Which is better, credit or debit? It depends on you.

By Sabrina Karl

Whether you’re pumping gas, checking out at the supermarket, or shopping online, choosing to pay with debit or credit is transactionally the same. But that doesn’t mean both are equal, and what’s best boils down to your financial personality.

For those who can reliably pay their full card balance every month, credit cards offer significant advantages over debit cards. The biggest of these have to do with protecting against fraud, earning rewards, and building credit.

Fraud protection is one of the biggest differences between buying with credit vs. debit, due to the Fair Credit Billing Act. Under the law’s protections, credit card holders are not liable beyond $50 for a fraudulent charge. The law does not, however, apply to debit cards.

Many credit cards also offer rewards programs, which means you can earn cash back, travel miles, or other perks as a fringe benefit on your card spending.

Holding a credit card also contributes to your credit report, with responsible payment behavior helping build a strong credit score, which can in turn make you eligible for lower rates on loans and insurance.

But reaping these benefits without incurring the risks of credit cards depends on financial self discipline, and some consumers prefer enlisting help to avoid the temptation of overspending, and the resulting interest and debt it can lead to.

That’s where debit cards can be useful, as they prevent you from spending more than you have in your checking account. By forcing you to rely only on funds on hand at the bank, budgeting can be easier to stick to.

If this benefit is strong for you, it can certainly outweigh the rewards, credit-building, and fraud protection of credit cards, because those benefits will be quickly eroded if you accumulate debt, expensive interest payments, and a negative credit report.

Two smart moves after Fed announces another huge rate hike

By Sabrina Karl

The Federal Reserve hiked the federal funds rates by another massive increment Wednesday. Though expected, the 0.75% increase is historically notable, as it represents the third consecutive hike of that size since June, and the fifth hike this year.

The Fed generally prefers to raise rates gradually, usually by a quarter percentage point. But with inflation running above 8%, the Fed sees a need for dramatic action. As a result, its 3% hike since March is the fastest pace seen since Ronald Reagan was a new president.

When the Fed raises rates, it’s good news for savers and bad news for many types of borrowers. That means some perennially smart money moves are even wiser now.

First, if you have variable-rate debt, like credit card balances, paying those down should be your highest priority. The national credit card interest rate average has risen above 18% APY, so every month you carry a balance, you’re paying a lot of interest on that decision.

Plus, the Fed isn’t done, likely hiking rates another 1% to 1.25% this year, and then further still in 2023. Whenever the Fed raises rates, your credit card company does, too. So owing less means you’re less exposed to increasingly expensive interest payments going forward.

Second, for those with cash in the bank, it’s always wise to consider high-yield savings accounts rather than the savings account offered by your primary bank. But this is even more true now that rates are rising.

For instance, the national average savings account rate is only 0.13%. But Investopedia.com lists a dozen banks that are paying 2.50% to 3.25% on savings balances. And those rates keep rising.

While there’s no escaping today’s economic realities, reducing your debt interest or increasing your savings interest are two of your smartest money moves right now.

What are I bonds, and should I buy some?

By Sabrina Karl

Inflation is still running high, meaning cash you’re holding in savings accounts, money markets, and certificates of deposit likely isn’t holding its value. There is, however, a savings vehicle that can protect your spending power against inflation, and it’s called the I bond.

Issued by the U.S. government and therefore almost risk-free, I bonds are currently paying a whopping 9.62% APY. No, that’s not a typo. In fact, it’s the highest rate ever offered on I bonds.

But while that rate is attractive, I bonds involve certain limitations. For instance, the rate will change every six months, meaning it’s unknown how the rate will move in the future. Your only guarantee is that it will never move below 0%.

Another restriction is that you cannot withdraw your funds for the first 12 months. After one year passes but before you’ve held the bond five years, you can withdraw with a penalty of the last three months’ interest. After five years, there is no longer a penalty.

The interest you earn on I bonds is added to your principal every six months, and while it is federally taxable, it is exempt from state and local taxes. How you choose to report it on your taxes is up to you—you can report each year’s interest, or you can wait until you cash out the bond and report the interest all at once.

I bonds also have an investment restriction. An individual can buy up to $10,000 in a year, with an additional $5,000 possible if buying the bonds with your tax refund.

