The 6 factors that can boost (or hurt) your credit score

By Sabrina Karl

Anytime you apply for a loan, a new credit card, or even an insurance policy, having a higher credit score will save you money by earning you a lower interest rate, better perks, or a cheaper premium.

So how can you boost your score? The No. 1 step is to understand the factors your score measures, because if you don’t know the rules of the game, you can’t play to win.

Six main factors are incorporated into your credit score and three are the most important. The first is your track record of payments. Whether or not you paid all of your minimum monthly payments on time is recorded each month, and a rating is then assigned for your on-time record.

Also highly important is how much of your available credit you’re using. Maxing out all of your credit cards means your credit utilization rate will be high, leading to a lower score, while using less than your available credit will raise your score.

Rounding out the top three critical factors is the presence of any derogatory marks, such as accounts sent to collections, a bankruptcy, property liens, or a foreclosure. These black marks have a significant negative impact and remain on your report for many years.

After the Top 3, the factor carrying the most weight is the age of your credit history. The longer your history, the higher your score. This is why young adults take some time to build up their score, and why it’s smart to keep your oldest credit card open.

Lastly, having numerous different account types on your record (e.g., credit cards vs. a car loan) can help your score, while applying for credit multiple times in the past year can reduce your score, though these factors have less impact than the others.

The benefits of saving for education with a 529 plan

By Sabrina Karl

Paying for college is one of the biggest expenses of many parents’ financial lives. Aside from buying a home, few things will cost a family as much as college tuition and expenses, especially if they have multiple children.

For parents wanting to save in advance for this significant expense, 529 plans are an excellent tool for maximizing savings by minimizing taxes, keeping as much as possible to cover education costs.

The way 529 plans work is that they allow all contributions to be invested and to grow federally tax-free, and also for withdrawals to occur tax-free, assuming the funds go to qualified education expenses.

Compare that to a savings account or a taxable brokerage account, where you’ll pay income tax every year on any earned interest and dividends, as well as capital gains taxes when you sell investments for a gain.

The trade-off is that 529 plans must be used for qualified education expenses. However, the realm of what qualifies is broader than many think, and the flexibility on what you can do with unused funds is generous.

For instance, much more than tuition qualifies. Student fees, books, and some room and board costs are also eligible. In addition, up to $10,000 per year can be used for K-12 tuition, and up to $10,000 in student loan debt can be repaid with 529 funds.

Additionally, if the beneficiary doesn’t exhaust the funds, they can be applied later to graduate, professional or vocational education. Or, they can be transferred to a sibling or any direct relative, including cousins, nephews, nieces, aunts, uncles -- even the parent, as there is no age limit on beneficiaries.

Given the tax benefits and flexibility of using the funds for wide-ranging educational expenses and recipients, 529s offer a solid college savings vehicle for American families.

Three ways to earmark money with savings buckets

By Sabrina Karl

Saving is a pretty wide catch-all. It can mean stashing cash for a rainy day or emergency. Or socking away funds for retirement. Or working towards a specific savings goal like a house down payment, a new vehicle, or a big vacation.

Often, it is several of those at once. But if you’re using a single account to lump all of your savings together, it can be hard to know how much progress you’ve made, or where you need to shore things up.

That’s why it’s smart to track your status on different goals, and savings buckets are a great way to do this. By earmarking your various contributions for their intended goals, you can keep certain funds intact and available (important for an emergency fund, for instance) and can easily see your status on reaching other goals.

One of the easiest ways to employ savings buckets is to simply open more than one savings account. You can do this at the same institution, or you may want to open a high-yield savings account elsewhere, as a way to earn more on your money while making access to those funds less tempting.

Another option is to choose a bank that offers savings buckets as a feature. This newer offering allows you to keep your funds in a single account, while using online banking to designate which funds belong to which goals. With each contribution or withdrawal, you then earmark which bucket to use.

Of course, there is also the old school method of handling the accounting yourself via a spreadsheet or even a paper ledger, tracking how much of your account balance belongs to each savings category.

No matter your method, the awareness that comes with earmarking and tracking your savings can be a powerful financial tool.

How’s your emergency fund? Pandemic underscores its importance

By Sabrina Karl

A major plank of personal finance advice is to build and maintain an emergency fund, so that unexpected financial hits won’t throw your life off the rails. For some, the coronavirus pandemic has been such a setback. And for all of us, it offers a useful cautionary tale.

