August 10, 2020Posted By: growth-rapidly Tag: Banking
Bank of America, like most banks, offer several bonuses, either from their credit cards, checking or savings accounts. These deals can be either cash rewards, bonus points, etc. For example, open this credit card then you get a $200 cash rewards bonus. In the past, if you refer a friend, Bank of America would pay you $50 referral bonus. But Bank of America has discontinued the referral bonus when you refer a friend.
CIT Savings Builder – Earn 0.85% APY. Here’s how it works: Make at least a $100 minimum deposit every month. Or Maintain a minimum balance of $25k. Member FDIC. Click Here to Learn More.
Bank of America “refer a friend & cash rewards” bonus program
While Bank of America does not have a cash reward bonus when you refer a friend, there are cash rewards when you yourself get approved for a particular credit card.
Cash Rewards Credit Card:
Receive $200 cash rewards bonus after you make $1,000 in purchases in the first 90 days. Also, you get to choose how to collect your rewards.
Plus, earn 3% cash back when you shop for: gas, online shopping, drug stores, home improvements, dining or travel.
Get 2% cash back at grocery stores and wholesale clubs.
Earn unlimited 1% cash back on all other purchases.
No annual fee. Go to Bank of America’s homepage to take advantage of this credit card referral bonus.
Travel Rewards Credit Card
Earn 25,000 online bonus points when you make at least $1,000 in purchases in the first 90 days. You can redeem it for a $250 credit toward your travel purchases.
Earn unlimited 1.5 bonus points for every $1 spent on all purchases.
Bank of America Premium Rewards Credit Card.
Again Bank of America offers no referral bonus when you refer a friend, but this credit card has great deals and promotions.
50,000 bonus points after you make at least $3,000 in purchases in the first 90 days of account opening.
Earn 2 points for every 1$ spent on travel and dining purchases and 1.5 points for every $1 spent on all other purchases.
Get $200 in travel statement credit.
Make sure you take a look at other Bank of America Promotions.
In conclusion, if you’re looking for a cash reward deal when you refer a friend to Bank of America, you will not find any at this time. But there are several credit cards with great cash rewards. For more cash back deals, rewards or future referral bonus programs and promotions, check Bank of America’s deals here. The site guarantees no coupons or promo codes. You just activate your deals and go.
Here are other popular Bank promotions deals!
Speak with the Right Financial Advisor
If you have questions about your finances, you can talk to a financial advisor who can review your finances and help you reach your goals (whether it is making more money, paying off debt, investing, buying a house, planning for retirement, saving, etc). Find one who meets your needs with SmartAsset’s free financial advisor matching service. You answer a few questions and they match you with up to three financial advisors in your area. So, if you want help developing a plan to reach your financial goals, get started now.
How to make smart financial decisions in a low interest rate environment.*
The Federal Reserve, a.k.a. the Fed, was in the news for more than a decade for raising the federal funds rate. But the headlines have changed. In July 2019 the Fed finally cut its benchmark interest rate. The Fed raises or lowers the federal funds rate to influence the direction of the U.S. economy toward strong employment and stable inflation.
Alright, this may all seem pretty high level. It’s just a bunch of news for policymakers, economists and investors playing the market. Right? Not so fast. While it may sound like a fancy finance term, the federal funds rate is the interest rate banks charge each other to lend funds overnight. When that rate goes down (or up), the effects trickle down to you and the financial products you use every day—think credit cards, loans and savings accounts.
Even if you don’t typically follow financial headlines, understanding what happens when the Fed lowers rates can help you make smart financial decisions when it comes to borrowing, saving and spending. Read on to answer the question: What does a Fed rate cut mean for my finances?
What goes up and what comes down when the Fed cuts rates
What happens when the Fed lowers rates? One of the Fed’s goals with a rate cut is to make borrowing less costly. Translation: You could see lower interest rates on credit.
Economist and podcast host John Norris says that a Fed rate cut could actually be helpful to the average consumer. “If history serves as a guide, the prime rate will fall by the same amount as the Fed’s actions,” Norris says. “This means credit cards and home equity lines of credit (HELOCs) will be a little cheaper for consumers moving forward.” The prime rate, which is based on the federal funds rate, is the interest rate lenders charge their most creditworthy customers.
Broken down simply, here’s how a lower Fed rate impacts you and the various types of credit you may already have or be considering:
Credit cards: “Credit cards are almost exclusively variable APR,” says Greg Mahnken, analyst at Credit Card Insider. “This means that as the prime rate goes up and down, the interest rate of the card will fluctuate as well. Your card issuer must tell you the margin rate—that’s the margin added to the prime rate to get your credit card’s APR,” Mahnken explains. If you’re wondering how a lower Fed rate impacts you and your cards, you could be charged less to carry a balance and may see smaller minimum payments.
