees, or ATM fees charged by Rewards Checking by Upgrade¹.

There’s more, of course. Additional features of Rewards Checking via Upgrade include:

2% cash back on purchases at convenience stores, drugstores, restaurants, and bars, and on utility bills and certain monthly subscriptions²
Earn up to $500 cash back per year at the 2% rate
Earn 1% cash back on all other eligible purchases

Get up to five third-party ATM fee rebates each month¹
You may receive discounts on loans and cards through Upgrade³
FDIC Insured up to $250,000 through Cross River Bank, Member FDIC

Sign Up for Rewards Checking via Upgrade

1 There are no account fees, overdraft fees, annual fees, or transfer fees associated with Rewards Checking accounts. Rewards Checking charges no ATM fees, but third-party institutions may charge you a fee if you use their ATM/network or if you use your Upgrade VISA® Debit Card internationally. Upgrade will rebate any ATM fee charged by another institution for debit card withdrawals in the United States, up to five times per calendar month. To be eligible to receive third-party ATM fee rebates in any calendar month for eligible ATM withdrawals made during that month, customers must have (i) an open Rewards Checking account and (ii) either maintained an average daily balance in their account of at least $2,500 in the prior calendar month or made direct deposits into their account totaling at least $1,000 during the prior calendar month. As a courtesy to new customers, Upgrade will provide third-party ATM fee rebates for up to the first 2 calendar months after account opening regardless of account activity. Some limitations apply and terms and conditions may change. Please refer to the applicable Cross River Bank Deposit Account Agreement and Upgrade VISA® Debit Card Agreement and Disclosures for more information.

2 Rewards Checking customers accrue 2% cash back on common everyday expenses at convenience stores, drugstores, restaurants, and bars – including deliveries – and gas stations, as well as recurring payments on utilities and monthly subscriptions including phone, cable, TV and other streaming services, and 1% cash back on all other debit card charges. 2% cash back is limited to $500 in rewards per calendar year; after $500, customers accrue 1% cash back on all eligible debit card charges for the remainder of the year. Some limitations apply. Please refer to the applicable Upgrade VISA® Debit Card Agreement and Disclosures for more information.

3 The interest rate on a new loan or credit line through Upgrade may be up to 20% lower than would otherwise be applicable without this discount, as long as you have an active Rewards Checking Account. Additional terms may apply. Please refer to the applicable Truth-in-Lending Disclosure and Loan Agreement.

4 Upgrade is a financial technology company, not a bank. Rewards Checking services provided by Cross River Bank, Member FDIC. Upgrade VISA® Debit Cards issued by Cross River Bank, Member FDIC, pursuant to a license from Visa U.S.A. Inc. Personal Loans made by Upgrade’s bank partners. Personal Credit Lines are issued by Cross River Bank, a New Jersey State Chartered Commercial Bank, Member FDIC, Equal Housing Lender. The Upgrade Card is issued by Sutton Bank, Member FDIC, pursuant to a license from Visa U.S.A. Inc.

Best for Automated Budgeting: Douugh

Douugh is a money management app that makes it easy to stay on top of your day-to-day financial obligations while saving for a rainy day — and happier days too.

A single mobile-friendly dashboard makes it all possible.

How? That’s down to Salary Sweeper, an AI-enabled feature that automatically allocates income to two protected “jars”:

Your Bill Jar, complete with a virtual card of its own
Your Savings Jar, which is actually a customizable array of single-purpose savings buckets

The rest is yours to spend as you please using a debit card accepted by millions of merchants worldwide. Best of all, you never have to give manual budgeting a second thought.

Additional features:

Enjoy a free checking account with a Mastercard debit card
Use Apple Pay, PayPal, and other payment apps to make purchases online and IRL
Lock and unlock your card and change your PIN within the app — without calling customer service or visiting a branch.

Sign Up for Douugh

Best for Debt Refinancing: SoFi Checking and Savings

Need to refinance the student loans you’ve been carrying for years with no end in sight?

Open a SoFi Checking and Savings account, then head over to SoFi’s student loan refinancing portal to check out your options. SoFi is a category leader in the education loan refinancing business, with incredibly low rates, flexible terms, and an array of reasonable repayment options.

