Retirement savings: Are you on track for your age?

The older you get, the more urgent the question becomes: Will I have enough saved for retirement? Because many of us wonder, how much is enough?

It’s a question without a precise answer, since no one can know how long they will live, what their expenses will be like in retirement, or how healthy and active (or not) they will be as they age into their 70s, 80s, and beyond.

But just because there are a lot of unknowns doesn’t mean there aren’t some reasonable targets, and investment giant Fidelity has been promoting its rules of thumb on this topic for years.

Fidelity’s model starts with the idea that, if you retire at 65-67 years old, you should have savings equivalent to ten times your salary by that time. From there, they backtrack to what that means you’ll need in savings at different milestones along the way.

They suggest that by age 30, you should aim to have retirement savings equivalent to your current salary, that by 40, you should have three times your salary, by 50 you should have six times, and by 60, you should have eight times your current salary.

Of course, various factors can influence these goals. For instance, someone planning to downsize and live frugally in retirement may have plenty with just eight times their salary, while someone who expects to embark on a lot of retirement travel will have much higher expenses and should therefore target a goal of 12 times their salary.

The age at which you retire has an impact as well, given the differences in social security payments at different ages. Those retiring at 62, the earliest eligible age for social security, will need more retirement savings than those who maximize their social security payments by working until age 70.

Cashing a CD in early? Here's what you need to know

While the ideal certificate of deposit scenario is to stash your savings and then not need that money until the CD matures, life doesn’t always work out as planned. Although cashing out early will cost you some money, sometimes it’s simply necessary.

Whenever you open a new CD, the bank or credit union will stipulate its early withdrawal penalty terms. In other words, these rules are set at the time you open the CD, not current bank policy at the time you withdraw.

This points out how important it is to read the fine print before deciding on a new CD. While many institutions fall within a normal range of penalties, some impose exceptionally stiff penalties, while others have pleasantly mild policies. Identifying this information is important pre-commitment homework.

But what if you’ve already opened your certificate, and now find you need the cash? The first step is to look up the terms you received when you opened the CD, and then call the institution to confirm your specific penalty calculation.

If the penalty is a flat number of months’ earned interest, it won’t really matter when you initiate the withdrawal. But with policies that penalize you more or less depending on how close you are to maturity, you may want to consider your best withdrawal timing. Some banks also allow a partial withdrawal, which can help minimize the penalty.

Once you know your penalty amount, you can also compare it to the expense of any other alternatives you might have for securing cash. For instance, if your cash flow need is short term, tapping a home equity line of credit may cost you less than the CD penalty.

In any case, be sure to talk with the institution to fully understand your penalty calculation before making a withdrawal decision.

How much should I have in an emergency fund?

When building an emergency fund, one consideration is how much to put into it. Ideally, you’d have enough to weather a substantial unexpected expense, like a major car repair or a large medical expense, without taking on debt to cover it.

Even more ideal is having a large enough emergency fund to cover all of your necessary living expenses for a number of months if you find yourself without any income, such as due to a job loss.

Conventional wisdom advises that we should keep three to six months’ worth of our monthly living expenses in an emergency fund. But many variables influence what the right amount is for you.

For instance, someone who’s the sole breadwinner for a family has more people depending on their income, and is therefore better served by a larger emergency fund than, say, a single person with few expenses, or a couple in which both partners have good-paying jobs at different companies.

The nature of one’s income also plays a role. Someone with excellent job security who gets paid regularly and predictably can get by with less of an emergency cushion than someone who works freelance and gets paid sporadically. The same could be true for those who are paid in bonuses and commissions.

Your monthly expenses also matter. If you have little or no debt, and many of your expenses are discretionary, such as dining out, travel, and entertainment, it would be easier for you to tighten your financial belt if needed and therefore manage with a smaller emergency fund.

But if your monthly expenses are dominated by debt payments, such as a very large mortgage or other significant obligations, an emergency fund becomes critical, as you don’t want anything to jeopardize your ability to always make your mortgage and other debt payments.

The benefits of saving for education with a 529 plan

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.

What to consider before canceling that credit card

It seems counterintuitive, but sometimes the smartest financial move is to keep a credit card instead of canceling it. Other times it’s not. Here’s how to know the difference.

Every credit card and loan in your name is part of your credit record, and calculations based on that mix of accounts is what drives your credit score. Your score is obviously important whenever you apply for additional credit, but a good score can also help you lower your insurance premiums, land a job, or score an apartment.