Mortgages: What happens when the Fed lowers rates? For mortgages, it depends on the type of loan. The rate could drop on adjustable-rate mortgages, for example, meaning a reduced monthly payment. How a lower Fed rate impacts you could be different for a fixed-rate mortgage. This type of mortgage may not be as directly impacted by a Fed rate cut and is influenced by other factors.
Home equity lines of credit: If you have a HELOC or are in the market for one for home repairs, you could see a rate decrease following a Fed rate cut, lowering monthly payments.
Other loans: If you’re wondering how a lower Fed rate impacts you, know that it could influence lower rates on auto loans for car owners, but factors including industry sales and financing offers also come into play. If you have a private student loan and a regular payment schedule, you could see a lower monthly payment.
Now, what does a Fed rate cut mean for my finances when it comes to saving? Savers could see interest rates decline on deposit accounts like savings accounts, money market accounts and certificates of deposit (CDs). A lower interest rate here means you’ll earn less in interest on your savings balances.
“Banks make money by making a spread between what they pay for deposits and what they charge on loans,” Norris says. “When what they can charge on a loan goes down, it makes sense what they pay on deposits will eventually do so as well.”
How to manage a rate cut as a borrower, saver and spender
What does a Fed rate cut mean for my finances is only half of the puzzle. The other half is determining how to manage your finances in a lower rate environment so you can achieve your financial goals. Follow these tips when you consider how a lower Fed rate impacts you for borrowing, saving and spending:
If you’re borrowing:
Look for lower rates on new credit cards: “Credit card users should always be on the lookout for lower variable rate formulas, and a rate cut or two is a perfect time to do a little homework when looking for new cards,” Norris says.
Ask for lower rates on existing credit cards: When you’re learning what happens when the Fed lowers rates, consider that negotiating better rates on borrowed money could be easier in a lower interest rate environment. For example, you can check with your credit card issuers to see if you can get a lower interest rate on the credit cards you have already.
Refinance high-interest debt: “If your issuer/lender won’t lower your interest rate despite a cut to the Fed/prime rate, look into refinancing or consolidating your debt with a lower-interest loan,” Mahnken says.
If you’re saving:
Find a competitive savings account rate: Even though lower rates on savings is often what happens when the Fed lowers rates, banks could still offer competitive savings rates. For instance, online banks can often pass savings on in the form of higher interest rates on their deposit accounts because they save money by not maintaining brick-and-mortar locations. Discover, for instance, offers a high-yield savings account with an interest rate over 5x the National Savings Average.1 So while rates may go down on average, you can possibly earn a higher interest rate on your savings than you had in the past with a high-yield account.
You earned it. Now earn more with it.
Online savings with no minimum balance.
Start Saving
Online Savings
Discover Bank, Member FDIC
Lock in a higher fixed rate: If you anticipate more Fed rate cuts in the future, then explore savings vehicles with a rate that you can lock in. With a fixed-rate certificate of deposit, for example, the CD rate is fixed for the entire term. If you open a 5-year CD, your savings will continue to earn the same interest rate despite rate cuts. Note that CDs often come with an early withdrawal penalty if you withdraw your funds before the end of the account’s term, so they’re best used for savings you won’t need to touch for a set period of time.
If you’re spending:
Decide to buy, but do it wisely: Since one answer to “What does a Fed rate cut mean for my finances?” is that borrowing costs less, it could make sense to go ahead with that large purchase you’ve been planning for ages. “When it comes to spending, lower interest rates can encourage bigger purchases, such as home improvements, cars and homes,” Mahnken says. “But before making a big-ticket purchase, make sure you have a budget so you can see how the purchase will affect your monthly cash flow.”
Pursue a passion that requires capital: If you can get access to borrowed money at lower rates, some of your personal goals that require credit could be more achievable. Maybe you’ve been preparing to start a business endeavor or pursue higher education to advance your career. Now could be the time to set things in motion.
Fed rate cut or not, there’s always room for financial improvement
Even if financial news isn’t your thing, paying attention to trends like a Fed rate cut (or hike) can help you manage your money most effectively. Despite the interest rate climate, though, it’s still important to remain disciplined in your financial strategy. This includes setting financial goals, creating a plan to reach them and educating yourself on tools and methods that can help you in the process. Whether interest rates are low or high, you’ll always win with this approach.
* This should not be considered tax or investment advice. Please consult a financial or tax advisor if you have questions.
1 The Annual Percentage Yield (APY) for the Online Savings Account as of 02/01/2021 is more than five times the national average APY for interest-bearing savings accounts with balances of $500 as reported by Informa Research Services, Inc. as of 02/01/2021. Interest rates and APYs are subject to change at any time. Although the information provided by Informa Research Services has been obtained from the various institutions, accuracy cannot be guaranteed.