And since you’re also in the market for a new online bank, you’ll enjoy these great SoFi Checking and Savings perks and features:

No minimum opening deposit or balance requirement
Rate discounts on SoFi loans
Free peer-to-peer (P2P) transfers
Customized financial planning
Member-exclusive offers from SoFi partners
A referral program that pays up to $310 per successful referral
Up to 3.75% APY on eligible balances

Plus, for a limited time, sign up for SoFi Checking and Savings and earn a $250 opening bonus when you set up direct deposit of at least $1,000 into your account

Sign Up for SoFi Checking and Savings

Best for Teens and Young People: Copper Banking

Copper is a banking solution for teens age 13 and older — and their parents too.

It’s built around the Copper Card, a personalized debit card that leverages Apple Pay technology to facilitate seamless online and in-person transactions.

The Copper App allows parents to monitor spending and instantly send money in seconds. For teens, its Automatic Saving feature encourages saving — a lifelong financial habit — by automatically setting aside a portion of each paycheck or inflow.

Additional features:

Copper has a wealth of financial literacy content for parents and kids alike — it’s one of the best financial education tools around
Withdraw cash for free at over 55,000 ATMs
All Copper Accounts are FDIC-insured up to $250,000 through Evolve Bank & Trust

Sign Up for Copper

Best for Potential Returns on Savings & Spending: PrizePool

PrizePool is a truly unique financial app — the only FDIC-insured deposit account provider that offers users the chance to earn serious money based on your saving and spending habits.

PrizePool offers two ways to win:

Savings Balances: Get 1 ticket for PrizePool’s prize drawings for every $1 on deposit in your savings account, every day. So if you have $1,000 in your account, you get 1,000 tickets every day.
Debit Card Purchases: Earn 30 tickets for every $1 spent, plus get the chance to have your purchases reimbursed.

PrizePool holds a weekly drawing every Friday. There are almost 6,000 cash prizes every week, including a $10,000 grand prize drawing at least once every six weeks.

Additional features:

Earn 0.30% APY on eligible savings balances
Deposits are FDIC-insured up to $250,000
Refer new users to PrizePool and get 10% of their prize winnings forever

Sign Up for PrizePool

Best for Freelancers and Self-Employed People: Lili

Lili offers a totally free checking solution with a slew of value-added features designed to simplify your financial life.

Its core product is built with freelancers in mind, but it’s appropriate for a range of use cases, from solopreneurs to folks who supplement 9-to-5 income with side hustle revenue.

With powerful, automated tax savings and expense categorization tools, Lili eliminates the need to juggle separate bank accounts for business and personal needs — it’s just one deposit account for your entire financial life.

Additional features:

No minimum opening deposits or ongoing balance requirements and no account fees
Pay virtually anywhere with a Visa debit card that’s accepted worldwide

Lili’s Tax Bucket tool automatically sets aside funds earmarked for income tax payments
Utilize expense management and categorization tools that simplify business budgeting, cash flow management, and year-end accounting
Get real-time alerts for every transaction (and other account activities too)
Make mobile check deposits through the Lili mobile app
Make cash deposits at more than 90,000 retail locations across the U.S., including CVS, Walgreens, and Rite Aid
Get paid up to two days early with early direct deposit
Enjoy fee-free withdrawals at about 38,000 ATMs nationwide

For $9 per month, Lili Pro adds even more valuable features:

A premium Visa Business Debit Card that delivers cash-back rewards
BalanceUp, a fee-free overdraft solution that covers up to $200 in would-be overdrafts
Advanced expense tracking that helps business owners maximize their tax deductions
A savings account that pays interest

Sign Up for Lili

Best for Savers: Quontic Bank

Quontic Bank got its start as a New York City community bank that catered to thrifty types.