If you’re no longer using a card, or you just happily paid it off, it makes sense to want to get rid of it. And if you’re worried you’ll succumb to the temptation of using it again and racking up new debt, closing the account may indeed be wise.

But sometimes, canceling a card can hurt your credit. One way this happens is when it lowers our average age of credit. Lenders prefer borrowers with long credit histories, so if you cancel a card you’ve held longer than your other cards, you’ll be erasing one of your longest histories, in turn reducing your score.

The other downside to canceling a card is that it lowers your credit utilization rate, or the percentage of your available credit that you’re using. Closing a card removes that account’s credit limit from the equation, which raises credit utilization and harms your score.

If you decide against canceling, it’s okay to store the card away or even cut it up, though you may need to make a transaction every year or two to keep the account active. You can also call the card company to request moving to a different card they offer, such as one with no annual fee or rewards you find more appealing.

Two rules of thumb for deciding to save or invest

Keeping some of your money, rather than spending it all, generally tops the list of personal finance advice. But where to keep what you accumulate isn’t always as straightforward or obvious. Should you save it, or invest it?

Fortunately, two rules of thumb can help with these decisions: one for emergency funds, and one about your time horizon for using other savings.

Conventional wisdom recommends having 3-6 months of living expenses at the ready, to save you from dire financial straits should you lose your job or face a significant unexpected expense. Because you don’t know when or how quickly you’ll need to withdraw these funds, this money is best stored in the bank, such as a high-yield savings account or in CDs with mild early withdrawal penalties.

If you still have more savings available after funding an emergency account, the standard advice is to invest money you won’t need for five or more years. The reasoning here is that a longer time horizon helps reduce your risk because you’ll likely have time to ride out any market downturns.

Retirement savings are a classic example. Since you won’t use the funds for many years, investing in the market maximizes your opportunity to grow your nest egg. In addition, maxing out what you can put in tax-favored retirement accounts is financially smart, as it shelters as much of your savings from taxes as possible.

For money you expect to use within five years, that decision is the trickiest. If you’ll need the money within a couple of years, keeping it in a bank account is your safest bet. But if you’re saving for a house or large purchase that might take 4-5 years, investing a cautious portion of the funds may help you reach your goal faster.

Are there are fees to open or maintain a CD?

If you’ve noticed the news stories over the last several years about the rising frequency of bank fees, and are considering stashing some of your savings in a certificate of deposit, you might wonder what fees you could encounter with a CD.

The good news is that it’s a rare CD that will hit you with any fees.

With the basic model of a certificate of deposit being that you agree both to invest a certain dollar amount with the bank or credit union for a predetermined number of years and not withdraw the funds until the term expires, there are almost no transactions involved with a CD, other than its inception and maturity.

As a result, banks generally don’t charge any fees for opening a CD, nor for maintaining it through its term.

That said, a couple specific instances could incur a fee or penalty in your CD account. The most common is the early withdrawal penalty, which is triggered if you withdraw any of the CD’s balance before maturity.

Each bank’s early withdrawal penalty is self-determined, and is typically calculated as a number of months’ interest deducted from the CD’s balance before the bank returns your funds. But the penalties vary widely, so it’s important to check a bank’s policy before opening a certificate with them.

Another fee that a small number of CDs charge is for paper statements. Occasionally, a CD will carry a condition that only electronic statements are allowed — it might even be called an eCD. So requesting paper statements could land you in monthly fee territory.

For the vast majority of CD savers, though, the experience will be fee-free: you’ll deposit your funds, let them sit and earn interest for the term, and withdraw the principal and earnings in full at the end.

What is an umbrella insurance policy and should I buy one?

If you have a home or auto insurance policy, it includes some protection against losses from being sued over an incident occuring on your property or while operating your vehicle. But the coverage provided by these policies isn’t always enough, leaving you exposed to covering the rest of your liability with your own assets.

That’s where an umbrella policy comes in. Umbrella insurance refers to liability coverage that goes significantly beyond what your other policies cover, providing extra protection against potential financial losses if someone sues you, and covering your whole family.

Examples of where liability insurance would kick in include someone slipping on your front walkway and suing for their injuries, a lawsuit over your dog biting someone, a family suing you for their child being hurt while at your home, or your teenager causing a car accident that results in more damage or lawsuit payouts than your auto policy limits will cover.

In short, umbrella policies cover injury to others and damage to their possessions that are either caused by your family or that occur on your property. It does not, however, cover your own possessions and injuries.