A certificate of deposit, more commonly known as a CD, is a special type of savings account. You deposit your money into the account and agree not to make any withdrawals for a certain period of time. At the end of that time, you get your money plus whatever was earned in interest back.
Want to know more? We’ve got you covered. We’ll dig into traditional CDs, including what they are, how they work and whether they’re right for you.
Just How Do CDs Work?
A traditional CD is essentially a time-bound deposit. In exchange for earning interest, you enter into an agreement that lets the bank use your money for a fixed time. The bank rewards you by paying you a higher interest rate than it does for a regular savings account or money market account. This works for the bank because they can use your money to earn more money—such as by extending other customer’s long-term loans.
When opening a CD, you choose how long you want to give your money to the bank. This is known as the term length. Common term lengths for traditional CDs include 6, 12, 18, 24 and 30 months and 3, 4, 5 and 6 years. Some banks and credit unions also offer a custom term length.
What Is a Traditional CD?
A traditional CD can also be called time deposits, fixed deposits or term deposits. Unlike a traditional savings account that lets you withdraw money anytime, a CD has a fixed term and:
Requires a minimum deposit amount that is higher than a savings account
Allows you to withdraw money at the end of the term—earlier withdrawals can be made only by paying a penalty
Don’t let you add money after your initial deposit
By opening the CD, you agree to leave your one-time deposit in the account for a fixed amount of time. In an emergency, you can withdraw funds early, but you’ll have to pay an early withdrawal penalty. In exchange for agreeing to a set term length, you get a fixed interest rate, typically one that is higher than a traditional savings account. Generally, the longer the term length, the higher the interest rate.
Like traditional savings accounts and money market accounts, traditional CDs opened at a bank or credit union are protected by the Federal Deposit Insurance Corporation (FDIC)or National Credit Union Administration (NCUA) for up to $250,000 per person. Many analysts consider CDs to be one of the safest forms of investment offers. They also pay higher interest rates than money market accounts and savings accounts, making a CD a more lucrative low-risk option for investors.
Considerations Before You Open a CD
You might think that opening a CD with the longest term is a good idea. But having a very long term may not be the best thing to do. For example, you may need your money before the time period is up. If you choose to remove your money before that happens, you can be penalized by the bank or credit union. Here are some other things to consider before opening a CD:
Do CDs pay interest monthly? The interest rate on a CD is the annual percentage yield (APY). This is how much interest you will earn after a year. However, many banks compound interest on CDs monthly. Some CDs allow you to choose to take the monthly interest earned out. Others let you cash out the CD only at the end of the term length.
Can you lose money in a CD? No, you can’t lose money on a CD as long as it insured, which is one reason they can be attractive investments. FDIC and NCUA coverage is limited to $250,000 per person, per bank, per account category. So, if you have multiple CDs at the same bank or credit union, the total of all CDs is only insured up to $250,000. As long as you’re under that, you’re guaranteed to get your money back if your bank or credit union goes under for any reason.
How much interest will I earn on a CD? The amount of interest you earn on a CD varies depending on how long the term is, the amount you deposit and the APY. In general, longer terms, higher interest rates and larger deposits will net you more interest gains.
So, are CDs worth it? The bottom line is that, before you invest in a CD, you need to make sure you’re confident that you won’t need the money before the maturity date or that you’re comfortable paying a penalty if you need the money earlier. If you’re not sure, consider choosing a high-yield savings account or money market instead.
When Your CD Matures
When your CD reaches the end of its term, it matures. Toward the end of your term, your bank will inform you about its impending maturity and present you with options, including taking your money and walking away or renewing for another term length. Sometimes, if you don’t withdraw your money, the bank will automatically reinvest your balance into another CD with the same term length as the first.
How to Open a CD
Opening a CD is relatively easy. You can apply online or go in person to your bank or credit union. When researching online options or talking to your bank, ask questions, know your investment rationale and find out about withdrawal penalties and possible alternative products.
CD Options
Longer CD term lengths can be more attractive than shorter term lengths. If you purchase a CD when interest rates are low though, you end up with a lower APY for the rest of your term. A shorter term length may actually let you renew for a higher APY.
A CD ladder—or CD laddering—is a common CD tactic used to help maximize returns on CDs. Laddering is using multiple longer-term CDs opened at different times and/or for different term lengths. This disbursement strategy gives you access to money at various times and rates. You avoid being locked into any single term, interest rate or maturation date. And you can reap the benefits of a CD without needing to risk paying penalties if you need money early.
CDs and Your Credit
A CD won’t impact your credit one way or another, but a bank or credit union may make a hard pull or a soft pull of your credit when you apply for a CD. Most only do a soft pull, but it won’t hurt to ask before you apply if a hard pull is a concern.