Today, Quontic’s branch-based banking options represent just a small fraction of its offerings. With a nationwide digital footprint, Quontic delivers category-leading checking and savings yields for consumers and small-business owners from all walks of life — all with no monthly service fees:

Cash Rewards Checking: Earn unlimited 1.5% cash back on qualifying debit card transactions after meeting the $100 minimum opening deposit.
Bitcoin Rewards Checking: Earn 1.5% Bitcoin on qualifying debit card transactions. The minimum opening deposit is $500. This account may not be available in all states.
High Interest Checking: Make 10 or more qualifying debit card point-of-sale transactions of $10 or more per statement cycle to earn interest at competitive rates based on account balance. The minimum opening deposit is $100.
High Yield Savings: Earn interest at category-leading rates (currently 4.25%) after meeting the $100 minimum opening deposit.
Money Market: Earn solid yields (currently 4.75%) after meeting the $100 minimum.
CDs: Quontic CDs have terms ranging from six months to three years and competitive yields that generally increase in proportion to term. The minimum opening deposit is $500. Early withdrawal penalties may apply.

Additional features:

Tap to pay with the Quontic Pay Ring — the first wearable debit card
Choose from an array of home loans, including community development loans that go beyond your traditional credit profile
Take advantage of special loans for foreign nationals and recent immigrants

Sign Up for Quontic Bank

Best for Borrowers: Discover Bank

Discover Bank is a full-service online bank with a wide range of deposit accounts. It’s a great (almost) one-stop shop for your digital financial needs.

Discover Bank’s real differentiator is its comprehensive lineup of secured and unsecured credit products. That includes unsecured personal loans, which many online banks don’t bother with due to perceived risk.

You’ll find home loans, home equity products, student loans, credit cards, and personal lines of credit here too.

Discover Bank’s deposit account options include:

Cashback Debit: This checking account has no yield, but you can earn 1% cash back on up to $3,000 in qualifying debit card spending each month. There’s no monthly maintenance fee.
Online Savings Account: This account has a very strong yield on all balances — currently 3.90% APY. There’s no maintenance fee or minimum to open.
Money Market Account: With a minimum opening deposit and balance requirement of $2,500, this account has competitive yields on all balances. Its two balance tiers cleave at $100,000, but yields on higher balances barely exceed those on lower balances. Enjoy a free, optional debit card, and no maintenance fee. There’s also no minimum balance fee, despite the minimum balance requirement.
Traditional CDs: CD terms range from three months to 10 years. Yields range widely, peaking on longer-term CDs. You need $2,500 to open any CD.

Additional features:

Structure any money market or CD as a traditional, Roth, or SEP IRA
Or roll over your 401(k), 457 deferred compensation plan, annuity, or IRA from another institution
Enjoy a coast-to-coast network of 60,000 fee-free ATMs
Enjoy 24/7 support by phone, live chat, and email
Make mobile check deposits from anywhere
Enjoy free, instant P2P money transfers

Sign Up for Discover Bank

Methodology: How We Select the Best Online Banks

We use several key factors to evaluate online banks and surface the very best ones for our readers. Each relates in some way to the overall user experience, and you’ll see many represented in our “Best For” categories above.

Available Account Types

The best online banks offer a range of different deposit account types: free checking, savings, CD, and money market accounts, among many others.

Truly comprehensive online banks go even further, with less-common account offerings like savings IRAs, jumbo CDs, and more. More accounts doesn’t necessarily mean a better banking experience, but it’s helpful if you’re looking for a one-stop financial shop.

Interest Rates

Online banks tend to have higher yields — interest rates paid to the account holder — as well as lower interest rates on certain types of loans, if offered.

You shouldn’t count on that though. It’s important to shop around and choose an online bank that consistently offers significantly better rates. Not all do.

Account Minimums

The best online banks have low or no minimum balances and low or no minimum opening deposit requirements on checking, savings, and money market accounts.

CDs generally do have minimum deposit requirements, even at the best online banks, but there’s lots of variation. Look for deposits at or below the $1,000 mark, if possible.

Monthly Maintenance Fees

Free is always better than not free, right?

Not necessarily. Some of the best online banks around charge modest monthly fees. In exchange, they offer a wealth of value-added features and services that can earn or save you money (and sometimes both at the same time).

That said, we do give preference to banks that don’t charge monthly fees at all. Because everyone could use a break.

