Chances are you’ve gotten your third stimulus check by now, but you may still be waiting on that other chunk of change the IRS owes you: your tax refund.
The IRS is sitting on a backlog of 29 million returns that require manual processing, which basically means that a human needs to review it.
To be clear, most taxpayers who e-file have their returns processed and receive their refunds within 21 days, according to the IRS. But if you’re still waiting and wondering “where is my tax refund?”, here’s what’s going on and how you can track it.
Why You Haven’t Received Your Tax Refund
The 2020 tax season has been an especially complicated one for IRS staff and accountants.
As of March, the IRS still had a backlog of more than 2 million returns from 2019. Most of them are leftover returns filed by mail that piled up last year when most IRS offices were temporarily shuttered due to COVID-19.
But on top of that, there are a number of complexities created by the three stimulus bills, the most recent of which passed in the middle of tax season. On top of the usual tax season mayhem, the IRS was tasked with delivering the third stimulus check. Plus, tax season started 16 days later than usual this year. These challenges prompted the IRS to extend the tax deadline to May 17.
For example, people who typically qualify for the Earned Income Tax Credit, a credit for low- and middle-income working families, may not have been eligible in 2020 due to expanded unemployment benefits. The $900 billion stimulus package that passed in December changed the rules to allow families to use 2019 income to qualify instead of 2020 income.
However, the IRS didn’t have time to update its programs to reflect this change, so if you’re seeking the Earned Income Tax Credit based on 2019’s income, an IRS employee will need to manually review it.
The same applies if you qualify for stimulus money from the first two checks based on your 2020 return that you didn’t qualify for based on your 2019 or 2018 return. For example, if your 2019 income was higher than your 2020 income, you may qualify for more stimulus money. Or if you had a child in 2020, you’d get stimulus credits on their behalf. These situations also require a manual review.
But your tax refund could also be delayed for all the reasons that would apply in a normal year. For example, if your refund was sent to a bank account that you’ve since closed, the IRS will eventually cut you a paper check, but that adds to the wait time. If someone fraudulently filed a tax return in your name to steal your refund, the IRS will think that you’ve already filed and reject it. Your refund will also be delayed if you made an error or your return was incomplete.
If you owe certain types of debt like child support or back taxes, the IRS could take your refund and use it to offset what you owe.
Paper returns require manual processing, so if you’ve filed by paper, expect a long wait, even if there are no issues with your return. The IRS is urging taxpayers who have yet to submit their returns to file online instead of by mail.
If you made an error that requires an amended return, your tax season will be even more prolonged. The IRS will notify you of the error by mail, and you’ll have to send in Form 1040X. There’s only one way to do this: by mail. Then, your amended return will be added to the 29 million-plus unprocessed returns.
What to Do if You’re Still Waiting
The first step is to make sure the IRS has actually received your return.
You can track your return using the Where’s My Refund feature on the IRS website or the IRS2Go app. You’ll need to provide your Social Security number, filing status and your exact refund amount.
But these tools have limited usefulness. If your return has been processed, they tell you when your refund is scheduled for deposit, but they don’t provide information about why a return is still being processed or whether you need to provide additional information, which prompted recent criticism from the Taxpayer Advocate Service.
If you filed electronically, you should be able to see whether the IRS has accepted your return within 24 hours. If the IRS has accepted your return, that just means it has confirmed it received it. The IRS still has to process it.
If you sent a paper return, you can expect a long wait before you can confirm that the IRS even has your return. Even in normal circumstances, tracking a paper return can take about four weeks.
The IRS says its staff will help you research the status of your refund only if you filed electronically more than three weeks ago or sent it by mail at least six weeks ago, or if Where’s My Refund tells you to get in touch.
Considering that the IRS has only answered about 7% of individual taxpayer phone calls to date, it’s pretty tough to talk to a human. Even if you’re one of the lucky ones who gets through to a human, they probably won’t be able to give you much information. The IRS systems don’t tell employees who handle phone calls why a return required manual processing. But if you want to try, the number for checking the status of a refund is 800-829-1954.
What to Do if You Haven’t Filed Yet
The big takeaway if you haven’t filed yet: Filing electronically is the way to go. There are plenty of easy-to-use tax software options, many of which have free versions.
Not only will you get your refund faster, but you’re also less likely to make errors that could result in further delays because the software is doing the math for you. Additionally, filing electronically is more secure than putting all that personal information in an envelope.
And of course, the sooner you file, the better. It usually takes longer to get your refund as Tax Day approaches, so stop delaying and block off time for a date with your tax software of choice.
Robin Hartill is a certified financial planner and a senior writer at The Penny Hoarder. She writes the Dear Penny personal finance advice column. Send your tricky money questions to [email protected]
Starting a business is an opportunity to be your own boss, make money and grow your skill set.
There are also the not-so-great, somewhat messy and complicated parts about operating a business. If you start off solo or small, you’ll be tackling a lot of tasks yourself.
But don’t worry. In this article, we’re going to address something relatively simple in the business world: the best business checking accounts.
We’ll go into why you need one, what you should look for and several of the best ones available, both in-person and online-only.
Wait, Do I Really Need a Business Checking Account?
The purpose of a business checking account is to keep your business finances separate from your personal finances.
Technically, you might not need one depending on the legal structure of your business.
For example, if you’re a freelance writer who established a sole proprietorship and is starting slowly, you could use your personal checking account to get off the ground. But you’ll want to be extremely organized about keeping track of your business money for tax time. (Nothing will damper your momentum like getting audited.)
The type of business you’re running makes a difference here. If it’s transaction-heavy — or a particular legal structure, like a limited liability company — you might need a business checking account, full stop.
But if you’re starting any kind of business, it’s probably in your best interest to open one.
Business checking accounts make it easier to track profits, expenses and deductions, and help establish your operation if you file for business credit cards or loans down the line.
What You Need to Open a Business Checking Account
To open an account, you’ll typically need the following:
Social security number (SSN) or employee identification number (EIN)
Valid driver’s license or state ID
An initial deposit
How easy it is to open a business checking account will depend on your business. If you’re a sole proprietor, the process might feel similar to opening a personal checking account. If you have a different legal business structure, you’ll likely have to provide additional documentation (like your articles of incorporation). Requirements will vary from bank to bank.
What You Should Look for in a Business Checking Account
Before you peruse accounts, get a handle on your business needs and wants. For instance, do you make a lot of transactions? Do you want a business credit card ASAP? Do you prefer a big bank where you can pop into a different branch every half mile?
There are other considerations. Do you want your bank, credit union or financial institution to…
Offer free bank statements?
Have an app?
Offer free online banking and/or bill pay?
Have in-person locations?
Offer comprehensive customer service, i.e., allow you to talk to someone online and on the phone 24/7?
Have integration with tools, like invoicing software?
Offer multiple products, such as business credit cards, small-business loans, etc.?
There are lots of banks for small businesses to choose from, but you want one that will give you the most options. And ideally, save you some money and headaches in the process.
To choose the best business checking accounts, we focused on accounts that:
Require a low minimum initial deposit ($1,000 or less — most require only $25).
Offer a certain number of transactions for free.
Either have no monthly service fee or make it easy to have the fee waived.
We also focused on checking accounts for small and medium businesses. If you’re looking for accounts to manage a higher volume, many of the traditional institutions on our list have them, too.
Check out our current list of bank promotions for a chance to gain a monetary bonus when signing up for a new business checking account.
The 5 Best Business Checking Accounts for May 2021
We chose five institutions and a couple of different checking account options for each where available.
1. Chase: Best for 24/7 Customer Service and Overall Accessibility
Chase is a well-known brand with many physical branches and flexible options for business owners. It’s a good choice if you want to be able to find a chain easily and talk to someone in person. Chase also offers 24/7 support, so you can call and email them anytime of day. From personal experience, if you send them a secured online message, they typically follow up within 24 hours. To learn more, read our Chase Bank review.
Number of branches: Approximately 4,700
Number of ATMs: 16,000
Here’s the lowdown on Chase Business Complete Banking and Chase Performance Business Checking.
Chase Business Complete Banking
Chase Business Complete Banking (for small businesses) at a glance:
Sign-up bonus: $300 for new customers who meet certain criteria
Minimum initial deposit: $25
Monthly service fee: $15; waived if you maintain a minimum daily balance of $2,000 or link a qualifying Chase account
Cash deposits per month: Up to $5,000 without an additional fee
Free transactions per month: 100
Access to Chase online and mobile banking
Get same-day deposits on card payments at no additional cost
Chase Performance Business Checking
Chase Performance Business Checking (for medium-sized businesses) at a glance:
Sign-up bonus: None specified
Minimum initial deposit: $25
Monthly service fee: $30; waived if you maintain a minimum daily balance of $35,000 or more in qualifying accounts
Cash deposits per month: Up to $20,000 without an additional fee
Free transactions per month: 250
No charge for all incoming wires and two outgoing domestic wires per statement cycle
Interest-bearing option availableChase has business saving account, lending and credit card options, too. Chase offers several small-business credit cards, all with new card member bonuses, which include $750 cash back to 100,000 bonus points depending on the card.
2. Wells Fargo: Best for Small Business Owners Just Getting Started
Wells Fargo is another strong choice for your business checking account needs. It has many branch locations and you can call them 24/7. Its website is also easy to navigate and lets you find answers to your questions without clicking on a ton of links. Check out our Wells Fargo Bank review for more information.
Number of branches: Approximately 7,200
Number of ATMs: Over 13,000
Wells Fargo Initiate Business Checking
Initiate Business Checking (for new and small businesses) at a glance:
Sign-up bonus: None specified
Minimum initial deposit: $25
Monthly service fee: $10; waived by having a minimum daily balance of $500
Cash deposits per month: Up to $5,000 for free
Free transactions per month: 100
Customized business debit card
24/7 fraud monitoring
If you’re just getting started with your small business and don’t expect to scale right away, Initiate Business Checking is a solid, affordable account to open.
Wells Fargo Navigate Business Checking
Navigate Business Checking (for small- to medium-sized businesses) at a glance:
Sign-up bonus: None specified
Minimum initial deposit: $25
Monthly service fee: $25; waived by having a minimum daily balance of $10,000 or an average combined business deposit balance of $15,000
Cash deposits per month: Up to $20,000 for free
Free transactions per month: 250
Customized business debit card
24/7 fraud monitoring
Wells Fargo also offers small-business lending and credit card options.