CDs won’t help you build your credit history. However, some banks offer a CD secured loan if you open a CD. This is a loan that uses your CD deposit as collateral. If you default on your loan payments, your CD will be taken to pay the loan. Making timely payments on the loan can help you build your credit as long as your bank or credit union reports your payments to all three credit bureaus.
To learn more about investment options or find the details on popular savings accounts, check out Credit.com’s personal finance resources.
Preparing for the New Year can always be a challenge. After all, most of us are trying to figure out how to make sure we do it better than we did this year. And with the pandemic going on this year, next year is certainly no exception! Because of COVID-19, a lot of us took some pretty big financial hits this year. I don’t know about you, but we want to make sure that we do everything in our power to secure our financial success next year so it won’t be as painful. Therefore, we wanted to give you a good guide to help you prepare your finances for the New Year and help ensure your future financial success.
Go Over Your Budget
The first step to really determining your future financial success is to go over what happened this year. And, the best way to do that is to go over your budget. If you had one, that is! If you didn’t, this step might be a bit more time consuming. But it can be done!
I prefer good, old fashioned Excel spreadsheets, personally. But, my spouse is more of a visual, hands on kind of guy. So, something more physical, like this budget planner, is a great idea for anyone like him. No matter how you choose to create your budget, just make sure it is something that will work well with your personality.
I plan to take a good, hard look at everything we have spent in the following categories:
Auto
Food
Beverages (including alcohol)
Household
Clothing
Gifts
Luxury
Since our regular household bills remain the same, those are already accounted for into our regular monthly budget. Therefore, this list is a good place for you to start a dissection of where this year’s money went. And if too much of it has flowed out of your hands and into the wrong category this year, now is the time to recognize it. This way you can get a better grasp on your cash flow for next year well ahead of time.
This is also the time to revisit exactly how much money you have allotted into each category. If a category amount needs to be shifted, or reduced, this is the time to do it. I know that we are changing our overall monthly budget to reduce our spending by 25%. That means we will have to change how much money we have budgeted into some of the “want” categories.
But, if we know this ahead of time, it will be easier for us to handle making less income next year. So prepare your finances now by starting with your budget, in case this pandemic continues through the whole of 2021.
Emergency Fund Needs
Another huge category to reflect on, and potentially change, is your emergency fund. There are still so many people I know personally that don’t have an emergency fund that it makes my head spin. Especially in this day and age when so many people are losing their jobs left and right. It seems completely inconceivable to me to not have an emergency fund of some sort.
So, if you are one of the many people who fall into this category, prepare your finances by getting your emergency fund started. No matter how much money you have at your disposal, you should start putting something into it. And if you aren’t sure where to start, I would suggest opening a high yield savings account so that you have the chance to earn a little bit more interest on your money.
Even though the rates aren’t nearly as high on any of these high yield savings accounts as they were a year ago, it’s still better than nothing. For us, the goal is to keep at least 6 months of monthly expenses in our emergency fund. But, ultimately, we would like to bump it up to a full year in reserves, just to feel more comfortable.
If you need something that makes it even easier to put money into an emergency fund, then something like Digit may be right up your alley. You can connect your checking account and credit cards to your Digit savings account. Any time you spend money from your connected accounts, Digit will round-up the difference and put it into your savings account. Or you can choose to manually move money over into your savings account at any time also. Either way, the money will come out of your checking account. So just make sure that you have the available funds needed in order to make move to your savings account ahead of time. This is a tool that I used years ago which made it much less painful for me to slowly save money.
Investment Strategy
Next, but certainly just as important, is to revisit your investments when you prepare your finances for the New Year. If you have any investments to begin with, that is. Of course, you want to make sure you have a fully stocked emergency fund first. But, investing now is also a great idea since the market has been down for the majority of the year. And investing now in your future, can only help boost your overall financial success. Plus, it can help you reach retirement earlier too. Which is a huge bonus!
If you don’t have a lot of discretionary income to work with, then there are still plenty of ways you can invest with little money. We have a few different accounts that we use that has helped us diversify our investing.
Acorns is one of my favorite investing tools because it doesn’t cost anything to get started. And you can invest how much or little you want to a month. There is a $1 monthly fee for the type of account we use. They have a round-up’s feature that also adds in a multiplier, so we’ve been able to invest a lot more than we ever thought we could.
Another one of my favorite robo-advisors is Betterment. They ask for a bit more information about you and your projected retirement date in order to put you in a better targeted fund. Which I happen to be a fan of. And their fees are exceptionally low, which was the main reason I began investing with them in the first place.
One more great option, that you can give or get as a gift also, is Stockpile. With Stockpile, you get to use gift cards to purchase individual stocks for as low as $1.99. Which is pretty darn awesome!
Review Life Insurance
A big financial decision that a lot of us don’t think about it revisiting our life insurance. I know that it isn’t something I have done in quite a few years. But, just earlier this year we decided to take another look at our life insurance policies to see if any changes needed to be made. And it was a good thing we did because the rates are a lot lower right now for life insurance policies than they were even 2 years ago.