Given the unprecedented rate, I bonds could be an excellent place to move some of your emergency cash or even funds you’re holding in a taxable investment account. Just be sure it’s money you can live without for a year.

What is a Roth 401(k)?

By Sabrina Karl

Many Americans have become familiar with 401(k) plans offered at work, which have for decades offered employees the opportunity to contribute directly from their paycheck to a retirement savings account with pre-tax dollars.

But an additional retirement plan was made available to employers in 2006: the Roth 401(k). And its recent growth has been surging. In fact, the Plan Sponsor Council of America reports that in 2020, 86% of workplace retirement plans offered a Roth 401(k) option, vs. just 49% in 2011.

So what is a Roth 401(k)? Anyone already familiar with a Roth IRA will have a good guess that it primarily boils down to when your money will be taxed.

With traditional 401(k)’s, your contributions come directly from your paycheck pre-tax, meaning contributions are subtracted from gross pay and therefore aren’t counted as taxable income. The trade-off, of course, is that you’ll pay tax on the 401(k) dollars when you withdraw them in retirement.

Roth 401(k)’s flip that around, with contributions from your paycheck being made after-tax. This means they won’t immediately reduce your tax bill like traditional 401(k) contributions would, but they will grow tax-free and you won’t owe any tax when withdrawing the funds in retirement, since you’ve already been taxed.

This means that choosing a 401(k) plan comes down to whether you think you’re in a higher tax bracket now than you will be when you’ve retired, in which case a traditional 401(k) would be best. But if you think your tax bracket now is lower and will be higher in retirement, you’re better off paying taxes today and putting the funds in a Roth 401(k) to avoid the future tax hit.

Unsure of that tax answer? You’re in luck, as most employers allow you to contribute to both plans at the same time.

What Americans are cutting to cope with inflation

By Sabrina Karl

New data released Wednesday shows that the inflation rate held steady in July. Relatively speaking, that’s good news compared to June, when inflation bumped 1.3% higher. But for most Americans, it means they’re still feeling a significant pinch on everyday expenses.

Findings from a recent Forbes Advisor/OnePoll survey spotlight where Americans are trimming the fat in order to cope with increased prices, including cost-cutting on food, clothing, and transportation expenses.

More than 6 in 10 survey respondents reported they are dining out less frequently, including almost three-quarters of baby boomers. Almost half (49%) also indicated they are cooking more meals at home to save money on restaurant dining and takeout. Forty-six percent also said they’re using leftovers more often.

Cost-cutting on food is also happening at the grocery store. Indeed, 83% of Americans report they have adjusted their grocery spending. More than half (51%) report they are buying fewer non-essential groceries when they shop, and almost 4 in 10 (39%) say they are buying less groceries altogether.

Meanwhile, 37% say they are using coupons more frequently than in the past. And 17% say they are reducing grocery store expenses by buying less organic foods, while an equal share said they have cut back on alcohol purchases to lower their monthly grocery bill.

Outside of food, more than 40% of respondents indicated they have adjusted their clothes spending by buying mostly on-sale or discounted items and/or by wearing old clothes longer. Similarly, 39% say they are engaging in fewer leisure activities, such as concert and theater tickets.

Reducing driving is another common tactic, with 55% of respondents reporting they have cut back on non-essential journeys. For millennials the share is 50%, while 61% of Generation X adults and 65% of baby boomers say they have actively reduced their driving trips.

Four red flags that can tip you off to a scam

By Sabrina Karl

In today’s digital era, fraudsters aiming to trick you out of your money employ ever-evolving strategies. Fortunately, the first step in protecting yourself is to simply recognize the signs of a scam.

According to the Federal Trade Commission (FTC), the red flags fall into four big categories. First, scammers often pretend they’re from an organization you know and trust. Beware of anyone contacting you on behalf of a government agency or another large entity you know, such as the Social Security Administration, the IRS, Medicare, utility and tech companies, and large charities.

Second, the FTC warns that scammers often try luring victims by suggesting there’s a problem to solve or a prize to be claimed. They may say there’s an issue with your account that requires verifying bank or credit card information. Or they may use scare tactics, saying you owe money, that you’re in trouble with the government, or that a family member has had an emergency. Saying you’ve won a lottery or sweepstakes requiring bank information to deposit the prize is also common.