3. U.S. Bank: Best for Simple, Fee-Free Banking
While primarily located in the Midwest, this chain has lots of locations across the country. That’s great news if you’re a small-business owner looking for a simple checking account.
U.S. Bank has no monthly service fees for its Silver account, so no worries about meeting certain criteria to have the fee waived. You can also go to its website and take a short quiz to determine which account would work best for your needs.
Number of branches: 3,106
Number of ATMs: 4,842
U.S. Bank offers Silver, Gold, Platinum and Premium business checking accounts, and we’re going to outline the first two.
U.S. Bank Silver Business Checking
Silver Business Checking (best for newer or smaller businesses) at a glance:
Sign-up bonus: None specified
Minimum initial deposit: $100
Monthly service fee: $0
Cash deposits per month: 25 for free
Free transactions per month: 120 per statement cycle; 50 cents per excess transaction
U.S. Bank will charge you $5 for paper statements, so stick with online ones to save money and the planet.
Online and mobile banking
Discount on first check order
Small Business Visa credit card
Card payment processing
U.S. Bank Gold Business Checking
Gold Business Checking (for businesses with moderate transaction levels) at a glance:
Sign-up bonus: None specified
Minimum initial deposit: $100
Monthly service fee: $20; waived by satisfying one of several criteria listed on its website
Cash deposits per month: 100 for free
Free transactions per month: 300 per statement cycle; 45 cents per excess transaction
Online and mobile banking
Remote check deposits
Discount on first check order
Small Business Visa credit card
Card payment processing
Silver and Gold are good options for small businesses looking for free business checking accounts (as long as you stay within the limits). And in general, Chase, Wells Fargo and U.S. Bank are all good options for an LLC.
4. BlueVine: Best for Fee-Free, Online-Only Banking
Want to open an account on your phone and manage it entirely online? Welcome to 2021… and to BlueVine.
BlueVine boasts no hidden fees and unlimited transactions. Members can pay vendors, schedule one-time and recurring payments, and earn an impressive 1.0% on their checking account balance up to $100,000. Deposits are FDIC-insured (up to $250,000) through The Bancorp Bank.
Number of branches: 0
Number of ATMs: Users can withdraw cash fee-free at over 38,000 MoneyPass® locations in the U.S.
BlueVine at a glance:
Sign-up bonus: None specified
Minimum initial deposit: $0
Monthly service fee: $0
Cash deposits per month: Unlimited. You can deposit cash at close to 100,000 retail locations through a partnership with Green Dot. A $4.95 fee, per deposit, applies.
Free transactions per month: Unlimited
A BlueVine Business Debit Mastercard®
Access to a business line of credit
Two free checkbooks
Phone and email customer support
5. Axos Bank: Best for Business Interest Checking
Axos Bank is another online-only bank. In addition to business checking accounts that earn interest, customers can take advantage of surcharge-free ATMs across the U.S.
Number of branches: 0
Number of ATMs: You can use any ATM in the U.S. and you’ll be reimbursed for the fees
Axos Bank offers Basic Business Checking, Business Interest Checking and Analyzed Business Checking. We’re going to look at the first two.
Axos Basic Business Checking
Basic Business Checking at a glance:
Sign-up bonus: $!00 if you incorporated after June 1, 2020
Minimum initial deposit: $1,000
Monthly service fee: $0
Cash deposits per month: Up to 60 items with remote deposit
Free transactions per month: 200; afterward, 30 cents each
Pay bills with no charge through the app
First set of 50 checks is free
Compatible with QuickBooks
Axos Business Interest Checking
Business Interest Checking at a glance:
Sign-up bonus: $100 if you incorporated after June 1, 2020
Minimum initial deposit: $100
Monthly service fee: $10; waived if there’s an average daily balance of $5,000
Cash deposits per month: Up to 60 with remote deposit
Free transactions per month: 50; afterward, 50 cents each
Earn up to 0.81% APY
First set of 50 checks for free
Axos Bank also offers saving accounts and Business CDs, but no credit cards.
Regional Business Checking Account Options
Here’s a glance at three smaller, regional options for business checking accounts. If your area isn’t listed, you can research credit unions and banks near you.
America First Credit Union
This institution has branches in Nevada and Utah. America First offers four types of business checking accounts: Basic, Premier, High-Yield and Non-Profit.
The Basic Business Checking offers 250 free monthly transactions, free online bill pay, access to money market savings, lines of credit and Business Visa credit card.
This bank has branches in Tennessee, Florida, North Carolina, South Carolina, Virginia and Texas. First Horizon offers BizEssentials Checking (Value, Basic, Standard and Interest) and Business Interest Checking Account, which combines the benefits of a checking and interest-earning savings account.
The Business Interest Checking Account has no minimum balance requirements, plus you’ll earn interest on your balance and have access to a Visa Business debit card.
SunTrust, Now Truist
This bank has branches in Alabama, Arkansas, Washington, D.C., Florida, Georgia, Maryland, Mississippi, North Carolina, South Carolina, Tennessee and Virginia. SunTrust offers three types of business checking accounts: Simple Business Checking, SunTrust Primary Business Checking and SunTrust Business Advantage Plus Checking.
SunTrust Primary Business Checking has a $15 monthly fee that’s waived in the first two statement cycles and after that when you have a $1,000 minimum daily balance. Each month, you’ll get 150 free transactions and $5,000 cash processing.
What’s the Right Business Checking Account for You?
The best business checking account for you will depend on your business and needs. Whether you’re just starting out or looking to level up, there are plenty of options out there, online and off. Start your search now, so your future self — and CPA, come tax time — will thank you later.
Contributor Kathleen Garvin (@itskgarvin) is a personal finance writer based in St. Petersburg, Florida, and former editor and marketer at The Penny Hoarder. She owns a content-writing business and her work has appeared in U.S. News, Clark.com and Well Kept Wallet.
To learn more about how our Minters are achieving their financial goals, we reached out to everyday Mint users, just like you, to hear their stories. Whether it’s paying off student loans, or working toward buying a home, we’re so inspired by the dedication this community has shown in working toward your goals and dreams.
One of the Minters we connected with is Jordan. He shared with us how he’s used Mint to reach a number of his financial goals. Check out his #EmpowerMint story:
My wife and I have been interested in getting out of debt ever since the day we took on student loans. With the desire to pay those loans off, we strived to learn more about budgeting and personal finance.
As we grew in our journey, there were many financial things we questioned that felt ‘normal.’ We heard so many messages that emphasized the need to have the newest toys to be happy, that having debt is normal, and that most people live paycheck to paycheck. We realized that we didn’t feel comfortable with any of that, and that we found satisfaction in being content with what we have.
Knowing that money issues were often a problem area for couples, my wife and I started using Mint shortly after we got married in 2010 to ensure transparency and partnership from the beginning. We found Mint to be a terrific tool for us to have a complete picture of our financial situation. During this time, I was working full-time and my wife was finishing up her last year in nursing school. Mint was an immediate help in keeping track of where our money was going and in starting budget discussions that have proved to be invaluable in our marriage. It also helped initiate discussions on both near-term and long-term goals, which have been so key in helping us plan both strategically and aspirationally.
As time went on, Mint was instrumental in helping us achieve so many of our goals including:
Paying off student loans
Paying for grad school with cash
Preparing for kids
Starting a 529
Saving for a down payment
Buying a home
Our current goal is to complete our 15-year mortgage in under 5 years. A combination of Mint, aggressive savings, overtime shifts, and side hustles have helped put us in a position to achieve this goal within the next 12 months. Once that goal is complete, we’re excited to have a little fun and celebrate this accomplishment, and then prepare for the next chapter in our financial journey.
In addition to this goal, we also have various net worth milestones we would like to achieve in the next 1-, 5-, and 10-year periods. We are very excited about the concept of financial independence, and would like to be in a position where we have the opportunity to focus our attention on things outside of work, such as further investing in our family and causes that are important to us. With Mint, we can see how the choices we’re making are helping move us closer to achieving these goals.
Today, we check Mint on a daily basis in order to stay on top of our expenses and monitor for any fraudulent activity. Years ago, Mint helped me identify a fraudulent charge almost immediately, enabling me to notify our bank and get the issue resolved. Reviewing our expenses enables us to stay within our budget, catch fraudulent activity, and follow the ‘every dollar’ budgeting rules that have been so helpful for us. In addition, linking our accounts has automated what would otherwise be a very manual and time-intensive process.
I have also loved using the trends feature to have full visibility into exactly how our money is being spent and to help ensure we’re always partnering as we work towards our financial goals, rather than feeling like one person is pulling the other along. We can budget with transparency and not feel any need to hide transactions for personal expenses and rewards or small splurges.
The trends feature has also allowed us to get a sense of what our typical spending has been in different categories. We periodically review our budget, and being able to easily see our historical spending in different categories has helped us set realistic targets, as well as track our progress when we are attempting to change habits. Lastly, being able to see changes in our net worth over the years has been inspiring, as we have been able to see in real-time how decisions to save or forego immediate gratification can have long-term benefits.
Beyond that, we have found a great deal of joy in doing things ourselves, whether it is cooking meals for the week, doing our own car maintenance, or trying to fix something ourselves before calling someone. Additionally, the satisfaction has compounded as we’ve seen that making these choices has helped us not only learn new things, but also in achieving our goals.
Knowing what we know now, we’re really excited to pass these values on to our kids, and we’re happy to discuss them with anyone who asks. Additionally, I can see a ‘life’ after work that involves volunteering in some form in the personal finance field, whether that is teaching folks about budgeting or just encouraging them in their financial journey.
Banks and credit unions have a fair amount in common. Both provide comparatively safe places to hold cash for spending and saving. Both make loans and extend lines of credit. Both provide basic financial services, like cutting bank checks.
Yet these two types of financial institutions are anything but interchangeable. Credit unions aren’t better than traditional banks, nor vice versa. But each has strengths and weaknesses that would-be users need to understand before opening that first deposit account or applying for a loan.
The seeds of this understanding lie in the details of the products, services, and guarantees banks and credit unions offer their members. Fortunately, those details aren’t too difficult to parse. Consider this your guide to doing just that.