Other Account Fees

The trusty monthly maintenance fee is just the most visible bank fee. Others include:

ATM fees (in-network and out-of-network)
Wire transfer fees
Excess transaction fees
Early withdrawal penalties
Minimum balance fees

Traditional banks are notorious for nickel-and-diming their customers. By contrast, most online banks do charge at least some fees, but they’re predictable and clearly disclosed on their websites and applications.

For example, many online bank CDs come with early withdrawal penalties. These can be equivalent to as little as one month’s interest on shorter-term CDs but may range up to 24 months of interest on very long-term CDs.

All else being equal, we prefer online banks that charge few if any fees — and hidden fees are a dealbreaker.

Investment and Tax-Advantaged Options

Many online banks stick to core banking services, like checking and savings. But a growing number of online banks offer a wider array of options for people who’d like to be able to do all their banking in the same place.

We’re particularly fond of online banks that offer tax-advantaged account options, such as savings IRAs and CD IRAs. We also like online banks that have in-house investment platforms — whether they’re self-directed brokerages like Ally Invest or low-cost robo-advisors like Wealthfront.

Credit Options

All online banks have at least one deposit account product. That’s what makes them online banks.

A smaller but growing number make loans or issue lines of credit — including credit cards — as well. Common online bank credit products include:

Mortgage loans, including purchase loans and refinance loans
Home equity products, including home equity loans and lines of credit
Auto loans
Student loans and student loan refinancing products
Personal loans
Credit cards and other types of credit lines

We don’t hold it against online banks that don’t make loans — it’s a big step for many a lean bank. But we do look out for banks that have taken the leap.

Budgeting and Money Management Features

Budgeting is hard to do right. That’s why we’re big fans of online banks with built-in budgeting and money management tools.

The more automated these tools are, the better. In fact, some make our list of the top budgeting apps on the market. Truly “set it and forget it” money management saves the typical consumer hundreds if not thousands of dollars per year.

Online Banking FAQs

Still have questions about online banks and managing money online? We have answers.

How Much Does Online Banking Cost?

Online bank rates, yields, and fees are subject to change at banks’ sole discretion. For up-to-date information about specific accounts and bank policies, check their websites or call customer service.

That said, online banks are generally more affordable than traditional banks. They’re less likely to charge monthly maintenance fees on checking and savings accounts, and many have fewer hidden fees too.

What’s the Interest Rate on an Online Bank Account?

That also depends on the individual bank. But many online accounts feature higher yields relative to those of traditional banks.

That’s because online banks have less overhead than traditional banks. They don’t need to pay to keep big, centrally located branches open or pay people to work at them. Their operations are more efficient, which allows them to pass the savings on to customers via higher rates and lower fees.

How Do You Enroll in Online Banking?

It depends on the bank and how its website or app is structured, but it’s usually straightforward. In fact, with an online-only bank, enrollment is usually automatic. You don’t have to complete a separate application or even click a button to activate your account.

However, you will need to create a unique username and password to get started. You may be asked to do this as part of the initial application process or once your account is approved. You’ll also need to link at least one external funding source to transfer money into your account.

Can You Get a Mortgage From an Online Bank?

Some online banks offer home loans (mortgages) and other credit products. These banks tend to be larger online banks with high name recognition, like Ally Bank and Capital One Bank. Look for a “Mortgages” or “Home Loans” tab on the homepage or in your account dashboard.

Be aware that some online banks outsource mortgage origination to other companies. In other words, if you apply for a mortgage through your bank, your loan officer might actually work for someone else. This isn’t necessarily a bad thing, but it could mean a different level or style of service than you’re used to.

And don’t expect your online bank to offer better mortgage rates than other lenders. The mortgage loan business is highly competitive, and direct lenders with even lower overhead may be able to undercut online banks.

How to Choose the Best Online Bank — Or Several

The institutions on this list offer a great combination of FDIC-insured banking products, solid yields, open access, and helpful customer service.

Before choosing one, take a closer look at the features that set it apart from the competition: rewards checking, flexible withdrawal terms for CDs, particularly high account yields, a socially responsible corporate philosophy, and so on.

And remember that, unlike in the old days, your banking choices aren’t bound by geography or other restrictions. If you can’t settle on a single online bank, why not open accounts at multiple banks and compare your experiences?