While no one can change their past financial decisions (or non-decisions), this global pandemic easily hits home how truly unexpected life can be, and how much difference a financial cushion can make to your financial well being down the road.

But it’s not enough to simply say, “I’ve got some money put aside”. Having enough, and having it held in the right place, are critically important decisions to make.

The common advice is to hold 3-6 months’ worth of your monthly living expenses in an emergency fund. For those with very secure jobs and more than one earner in the family, 3 months might feel sufficient. But for those with less stable income, or all of it coming from a single job, 6 months or even a years’ worth of expenses might be wiser.

Then there’s the question of where to put the money. The key is for it to be easily accessible, and not invested where it could be down in value at the time you need it. The most common recommendation is to store it in a separate savings account, where it cannot lose value. Another idea is to hold it in bank CDs, but only ones with reasonable early withdrawal penalties.

No one is expected to predict future events, such as a global lockdown causing a million-plus U.S. jobs to evaporate almost overnight. But we can prepare so that when financial turbulence hits, it’s temporary and solvable, rather than a disaster that sets back our entire financial future.

How to earn the most on your cash when rates are low

By Sabrina Karl

While low interest rates are welcome for those borrowing money, they are dismal news for cash savers. And you can certainly count savings account rates among the economic casualties of Covid-19.

What banks and credit unions pay on deposit accounts is directly related to the federal funds rate, which the Federal Reserve sliced to zero when the pandemic took hold. Even worse, it recently projected rates will remain at zero into 2022.

Savers have suffered this territory before. The Great Recession sent the fed funds rate to zero in December 2008 and it anchored there for seven long years. Not until December 2015 did the Fed begin raising rates, and only in December 2018 did it reach 2%.

With the coronavirus crisis sending rates back to the cellar, what’s a cash saver to do? While there’s no way to earn the rates available last year, here’s how to earn — and keep — as much as you can.

First, do your homework. Chances are very high that you can substantially outearn the savings rate at your primary bank. By opening an online savings account, you can easily earn 15, 20, or even 25 times the national average rate.

Second, consider rewards checking accounts. These accounts pay a high interest rate on your checking balance if you conduct certain activities like using the debit card a minimum times per month.

Third, if you can hold some of your cash untouched for a while, consider a CD. While CD rates are also depressed right now, they typically pay more than savings accounts. Again, do your homework.

Lastly, avoid fees. Though a $5 or $10 monthly bank fee might not seem too onerous, it erases some of your earnings. Choosing an account with no fees or waivable fees will maximize your return.

Fed has waived savings withdrawal limits, but has your bank?

By Sabrina Karl

The COVID-19 pandemic has altered our world in countless ways, including many changes surrounding savings, investing, and borrowing. If you hold a savings or money market account at a bank or credit union, you may have noticed a significant rule change there.

Prior to the coronavirus, the Federal Reserve’s Regulation D limited how many times consumers could move money out of a savings or money market account each month, capping it at six per monthly statement cycle. This applies to both banks and credit unions.

As a result, most financial institutions charge a fee when withdrawals exceed the limit, to help discourage customers from breaking the Fed rule. If a consumer violates the limit repeatedly, some banks will close the account.

But in a move to help make access to cash easier for Americans who might be struggling financially during the pandemic, the Fed in April completely removed the maximum withdrawals limit.

That’s not to say, however, that your bank or credit union is necessarily erasing the requirement from its own rules. The Fed change only indicates that financial institutions are no longer required to enforce a withdrawal limit. Whether they still do is up to them.

Fortunately, with many institutions taking multiple measures to support their customers during COVID-19, many are indeed following the Fed change and waiving excessive withdrawal fees.

But if wanting to take money out of your savings more than six times per month is something you need or want right now, it’s wise to check specifically whether your financial institution is following the new Fed leniency. If not, it’s worth asking for an exception.

No one knows whether this Fed change will be permanent, including the Fed. But at the current time, they’ve indicated there are no specific plans for bringing the limit back.

How to avoid buying what COVID-19 scammers are selling

By Sabrina Karl

As if the coronavirus pandemic weren’t wreaking enough havoc on Americans’ finances, scammers are busy capitalizing on the crisis as a new way to con us out of our money.