The third red flag is if they impose significant time pressure on you. Because they want you to act before thinking, they may suggest that if you don’t act fast, you could be sued or arrested, could lose your license, or could suffer a computer hack. It’s also common to pressure you to stay on the line with them, so they can get you to act without verifying their story.

Lastly, a fraudster will have specific ways they want you to pay. Many will ask you to send money to a transfer company, or to buy a gift card and share the access numbers. Some may even send you a fake check and ask you to transfer money to them to cover the check amount.

What is the 50-30-20 budgeting method?

By Sabrina Karl

Many of us know that budgeting is a smart way to keep spending in check. But creating and then tracking a budget can feel overwhelming to some.

Enter the 50-30-20 budget method, which keeps budgeting simple by boiling things down to three large categories, rather than a dozen or more detailed categories. The three categories are needs, wants, and savings, and the most important one to start with is savings.

Begin by calculating your after-tax income. Look at your take-home pay but add back any amounts deducted from your paycheck for non-tax items, such as healthcare and retirement savings.

The next step is to multiply the 20% savings rate in the 50-30-20 formula by your after-tax income to determine the amount you should put either towards savings or extra debt payments.

That leaves you with 80% of after-tax pay, which the 50-30-20 method suggests you break down as 50% going towards needs and 30% towards wants.

Needs include housing, utilities, transportation, groceries, basic household supplies, and necessary personal items. These are expenses you simply must pay each month to live a standard lifestyle. It should also include the minimum required payments on any outstanding debts.

After that, you have 30% left to spend how you like on discretionary purchases. This can include paying for cable TV, going out to eat, buying the latest tech device, or going on vacation. The list is endless, but the common thread is that these are expenses you are opting to make, but could live without if you needed to.

If you find you have extra room in your 50% or 30% categories, it’s wise to add the surplus to your savings category. Simply tweak the three percentages to what works for you, and continue tracking those three broad categories to stay on track.

Rates on savings accounts and CDs climbing fast

By Sabrina Karl

To fight inflation, the Federal Reserve has been making dramatic interest rate moves that are benefiting savers. Indeed, the rates you can earn on a savings account or CD have surged over the last three months.

Looking at the FDIC’s national averages, the change might seem minimal. That’s because the vast majority of banks pay a pittance in interest on savings accounts. Still, the national average rate held around 0.06% for most of 2020 and 2021, but has now risen 33% to 0.08%.

More telling is what you can earn from the top-paying banks, many of which are online-only institutions that offer ultra-competitive rates to attract depositors. Throughout 2021, the top savings account rate hovered around 0.50%, according to Investopedia.com. This week, they list almost 20 savings accounts paying 1.25% or better, with the leader paying 1.80%. In other words, you can earn 2.5 to 3.5 times more today than in January.

The story is similar for certificates of deposit, or CDs. Their FDIC national averages also remained relatively flat during 2020 and 2021, but have climbed by a factor of 1.5 or even double since January, with most of the gains occurring in May and June.

Again, however, smart consumers can earn much more from CDs than the national average by simply shopping around for the top-paying rates, and those have surged even more dramatically than the national averages. For instance, Investopedia’s top listed rate from a nationally available 6-month CD hovered around 0.70% in 2021, while today you can earn 2.32%. Similarly, the best 1-year CD rate has leaped from about 0.80% to 2.50%.

Rates that are roughly triple their best level from last year are also available for 2-, 3-, and 5-year CDs, the top rates for which are currently 3.00%, 3.25%, and 3.50%, respectively.

How the Fed’s largest rate hike in 28 years will affect you

By Sabrina Karl

Last week, the Federal Reserve hiked the federal funds rate. Though expected, the hike made dramatic news for being the largest increase in almost three decades.

Most typically, the Fed changes this rate by a quarter percentage point. But when it needs to make a bigger, faster impact, it can change the rate by a half percentage point or more.

On Wednesday, the Fed hiked rates by a rare 0.75 percentage points. The last time it made such a bold change was in 1994. The reason is because inflation is running white-hot right now, and raising interest rates is a key way to combat that.