If you don’t have a policy yet, a good place to start is with Bestow. Their rates are exceptionally low and you can get an instant quote just by filling out some information online. They offer 10 – 20 year policies up to $1 million, which gives you a lot of flexibility with your choices.
And by getting life insurance now, you will only be helping to secure the financial health of your family should something happen to you. Seeing as we are in the middle of a pandemic, you just never know these days. And it is certainly much better to be safe than sorry!
These are some great tips to prepare your finances for the New Year! Click To Tweet
Prepare Your Finances For The New Year Summary
Ultimately, there are quite a few things you can do to help secure your financial stability for the New Year. And preparing your finances by revisiting and tweaking your budget is a good first step. After that, revisit your emergency fund or start one if you don’t have one yet. Do your best to come up with a reasonable plan to get it fully funded as soon as possible. The next step is to take a look at your investments, or start investing if you haven’t yet. There are a lot of great tools to help you get started. And lastly, take a look at your life insurance policy, or take one out if you don’t currently have one.
By following all of these steps, you and your family will be well on your way to much more financial security next year. Even if we are still in the middle of a pandemic.
What are the steps you have taken to prepare your finances for the New Year and create financial stability for your family?
One of the most common questions I receive from readers like you—especially since Grow (Acorns + CNBC) published my story last week—asks me how I invest.
All this theoretical investing information is fine, Jesse. But can you please just tell me what you do with your money.
That’s what I’ll do today. Here’s a complete breakdown of how I invest, how the numbers line up, and why I make the choices I make.
Disclaimer
Of course, please take my advice with a grain of salt. Why?
My strategy is based upon my financial situation. It is not intended to be prescriptive of your financial situation.
I’ve hesitated writing this before because it feels one step removed from “How I Vote” and “How I Pray.” It’s personal. I don’t want to lead you down a path that’s wrong for you. And I don’t want to “show off” my own choices.
I’m an engineer and a writer, not a Wall Street professional. And even if I was a Wall Street pro, I hope my prior articles on stock picking and luck vs. skill in the stock market have convinced you that they aren’t as skilled as you might think.
All I can promise you today is transparency. I’ll be clear with you. I’ll answer any follow-up questions you have. And then you can decide for yourself what to do with that information.
Are we clear? Let’s get to the good stuff.
How I Invest, and In What Accounts…?
In this section, I’ll detail how much I save for investing. Then the next two sections will describe why I use the investing accounts I use (e.g. 401(k), Roth IRA) and which investment choices I make (e.g. stocks, bonds).
How much I save, and in what accounts:
401(k)—The U.S. government has placed a limit of $19,500 on employee-deferred contributions in 2020 (for my age group). I aim to hit the full $19,500 limit.
401(k) matching—My employer will match 100% of my 401(k) contributions until they’ve contributed 6% of my total salary. For the sake of round numbers, that equates to about $6,000.
Roth IRA—The U.S. government has placed a limit of $6,000 on Roth IRA contributions (for my earnings range) in 2020. I am aiming to hit the full $6,000 limit.
Health Savings Account—The U.S. government gives tremendous tax benefits for saving in Health Savings Accounts. And if you don’t use that money for medical reasons, you can use it like an investment account later in life. I aim to hit the full $3,500 limit in 2020.
Taxable brokerage account—After I achieved my emergency fund goal (about 6 months’ of living expenses saved in a high-yield savings account), I started putting some extra money towards my taxable brokerage account. My goal is to set aside about $500 per month in that brokerage account.
That’s $41,000 of investing per year. But a lot of that money is actually “free.” I’ll explain that below.
Why Those Accounts?
The 401(k) Account
First, let’s talk about why and how I invest using a 401(k) account. There are three huge reasons.
First, I pay less tax—and so can you. Based on federal tax brackets and state tax brackets, my marginal tax rate is about 30%. For each additional dollar I earn, about 30 cents go directly to various government bodies. But by contributing to my 401(k), I get to save those dollars before taxes are removed. So I save about 30% of $19,500 = $5,850 off my tax bill.
Editor’s Note: The original version of this article incorrectly stated that 401(k) contributions are taken out prior to OASDI (a.k.a. social security) taxes. That claim was incorrect. 401(k) contributions occur only after OASDI taxes are assessed.
Many thanks to regular reader Nick for catching that error.
Second, the 401(k) contributions are removed before I ever see them. I’m never tempted to spend that money because I never see it in my bank account. This simple psychological trick makes saving easy to adhere to.
Third, I get 401(k) matching. This is free money from my employer. As I mentioned above, this equates to about $6,000 of free money for me.
Roth Individual Retirement Account (IRA)
Why do I also use a Roth IRA?