Brian Martucci writes about credit cards, banking, insurance, travel, and more. When he’s not investigating time- and money-saving strategies for Money Crashers readers, you can find him exploring his favorite trails or sampling a new cuisine. Reach him on Twitter @Brian_Martucci.

Source: moneycrashers.com

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May 24, 2023 by Brett Tams

Best for cash back: Maximum Rewards® World Mastercard® by Amalgamated Bank

Pros

No annual fee
Unlimited 1.5% cash back on all purchases
$30 bonus (30,000 points) when you spend $600 within the first three billing cycles
0% intro APR on purchases and balance transfers for the first 12 billing cycles

Cons

Higher variable APR on purchases and balance transfers after the introductory period
3% foreign transaction fee

Features

Travel insurance including

Amalgamated Bank supports a number of different causes from environmental sustainability to workers’ rights, and it’s union-owned to boot. Founded in 1923, it’s been rallying behind rallying people for over a century. It’s net-zero and run on renewable energy, pro-union, an ally to immigrants, and politically progressive.

But we’re here to talk about the credit card too. The Maximum Rewards® World Mastercard® is a rewards credit card that earns 1.5% rewards on all purchases. It’s got a great 12-month intro APR, a signup bonus, and good redemption flexibility — all without an annual fee.

Choose this option if you want to have your cake and eat it too (i.e. side with a bank that’s doing some good and still get a great flat-rate cash back card).

Learn more.

Best socially responsible card: Rewards Platinum Visa® from Green America

Pros

No annual fee
Unlimited one point per dollar on all purchases
0% intro APR on purchases and balance transfers for the first 12 billing cycles
$150,000 in Travel Accident Insurance

Cons

1% foreign transaction fee

Features

Donates a portion of profits to charities
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Maybe you’ve heard of Green America, the nonprofit working to combat climate change, promote ethical practices and corporate governance, fight for social justice, and more. Green America’s work covers a broad range of issues, and its credit card, the Rewards Platinum Visa®, supports these efforts with every transaction. And it earns unlimited points on everything.

This affinity card has a fairly competitive APR, doesn’t charge an annual fee, and has a few nice benefits like travel insurance and a lower foreign transaction fee. But it’s not perfect, and we wish it were more clear about how donations worked and where exactly they were going.

This is a good choice if you’re interested in socially responsible causes and giving back.

Learn more.

Best card for charitable donations: Charity Charge Card

Pros

No annual fee
Lower interest rate on purchases

Cons

Does not earn rewards
2% foreign transaction fee

Features

Donates 1% of all purchases to the charity of your choice

The Charity Charge Card automatically gives to charity every time you use it. Can your current card do that?

When you apply for this credit card, you get to choose the nonprofit you want your spending to automatically benefit. If a nonprofit is set up to receive credit card donations, it is likely available as an option. Bonus: your donations may qualify for charitable tax deductions, which can help the fact that you otherwise won’t earn rewards or cash back sting a little less.

Since donations are calculated as a percentage of spending, you’ll have a greater impact the more regularly you use this card. If you don’t want to miss out on rewards entirely, you could use this card for some of your spending that wouldn’t qualify for the best rates otherwise.

Learn more.

Read more: Want To Help But Can’t Give Cash? 10 Alternatives To Donating Money

Best secured credit card: Secured Mastercard® by Amalgamated Bank

Pros

Potential for a credit limit increase in as little as seven months after opening
Set your own credit line between $300 and $5,000
Potential to receive security deposit back in as little as 11 months with on-time payments

Cons

Does not earn rewards or cash back
$35 annual fee
3% foreign transaction fee

Features

Set your own limit and qualify for a credit limit increase

The Secured Mastercard® by Amalgamated Bank is a decent low-fee secured card for eco-conscious borrowers. It has a minimum limit of $300 and a maximum of $5,000, and your line is determined by your security deposit. This carries a modest annual fee (for a secured card) of $35 and fairly average interest rates, and it’s a little more flexible than the average competitor.

You may be eligible for a credit limit increase in as little as seven months after opening an account with responsible use and can get your deposit back in less than a year.