While the federal funds rate actually only refers to the rate banks pay each other for overnight loans, its level impacts rates that matter to consumers. Where it’s most pronounced is on rates for credit cards, auto loans, and personal loans. Rates for those products have been rising and will continue to do so.

Fortunately, the rates paid on deposit accounts also rise. That includes savings accounts, money markets, and CDs. So while Fed rate hikes are not good for consumer debt, they help somewhat for savers.

Mortgage rates, on the other hand, are not directly related to the federal funds rate. However, there are ripple effects that do bleed into mortgage rates, and the rising cost of home loans right now is in part, though not wholly, related to the Fed rate hikes.

The Fed’s rate-setting committee meets about every 6-8 weeks, and its next meeting will conclude July 27. When the pandemic began, the Fed dropped its rate to zero to stave off a financial crisis. But this year, it’s begun raising that back up, with three increases this year already, and planned increases through the rest of 2022 and into 2023.

With inflation red hot, high-yield savings accounts smarter than ever

By Sabrina Karl

You’ve all read the news, that inflation is at a decades-long high. That means our purchasing power goes down as time passes. For anyone keeping their surplus funds in a checking account or traditional savings account, high inflation is bad news.

Fortunately, you are not powerless to do something about it. True, you won’t be able to earn as much as the current inflation rate, around 8%, in any kind of bank account or CD. But you can earn much more than you think — even 10 to 20 times more! — by considering high-yield accounts for your extra cash.

Right now, the national average rate on a traditional savings account is a paltry 0.07%. That means $10,000 in such a savings account would earn a shockingly low $7 in interest over a full year. And as if that weren’t bad enough, the biggest banks often pay even less than the average, such as 0.01% or 0.02%.

But with some simple research online you can find at least two dozen banks paying 0.75% APY or more. On $10,000, these accounts would pay at least $75 instead of $7. And rates go higher from there, with several paying 1.00% or more.

The obstacle you may have to get over, if you’ve never held a high-yield savings account, is that you’ll likely need to open one of these accounts at an institution where you don’t already bank. Fortunately, this is easy to do and get used to, since transfers between different banks can be quickly made via online banking. You may even find that having your savings at a separate bank makes it less tempting to spend.

Today’s inflation rates are still going to eat into our financial strength, for now. But at least high-yield savings can help you lessen the bite.

What’s the difference between a Roth IRA and Roth 401(k)?

By Sabrina Karl

Though only 25 years old, Roth IRAs have become a fairly well known retirement vehicle. But many Americans have access to a newer version, the Roth 401(k), and it can be confusing how the two differ.

The basic premise of any Roth account is that funds you contribute have already been taxed, meaning you will not be taxed again when you withdraw the funds. This is in contrast to traditional IRAs, which provide their tax break at the time of contribution and then require taxes be paid on the withdrawals.

Where Roth IRAs and Roth 401(k)s vary is that the 401(k) version is offered in employee retirement plans, typically alongside a traditional 401(k) option. As such, these accounts are funded directly from your paycheck, and may also trigger a match of additional funds from your employer.

In contrast, a Roth IRA is set up by individuals on their own, through a brokerage firm. This makes them accessible to anyone with earned income, even if they are self-employed or their employer doesn’t offer a retirement plan.

For those with access to a workplace Roth 401(k), a big advantage is that much larger annual contributions can be made than with individual Roth IRAs, and there are no income limits on eligibility to contribute, meaning high-earners that might not qualify for an individual Roth can still make Roth investments.

However, there are trade-offs. A Roth 401(k) must be invested in the workplace plan’s options, which tend to be limited and can carry high expenses and fees. An individual Roth, however, can be invested in almost any existing security, including ultra-low fee index funds.

In addition, a Roth 401(k) mandates Required Minimum Distributions (RMDs) starting at age 72, while individual Roth IRAs can be left untouched indefinitely, including leaving them tax-free to your beneficiaries.

What impacts financial aid eligibility the most?

By Sabrina Karl

Most Americans with a college-bound student will be well-served by completing the FAFSA, the Free Application for Federal Student Aid. Yet some families mistakenly think that because they have a lot of assets, it’s pointless because their family won’t qualify for aid.