Unlike a 401(k), a Roth IRA is funded using post-tax dollars. I’ve already paid my 30% plus OASDI taxes, and then I put money into my Roth. But the Roth money grows tax-free.
Let’s fast-forward 30 years to when I want to access those Roth IRA savings and profits. I won’t pay any income tax (~30%) on any dividends. I won’t pay capital gains tax (~15%) if I sell the investments at a profit.
I’m hoping my 30-year investment might grow by 8x (that’s based on historical market returns). That would grow this year’s $6000 contribution up to $48000—or about $42000 in profit. And what’s ~15% of $42000? About $6,300 in future tax savings.
Health Savings Account (H.S.A.)
The H.S.A. account has tax-breaks on the front (36.7%, for me) and on the back (15%, for me). I’m netting about $1300 up-front via an H.S.A, and $4,200 in the future (similar logic to the Roth IRA).
Taxable Brokerage Account
And finally, there’s the brokerage account, or taxable account. This is a “normal” investing account (mine is with Fidelity). There are no tax incentives, no matching funds from my employer. I pay normal taxes up front, and I’ll pay taxes on all the profits way out in the future. But I’d rather have money grow and be taxed than not grow at all.
Summary of How I Invest—Money Invested = Money Saved
In summary, I use 401(k) plus employer matching, Roth IRA, and H.S.A. accounts to save:
About $7,100 in tax dollars today
About $6,000 of free money today
And about $10,500 in future tax dollars, using reasonable investment growth assumptions
Don’t forget, I still get to access the investing principal of $41,000 and whatever returns those investments produce! That’s on top of the roughly $25,000 of savings mentioned above.
I choose to invest a lot today because I know it saves me money both today and tomorrow. That’s a high-level thought-process behind how I invest.
How I Invest: Which Investment Choices Do I Make?
We’ve now discussed 401(k) accounts, Roth IRAs, H.S.A. accounts, and taxable brokerage accounts. These accounts differ in their tax rules and withdrawal rules.
But within any of these accounts, one usually has different choices of investment assets. Typical assets include:
Stocks, like shares of Apple or General Electric.
Bonds, which are where someone else borrows your money and you earn interest on their debt. Common bonds give you access to Federal debt, state or municipality debt, or corporate debt.
Real estate, typically via real estate investment trusts (REITs)
Commodities, like gold, beef, oil or orange juice
Here are the asset choices that I have access to in my various accounts:
401(k)—my employer works with Fidelity to provide me with about 20 different mutual funds and index funds to invest in.
Roth IRA—this account is something that I set up. I can invest in just about anything I want to. Individual stocks, index funds, pork belly futures etc.
H.S.A.—this is through my employer, too. As such, I have limited options. But thankfully I have low-cost index fund options.
Taxable brokerage account—I set this account up. As such, I can invest in just about any asset I want to.
My Choice—Diversity2
How I invest and my personal choices involve two layers of diversification. A diverse investing portfolio aims to decrease risk while maintaining long-term investing profits.
The first level of diversification is that I utilize index funds. Regular readers will be intimately familiar with my feelings for index funds (here 28 unique articles where I’ve mentioned them).
By nature, an index fund reduces the investor’s exposure to “too many eggs in one basket.” For example, my S&P 500 index fund invests in all S&P 500 companies, whether they have been performing well or not. One stellar or terrible company won’t have a drastic impact on my portfolio.
But, investing only in an S&P 500 index fund still carries risk. Namely, it’s the risk that that S&P 500 is full of “large” companies’ stocks—and history has proven that “large” companies tend to rise and fall together. They’re correlated to one another. That’s not diverse!
Lazy Portfolio
To battle this anti-diversity, how I invest is to choose a few different index funds. Specifically, my investments are split between:
Large U.S. stock index fund—about 40% of my portfolio
Mid and small U.S. stock index fund—about 20% of my portfolio
Bond index fund—about 20%
International stocks fund—about 20%
This is my “lazy portfolio.” I spread my money around four different asset class index funds, and let the economy take care of the rest.
Each year will likely see some asset classes doing great. Others doing poorly. Overall, the goal is to create a steady net increase.
An asset class “quilt” chart from 2010-2019, showing how various asset classes perform each year.
Twice a year, I “re-balance” my portfolio. I adjust my assets’ percentages back to 40/20/20/20. This negates the potential for one “egg” in my basket growing too large. Re-balancing also acts as a natural mechanism to “sell high” and “buy low,” since I sell some of my “hottest” asset classes in order to purchase some of the “coldest” asset classes.
Any Other Investments?
In June 2019, I wrote a quick piece with some thoughts on cryptocurrency. As I stated then, I hold about $1000 worth of cryptocurrency, as a holdover from some—ahem—experimentation in 2016. I don’t include this in my long-term investing plans.