Key Features of Banks and Credit Unions
It bears repeating that banks and credit unions have a lot in common, but key differences do emerge upon closer inspection. Credit unions tend to restrict membership in ways that banks don’t, for example, while generally offering higher interest rates on savings deposits and lower interest rates on loans.
Membership Requirements and Account Availability
As you decide between a credit union and a traditional bank, the institutions’ respective membership requirements — or lack thereof — will be among the first points of distinction you notice.
Membership Requirements and Account Availability at Banks
Banks tend to be more open to new customers than credit unions. To the extent that banks restrict membership or account availability at all, it’s on the basis of geography — that is, community banks or regional banks may not accept applications from would-be customers in states where they don’t have a physical presence. (Online banks like GO2Bank usually don’t restrict applications by geography.)
Otherwise, individuals and couples with Social Security numbers or taxpayer identification numbers and U.S. addresses can generally apply for deposit accounts without restriction.
Membership Requirements and Account Availability at Credit Unions
Credit union customers are known as “members,” which hints at the potential restrictions around opening accounts with this type of institution.
Historically, credit unions restricted membership in fairly drastic ways. For example, some were open only to employees of particular companies or members of particular labor unions, while others accepted members only from very narrow geographical areas.
While some smaller credit unions continue to restrict membership, many larger ones now have gaping loopholes in their membership criteria that allow basically anyone to join. For example, Andrews Federal Credit Union, which has about 120,000 members and a branch network serving the mid-Atlantic states, only asks that prospective members join the American Consumer Council and pay the organization’s nominal membership fee.
If you live in an area served by multiple credit unions, membership requirements aren’t likely to pose a serious hurdle to joining one that fits your needs. In more sparsely populated areas with limited local credit union coverage, you may need to join an out-of-state institution and potentially pay a nominal fee to secure your spot.
Branch and ATM Access
Most credit unions and many banks have physical branches where customers can make deposits, get cash, speak with loan officers, and conduct other financial business in person. Virtually all credit unions and banks also have their own branded ATMs or belong to low-fee or free ATM networks.
Banks’ Branch and ATM Networks
Banks’ branch networks come in all shapes and sizes. National and multinational giants like Bank of America and JPMorgan Chase have thousands of locations littered about the country, while single-branch community banks might serve a single small town or handful of rural communities. That said, more traditional banks have regional, superregional, or national branch networks than credit unions.
Most banks also belong to national ATM networks that include thousands or tens of thousands of in-network ATMs that charge few if any fees for cash withdrawals and other basic financial transactions. These networks may be entirely in-house — for example, Chase Bank has thousands of branded ATMs scattered about the United States — or shared by many different banks, like the Allpoint or MoneyPass networks. Most branchless banks (online banks) belong to one of the major fee-free ATM networks.
Credit Unions’ Branch and ATM Networks
Even larger credit unions that accept members nationwide tend to have smaller physical footprints, either in contiguous geographies (Andrews Federal Credit Union’s branches extend from the D.C. area in the south to New Jersey in the north) or clustered in areas where lots of members live and work.
However, hundreds of U.S. credit unions participate in the Co-Op Financial Services shared branch network, which has more than 5,000 branches across the United States. Co-Op Financial Services credit unions offer reciprocity to members of other participating credit unions, allowing them to deposit and withdraw funds and perform other basic banking tasks while traveling or otherwise far removed from their own credit union’s home territory. And the Co-Op Financial Services has about 30,000 fee-free ATMs in its network, just a bit fewer than Allpoint and MoneyPass.
Financial Products and Services Available
All banks and credit unions offer one or more types of deposit accounts, most often checking accounts (spending accounts) and savings accounts. Many banks and virtually all credit unions also offer credit products, including home loans (mortgages), auto loans (car loans), credit cards, and personal loans.
Financial Products and Services Available at Banks
Every bank, from the leanest mobile bank to the biggest multinational, offers some sort of deposit account. Some stop there, while others offer less common types of deposit accounts (such as money markets) and investment (brokerage) accounts, along with credit products ranging from credit cards and personal loans to secured loans like mortgage and auto loans. Most traditional banks do make loans, historically a key revenue stream for financial companies; some online banks don’t issue loans directly.
The biggest financial institutions typically have the widest breadth of financial products and services, often complemented by private banking or wealth management services designed to craft bespoke financial solutions for wealthier clients. If you want to do all your banking, investing, and financial planning in a single location, you might naturally be drawn to a traditional bank built to do just that.
Financial Products and Services Available at Credit Unions
All credit unions offer savings accounts. These are usually known as “share” accounts because a portion of their balance — usually $5 or $10 — represents the member’s ownership stake in the institution.
Virtually all credit unions also offer checking accounts. And, as the “credit” in “credit union” suggests, virtually all issue mortgages, auto loans, business loans, and other common types of credit products.
Credit unions generally can’t match big banks’ breadth of financial products and services, however. Although some credit unions offer in-house financial planning and wealth management services, they rarely operate their own brokerages — a disadvantage for self-directed investors — and may not offer access to alternative asset classes like forex or cryptocurrency. And credit unions’ credit options might be of the one-size-fits-all variety, with just one or two credit card options available at small and midsize unions, compared with dozens of choices from national issuers like American Express and Chase.
Interest Rates, Account Yields, and Account Fees
It’s worth drilling down a bit more on what bank and credit union customers can expect to pay or receive, respectively, on credit and deposit balances. Credit costs and account yields vary subtly but noticeably by institution type, although it’s also true that prevailing benchmark rates and applicant creditworthiness are far more important determinants of borrowing costs.
Bank Interest Rates, Account Yields, and Account Fees
Banks are for-profit institutions that answer first to their shareholders, not their customers. Unfortunately, this often manifests in higher interest rates on loans, relative both to credit unions and direct lenders, and higher account fees than credit unions. It’s not impossible to find free checking accounts at big banks, but customers often have to jump through hoops like minimum balance, monthly direct deposit, or transaction requirements or hold substantial assets across multiple accounts to avoid monthly service fees.
Likewise, traditional banks often pay lower interest rates on savings accounts than credit unions. Big-bank savings accounts have particularly low yields that make them more-or-less useless in the eternal fight against inflation.
Credit Union Interest Rates, Account Yields, and Account Fees
As nonprofit, member-owned institutions, credit unions aren’t as focused on the bottom line as for-profit banks. This enables them to charge lower rates on credit products and levy fewer (and lower) account fees relative to banks.
Credit unions may also pay higher interest rates (yields) on deposit account balances, although many online banks outcompete brick-and-mortar credit unions on this point. More sophisticated credit unions that market digital money management services on a national basis, like Signature Federal Credit Union, generally offer yields on par with or better than online banks.
At this point, virtually all banks and credit unions operate secure websites that offer basic online money management services (online banking) and enable remote customer-staff interactions. But customers should be aware that the sophistication and scope of these capabilities can vary significantly by institution type — and by size, with many smaller banks having more in common with small and midsize credit unions on the technology front.
Financial Technology Available at Banks
Online banks and larger traditional banks have the resources and technical ability to design sophisticated online banking portals and mobile banking apps that can replicate most if not all of the in-branch banking experience and offer convenient services like early payday, instant person-to-person transfers, digital bill paying, and built-in savings buckets. To be sure, larger credit unions are increasingly attentive to the tech demands of younger digital natives and can compete with bigger or online-only banks at this game, but most smaller and midsize credit unions can’t.
Financial Technology Available at Credit Unions
Many credit unions still don’t have mobile banking apps and offer only rudimentary digital banking platforms that leave out capabilities most consumers take for granted, like peer-to-peer transfers. If you expect to be able to do most of your day-to-day banking digitally, you should investigate the tech capabilities of any credit union you’re thinking about joining and steer clear of institutions that don’t seem up to snuff. A general rule of thumb: If the credit union’s website feels dated and doesn’t work well on a mobile device, it probably won’t offer a quality digital banking experience.
Rest assured: Whether you keep your money with a bank or credit union, it’s insured against institutional failure up to legally mandated limits. Some banks, especially, are even more generous with deposit insurance than legally required.
Deposit Insurance Available at Banks
All reputable U.S.-based banks carry deposit insurance through the Federal Deposit Insurance Corporation (FDIC), which insures deposits up to $250,000 per account type, per institution. Some financial institutions, especially those that offer cash management accounts, go even further. Deposit insurance limits of $1 million or more are increasingly common on this type of account.
Deposit Insurance Available at Credit Unions
The National Credit Union Administration (NCUA) provides an identical level of deposit insurance on member balances at participating (“member NCUA”) institutions: $250,000 per account type, per institution. Higher limits aren’t as common, but the $250,000 threshold is more than enough for most account holders.
The Verdict: Should You Choose a Bank or Credit Union?
It’s clear that banks and credit unions are distinct in important ways. It’s equally certain that neither is better or worse than the other — just that each is different. Your choice will depend on your personal finance needs, preferences, and priorities.
You Should Choose a Bank If…
A bank could be a better fit for your financial needs if you value any of the following.
Doing All Your Banking and Borrowing in One Place. Many credit unions offer a solid mix of basic financial products and services: checking accounts, savings accounts, CDs, mortgages, auto loans, personal loans, SBA loans. But few if any can match the breadth and depth of products and services available from major consumer banks. If you want to be able to do all of your banking, borrowing, self-directed investing, and financial planning in one place, you’re better off in the banking world.
Excellent Online and Mobile Functionality. As a group, banks offer a better online and mobile banking experience than credit unions. There’s a great deal of variation within the banking sector, of course, with traditional, branch-based community banks noticeably behind online-only and nationwide banks on the tech front. But many credit unions are even further behind, to the point that they’re simply not useful for people who prefer not to bank in-branch.
Few Eligibility Requirements to Open an Account. With notable exceptions like age-restricted senior checking accounts, banks generally don’t restrict account availability or membership except by geography — and people who do business with online banks don’t have to worry about that. By contrast, all credit unions impose some sort of restriction on membership, although it’s often possible for the general public to join by making nominal donations to affiliated organizations.
You Should Join a Credit Union If…
Consider joining a credit union if you see your financial priorities represented here.
Personalized Service and Responsive Staff. If there’s an upside to being behind the times technologically, it’s that most credit unions still invest heavily in branch-based service and local support staff. If you value the opportunity to meet with a banker or get one on the phone basically on demand, a credit union is likely to be a better fit than a bigger, more impersonal bank.