 However, assets are not an especially critical factor in the calculations, and many assets don’t get counted at all. For instance, assets in a retirement account are not factored into FAFSA math, nor is any equity in your primary home. Assets from a family business are also ignored if the business is at least 50% family-owned and employs fewer than 100 workers.

 The common assets that do count are bank accounts, funds or assets held in taxable investment accounts, and equity in real estate that isn’t your primary residence.

 But even when assets count, if they belong to the parents, their impact is not enormous. Only 5.64% of the asset amount will reduce financial aid. So for each $100,000 in countable assets, financial aid would be reduced by $5,640.

 Compare that to assets held in a student’s name, which are assessed at 20% rather than 5.64%. This includes balances in a student-named UGMA/UTMA account. For this reason, a 529 plan held by a parent custodian is a smart move, as it will count as parental assets instead of student assets.

 The much bigger FAFSA factor is income. Student income, including any earned interest, dividends, or capital gains, but subtracting a FAFSA allowance amount, is assessed as 50% being available to pay for college, while parental income is counted as 22% to 47%, rising as income increases.

 In the end, it makes sense for most American families to complete the FAFSA, and as close to October 1 each year as possible. You may be more eligible than you think.

Improve your bottom line by avoiding bank fees

By Sabrina Karl

Banking fees have changed considerably in recent years. While many banks have eliminated certain fees, it’s unfortunately also true that the average dollar amount U.S. consumers are incurring in bank fees is higher than it’s ever been.

 The good news is that it’s not hard to avoid these fees, and making even a minimal effort to do so is a smart money move, since many of the charges run $25 to $35.

 The first smart step is to choose a free checking account. Even if you don’t want to change where you bank, you can likely just change your account type to one with fewer or lower fees.

 Sometimes the best account isn’t outright free, but one that easily waives fees. For instance, many checking accounts become essentially free if you have at least one direct deposit every month.

 Don’t have the direct deposit option? Many accounts will waive the monthly fee when you maintain a minimum balance. Getting in the habit of keeping that cushion in your account and never spending below it can also give you a fee-free account.

 Besides monthly maintenance fees, overdrawing your account will often trigger a penalty. An easy way around this is to hold a savings account at the same institution, keep a small reserve in it, and link it to your checking account with free overdraft protection.

 Lastly, ATM fees can be a big hit to your bottom line. Though you can avoid them by only using your own bank’s ATMs, that’s not always a practical option. A better strategy can be choosing an account that offers ATM fee reimbursements.

 Though it can be difficult to avoid fees 100% of the time in your banking life, minimizing them to become rare events can save you considerable money over time.

Track your financial health with net worth, not income

By Sabrina Karl

As we move through adulthood, it’s smart to keep an eye on continually boosting your financial health. Indeed, the Japanese concept of “kaizen”, meaning “constant improvement”, is an excellent way to think about your finances.

 A financial life cycle has many stages. Money can seem tighter when you’re young and newly employed. The middle stage tends to bring bigger incomes, but also bigger expenses, especially if you have children. And at retirement, the game changes to no income at all.

 So if income changes so much, how can we easily measure whether we’re doing better financially this year versus last year, or versus ten years ago? The answer is to ignore income and instead regularly track your family’s net worth.

 Net worth is well summed up by its name: It calculates what your money, investments, and assets are worth “net” of what you owe others. It’s what you’d have left if you had to settle every current debt and financial obligation.

 This is a much more holistic way of assessing how you’re doing financially, as it deducts for debt and increases for savings. For instance, making $200,000 a year isn’t all that impressive if you're saddled with a six-figure student loan, massive mortgage, or credit card debts.

 To use net worth as a personal measurement tool, simply create a chart or spreadsheet that lists the value of all your financial accounts and assets, then lists every debt you owe, and then subtracts debts from assets. This result is your net worth on that date.

 From there, just create a new column for the next time period, edit the inputs as they stand then, and see how your net worth has changed. To keep yourself on track, simply repeat this process at least once a year, but ideally every quarter.

What to expect when adding a teen to your auto insurance

By Sabrina Karl

Have a teenager who will start driving in the coming year or two? Brace yourself, because there’s no way to sugar coat that adding a young driver to your policy is going to be expensive.