I am paying off a mortgage on my house. But I don’t consider my house to be an investment. I didn’t buy it to make money and won’t sell it in order to retire.
On the side, I own about $2000 worth of collectible cards. I am not planning my retirement around this. I do not include it in my portfolio. In my opinion, it’s like owning a classic car, old coins, or stamps. It’s fun. I like it. And if I can sell them in the future for profit, that’s just gravy on top.
Enter full nerd mode!
Summary of How I Invest
Let’s summarize some of the numbers from above.
Each year, I aim to save and invest about $41,000. But of that $41K, about $15K is completely free—that’s due to tax benefits and employer matching. And using reasonable investment growth, I think these investments can save me $15,000 per year in future tax dollars.
Plus, I eventually get access to the $41K itself and any investment profits that accrue.
I take that money and invest in index funds, via the following allocations:
40% into a large-cap U.S. stock index fund
20% into a medium- and small-cap U.S. stock index fund
20% into an international stock index fund
And 20% into a bond index fund
The goal is to achieve long-term growth while spreading my eggs across a few different baskets.
And that’s it! That’s how I invest. If you have any questions, please leave a comment below or drop me an email.
If you enjoyed this article and want to read more, I’d suggest checking out my Archive or Subscribing to get future articles emailed to your inbox.
This article—just like every other—is supported by readers like you.
Share This Post:
Tagged 401(k), how i invest, hsa, index fund, roth ira
CIT Bank CD rates are competitive compared to other Banks’ CDs.
For instance, a 6-month CIT Bank CD has a rate of 0.50%, which is way higher than the national average rate of 0.25%.
How much you will earn depends on the length of the term.
But one thing for sure is that the longer the term of the CD (certificate of deposit), the more money you will make.
CIT Bank offers CD terms ranging from 6 months to 5 years. The 5-year term CD has an applicable yield of 1.05%.
The minimum investment requirement is $1,000. But their jumbo CD’s deposit requirement is way much higher, $100,000.
CIT bank also offers a no-penalty 11-month CD (more on this later).
Click here to open a CD with CIT Bank.
See below a table of CIT Bank CD Rates that are available to you:
CIT Bank Term CD
Minimum Deposit
APY/Rate
6 Month
$1,000
0.50%
11-Month
$1,000
0.75%
1 Year
$1,000
0.75%
13 Month
$1,000
0.75%
18 Month
$1,000
0.75%
2 Year
$1,000
1.00%
3 year
$1,000
1.00%
4 year
$1,000
1.05%
5 Year
$1,000
$1.05%
All CIT bank CDs are FDIC insured up to $250,000.
CIT Bank CD Rates: an overview
CIT Bank CD rates are very impressive out there.
When compared to other CDs, such as Vanguard CDs, they compete at a similar or even better level.
CIT bank CDs, as all certificate of deposits, produce a higher rate than savings accounts, money market funds, etc.
But not as much as a short-term bond.
The minimum deposit for CIT Bank’s standard CDs is very reasonable, $1,000.
The bank’s Jumbo CDs, while produce a higher rate than a standard CD, has a much higher minimum of $1,000 (more on this below).
What is a certificate of deposit (CD)?
CDs are certificates that banks or credit unions sell to you.
Banks issue them to you for a specific dollar amount for a specific length of time.
The time period could be anywhere from 1, 6, 12 or 24 months to several years.
The bank pays you some interest. You get your full principal back plus interest you earn once the CD matures or “comes due.”
If you want your money back before it matures, you can withdraw it.
But you will get hit with a penalty for early withdrawal. But some banks like CIT Bank, that offer CDs with no penalty.
CDs are very safe, because they are FDIC insured for up to $250,000.
See: Grow Your Money: Mutual Funds, Index Funds & CDs
Are CIT Bank CDs the right choice for you?
CDs is one of the best short-term investments you can have. Given that their rates are very impressive, CIT Bank CDs may be right for you.
Therefore, you should consider investing in them:
You don’t tend to tap into your money at any moment.
You’re saving money for a down payment to buy a house in the near future.
You want an investment that provides a higher yield than a regular savings account, money market fund.
You’re looking for a safe and low-risk place for your hard-earned money.
What are the CIT Bank CD rates?
CIT Bank provides CDs ranging from 6 months to 5 years. The longer the term of the CD, the higher the interest rate.
For instance, CIT Bank’s 5-year term CD currently has a rate/APY of 1.05%.
CIT Bank 5-Year CD Rates
The applicable rate for a 5-Year CIT Bank CD is currently 1.05%. And it requires a minimum deposit of $1,000.
This is the longest CIT Bank CD term out there. And its interest rate exceeds most CD rates you’d get from banks.
Learn more about this product and apply on CIT Bank’s secure website
CIT Bank 4-Year CD Rates
This 4-year CIT Bank CD also requires a minimum deposit of $1,000.