Lower Loan Rates (On Average). A nonprofit, customer-centric business model allows credit unions to undercut for-profit banks with lower interest rates on loans and other credit products, including credit cards. Not all credit unions actually do charge lower rates; you should always shop around for the best rates rather than assuming your credit union is the best you can do. But the average credit union user does see real financial benefit from membership — a 2018 analysis by the Credit Union National Association found that the average New York State credit union member reaped benefits worth $85 per person or $178 per household, per year.
Simpler Account Terms With Less Nickel-and-Diming. Although plenty of banks distinguish themselves with simple, reasonable fee structures, credit unions make a business model out of it. As a credit union member, you’re unlikely to pay a monthly maintenance fee on a checking or savings account, and you’ll probably pay lower fees for things like overdrafts and returned checks too.
A Member-Owner Model. The typical credit union member doesn’t see any obvious benefit from being a member-owner — it’s not like credit union shareholders get eye-popping dividend checks every year, as big shareholders in corporate banks do. But, on top of the lower rates and fees the model allows, it can feel good to be part of a like-minded credit union community.
Both Are Great If…
Both banks and credit unions are excellent options if:
You Want a Safe Place to Hold Money for Spending and Saving. Both banks and credit unions carry ample deposit insurance — at least up to $250,000 per account type, per institution, and more at some banks. If your bank or credit union fails, you won’t have to worry about losing insured deposits.
You Want Access to Lots of ATMs. As long as your credit union is a member of the Co-Op Financial Services network, you’ll have access to tens of thousands of ATMs across the United States — just as you would as a customer of a bank in the Allpoint or MoneyPass ATM networks.
Since the turn of the 21st century, the widespread adoption of online and mobile banking has fueled pronounced shifts in the broader public’s financial behaviors and expectations, upending consumer finance. Parallel changes have come about thanks to regulatory reforms and consumer protection legislation implemented in the wake of the global financial crisis of the late 2000s, such as the creation of the Consumer Financial Protection Bureau.
One of the more noticeable consequences of technological and regulatory change has been a convergence — if not a total melding — of banks’ and credit unions’ respective business models. In terms of technological sophistication and product scope, larger credit unions now resemble midsize banks. Meanwhile, smaller, leaner, higher-tech banks and fintech platforms seek to replicate credit unions’ customer experience and stand apart from big, impersonal banks.
This is all to the benefit consumers, who have more choice than ever — and more reason than ever to expect financial institutions to treat them with the respect they deserve. Whether you ultimately decide to use a bank or credit union for your day-to-day and long-term financial needs, you can surely agree that’s good news.
Best Places to Get Out of Credit Card Debt – 2021 Edition – SmartAsset
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The Federal Reserve says that revolving consumer credit debt – including debt from credit cards, home equity lines of credit and personal lines of credit – increased to $974.4 billion in February 2021, marking a 10.1% annual rate increase from the year prior. This is almost one-third of all consumer debt – which also includes student and car loans – and adds up to a grand total of $4.2 trillion. With so many people trying to pay off credit card debt, SmartAsset crunched the numbers to identify and rank the best cities where it’s easiest to do so.
To do so, we considered unemployment rate, median post-tax income, lower-quartile rents and disposable income to find where debt could be paid off the fastest, assuming average interest rates and a total debt of $7,935. For details on our data sources and how we put all the information together to create our final rankings, check out the Data and Methodology section below.
This is SmartAsset’s 2021 study of the best cities to get out of credit card debt. Read the 2019 version of the study here.
Timelines can vary widely. Debt in the top 10 cities of our study can be paid off in just over 10 months, while the average for the bottom 10 is almost 18 months. Frisco, Texas is the city where debt can be paid fastest – under nine months. And Arlington, Virginia takes more than four times longer – a little over 36 months.
Residents in smaller cities can pay debt faster. Small and mid-sized cities in this study can pay debt off quickly. All of the top five cities have fewer than 250,000 residents. Affordable rent and a sizable disposable income (which is the money you take home after taxes) are key factors for residents in these cities to pay off debt.
1. Frisco, TX
Frisco, Texas residents can pay off a credit card debt of $7,935 in 8.59 months. The post-tax income for high-school graduates in this city is just over $37,000. And with a lower-quartile rent (the most affordable unit one could reasonably acquire) of $1,126 per month, residents can afford to make monthly debt payments of $979.
2. Reno, NV
Reno, Nevada residents can get out of $7,935 debt in 9.43 months. The post-tax income for high school graduates is around $31,000 and the lower-quartile rent is $787 per month. This means that if they apply 50% of their disposable income after rent to paying down credit card debt, they can afford a monthly payment of $896.
3. Gilbert, AZ
The median post-tax income for high school graduates in Gilbert, Arizona is $35,463. Residents in this city can pay off a credit card debt of $7,935 in 9.60 months. And with a lower-quartile rent (the lowest number under which 25% of renters pay for rent) of $1,192 per month, monthly debt payments of $882 are possible.
4. Anchorage, AK
Anchorage, Alaska residents can pay off a credit card debt of $7,935 in 10.04 months. The median post-tax income for a high school graduate is $30,650 and the lower-quartile rent is $863 per month. If a resident applies half of their disposable income to paying down debt, they could make monthly payments of $846.
5. Chesapeake, VA
Chesapeake, Virginia residents can pay a debt of $7,935 off in 10.11 months. The median post-tax income for a high school graduate is $29,087, Furthermore, the most affordable rental unit, at the lower-quartile mark, costs $744 per month. With just over $20,000 in disposable income after rent, residents can apply half to monthly debt payments of $840.
6. St. Louis, MO
St. Louis, Missouri’s median income for high school graduates is just under $26,000 and the lower-quartile rent total is $519 a month. If someone with that income and rent adopted a relatively aggressive repayment strategy and put half of their disposable income towards paying a credit card debt of $7,935, they would be free of credit card debt in 10.37 months.
7. Fort Wayne, IN
Fort Wayne, Indiana’s median post-tax income for high school graduates is $24,881 – the lowest in the top 10 of this study. The lower-quartile rent (the most affordable unit one could reasonably acquire) in this city is $496 a month. Someone with almost $19,000 in disposable income after rent could pay off a total credit card bill of $7,935 in 10.81 months.
8. Lincoln, NE
The median post-tax income for a high school graduate in Lincoln, Nebraska is $25,828. And the lower-quartile rent in this city is $589. If residents were able to afford to put half of their disposable income after rent towards repayment, they could pay down a credit card bill of $7,935 in 10.91 months.
9. Tulsa, OK
Residents in Tulsa, Oklahoma could pay off a credit card debt of $7,935 in 10.98 months. This is based on a median post-tax income of $25,038 and a lower-quartile rent payment of $532, which means that they could afford a monthly debt payment of $777 using a relatively aggressive repayment strategy.
10. Oklahoma City, OK
Oklahoma City, Oklahoma is the most-populous in the top 10 of this list and it has a median post-tax income of $25,125 for high school graduates. The lower-quartile rent payment is $558 a month. Using a relatively aggressive repayment strategy, a resident who puts half of all disposable income after rent towards debt could pay a credit card bill of $7,935 in 11.12 months.
Data and Methodology
In order to find the best places to pay off credit card debt, we created a credit card debt payment model for 56 cities. To determine our list of cities, we excluded cities with a population smaller than 200,000 and those with a below-average unemployment rate.
To complete the analysis, we first calculated the amount of disposable income a high school graduate could have in each city, assuming he or she earned the median salary for high school graduates with no further education. Using SmartAsset’s income tax calculator, we found the after-tax income for local high school graduates. We then subtracted the annual lower-quartile rent to get how much disposable income the average high school graduate would have. Lower-quartile rent is the lowest number under which 25% of renters pay for rent.
We then assumed that high school graduates would dedicate half of their disposable income to credit card payments. Using that figure, we calculated how long it would take to pay off $7,935 of credit card debt, determined by dividing the estimated outstanding credit card debt by the number of households in the U.S. in February 2021. We also assumed consumers would be paying interest of 15.91%, which was the estimated average credit card interest rate, according to the Federal Reserve.
Data for population, median income for high school graduates and lower-quartile rent comes from the U.S. Census Bureau’s 2019 1-year American Community Survey. February 2021 unemployment figures come from the Bureau of Labor Statistics (BLS) and are measured at the county level.
Credit Card Tips
Consider consulting an expert. A financial advisor can help you plan so that you don’t find yourself in debt. SmartAsset’s free tool connects you with financial advisors in five minutes. If you’re ready to be matched with advisors, get started now.
Budgeting can go a long way in minimizing or even preventing debt. A budget is another way to make sure you don’t end up with too much credit card debt. Use SmartAsset’s free budget calculator to plan how much to spend on various categories so you don’t end up owing more than you make.
Choose the right card for you. If you do use a credit card, use SmartAsset’s Best Credit Cards rankings to find one that is best for your lifestyle.
Questions about our study? Contact email@example.com.
Ben Geier, CEPF® Ben Geier is an experienced financial writer currently serving as a retirement and investing expert at SmartAsset. His work has appeared on Fortune, Mic.com and CNNMoney. Ben is a graduate of Northwestern University and a part-time student at the City University of New York Graduate Center. He is a member of the Society for Advancing Business Editing and Writing and a Certified Educator in Personal Finance (CEPF®). When he isn’t helping people understand their finances, Ben likes watching hockey, listening to music and experimenting in the kitchen. Originally from Alexandria, VA, he now lives in Brooklyn with his wife.
Student loan debt payoff is a political hot button. But no matter your position, we can likely all agree that college loan debt itself is a financial burden to millions of Americans at nearly all adult age levels.
You may have put off buying a home or starting a family if you are among the 45 million Americans paying off college loan debt. If you’re heading toward 60 and still paying on a second degree or loans you took out for your children’s education, you may have not saved much for retirement.
And among recent grads, 92 percent of college graduates from the class of 2016 who took out student loans still owe an average of just over $30,000, according to the National Center For Education Statistics. The Federal Reserve estimates that at the end of 2020, the student loan debt was $1.7 trillion.
No matter how much you owe, you’re likely hoping that there will be some permanent federal relief after Sept. 30, 2021, when the suspension of loan payments expires. But hoping isn’t a plan, is it? And the fact that President Joe Biden didn’t mention college loan forgiveness in his state of the union address on April 28 makes us wonder about any forgiveness proposal becoming a reality.