This is a good option for borrowers with little or poor credit, but you should only choose this if you couldn’t qualify for one of the others, as it doesn’t earn rewards and has higher fees.

Learn more.

Best for travel: Visa Signature Card (Climate Card) by Beneficial State Bank

Pros

No annual fee
Unlimited one point per dollar on all purchases

Cons

1% foreign transaction fee

Features

Travel insurance and protection including: Travel & emergency assistance services, travel accident insurance, auto rental collision damage waiver, and roadside dispatch

Beneficial State Bank is a purpose-driven financial institution with an eco-friendly card for people who may want their spending to help out green charities and nonprofits.

The Climate Card is similar to the Rewards Platinum Visa by Green America in that it earns flat-rate rewards that can be donated to charity. But unlike the Green America card, the Climate Card has you choose what happens to your points. So if you want to donate them, you can. But if you want to instead redeem for cash or travel, that’s your prerogative too.

This is a good travel card because it has a 1% foreign transaction fee (compared to 1% or 2%) and comes with benefits like insurance and roadside dispatch. And because it lets you choose between keeping your points and donating them, it’s also one of the most flexible choices.

Learn more.

Best fee-free credit card (for people in Washington): Verity Signature Rewards Visa

Pros

No annual fee
No foreign transaction fee
1.5 points per dollar on all purchases
0% intro APR on purchases and balance transfers for the first 12 billing cycles

Cons

Only people in Washington state are eligible to join Verity Credit Union

Features

Signature Rewards Visa protection benefits including: extended warranty protection, emergency assistance travel services, accident insurance, and more

Credit cards without foreign transaction fees can be hard to come by, but this card makes it happen. The Signature Rewards Visa by Verity Credit Union charges no annual fee and no foreign transaction fee, giving it a huge advantage over all the others on this list. But it has the huge disadvantage of being only available to people in the state of Washington.

Points can be redeemed for cash, travel, gift cards, or purchases and there are no restrictions for earning. There’s also an intro APR offer of 12 months on purchases and balance transfers, making this comparable to many rewards cards on the market. If you do qualify to join Verity, consider it for this — especially if you’re on the fence about eco-friendly cards.

This is a good card from an admirable credit union, but it won’t be a fit for everyone (or most).

Learn more.

Best debit card for earning: Aspiration Spend and Save

Pros

Up to 10% cash back on eligible Conscience Coalition purchases
Earns up to 3.00% interest with qualifying debit activity

Cons

Monthly fees for the Plus Plan ($7.99 a month paid monthly or $5.99 a month paid annually)
Does not earn cash back on all purchases
Does not build credit

Features

$10 minimum deposit
Additional green benefits like carbon offsetting and planting trees with purchases

The Aspiration Spend & Save account offers a debit card that earns rewards like a credit card and comes with a whole host of eco-friendly benefits. There are two plans to choose from.

The base Aspiration plan uses a “pay what is fair” fee structure and the Aspiration Plus plan costs $5.99 or $7.99 a month depending on if you pay monthly or annually. The Aspiration plan pays up to 1.00% interest and up to 3% – 5% cash back while the Aspiration Plus plan pays up to 3.00% interest and 10% cash back on Conscience Coalition spending.

Both have features like early direct deposit and the ability to plant trees when you spend, but only the Aspiration Plus account includes additional automatic offsets and Purchase Assurance. If you decide this account is right for you, pick the Plus Plan to maximize benefits.

Read our full Aspiration review.

Aspiration Zero Credit Card

Aspiration used to offer a credit card called the Aspiration Zero Credit Card, but they are no longer accepting new applications. Now, this bank’s only individual solution is the Spend & Save account, a rewards-earning checking account with a debit card.

Best debit card for eco-friendly spending: FutureCard Visa Debit Card

Pros

No monthly fees or annual fee
6% cash back on eligible purchases at FuturePartners
5% cash back on “climate-smart spending” purchases such as EV charging, bikes and scooters, public transit, etc.

Cons

Does not earn cash back on all purchases
Does not build credit

Features

See your climate impact using your FutureScore
Complete missions to earn FutureCoins

The FutureCard Visa Debit Card earns rewards based on your spending habits. The more eco-friendly your purchases, the more you’ll earn.