The reason, of course, is that the odds of an accident are much higher with teenage drivers. And it’s not a small difference. The National Transportation Safety Board’s reports that teen drivers’ crash rates are three times as high as drivers age 20 and older.

Still, that doesn’t mean you’re powerless to get the best rate you can. While it’s tempting to simply call up your existing insurance provider and ask them to add your child, this is a perfect time to ask around for a few quotes.

Since most insurance companies do not require teen coverage until your child actually gets their license, the permit stage is a great time to ask your existing company what it will cost to add them.

Then, take the smart step of getting quotes from 2-3 additional companies. Not only may another company offer cheaper teen rates for the same coverage, but you may find mom and dad’s rates are cheaper there, too.

Be sure to explore which car is best to add your teen to, and then inquire about discounts. Many companies offer a good student discount, or perhaps lower rates for those who take a defensive driving course. Also, kids not living at home may qualify for a discount. Lastly, ask about monitoring programs or apps, which can provide parental oversight as well as potentially lower rates.

Lastly, encourage your teen’s good driving habits. Each year they go without a ticket or accident will generally reduce your rates. And once they go three years accident- and ticket-free, they can likely qualify for a good driver discount.

Interest checking accounts often not worth it

By Sabrina Karl

When choosing a checking account, it might seem obvious that earning interest is better than not. But a look at the math quickly shows that often, it’s not the case at all.

Interest-bearing checking is certainly appealing, as it suggests you can conveniently keep all your bank funds in one place, without having to siphon funds off to a better-paying savings account.

But in reality, interest-bearing checking accounts have two strikes against them: they are more expensive than other options, while paying precious little interest in return.

According to Bankrate’s annual analysis, less than 8 percent of interest-bearing checking accounts were free of a monthly fee in 2021. Compare that to 48 percent of non-interest checking accounts that are free.

Bankrate further found that 2021’s average monthly fee among interest-bearing checking accounts climbed to a new record of $16.35. That’s up almost a dollar over the year before.

While some accounts offer ways to waive the fee, Bankrate found that the average minimum balance required to do so in an interest checking account surged in 2021 to almost $10,000.

Also, while direct deposit will sometimes waive the monthly fee, the share of interest checking accounts with that option is down to just 12 percent.

If you can’t avoid the monthly fee, it’s important to note the typically low yields on these accounts. Though some institutions offer more worthwhile rates, the national average paid on interest-bearing checking accounts is a paltry 0.03 percent.

That means an interest checking account holding a balance of $5,000 and earning the national average will pay a measly 10-15 cents per month. Even if the checking account pays 0.50% APY, that’s just $2 per month on a $5,000 balance.

Clearly, it’s worth doing the math to see if the fees are worth it in your situation.

10 tips for avoiding impulse buys

By Sabrina Karl

We’ve all been there. We walk in the house with a new purchase that, a few hours earlier, we had no idea we’d be making. Or we get tempted online to add an item to our cart and, before we know it, we’ve hit “Submit order”.

 Impulse buys can inflict major harm on your financial health, diverting money from more productive goals that have long-lasting benefits, such as reducing your debt, saving, and investing.

 Fortunately, there are many tactics for reducing your impulse buying. For instance, simply avoid going to stores and sites you know will tempt you. To make this easier, unsubscribe from retail newsletters and unfollow tempting brands on social media.

 Also aim to shop under the right circumstances. For instance, shop when you have a specific need and make a list to stick to. Avoid shopping for entertainment, and avoid the idea of “shopping therapy” to deal with upset emotions.

 You can also challenge yourself to a no-spending period. Making a game out of only buying essentials until some finish line can be effective. Alternatively, set a monthly budget limit for impulse purchases, ensuring you never spend more than a certain dollar amount on unplanned items.

 Despite your best efforts, in-the-moment temptation can still occur. One effective tactic is always forcing yourself to pause and ask “Do I really need this?”. Another strategy is to impose a waiting period of a day, a week, or a month (the bigger the purchase, the longer the duration) before you can buy the item, during which time you may realize you don’t need it.

 Lastly, it’s always useful to remind yourself of bigger goals. When tempted with unplanned spending, think about what you want for yourself longer term and how this purchase sets you back instead of moves you forward.