Most of their tactics come from the same playbook they’ve been relying on for a long time, because those techniques work. COVID-19 has simply given scammers a fresh opportunity to take advantage of new fears.

According to the Federal Trade Commission and the Consumer Financial Protection Bureau, many of the scams involve COVID-19 cures, vaccines, and preventative treatments. But all offers of this type are illegitimate, as there are no available vaccines yet and no known cures or preventative “silver bullets”. Stick to information from trusted healthcare sources.

Other fraudulent products are home test kits and air filters. But legitimate COVID-19 testing is only available through healthcare providers and public health systems, not via in-home DIY kits. Also, filters purporting to clean your home’s air of virus particles are ineffective.

Fraudsters are also hawking in-demand products like disinfectant sprays and wipes, hand sanitizer, and toilet paper. But after you buy, the products never show up. As with all online purchases, beware of who you’re buying from. Avoid sites you’ve never heard of or whose links were sent to you by email or text, instead opting for sites you visit directly and can verify as reputable sellers.

Coronavirus scammers are also preying on Americans’ desire to help by peddling fake COVID-19 charities. If approached for a donation to any charity, always check the organization out on BBB’s Wise Giving Alliance or Charity Navigator. And if you donate, use a credit card — never donate via gift cards or wire transfers.

As always, if you are a target or victim of any consumer scam, report it to the FTC at ftc.gov/complaint.

Some banks waiving CD early withdrawal penalties during Covid-19

By Sabrina Karl

If you own a certificate of deposit at a bank or credit union, you likely know the drill for maximizing your earnings: Don’t touch the CD balance until the day of maturity arrives.

That’s because penalties apply whenever you cash a CD out early, and the existence of that penalty policy is the reason you can earn more with a certificate of deposit than with a standard savings or money market account.

The agreement goes like this: If you agree to keep your money parked for a set period of time, and to pay a penalty if you break the commitment, the bank in turn agrees to pay you a higher interest rate than they offer on their more flexible savings accounts.

But with Covid-19 causing millions of Americans job and income losses, some banks and credit unions are considering their CD penalty policy as a way they can help their financially hard-hit customers.

If you find yourself cash-strapped as the coronavirus crisis wears on, and have one or more CDs on deposit, you may be able to access that cash sooner than you thought, or without the financial ding you might have expected.

The decision to waive a CD early withdrawal penalty is completely up to each institution. It is not an edict from the Fed or from the CARES Act. However, a handful of institutions have advertised this option to their customers.

But don’t assume that if your bank or credit union hasn’t explicitly mentioned this escape clause that it isn’t willing to grant it. If you want to cash out a CD early right now, simply ask. Even if your institution isn’t offering penalty-free withdrawals across the board, they may very well allow it for struggling customers who simply make the request.

Physical bank branches still matter, to Americans of all ages

By Sabrina Karl

Although almost 9 in 10 Americans are using their bank’s web and mobile options, bank branches are still important to a majority of consumers, no matter their generation.

A recent study by Adobe Analytics surveyed 1,000 consumers across multiple age groups and found that, overall, three-quarters of U.S. adults (75%) report that the availability of physical branches matters to them.

Older generations were more likely to say branches are important (83% of baby boomers and 92% of traditionalists). But even among Generation Z adults, who are age 22 at the oldest, a full two-thirds (66%) said they find physical branches to be valuable. Millennials and Generation X adults registered the importance of branches just slightly higher, at 68 and 70%, respectively.

Yet when asked how often they visit a bank branch, young Gen Z adults were far and away the most likely to say they step into a branch at least once monthly, at 72%. Millennials came in a distant second, with 60% reporting at least one bank visit per month. Generation X adults were the least likely, yet still came in at 50%.

Things change a bit generationally when looking at weekly trips to the bank, with a quarter of traditionalists (25%) reporting this frequency. But 18% of Gen Zers and 16% of millennials also indicated they visit a branch about weekly.

When choosing a bank, security and location of branches were the top two priorities overall. Among older generations, a fifth to a quarter cited branch locations as their No. 1 criteria in choosing a bank (20% for Gen X, 24% for boomers, and 23% for traditionalists). Although the two younger generations ranked the bank’s mobile app as a higher priority, still 11% of Gen Z and 12% of millennials said branch locations were their top consideration.