While it might seem unlikely you’ll be sued for more than your auto and homeowner insurance covers, accidents can happen to anyone. In addition, the cost of umbrella insurance is generally very affordable, giving it a low cost-benefit ratio compared to what you could lose in a lawsuit. Though premiums vary by state, $1 million of coverage typically costs just $150 to $300 per year.

Deciding whether or not to purchase liability insurance is a personal decision, and speaking to your agent who already provides your home and auto insurance is the place to start. For many, it’s a small price to pay for peace of mind and sound sleep.

What’s the difference between an HSA and an FSA?

Among your choices when selecting workplace benefits is whether to opt for a health savings account or a flexible spending account. Both are health-related and offer tax savings, but are quite different.

A flexible spending account, or FSA, allows employees to divert money from their paycheck to spend on health-related expenses. It can be used directly for healthcare costs, but also for things like eyeglasses, contact lens solution, or over-the-counter medications. The list of eligible expenses is long.

The advantage is that FSA contributions are tax-free, meaning they lower your taxable wages. So whatever tax bracket you’re in, it’s roughly equivalent to saving that much on every FSA dollar you spend. A downside is that you must use FSA funds within the calendar year, meaning anything unspent on December 31 is forfeited.

A health savings account, meanwhile, is available to those choosing a high-deductible health plan. Money put in an HSA can also be spent on a long list of health-related expenses, and contributions are similarly tax-free, lowering your tax bill. Some employers even add funds to employee HSAs.

Where HSAs really shine is in offering two more tax benefits. First, you can save or invest the money instead of spending it right away, and any growth is untaxed. Withdrawals for eligible expenses are also tax-free. This makes HSAs not only great for current health expenses, but also a tax-savvy vehicle to save for expenses you’ll incur in retirement.

Unlike the “use it or lose it” nature of FSAs, HSA funds are yours to keep, even if you leave your job or change insurance plans. You can also contribute much more to HSAs. Limits change annually, but the individual HSA cap is substantially higher than for FSAs, and with family coverage, HSA limits are more than double the FSA limits.

Why can I only make 6 withdrawals from savings

If you frequently transfer money out of savings, or cover checking overdrafts with a linked savings account, you’ve likely discovered there’s a limit to how often you can do this in a month. Exceed six withdrawals per statement cycle and your bank will warn you at best, or close your account at worst.

But before unloading your anger at your bank, or moving your savings to a seemingly friendlier institution, know that banks have no say in this. The mandate comes down from the Federal Reserve in a rule called Regulation D.

The six-withdrawal limit applies to all liquid savings instruments, so that includes savings and money market accounts. It also applies equally to banks and credit unions. And while the Fed doesn’t dictate fees, most institutions will ding you with a charge – often $10 – to teach you that your savings account can’t be used like a checking account.

If you’re a first-time offender, you may escape with a warning, or may be able to score a one-time courtesy waiver. But even if you pay the fee, repeatedly exceeding the limit will eventually lead the bank to close your account, as they simply can’t abide by their own Fed requirements if you keep breaking the rules.

Fortunately, only withdrawals authorized online, by phone, via bill payment or as auto-transfers count toward the six. So if you’ve hit your monthly limit but still need to take out funds, you can avoid the penalty by withdrawing at a branch or ATM, or by requesting a mailed check.

With an understanding of the rule, and the ability at many institutions to see how many withdrawals remain for the month, most consumers can plan accordingly to use their account as the Fed requires, and avoid their savings being diminished by fees.

How to save money with a balance transfer card

If you’re carrying a balance on multiple credit cards, a smart move can be consolidating to a single balance transfer card. This can also work for outstanding medical bills. The key to doing it wisely, so that you save money, is to minimize the interest you’ll pay.

First, look for cards offering an initial 0% interest period. These promos often last 12 months, but sometimes you can find offers as high as 21 months. These cards are especially valuable for transferring balances you can fully pay off during the 0% period, avoiding all interest on that balance for a year or more.

What if your balances are bigger than you can pay off over the promo period? While you can obviously keep the remaining balance on the card, you’ll be hit with a much higher interest rate after the intro period expires. This later APR may be quite high, and potentially higher than you’re paying on your current cards.

A better idea may be to plan more than one transfer. Pay off as much as you can while you’re in the 0% period, but before the intro expires, do a new balance transfer on what’s left, to a new 0% card.