Four great reasons to roll over your 401(k) in 2022

By Sabrina Karl

If you left a job during the pandemic—or even years ago—and still have a balance in your former employer’s 401(k) plan, here are four smart reasons to add a 401(k) rollover to your New Year’s resolutions.

First, a primer. Rolling over your 401(k) simply means moving those investments and funds into a personal IRA account that’s linked only to you. You can even roll 401(k) assets from multiple employers into the same individual IRA.

A top reason to do this is that it significantly increases your control over the investments you choose and how much you’ll pay in expenses. In a 401(k), you’re confined to the plan’s menu of investments, as well as the sometimes hefty expenses and fees they charge.

Contrast that with a self-directed IRA at a brokerage, where you can choose from individual stocks and bonds, mutual funds and index funds, and ETFs. There will still be plenty of hands-off investment options for those who want easy investing, but you’ll be in charge of any investment—and fee—choices.

A second good reason to move into an IRA is that they are much simpler, with direct communication to you instead of a 401(k) middleman. Not only are the IRS rules for all IRAs identical, but communications come straight to you rather than through the employee newsletter or an agent assigned to the company.

Third, you may be able to make some money off your rollover. Numerous brokerages offer generous cash bonuses to new customers transferring funds, so it’s worth shopping around to boost your balance with the best bonus.

Lastly, holding your funds in an IRA enables better future options than are available to 401(k) plans, such as the ability to convert IRA funds to a Roth IRA, or take advantage of better estate planning options for your beneficiaries.

How dollar-cost averaging can help you sleep at night

By Sabrina Karl

An age-old piece of investment advice is to buy low and sell high. This would be all well and good if any of us had a crystal ball. But since we don’t, the more modern advice to not bother trying to time the market is more useful.

Timing the market refers to carefully deciding when precisely to buy a stock, bond, or mutual fund. The problem is that the markets are wildly unpredictable over short terms, so the timing decision you choose could easily turn out poorly.

Dollar-cost averaging is one solution, as it spreads out the risk of buying high while increasing the odds of buying low. Let’s say you have $5,000 to invest. Instead of investing all at once, which would put all your eggs in one basket based on the price that day, dollar-cost averaging instead has you invest, say, $500 a month until you’ve invested the full $5,000.

What’s advantageous about this is that, because you’re always investing the same amount each month, when the stock or asset you’re buying is expensive, you’ll buy fewer of the expensive shares. In contrast, when the price is lower, your $500 goes further and you acquire more of the bargain shares.

The result is that your average share price is blended to essentially smooth over the major market swings, because you’re buying over time and at different prices.

While it’s true that if you invest all $5,000 at once and prices later move higher, you would earn more by investing all at once. But the odds are just as likely that prices could move lower, in which case all your shares are in the red.

Dollar-cost averaging is an excellent method for many investors to sleep peacefully at night, knowing their strategy minimizes the risks and market bumps.

Think an online bank isn't for you? It's worth thinking again.

By Sabrina Karl

Most Americans are familiar at this point with online banking. Even if your bank is a brick-and-mortar institution, online banking is the way most customers interact with their accounts.

But online banking can go a step further, to institutions that operate fully online, with no branches at all. And for those who want to be smart with their money, it’s an important option to consider.

Because an internet-only bank with no physical location can seem risky to some, it’s important to note this fact: internet banks are federally insured by the FDIC just like traditional banks. That means they must follow all the same rules and regulations that keep your money safe, as well as provide the same protections.

So with your money just as safe at an internet bank as at the branch down the street, there are good reasons to open an account with an online bank, with the number one reason being that you’ll earn substantially more on your money.

That’s because online banks don’t incur all the costs associated with operating physical branches, and as a result, can pay customers much higher interest rates. And not just a little higher, but massively higher.

The national average savings account rate is currently 0.06%. And banks like Chase, Bank of America, and Wells Fargo pay only 0.01 or 0.02%. But you can find more than two dozen online banks currently paying 0.50% to 0.70% APY. That’s 8-12 times more than the national average.

A savings account is the best place to start an online bank relationship. Because you can easily transfer money between the online account and your existing bank, a smart setup is to keep your traditional checking account, but open a separate online savings account to earn significantly more on the cash you sock away.