Reduce Student Loan Debt, All or $50,000?
Reducing individual student loans by $50,000 would obviously make a good-sized dent in what’s owed and that plan is still on the table. Eliminating all such debt would release those millions of citizens from that financial burden and, purportedly, open them to new opportunities of financial growth and stability.
And while loan payments have been suspended through September, it’s important to remember that they still exist. And when the economy returns fully as the population receives vaccinations, the loan payments will restart.
What Can You Do Now?
If you owe money on a student loan, you should be thinking about what you will do if loan forgiveness becomes a reality or if come Oct. 1, you will be back to paying the same monthly payment. Some suggestions:
It’s been nice to have that extra money in your bank account each month because you haven’t had to make a loan payment. If you haven’t been putting that money aside in anticipation of payments starting up again in the fall, starting doing it now. In fact, if you can double that set-aside money do so. You will have a good piece of change to pay down the loan if the loans return to pre-COVID terms. Obviously, this would be difficult if you have lost a job because of the pandemic.
If the $50,000 payoff scenario passes, you might have your loans wiped out. The money that you put away intended for reinstated payments could be invested in a retirement plan, used toward the down payment on a house or to pay down a credit card. If you owe much more than $50,000 you still will have had a big chunk paid off and can add to that with the money you’ve been setting aside.
In the unlikely event the feds wiped out all student loan debt, you’ll be in the position to use all of the money you’ve set aside for student loan payments as a kind of windfall. To avoid letting those savings disappear, keep budgeting the same amount you were paying for student loans and make larger payments toward other debts, build your emergency fund, save for down payment on a house or contribute it to your retirement account.
What’s The Problem?
There are numerous arguments against any proposal regarding student loan forgiveness, and the arguments come from both sides of the issue.
There are those who point out that a forgiveness of $50,000 would not be enough for the many Americans who have outstanding student loans in the six-digit range.
At the same time, there are those who say it is inappropriate to discuss any student loan forgiveness because it penalizes all of those people who managed to pay off their loans without the benefit of a federal bailout.
The cost of the $50,000 debt forgiveness for all applicable cases is estimated at $1 trillion. If Biden attempted to issue an executive order on such a scale, it would be the most expensive executive order ever issued, and it would likely face legal challenges, and not only from the for-profit companies which issued the loans in the first place.
How the Plans Evolved
During his presidential campaign, Biden suggested he would push for $10,000 in student loan forgiveness for all borrowers and some members of Congress still support this. But Sen. Elizabeth Warren (D-Mass.) has spearheaded a campaign to issue a $50,000 forgiveness for all student loan holders, while Sen. Bernie Sanders (D-Vermont) has firmly supported forgiving all student loan debt.
With the Democratic Party holding the majority in the U.S. House of Representatives and a tiny majority in the U.S. Senate, the atmosphere for accomplishing one of those three goals is at its best. However, not all Democrats are in agreement. Biden has asked his education secretary to determine the legality of a presidential executive order reducing all student loan debt, but there is a possibility that Congress could pass a bill for debt forgiveness.
There are other suggestions regarding student loan forgiveness, centered around specific segments of the population:
Twenty years ago, the Government Accountability Office determined that 3 percent of households headed by a person 65 years of age or older maintain a student loan balance, and that percentage has risen in the 20 years since. In some cases, these loans are likely from people returning to school for second degrees or from loans taken out for their children’s education.
There is a suggestion that the government could cancel all student debt for anyone 65 years of age or older. That would impact approximately 2 million Americans.
A new push to cancel student debt for doctors and nurses or others in the health profession has come about as a result of the coronavirus pandemic. Estimates are that there are 1 million health care workers who would benefit from having their student debt wiped out.
Setting a maximum income level for student loan forgiveness has been suggested. In some cases, the conversation is about those who earn less than $100,000 to $125,000 per year depending on what you are reading, while others have suggested forgiving loans for those who make less than $50,000 per year.
There are other ways to obtain student loan forgiveness, depending on one’s occupation or other factors. The U.S. Department of Education offers information on those opportunities, and also about debt relief for borrowers with permanent disabilities.
The question about student debt loan solutions is in suspension until Oct. 1 and there may or may not be a lot of discussion about the college debt between now and then. That’s part of the reason that if you have student debt you need to be thinking about what that amount will be when that date rolls around. But if you’ve been able to set aside those loan payment amounts, you’ll be in much better financial shape.
Kent McDill is a veteran journalist who has specialized in personal finance topics since 2013. He is a contributor to The Penny Hoarder.
Pros and Cons: Payable on Death (POD) Accounts – SmartAsset
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Payable on death accounts can help streamline the process of transferring certain assets to loved ones after you pass away. Also referred to as a POD account or Totten trust, a payable on death account can be established at a bank or credit union and is transferrable to the beneficiary of your choosing. There are different reasons for including a payable on death account in your estate plan and it’s helpful to understand how they work when deciding whether to create one. Estate planning is best done with the counsel of a financial advisor, who can help you coordinate your investment goals with your end-of-life wishes.
Payable on Death Account, Explained
A payable on death account is a type of bank account that can be used for estate planning purposes. You can create this type of account at a bank or credit union and your bank may also let you convert any existing accounts you have to a POD account.
The difference between a traditional bank account and a POD account is that the latter has a named beneficiary. This is someone you choose to receive any assets held in the account when you pass away. Depending on your bank, you may be able to name multiple beneficiaries for the same account or choose a primary beneficiary, along with one or more successor or contingent beneficiaries.
How a Payable on Death Account Works
A payable on death account is simply any bank account that has a named beneficiary. For instance, a POD account can be a:
What makes a bank account a payable on death account is having a named beneficiary. It’s up to you to decide who to name. If you’re married, your spouse might be a logical choice. But if you’re unmarried, divorced, widowed or separated you might choose an adult child, sibling or another relative instead.
During your lifetime, you have control over the assets held in a POD account. So if you name a beneficiary for your checking account, for instance, you’d still be able to spend money in the account as you normally would.
Once you pass away, the assets held in a payable on death account would be transferred to the beneficiary. Typically, they’d need to show proof of identification and a copy of the death certificate before the transfer can be completed. State laws vary, so it’s important to understand how the process works when choosing a beneficiary.
Pros of Payable on Death Accounts
There are several benefits associated with using POD accounts to transfer assets. First, assets that are passed to someone else through a POD account are not subject to probate. The probate process, which is a legal process in which your assets are inventoried, debts are paid and remaining assets distributed to your heirs, can be time-consuming and costly. Setting up a payable on death account allows the beneficiary you name for that account to sidestep it for any assets held in that account.
That’s an advantage if you want to ensure that your beneficiary is able to access cash quickly after you pass away. Even if you have a will and a life insurance policy in place, those don’t necessarily guarantee a quick payout to handle things like burial or funeral expenses or any outstanding debts that need to be paid. A POD account could make it easier for your loved ones to get the funds they need right away to pay for those and other expenses.
It’s important to keep in mind that beneficiaries can’t access any of the money in a POD account while you’re alive. On one hand, that could be seen as a pro since you don’t have to worry about them spending down the assets without your knowledge. But it also has the potential to be a con in certain situations.
Cons of Payable on Death Accounts
As mentioned, beneficiaries of a POD account can’t tap the money while the primary account owner is still living. That could be problematic if you become incapacitated and your loved ones need money to help pay for medical care. In that instance, having assets in a trust or a jointly owned bank account could be to your advantage.
Another con is that you can’t change the beneficiary of a POD account once you name someone. So if they pass away before you do and there are no other beneficiaries named to follow after them, the account would be subject to the normal probate process.
Payable on Death Account vs. Trust
You may be wondering whether payable on death accounts are better than trusts for estate planning. Trusts allow you to transfer assets to the control of a trustee on behalf of one more beneficiaries. You can act as a trustee or have someone else fulfill that role during your lifetime and after you pass away.
Technically, POD accounts are a type of trust. Again, banks may reference them as Totten trusts, informal trusts or tentative trusts. The difference is that they’re easier and less expensive to set up than a traditional living trust. And of course, they only focus on assets held in a bank account.
Setting up a payable on death account could make sense if you want to make sure your beneficiaries have a source of ready cash when you pass away. But you may still need a living trust if you have other assets you want to transfer, such as real estate, vehicles, investments or business assets.
How to Set Up a Totten Trust or POD Account
If you’re interested in creating a payable on death account, the first step is contacting your bank. They can tell you whether it’s possible to add a beneficiary designation to any existing accounts you have or whether you’d need to create a new account. From there, you’d need to decide who you want to add as a beneficiary. Remember that once you make a beneficiary designation it cannot be changed. So you need to be reasonably sure that the person you choose will outlive you and manage any assets they receive responsibly.
Next, you’d want to let the person you’re naming as beneficiary know that you’re creating a POD account. This way, they can familiarize themselves with what they’ll need to do to claim any assets in the account once the time comes.
Finally, compare the terms of the POD account with the terms specified for those assets in your will. In most cases, a payable on death account can override a will so reviewing your wishes can help avoid any potential conflicts among your heirs after you pass away.
The Bottom Line
Whether you call it a payable on death account or a Totten trust, this type of account can serve a useful purpose when creating an estate plan. If you’re not sure whether you need a POD account, your financial advisor may be able to shed some light on when it makes sense.
Tips for Estate Planning
Consider talking to a financial advisor about the best ways to pass on bank accounts, investment accounts and other assets. If you don’t have a financial advisor yet, finding one doesn’t have to be complicated. SmartAsset’s financial advisor matching tool makes it easy to connect with professional advisors in your local area. If you’re ready, get started now.
Until you know what you’ll have to retire on no estate plan can be complete. A free, easy-to-use retirement calculator can give you a quick and accurate idea of whether you have reached your financial goals.
A transfer on death account automatically transfers its assets to a named beneficiary when the holder dies For example, if you have a savings account with $100,000 in it and name your son as its beneficiary, that account would transfer to him upon your death.
Rebecca Lake Rebecca Lake is a retirement, investing and estate planning expert who has been writing about personal finance for a decade. Her expertise in the finance niche also extends to home buying, credit cards, banking and small business. She’s worked directly with several major financial and insurance brands, including Citibank, Discover and AIG and her writing has appeared online at U.S. News and World Report, CreditCards.com and Investopedia. Rebecca is a graduate of the University of South Carolina and she also attended Charleston Southern University as a graduate student. Originally from central Virginia, she now lives on the North Carolina coast along with her two children.