With this card, you’ll get points for “climate-smart spending.” This is defined as purchases with a lower carbon footprint, and examples include electric vehicle charging and secondhand items. There’s no cap on earnings but you won’t earn cash back on all purchases.

This card is also unique because it provides you with a summary of your impact in the form of a FutureScore. The app then gives you suggestions for living more sustainably and pays FutureCoins, which can be redeemed for cash, when you complete Missions. Look out for promotions and bonus days to earn even more cash back on your purchases.

Learn more.

Best business credit card for nonprofits: Charity Charge Nonprofit Business Card

Pros

No annual fee
Discounts and rebates on business spending

Cons

Does not earn rewards

Features

Mastercard Zero Liability protection

If you own or work for a nonprofit and are looking for a business credit card, look no further than the Charity Charge Nonprofit Business Card. This business card is exclusively for nonprofits and works with over 2,000 nonprofits to meet their spending and financing needs.

This card doesn’t charge an annual fee and offers service benefits specifically geared toward not-for-profit rather than for-profit institutions. These include expert guidance from the support team and dedicated representatives.

The Charity Charge Nonprofit Business Card is ideal for nonprofits with less credit to work with, especially newer and growing organizations.

Learn more.

🌳 What is an eco-friendly credit card?

An eco-friendly credit card or green credit card has a positive environmental impact.

There isn’t one single type of eco-friendly credit card, as the term “green” looks a little different to everyone, but the point is that they’re better for the planet. There are also green and eco-friendly debit cards.

A card might be green if it:

Has a smaller carbon footprint than the average card
Rewards you for eco-friendly spending
Donates to environmental nonprofits
Plants trees with each transaction

These are just a few examples.

There are also cards that have a more general positive impact. For example, they might support socially responsible missions such as fair labor and equal housing. These can benefit the planet but might also benefit other causes as well. The Rewards Platinum Visa® from Green America is a good example of this.

Pros and cons of greener cards

Green credit and debit cards aren’t for everyone, but for some might be just what they’ve been looking for. Here are a few of the main pros and cons to consider with this type of product.

👍 Pros

Eco-friendly cards offer many benefits for people with environmental — or financial — goals.

Some allow you to donate to charities without using money out of your own pocket, and these donations could be tax deductible. The best ones even let you choose the charity.

Others incentivize you to be more eco-friendly in your spending habits by handing you the most rewards points for green purchases. This could help you live more sustainably.

And a few have their own unique benefits, like Aspiration’s tree-planting with transactions.

Many of these cards earn some sort of rewards for spending, with several offering flat rates on everything. And a handful also have everyday perks like purchase protection and discounts too.

👎 Cons

While greener cards offer benefits like lowering your impact and motivating yourself to make more sustainable choices, they do require you to compromise in some areas.

When it comes to rewards you actually earn, most of these cards just aren’t as competitive as others. The highest rate we’ve seen for green credit cards is 1.5% cash back, and this is the lowest base rate for many of the best rewards cards out there. And you might not have a lot of flexibility in how you redeem these rewards with an eco-friendly card.

These cards also don’t have as much going for them in the perks department. They have leaner travel benefits, if any at all, and very few free features.

Sure, the satisfaction of knowing you’re helping the planet is rewarding, but it might not help you save money and isn’t as flashy as what other cards offer.

Who are eco-friendly credit cards and debit cards best for?

If your spending habits make sense for one of these cards and you’re willing to compromise on rewards some in order to do good with your dollars, an eco-friendly card could be right for you.

You might decide to go green with your card because you don’t want to support big banks with harmful practices that hurt the planet, people, or both. For example, many major card issuers are responsible for enormous carbon footprints and lend money to fossil fuel companies.

Some are also involved in scandals, wrapped up in politics, and sneaky about where they spend money. It’s not a good look.

If you want to be part of something different, these cards are just one way to do that.

Read more: What is public banking?

Who are eco-friendly credit cards and debit cards not ideal for?

Don’t go for a green credit card or socially responsible card if your number one priority is earning the most rewards. These cards have lower payouts than others, fewer options for redemption, and often less earning flexibility.