Alternatively, you could transfer only as much of your balances as you feel confident you can pay off during the 0% period. This at least allows you to avoid all interest on some of your debt.

Sometimes you can find another option: a balance transfer card that offers a low standard interest rate instead of an introductory 0% rate. If your current cards charge 20% on average and you can move the balances to a card offering 11 or 12%, this can still deliver significant cost savings to you over time without having to do another transfer.

What is a CD grace period?

By Sabrina Karl

When you open a certificate of deposit, you’re entering into a contract with the bank or credit union to keep your funds deposited with them, earning a specified rate of return, for a set period of time.

That period is always explicitly defined by an end date, called the maturity date. And once that date hits, something will happen with your CD funds. What happens depends on instructions you make, or on the bank’s policy if you fail to provide any guidance.

The issuer of your CD will notify you when your CD is soon maturing. In that notification, they’ll indicate their policy on handling maturing funds if you do nothing. Most will roll the funds over into a new CD of a similar term and at current rates, while a smaller share of institutions will move the funds into a linked savings account.

The notification should also stipulate the grace period, which is the number of days after the official maturity date – usually one to 10 – during which you can still make instructions. After the grace period ends, your opportunity sunsets on deciding your own terms for handling the funds, and the bank’s default policy instead takes effect.

It’s always best to act before the maturity date, so you can direct the bank to move the funds into savings, or return them to you by check, or even transfer them to another institution. But should you miss that deadline, the grace period gives you a little cushion to still make a smart decision.

Note, however, that your CD will stop earning interest on the maturity date, regardless of entering the grace period. Your grace period provides only an extension for decision-making, not an extension of your interest-earning period. So funds will earn nothing during the grace period.

How to know if your money in the bank is safe

By Sabrina Karl

For anyone with savings in the bank, the recent headlines may have felt unsettling. In the space of three days, two banks failed, dominating much of the news cycle.

Part of why the news feels so big is that we rarely experience bank failures these days. In the three years following the 2008 financial crisis, almost 400 U.S. banks failed. That triggered the adoption of stricter banking regulations and as a result, we’ve witnessed a mere ten bank failures in the last six calendar years.

Still, the recent news makes many wonder if the money they’re holding in the bank is safe. The good news is that for the vast majority of Americans, the answer is a resounding yes.

The safety net that protects most of us is the Federal Deposit Insurance Corporation, or FDIC, an independent agency of the U.S. government. As its name states, it insures deposits, meaning if a bank where you hold funds in a savings, checking, money market, or CD account goes under, the federal government will reimburse you for any lost funds.

While the coverage is not unlimited, the FDIC insures up to $250,000 in deposits. Not only that, the coverage applies both per person and per institution. So for a couple with a joint account, they each receive $250,000 in coverage, for a combined $500,000.

In addition, you’re covered up to $250,000 at every bank where you hold deposits. So even if you have more than $250,000 on account, you can easily protect yourself by spreading the funds across multiple banks.

Conveniently, the same $250,000 in coverage is extended to depositors at credit unions as well, through the National Credit Union Association, or NCUA. So a simple check that your institutions are either FDIC or NCUA members means your funds are protected.

What’s the best CD term to buy now?

By Sabrina Karl

With the Federal Reserve a year into its rate hiking path, with more increases still expected, CD shoppers can find themselves in a bit of a quandary. What’s the best CD term to buy right now?

When rates are low or at least stable, you generally do best buying the longest term for which you’re comfortable locking up the funds. That’s because in times of low or stable rates, five-year CDs tend to pay the most.

But when rates are in a known rising or declining pattern, what banks and credit unions are willing to pay on different durations shifts. While a rising Fed rate, like we’ve been facing since last March, raises CD rates in general, the best-paying term does not always remain the longest term.

Take the current rate landscape. The FDIC national averages for February show that rates paid on 1-year and 2-year CDs are higher than 3-, 4-, and 5-year certificates, with 1-year CDs having the highest national average of any term.

This is also true among the top rates from the best nationwide certificates. According to Investopedia’s daily CD rankings, the top rates on 1 year, 18 months, and 2 years, are all above 5%, while the 3-year and 5-year top rates are in the upper 4% range.

For those wanting to hold funds in CDs for the long term, 5-year certificates are still a good option since you’ll be guaranteed a rate that’s competitive today for five years to come. But if you’re looking for a short- to mid-term play to capitalize on today’s high rates, a 2-year CD might be best, as it offers among today’s highest rates while presumably outliving the Fed’s increases. Though rates may drop in 2024, you’d still be locked into one of today’s best rates until 2025.