Divorce rates overall are increasing but it is notable that the number of divorces for those over age 65 has tripled in the last 25 years.
The term “gray divorce” was coined by the AARP to describe adults 50 and up who are going through a separation. Rising gray divorce rates can be attributed to several factors: Being divorced is no longer stigmatized as it may have been in the past; people are living longer; family circumstances and relationship dynamics have changed; and people have different in lifestyle expectations.
Divorce is difficult for both parties, but unfortunately, gray divorces often have more difficult outcomes for women rather than men. Regardless of gender, divorce deals a financial blow to both spouses. For those over 50, it can be more difficult to rebuild financially because you don’t have several decades of work ahead. Likewise, if one spouse has been out of the workforce for many years to care for children, he or she may not have the same career progress or earning potential. Additionally, although you likely don’t have custody issues for minor children to consider in a gray divorce, your grown children may get involved and perhaps might even take one side or the other.
If you are going through a divorce at any age, you need to carefully consider the financial issues involved. But if you are experiencing a gray divorce, there are some issues that merit specific attention:
Division of assets. At this stage of life, it is likely that your financial situation is complicated. You should consider consulting a financial adviser, particularly one with specialized divorce certifications, such as a Certified Divorce Financial Analyst® professional, to help you understand how the division of retirement assets works and to help you separate marital assets from non-marital assets.
Social Security. It is very important to know your options for drawing on your Social Security benefits. In many cases, it is more advantageous for one spouse to consider drawing off the higher earning spouse’s benefits, but there are specific requirements to be able to do so.
Health insurance. If you are not yet 65, you will not qualify for Medicare and may have been covered under a spouse’s employer-sponsored health insurance. If that is the case, you need to plan for the gap in years until you qualify for Medicare and understand how COBRA benefits, the cost of individual health coverage and the policy coverage limits apply to your personal health insurance needs. You may also consider whether you need long-term care insurance if you are single, as many married people assume their spouse would handle caregiving if needed.
Estate planning. After a divorce, you need to create an updated estate plan and draw up new documents to replace those that you had in place with your former spouse. It is important to make sure you have updated your beneficiaries and named those that should now have your powers of attorney for financial and health care matters. If you remarry, you will need to review and revise again to be sure your plans reflect your wishes at that time, as well.
Tax considerations. Alimony may be part of a gray divorce settlement, and the tax consequences for both the payor and the payee need to be understood. In general, the receiver of the alimony will owe income tax on the payment and there is no longer a tax deduction for the payor. Additionally, it is important to understand the tax implications of the assets that are being divided in settlement discussions. A home worth $500,000 that has appreciated in value by $100,000 has different tax treatment than an investment account worth $500,000 with a $100,000 capital gain. Again, a qualified financial adviser and tax professional are very helpful in understanding the tax treatment of your proposed asset split and future income tax expectations.
Divorce at any age can be devastating, but having a clear vision of what you want your next chapter in life to look like – along with a trusted financial adviser – will help you avoid mistakes that could lead to financial heartbreak. The good news is, the AARP survey that first identified the gray divorce phenomenon also noted that 76% of people who divorced late in life felt they had made the right choice for a fresh start.
Mercer Advisors Inc. is the parent company of Mercer Global Advisors Inc. and is not involved with investment services. Mercer Global Advisors Inc. (“Mercer Advisors”) is registered as an investment advisor with the SEC. Content, research, tools and stock or option symbols are for educational and illustrative purposes only and do not imply a recommendation or solicitation to buy or sell a particular security or to engage in any particular investment strategy. Past performance may not be indicative of future results. All expressions of opinion reflect the judgment of the author as of the date of publication and are subject to change. Some of the research and ratings shown in this presentation come from third parties that are not affiliated with Mercer Advisors. The information is believed to be accurate, but is not guaranteed or warranted by Mercer Advisors
Certified Financial Planner Board of Standards, Inc. (CFP Board) owns the CFP® certification mark, the CERTIFIED FINANCIAL PLANNER™ certification mark, and the CFP® certification mark (with plaque design) logo in the United States, which it authorizes use of by individuals who successfully complete CFP Board’s initial and ongoing certification requirements.
This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.
Managing Director of Client Experience, Mercer Advisors
Kara Duckworth is the Managing Director of Client Experience at Mercer Advisors and also leads the company’s InvestHERs program, focused on providing financial planning to serve the specific needs of women. She is a CERTIFIED FINANCIAL PLANNER and Certified Divorce Financial Analyst®. She is a frequent public speaker on financial planning topics and has been quoted in numerous industry publications.
David Muhlbaum: When it comes to estate planning, money is usually front of mind. Makes sense, that’s where decisions about wills, trusts and more can realize real tax savings. But it’s stuff, tangible things like houses, china and collectibles that often generate drama and conflict. We talk with a financial advisor who’s touched a nerve on this front. Also, meet Generation I. All coming up in this episode of your money’s worth—stick around.
David Muhlbaum: Welcome to Your Money’s Worth, I’m kiplinger.com senior editor David Muhlbaum, joined by my co-host, senior editor Sandy Block. How are you doing Sandy?
Sandy Block: I’m doing good.
David Muhlbaum: Well, good. Short of talking politics, there’s probably no quicker way to generate angry feedback than waging intergenerational battles.
Sandy Block: But you’re going to do it anyway?
David Muhlbaum: Sort of? I say that in part because while the study I’m going to discuss sounded like it was going to be kids versus the olds, it turns out there’s more nuance than that. Anyway, I’m going to talk about Generation I, which isn’t really even a generation but rather a handy little term that the Charles Schwab Investment firm cooked up for new investors. By that they mean people who are new to stock market investing.
Sandy Block: And those folks have been the source of some of the market drama we’ve seen this year like the GameStop bubble we talked about earlier this year.
David Muhlbaum: Yes, yes. There is overlap between the whole meme stocks crowd and Generation I. I stands for investor but since it’s a new term, let’s start with the definition. What Charles Schwab means by Generation Investor, Generation I, is people who started stock market investing in 2020—not before. So it doesn’t matter what your actual age is. There are Generation I members who are Boomers, Gen X, Millennials. Obviously, the group skews younger than investors broadly, but what’s striking is that Generation I, according to Schwab, accounts for 15% of all U.S. stock market investors.
Sandy Block: By population, not by dollars invested.
David Muhlbaum: Yes, by population. They don’t have a figure for a Generation I’s sum assets but I see what you’re getting at. And yes, Gen I earns about $20,000 less in annual income, at $76,000 a year, than those who began investing before 2020. And here’s another interesting number, half of Generation I says they live paycheck to paycheck.
Sandy Block: Okay. That sounds worrisome.
David Muhlbaum: Yeah, but here’s the thing. Some of the so-called Generation I are people who downloaded Robinhood and are watching a handful of stocks for big moves, short term trading. And if they’re doing that while missing payments on their car note, okay, that’s bad. But at least according to the study, they say they’re learning that investing is more about longer-term gains versus shorter-term wins. About learning to do research, diversification, capital market gains, taxes, risk tolerance, all that—the knowledge if you will.
Sandy Block: I’m hearing echoes of what Kyle Woodley was talking about when he joined us for the GameStop discussion about how it’s possible for people who came in for this excitement might be convinced to stay around for the long term, grow your wealth, not double your money, kids.
David Muhlbaum: Yeah, I totally agree. However, the big factor here is that the sum of Generation I’s market experience is this strong bull market. Will they stick around when things go south, which someday, sometime we’ll have a bear market. Markets go up, markets go down.
Sandy Block: That’s right, and I’m constantly reminded what our editor Anne Smith reminds us all the time, is that we’ve been here before, maybe not at these numbers. But in the 90s, when tech stocks were taking off, all kinds of people got in the market for the first time. And while you couldn’t make trades for nothing on an app, it was cheaper to buy and sell stocks than it had been in the past. And a lot of these people piled in because they had heard that tech stocks would never go down and they didn’t think they would ever lose money and they learned the hard way that they could.
David Muhlbaum: When we return for our main segment, we’ll talk with a financial advisor with some insights about the estate planning for stuff. Not just the money, the stuff.
David Muhlbaum: Welcome back to Your Money’s Worth. Joining us today is T. Eric Reich, the president and founder of Reich Asset Management in Southern New Jersey. Eric has a whole slew of professional certification acronyms after his name, including CFP. And the way we found him is that he’s a contributor to Kiplinger’s Wealth Creation Channel. That is an area of our website that has content from a range of financial professionals, CFPs, CPAs, tax lawyers and more. They’re qualified and they’re good writers. Plus, since they’re dealing directly with clients, I’d venture to say that they often have a closer sense of what personal finance guidance people actually need than personal finance writers. So Eric wrote a piece for us called, Time to Face Reality, Your Kids Don’t Want Your Stuff. And well, it was a hit. Welcome, Eric. We will get into what stuff and why, but since we’ve brought up how you professionals get to hear it directly from the clients, why don’t you tell us a little bit about the reaction you’ve been getting? Because, I understand from your assistant that you’ve gotten a lot of feedback.
T. Eric Reich: We have. We got probably a few dozen emails across the country from different readers of Kiplinger’s that saw it and then of course our own clients, of course, were calling us. They were writing or calling and letting us know their thoughts on it. And it’s funny, I wrote it because it’s such a recurring theme with a lot of people. They’re always convinced that people want all of your stuff and they just don’t. So I wanted to touch on why, but I knew it was going to get a strong reaction because I hear the same thing all the time from people. So if I hear locally on the ground, then I’m sure to a bigger audience, we were going to even get more opinion on that.
Sandy Block: Well, Eric, I immediately latched onto your piece because I am in the process of… My father passed away a couple of months ago and I’m in the process of distributing and cleaning out his house and it’s a mammoth job. So many of the things that you talked about really resonated with me. Obviously, we’re going to link to your piece so that people can follow up and read it in its entirety but we’re going to hit on some highlights and my question is, what’s the number one item people planning their estate think their kids want but the kids don’t actually want?