Eco-friendly credit and debit cards are not yet on par with the rest of the options in the personal finance world. And until they have higher rewards rates and more benefits overall, they’re not likely to become mainstream any time soon.

Fortunately for those who want to help the planet but don’t want to sign up for one of these cards, there are other ways to spend more sustainably. This next section is for you.

What if you don’t want a green credit card?

If you don’t want to have to compromise on rewards — or you just don’t need a new card — but still want to make a positive impact, you can skip the card and do these things:

Click the link below for more ways to make your money green.

Read more: 12 easy ways to make your money green and protect our planet

Summary

There are many green credit and debit cards to choose from, each with its own benefits for your wallet and the environment. We’ve highlighted the best here, but even some of these leave a little to be desired when it comes to rewards earning, perks, and redemption.

But if this category catches on as consumers grow more conscious of their impact on the planet, more eco-friendly cards will be available and this space will become more competitive.

Apache is functioning normally

May 23, 2023 by Brett Tams

Americans donate billions of dollars each year to nonprofits — both at home and abroad. That money is essential to helping those nonprofits carry out their missions.

But how do you know that money will be used the way you want?

If you’re donating money to a charity, take a minute to make sure you know where your money is going first.

3 Things to Consider Before Donating Money to a Charity

If you have the money to make donations — or even if you don’t, but feel strongly about a certain cause — it’s important to evaluate the charity first.

Are donation dollars helping support a worthy cause — or supporting high administrative costs?

You want to get the most out of your donation dollars. Here are some tips to help.

1. Make Sure You’re Donating to a Legitimate Organization

It never hurts to check out the charity’s profile on a watchdog site such as Charity Watch or Charity Navigator.

You can search the organization and find its address, mission statement, tax filing status and total expenses vs. total contributions.

Charity Watch will also tell you how much it cost the charity to raise $100, which can be a sign of the organization’s efficiency (or lack thereof).

Charity Watch gives organizations a letter grade, like A, B or C. Charity Navigator rates organizations on a scale of one to four.

2. Know Where Your Money Is Actually Going

You don’t want your hard-earned money to go into someone else’s pockets — unless that’s who you donated it to.

The number that can help you understand where your money is going is called the program efficiency or expense ratio.

Higher efficiency ratios are a good thing. They illustrate a charity’s productivity in providing services in line with its mission.

A general rule of thumb: The most efficient organizations spend at least 75% of their budgets on programs and services, with the rest going toward administration and fundraising costs.

Finding the spending ratio is super simple. Go to Charity Watch and search for an organization. You’ll see a “program expense ratio” that reflects the total expenses a charity spent on programs relative to overhead.

3. Take Note of the Group’s Nonprofit Status for Your Taxes

When you make a donation, check to see if it’s tax deductible. This is important to some donors because donation dollars can be deducted from taxable income. That means it won’t be taxed.

To determine the status of your monetary contribution, look for the charity’s tax status.

You can find an organization’s tax status on Charity Watch or Charity Navigator. Or simply go to the organization’s website, the IRS or GuideStar.

The two most common tax statuses for charities are 501(c)(3) and 501(c)(4).

A 501(c)(4) donation is generally not tax deductible, while donations to 501(c)(3)s are.

As a result, if you’re trying to get a tax break, look for a 501(c)(3) organization before you make your donation.

The IRS has a great resource about charitable donation deductions for those looking to save money at tax time. Read up!

But remember: You can only claim charitable donations if you itemize your taxes. And most Americans don’t itemize.

According to The Tax Foundation, about 87% of Americans took the standard deduction in 2019 instead.

For the 2022 tax year, the standard deduction is $12,950 for an individual, $25,900 for married couples and $19,400 for heads of household.

That means your deductible expenses — including your charitable donations — will need to equal more than $12,950 (or $25,900, if you’re married and filing jointly) to be able to take advantage of a charity tax benefit.

For many of us, that will not be the case.

Rachel Christian is a Certified Educator in Personal Finance and a senior writer for The Penny Hoarder. Carson Kohler is a former staff writer.

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Source: thepennyhoarder.com

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