Maximize your earnings with a simple CD ladder

By Sabrina Karl

What you gain and what you lose from putting your money in certificates of deposit is clear: You can earn substantially more interest than with a savings or money market account, but you have to lock your money in for a set period of time, paying penalties if you cash out early.

 The smartest cash savers have a strategy, though, for balancing this plus-and-minus of CDs, allowing them to squeeze every drop of earnings they can out of their savings. It’s called CD laddering, and it’s an easy rung-by-rung process.

 In general, the CDs paying the highest interest rates are long-term certificates, such as 5-year CDs. While you could put all your money into 5-year CDs right away, that offers little flexibility in accessing the cash if you need it.

 The antidote is splitting your CD funds into five equal sums and investing them in five certificates of increasing lengths. This will give you access to one-fifth of your funds every year, instead of waiting five years for access.

 Let’s say you’re starting with $10,000. This gives you five investments of $2,000 to deposit in five CDs of increasing terms: 1-year, 2-year, 3-year, 4-year and 5-year CDs. Shop around for top-paying offers in each term to assemble a portfolio of nation-leading rates.

 When your 1-year CD matures, reinvest those funds in a top-paying 5-year CD. Then a year later, invest the funds from the maturing 2-year CD in another 5-year certificate, and so on. Eventually you’ll end up with all your CD funds earning attractive 5-year rates, but with access to a fifth of your money every year.

 Cash savings are important to everyone’s financial picture. And while it’s easy to sock our money away in a simple savings account, the extra steps to create a CD ladder will pay lucrative dividends.

Are CDs guaranteed?

By Sabrina Karl

When it comes to earning a return on your money, most options trade risk for return. The greater the risk you’re willing to accept, the more you can potentially earn.

Certificates of deposit are no exception, except in reverse: in exchange for a modest, capped return, your risk is almost nil.

CDs are virtually risk-free in two ways. First, they carry an explicit, unmovable interest rate. You know before depositing funds what rate the bank or credit union has agreed to pay you, and for what period of time you’re both committed.

The only exceptions are CDs with names like “raise your rate”. These special certificates allow you to improve your rate during the CD’s term, at your direction. But they don’t include any reciprocal option for the financial institution to do the rate changing.

But what if the bank with your CD goes under? Even here, you’re almost always protected. The vast majority of banks are FDIC-insured, as are most credit unions, with NCUA insurance. These two federal programs provide an important safety net to consumers, keeping them whole even in the case of a bank failure.

Deposit insurance covers up to $250,000 held by one individual at a single bank. So if you have more than that in deposit accounts, you’ll want to spread it out across multiple institutions.

A bank failure does present the only real risk of a CD, since you’ll likely be offered the choice of cashing out your CD, or continuing at an almost certainly lower rate. Your risk, therefore, is only the possible loss of earning the CD’s advertised rate for the full term.

An infinitesimal number of banks fail these days, so for savers wanting to invest some of their funds in stable, fixed-return vehicles, there is hardly a safer option than CDs.

Annual snapshot shows homebuyers are older and moving further

By Sabrina Karl

Each November, the National Association of Realtors releases research findings on the past year’s homebuyers and sellers, and given the pandemic and its various ripple effects, NAR’s annual report has been turning up interesting trend changes the past two years.

The latest installment shows that average homebuyer age is going up, which can be attributed in two ways to more difficult home affordability as prices have increased. For one, a smaller share of first-time buyers purchased last year. In the 2021 findings, 34% of homebuyers were first-timers, but in 2022 that share is down to just 26%. It’s the lowest proportion of first-time buyers in the survey’s 41-year history.

In addition, pricier homes means required down payments are higher, which often translates into people needing more time to save. This year, the average age of first-time buyers was 36 and of repeat buyers, 59. Both represent a jump of three years from last year.

The 2022 findings also spotlighted a significant change in how far individuals are moving when they buy a home. From 2018 through 2021, the median distance between the home bought and the home moved from was 15 miles. But the latest data show that distance more than tripling, to 50 miles.

Further, more buyers are purchasing in small towns and rural areas than before. The share of homes purchased in small towns was 29% and in rural areas, 19%. Both are all-time surveyhighs.

Also interesting is that this year’s homebuyers expect to live in their new home 15 years compared to last year’s lower expectation of 12 years, and 28% say they will never move, compared to just 18% last year.