T. Eric Reich: By far the biggest one is the house. And it’s not that the kids don’t want the house, it’s that logistically it just doesn’t work. My example: I have three children, I have a nice house and I have three young kids. Let’s say my kids were in their twenties and something happened to me. My kids might want the house, but how’s that going to work? None of them can afford it because they’re just starting out in their careers. There’s three of them, they’re certainly not going to share it. And then one of them invariably wants to buy it, but they think they’re entitled to a discount because they’re my kid. But then the other two would be offended if they got a discount because they’re my kids, so why should they get shortchanged in favor of another one? So everybody thinks that their kids want the house, but the reality is most often that the biggest misconception is that your kids just really don’t want your house.
Sandy Block: So a follow-up question, Eric, if you aren’t going to leave the kids your house, how should you plan your estate so that doesn’t happen?
T. Eric Reich: So if you’re not going to leave the house to the kids, I mean, you can leave it to them, but you can reference in there, “Hey, these are the parameters in which someone’s going to keep it.” So if you want to keep it, it has to be appraised by two different independent people or three different and you take the average of the three it’s bought at fair market value. You have to specify the rules to which someone can keep it because if not, that’s where all the fights start, is the more ambiguity you leave in it the bigger the fight. So all of those things should be spelled out ahead of time. If you want it to be sold, say you want it to be sold. If somebody wants to keep it, fine, but here are the rules under which someone gets to keep it.
David Muhlbaum: What about setting up a trust? Couldn’t that help establish the rules you’re talking about?
T. Eric Reich: It can, I mean, I think a trust in general can help with a lot of things. Again, this is for an estate planning attorney more but to me, I like using trusts in general. Simply because it’s a way to control things and I hate to use this phrase, control from the grave, but that’s exactly what it is. And sometimes that comes off as sounding like a control freak or overbearing, but sometimes it’s for, honestly, just the protection of the beneficiaries themselves. If one’s a spendthrift, if one’s in a bad marriage, if one has a lot of creditors, you could be doing them a disservice by giving it to them outright instead of via trust.
Sandy Block: So, Eric, isn’t the other advantage of putting your house and other items in a trust that it keeps it out of probate?
T. Eric Reich: It keeps it out of probate and the biggest part of that too, is, that’s public record. I mean, I remember when a client had a family member pass away, they got a phone call a few months later from a guy wanting to buy the antique car that they just inherited. To which their response was, “Wait, who are you again?” Well, here they looked up in public records that one of the assets was this old antique Chevy and the guy wanted to buy it off him. And I always say, you see it in real life, you know,. Princess Diana’s will was published in a magazine. Whereas I always say, “Well, what about, Frank Sinatra?” And they go, “Well, I never heard anything about that.” Exactly, because everything was in a trust. So privacy is a big component of that as well. So avoiding probate and also what goes along with that is the privacy factor.
David Muhlbaum: The main family house is one thing but a vacation house can be even more emotionally loaded, no? I imagine someone working on their will thinking, wouldn’t be great for everyone to get together at the lake house every summer, roast marshmallows and remember grandma and grandpa for having found this place. And actually the kids are like, “Eh, we like going to Europe.”
T. Eric Reich: You’re absolutely right. It’s definitely bigger for the creator of the estate. It’s not that the beneficiaries don’t love the idea of the vacation home and everything else. The problem is, and again, I always go back to my example, I have three kids. Who gets to use it when? It’s only fit to be used in the summer months. I live at the Jersey shore, so, super-popular here June through the end of August. So, who gets to use it during that time period and what weeks and what holidays? And as I get older and my kids get older, their kids get older,
If one family has five kids and the other has one, are they getting more usage out of it? How are the expenses being paid? Is everyone sharing in that equally? So it really starts to create a problem. One of the ways around that maybe is that if that were in a trust, then I could also put money into that trust for the maintenance of the house, to pay the taxes, it’s going to pay everything it needs at least for the next decade. And then after 10 years, you guys have to come up with a solution based on x, y, and z of how we should deal with it going forward.
Sandy Block: Yeah. Eric, my experience with people who have inherited vacation homes, it sounds like a great idea at the time but very often they/ve moved and live many, many miles away. They don’t live near the Jersey Shore, they live in California, so it becomes a huge hassle. And I think that’s something probably you mentioned that people also need to think about, how close are your heirs to the actual vacation home that they could use it.
T. Eric Reich: Yeah, we actually just had a situation not too long ago. We had someone who owned a house on the beach, a very valuable house. They were kind of house poor; they had a phenomenal house, but not tons of money other than that. But the client really wanted to preserve that asset for a grandchild, the only grandchild, who lived hours and hours away. And I actually suggested, we call the grandchild and ask point blank, “Do you want this house?” The client was floored, like, “Well, of course they want the house, who doesn’t want a house on the beach in Ocean City in New Jersey.” Well, we called and it turned out the kid said, “That’s wonderful but I’m in my 20s, I work 80 hours a week. It’s three and a half hours away. I will absolutely never use that house. I’d much rather you sold it and got to use the money and enjoyed it. And if there’s something left over, wonderful, leave it to me but otherwise, I really don’t care.”
David Muhlbaum: Well, sounds like conversations really come down to the core of doing estate planning, especially around stuff. But those could be pretty fraught conversations. It sounds like this one went okay, but I assume they don’t always.
T. Eric Reich: Well, yeah, that’s true. I mean, the reason we had to make that phone call was because they were adamant that, of course, they would want this. Who wouldn’t want it? And the reality is there’s a lot of people that wouldn’t want it. The beauty of that is in the eye of the beholder, not so much somebody on the other end, but these are real world scenarios that people have to deal with. And of course the house being the biggest, but it’s not always just the house.
Sandy Block: Now that leads me to my next question, Eric, because you also talk in the slideshow about your stuff, your collectibles. They may have great sentimental value to you but maybe not to your children. Should you start getting rid of them while you’re still around?
T. Eric Reich: We do suggest that sometimes or at least explore it. Or, if not, educate the children on the value of it. A lot of times what we’ll see is someone has a collection of stuff, whatever it might be, the owner, of course, knows how valuable it is. They’ve been collecting it for 20, 30, 40 years, but an heir doesn’t necessarily have an idea of what that would be worth. And we ran into a scenario like that: We had someone that was going to basically just sell a bunch of stuff. And I think it was for like $1,000. And then we actually brought a specialist in to review it and turns out it was worth $45 to $50,000. So this poor guy was going to get ripped off because he didn’t understand the value of what it was, and that’s not uncommon at all.
Sandy Block: That’s my Antiques Road Show nightmare, Eric, is that I will give something to Goodwill and be watching Antiques Road Show and it’ll show up being worth $50,000 and I’ll realize that I gave it away. So I think you’re suggesting that you get that stuff valued and appraised while you’re still around to help your kids is a really good one.
T. Eric Reich: If you’re not a collector, you don’t know. Either sell it and let it go ahead of time, or at least communicate that value—and an actual value, because sometimes we also think collectibles are worth a lot more than they really are. We think it’s worth $50,000 and it’s worth $1, that’s more often the case. But nonetheless, an appraisal from an independent person will help.
David Muhlbaum: I’m glad you brought up the point about actual valuation, because my cats eat from some pretty fancy china bowls that someone thought had a lot more value than they did. And I think that sometimes these items that people have had for a long time or inherited from their predecessors, they really don’t fetch that much today.
T. Eric Reich: No, because unfortunately some of the things and it’s just a generational thing and I use china, actually as the example a lot of times. Because 50 years ago, 75 years ago, china was prized. I mean, for everybody, fine china was a real hallmark of things. Today, I probably have six or seven sets of fine china. Some of them apparently, extremely old, from great-great-great-grandmothers. But the reality is the generation today doesn’t use it at all. If they do, they can’t use five, six, seven sets of it. But the reality is that value from a long time ago doesn’t necessarily translate today for those reasons. So a lot of times things you think are very valuable maybe aren’t.
Sandy Block: Yeah. David Muhlbaum: and I have discussed this, and both of us are awash in china. And, I also have at least two sets of silver that again have been handed down from generations. As you said, young people—and this goes for even furniture—young people just don’t use that stuff. So I guess, the best thing you can do is either get rid of it or have some instructions for what you’d like to have done with it.
T. Eric Reich: Yeah. And valuation is key for that as long as you have a good value placed on it and you have a sense of what it might be worth? My wife’s family, they have a much, much larger family than I do. They’ll go to everybody in the family, two and three removed and say, “Hey, does anybody want this piece?” Because it is a family piece. But if not, then what do they ultimately do with it? It sounds sad to have to part with it, if really nobody wants it, and you know you mentioned yourself and you’re going through it personally, it’s only adding to the problem, we’ll call it, of settling an estate. And the less planning involved, the bigger the problem becomes.
David Muhlbaum: I imagine that in your line of work, Eric, you refer people out for valuations pretty often. How can our listeners get good qualified valuations for their stuff?
T. Eric Reich: So there are evaluation organizations. So you basically would want to find certified valuation type of people for that.
David Muhlbaum: Do they have acronyms like CFP?
T. Eric Reich: They probably do. I think I’ve seen one or two out there, definitely not an expert on it, but it is funny because from the article, I did have two different companies reach out to me and say, “Hey, this is what we do for a living. Feel free to pass our information along.” So these companies are out there, they do understand what things are worth. I got lucky in the one example of the $1000 offer for $50,000 worth of stuff. I happened to know a person who had some expertise in that area. But we frequently do refer out to an appraiser, to an estate-planning attorney, to a CPA. And all of them can have pretty good contacts in that world as well.
Sandy Block: Eric, this wasn’t in your slideshow, but you mentioned cars. Do you want to talk about cars?
T. Eric Reich: Cars are a big issue for a lot of people. My example: I have an old classic Corvette. I have a 1963 split-window coupe. So among the rarest of the rare. I have one of them and I have three kids. They all are convinced they’re getting the, “Vette.” Or the yellow car, as I like to call it, when I’m gone someday. Well, they can’t all get it. They also probably have no idea what it’s really worth. So for that reason just like the house or anything else, get a valuation. Get an appraisal of what is this thing really worth. And then again, if somebody wants to buy it at fair market value, that’s fine.