NAR’s “2022 Profile of Home Buyers and Sellers” is based on survey findings from those purchasing a home between July 2021 and June 2022.

How to protect your bank account from loan scammers

By Sabrina Karl

Fraudsters have honed numerous ways to separate you from your money, from outright theft of your personal information to sneaky ways of getting you to divulge it voluntarily. Since one of their deceptive tricks is posing as a loan provider, look for these signs of a legitimate lender if you’re looking to borrow money.

The Federal Trade Commission enforces numerous regulations on lending operations, including requiring all lenders to register in states where they do business. So one of the first things you can verify is whether the lender is registered in your own state.

The FTC also prohibits soliciting loans by telephone. So a marketing call for loan products is a strong tip-off that you’re dealing with a loan scammer. Also beware of offers mailed to you or pitched at your front door.

Legitimate lenders are keenly interested in your credit history when determining whether to approve your loan. So watch out for anyone touting guaranteed approval. Also beware if the lender never discloses that they’ll be pulling your credit report.

Another red flag of loan scammers is requiring you to pay application fees by providing them a prepaid debit card, a gift card, or a wire transfer. Although legitimate lenders are likely to charge fees, they typically add them to your loan balance rather than require upfront payment.

Lastly, any pressure to act very quickly before the offer expires is reason to pause. Legitimate loans may indeed have limited windows, but they will be sufficiently long to allow you to weigh options and make a careful choice.

A primary goal of loan scammers is extracting your bank account and social security numbers. So if you notice any of the warning signs above, be sure to keep your information private and move onto a lender you can verify.

Is it a good time or a bad time to open a CD?

By Sabrina Karl

Anyone watching the news knows that the Federal Reserve has raised interest rates dramatically this year. And though no one can perfectly predict future Fed moves, it’s widely expected more hikes are coming.

For those with cash savings, this raising rate environment is certainly good news. For the first time in many years, savers can earn 3% to 4% with the best-paying savings accounts and certificates of deposit.

But since rates will likely go higher still, the case for opening a CD right now is tricky. Locking in a great rate for years to come (when the future is always uncertain) is tempting. The trade-off, of course, is potentially missing out on a higher rate later.

Fortunately, there are smart strategies in this situation. For one, consider short-term CDs now. Certificates of 3- and 6-month terms are obvious choices, but also consider stretching to 12 months, where you’ll be able to earn a higher APY. Then when rates stabilize, you can move your money to higher-rate, longer-term CDs.

It’s also wise to instead consider a high-yield savings account. The best of these accounts are paying upwards of 3% (and typically pay more than the best 3-month CDs). Because your funds will remain completely accessible, you can withdraw at any time to lock into a CD when the time is right.

Another option is a special certificate where you can enjoy one rate increase without cashing in the CD. Typically called a “step-up” or “raise your rate” certificate, these products let you choose one time in your CD’s term to upgrade to the current rate.

Of course, your decision will depend on your personal financial situation and timeline for your funds. There are many different ways to strike a balance between securing a good thing and keeping your options open.

Why you should start a Roth IRA for your child

By Sabrina Karl

Though it’s familiar advice to start early on retirement savings, not everyone realizes that, with your help, your minor child can get an exceptionally early start.

Roth IRAs are funded with dollars that have already been taxed, so they’re able to be withdrawn tax-free later. This makes them excellent vehicles for those currently in a low tax bracket who expect to be in a higher bracket in the future.

Few individuals fit this description better than a child with earned income from a job, because they likely make too little to incur any federal tax at all (in 2022, anyone making less than $12,950 is exempt from income tax). That allows them to avoid taxes at both ends of the Roth, contribution and withdrawal.

There is no minimum age required for a Roth IRA, but the individual does need to have earned income from employed work. It does not include unearned income from interest, dividends, or capital gains.

In 2022, children and adults alike can contribute up to $6,000 to an IRA, with the contribution limited to one’s earned income. So if a child makes, say, $2,500 in a year, they are allowed to contribute up to $2,500 to an IRA.

No one under 18 can open an IRA alone, so you or another adult will need to serve as custodian. In addition, anyone can make the funding contributions to the account.

Though Roth funds can be withdrawn at age 59½ for any reason without tax or penalty, your child can withdraw the amount of the contributions (not growth) without tax or penalty at any point after the account has been open for five years.

Of course, leaving the funds invested for decades is the ideal financial move. But if your child needs to withdraw sooner, some options exist.