T. Eric Reich: But if not, it has to be sold. So otherwise it’s going to be unfair. Now, you can swap assets. You might say, if that car was worth $150,000, okay, well then if you’re getting that, then you have to give up a $100,000 of something else. And so that 50 and 50 go to the other two siblings. That’s fine you’re welcome to do that but my trust would stipulate that. Would lay out the terms at which someone could buy something.
David Muhlbaum: Could people set up a corporation to manage it for them?
T. Eric Reich: They could, that’s more of an estate lawyer question from that perspective. But you could, or you could probably do it all through a trust. It might just be too onerous to set up a corporation for that purpose. The logistics and maintenance of it might be a little too much.
David Muhlbaum: One interesting word you used in your article, Eric is “fun.” It’s a little surprising. Where’s the fun?
T. Eric Reich: Well, that’s just it, estate planning is never fun. Settling an estate is flat-out awful but the estate planning process and planning for your demise is never something that’s fun. But If you don’t deal with it, it is going to be a nightmare for the people behind you. So, why not deal with it today, when you’re of sound mind and body, as the phrase goes, to make those decisions. And again, try to make it fun, try to involve the kids from day one. It’s not like they’re fighting over your stuff. If everything’s out in the open and it’s shared freely, you really can have fun with… You know, I have one kid who’s clearly closest to my old Corvette than the other two.
T. Eric Reich: So the other two say, “We want it.” But as soon as they leave the room, he says, “Well, of course you know I’m getting it.” You can joke around with it that way but sometimes in those conversations, you will find that there are things of greater value to different family members. And it doesn’t have to be monetary value, they just really want something special to them. And if that’s what they really want, then maybe they get that and somebody else gets the car or the whatever, to be even.
David Muhlbaum: I see an opportunity for the younger generations to help here. As documentarians of a sort. They can take pictures, record, video, ask questions, discuss the things. What are the stories associated with the thing? And then you can decide, okay, we have a record of everything, now, these we’re going to keep and these we’re going to want to let go.
T. Eric Reich: That’s a really good point. I mean, recording it that way. Someone had reached out to me after reading the article and said, what they did, was they took pictures and many, many pictures of all the different things that they had collection wise. Wrote about them and then sold them. So they still have the pictures, they still have the story, they still have the context and everything else. They just don’t have the asset by itself, but they still have all the memories of it. They have the pictures, they have everything. So you did keep that meaning alive behind it, without actually worrying about who’s going to maintain this asset.
Sandy Block: Eric, it sounds like bottom-line here, a lot of people might be very conscientious about having their beneficiary designations correct for all of their finances, but they really don’t think about the solid items that they’re going to leave behind. And I suspect this often comes with people—and this is the case in my situation—people who have been in the same home for many years. If you move into a retirement community, you are forced to downsize but a lot of people die in the homes that they lived in. And I can tell you from personal experience, that clean-out can be a real job, especially if you don’t know what was the intention for some of these things.
T. Eric Reich: Yeah, it’s really the case. You live in the same house, 40, 50, 60 years, you accumulate a lot of stuff. Some of that stuff probably is fairly valuable. And really it is key because, the longer you’ve been in that house, your reference point is also of that house, and you have special memories of things in that house, because you’ve been going even yourself to that same place all that time. And that’s where a lot of that interest from heirs comes in, is there is a special piece or a special thing that reminds me of mom and dad or grandparents or whoever. And that sentimental value to that item is worth more than the financial value, and that’s why that honest, open communication is really key. Have this conversation while you’re alive and you’re healthy. When you’re in more advanced decline is where we see problems come in—or I promised that Corvette to all three kids at some point, because I forgot I promised it to the other two.
T. Eric Reich: Because I might be starting to slip a little bit or I’ve let things go or I let people take things out of the house over the years, things like that. So it really is important to not just focus on the, “yes, I’ve done estate planning, I set up a will or I set up a power of attorney.” That’s the bare minimum but even just writing out things like an ethical will, here’s the things I want to happen. This is what I want to see you do with stuff. Or here’s what I would love to see happen to the car, if you can’t, fine, then do this. A lot of times heirs will try to honor those wishes, if you really put it down in paper. It’s not something that would necessarily be part of a will. That’s more just the direct transfer of the property but more what I would like to see happen with something.
David Muhlbaum: Write it down on paper, tell people what you want to happen, have honest open conversation, always good advice. And I think we’ve had a good conversation here today ourselves. Thank you so much for joining us, Eric. We’re going to link up to your piece for people who want to dig a little bit deeper into what to do and not to do with your stuff. Thanks again.
T. Eric Reich: Thanks so much for having me.
David Muhlbaum: And that will just about do it for this episode of Your Money’s Worth. If you like what you heard, please sign up for more at Apple Podcasts or wherever you get your content. When you do, please give us a rating and a review. If you’ve already subscribed, thanks. Please, go back and add a rating or a review if you haven’t already, it matters. To see the links we’ve mentioned in our show, along with other great Kiplinger content on the topics we’ve discussed, go to kiplinger.com/podcast. The episodes, transcripts and links are all in there by date. And if you’re still here, because you wanted to give us a piece of your mind, you can stay connected with us on Twitter, Facebook, Instagram or by emailing us directly at firstname.lastname@example.org. Thanks for listening.
Securities offered through Kestra Investment Services, LLC (Kestra IS), member FINRA/SIPC. Investment advisory services offered through Kestra Advisory Services, LLC (Kestra AS), an affiliate of Kestra IS. Reich Asset Management, LLC is not affiliated with Kestra IS or Kestra AS.
Despite a string of interest rate hikes from the Federal Reserve in 2018, returns on the average savings account continue to be meager at best.
In December, the Federal Reserve raised its benchmark interest rate a quarter-point to 2.5%, which was the fourth increase of 2018 and the ninth since the central bank began normalizing rates in December 2015.
Yet, interest rates on savings accounts, in many cases, have barely budged upward in response. The average national interest rate continues to hover around 0.09%, according to the FDIC.
In other words, traditional brick and mortar savings accounts are still not your best option when it comes to earning any sort of return on your money. However, finance industry experts say there are plenty of other equally stable ways to squirrel away cash, while keeping it liquid and still pocketing a bit more interest.
“They all pay a much higher interest rate than local banks,” says Sabo.
Each of the options Sabo mentioned are FDIC-insured internet banks. Because they don’t have branch offices, they’re able to keep their overhead cost down and thus offer you a better interest rate on savings.
Discover Bank, Member FDIC, for example, is currently offering a savings account with no minimum deposit or balance, and no fees or maintenance costs.
It’s even possible to link these account to your checking account and transfer money back and forth, notes Sabo, meaning the cash remains liquid even though it’s not being held at your local bank.
Another no-risk alternative Sabo recommends are fixed annuity contracts.
“Everyone has heard the comments that annuities have fees and are too expensive, but a fixed annuity is nothing more than a CD issued by an insurance company instead of a bank,” explained Sabo. “There are no fees or costs, you put your money in and get a fixed rate of return for the fixed period of time and then your contract matures and you can either renew it or take it back out.”
Fixed annuities are sold with as little as a one-year maturity date all the way up to a 10-year maturity, Sabo continued. In addition, the fixed rates are often better than what the banks are paying on CDs.
“This can be an alternative for some of your savings account money being that there are no fees or costs to purchase an annuity and most allow you to take your interest out monthly if you want to live on it,” said Sabo.
However, it’s important to note that in most cases, annuities are insured only up to $100,000 (as opposed to the current bank FDIC insurance of $250,000). In other words, be cautious about how much you put into an annuity, said Sabo.
Short-Term Treasury Bills
Treasury bills also offer liquidity and higher interest rates than traditional savings accounts, says Riley Adams, a CPA and creator of the personal finance blog Young and the Invested.
“Treasury bills are the most liquid investment in the world. The market uses these bills as a proxy for the risk-free rate of return because they’re virtually guaranteed to return your money plus interest,” explained Adams. “The U.S. federal government backs them with their full faith and credit. Were the government to be unable to repay their debts, they could either inflate the currency value (which diminishes fixed debt repayments), raise taxes to cover the debt obligation, or utilize a number of other policy tools to repay their debt.”
Online Bank CDs
Take the time to research the best online banks, and you’ll not only find savings accounts that pay higher rates, you’ll also come across CDs offering higher rates than those found at regular banks or credit unions, says Kurt Hemry, president of Ironwood Wealth Consultants.
While the national average for interest on CDs under $100,000 ranges from 0.06% to 1.25%, depending on the length of the CD, online banks such as PurePoint, Ally, and Capital One are offering CD rates between 2.7% and 2.8%.
A certificate of deposit locks up your money for a certain amount of time, such as six months or a year, and you’ll have to pay a (usually modest) early withdrawal penalty if you need to take out the money before then. That makes them less flexible and liquid than a high-interest savings account. But if you have some money you want to set aside for a near-term expense — such as next year’s big family vacation — a CD is a perfect place to stash it and earn a nice return.
“If you’re comfortable not having a brick and mortar building to visit, then these can be a good alternative,” said Hemry.
Money Market Accounts
Money market accounts are probably the lowest performers on this list, but they can still earn around 2% or more, on average.
According to the FDIC, the average national rate for money markets right now is about 0.18% for investments of less than $100,000. However, it’s possible to find much higher rates with such institutions as PNC Bank (2.35%), State Farm Bank (2.25%), Goldman Sachs (2.25%), and others.
“A money market is very similar to a savings account, but pays a better interest rate,” says Denise Nostrom, founder and owner of Diversified Financial Solutions. “They give you a higher interest with liquidity, and some even have check-writing privileges.”
You can find money market accounts at your bank, with mutual fund or brokerage companies, or with online banks.
These accounts are federally insured by the FDIC. What’s more, some institutions allow you to use a debit card at ATMs to access the money, says Jacob Dayan, CEO and co-founder of Finance Pal. On the downside however, you’re limited to only six withdrawals per month, by law, said Dayan.
One Last Note About Savings Accounts
It’s critical to understand that while all of these options are good alternatives for short-term savings, such accounts are never meant to be wealth-building accounts for long-term financial goals.
“Even in the best of times, most CDs and money market accounts will lose spending power because their yields are below inflation,” said Christensen. “Savings are for parking and safeguarding money the consumer will need in the near future for such things as car repairs or replacement, gift giving, appliances and furniture, and emergencies.”
Bottom line: It’s a good idea no matter which option you choose, to be sure you always have some money that’s easily accessible for emergencies.