This CD’s yield is the same as the CIT Bank 5-year CD. It is also higher than most bank CDs. The yield is currently is 1.05%.
CIT Bank 3-Year CD Rates
The applicable yield for a 3-Year CIT Bank CD is still very competitive. It’s 1.00% and requires a $1,000 deposit.
CIT Bank 2-Year CD Rates
The rate for a 2-Year CIT Bank CD is 1.00% and a minimum deposit of $1,000 is required.
CIT Bank 18-Month CD Rates
For an 18-Month CIT Bank CD, the yield is 0.75%. The minimum deposit is $1,000.
CIT Bank 13-Month CD Rates
For an 13-Month CIT Bank CD, the yield is 0.75%. The minimum deposit is $1,000.
CIT Bank 1-Year CD Rates
The yield for a 1-Year CIT bank CD is 0.75% and a minimum deposit of $1,000 is required.
CIT Bank 11-Month CD Rates
For an 11-Month CIT Bank CD, the yield is 0.75%. The minimum deposit is $1,000.
However, the CIT Bank 11-month CD is a no-penalty CD. That means CIT Bank will let you withdraw your money at any time without incurring a penalty.
This is good for those faced with an emergency situation and need quick and easy access to their money.
CIT Bank 6-Month CD Rates
Lastly, for a 6-Month CIT Bank CD, the yield is 0.50%. The minimum deposit is $1,000.
See: 6-Month CD Rates: Earn More Money
CIT Bank’s Jumbo CDs.
CIT Bank also offers Jumbo CDs. They offer a much better interest than CIT Bank’s standard CDs.
However, they require a much bigger minimum deposit. For example, you will need a minimum deposit of $100,000 to start with.
Here is a table of CIT Bank’s Jumbo CD rates:
CIT Bank Jumbo CD
Minimum Deposit
APY/Rate
2 Year
$100,000
1.00%
3 Year
$100,000
1.00%
4 Year
$100,000
1.05%
5 Year
$100,000
1.05%
How to open a CIT Bank account.
To get access to the best CIT Bank CD rates, you must be eligible to open an account.
To be eligible, you must be a US citizen or resident alien. You must be 18 years old or older, have a a US address, a social security number, a driver’s license or state issued ID.
You also need to have a bank checking account to transfer money to your CIT Bank account.
CIT Bank CDs Alternatives
If CIT Bank CDs do not do it for you, or you’re looking to get more interest on your money, then try to invest in the best Vanguard mutual funds out there.
That way your money is still safe and you get more return on your money.
Mutual funds are some of the best ways to invest your money.
One thing you should know, however, is that mutual funds invest in stocks and bonds.
These securities tend to be riskier. Therefore, you might lose some or most of your investment if the market goes down.
So, beginner investors wishing to invest in these mutual funds should also consider learning how the stock market works.
Bottom line
CIT bank CDs might be appropriate for you if you are not going to use the money for a certain period of time.
They can be a great choice if you are saving your money for a down payment to purchase a house in the next few years or so.
Indeed, CIT Bank CDs provides a better yield than bank savings accounts and money market funds. But the money is only available after the CD becomes due.
So, if access to your money at anytime is a priority, you’re better off save your money in a high yield savings account or the best Vanguard Mutual Funds.
Tips for Maximizing Your Savings
Open a Chase checking account. You will get a $200 bonus when you open a new Chase Total Checking account and set up a direct deposit. And it’s easy to find a Chase ATM just about anywhere. Get started Now.
If you have questions beyond CIT Bank CD rates, you can talk to a financial advisor who can review your finances and help you reach your goals. Find one who meets your needs with SmartAsset’s free financial advisor matching service. You answer a few questions and they match you with up to three financial advisors in your area. So, if you want help developing a plan to reach your financial goals, get started now.
One of the most common questions I receive from readers like you—especially since Grow (Acorns + CNBC) published my story last week—asks me how I invest.
All this theoretical investing information is fine, Jesse. But can you please just tell me what you do with your money.
That’s what I’ll do today. Here’s a complete breakdown of how I invest, how the numbers line up, and why I make the choices I make.
Disclaimer
Of course, please take my advice with a grain of salt. Why?
My strategy is based upon my financial situation. It is not intended to be prescriptive of your financial situation.
I’ve hesitated writing this before because it feels one step removed from “How I Vote” and “How I Pray.” It’s personal. I don’t want to lead you down a path that’s wrong for you. And I don’t want to “show off” my own choices.
I’m an engineer and a writer, not a Wall Street professional. And even if I was a Wall Street pro, I hope my prior articles on stock picking and luck vs. skill in the stock market have convinced you that they aren’t as skilled as you might think.
All I can promise you today is transparency. I’ll be clear with you. I’ll answer any follow-up questions you have. And then you can decide for yourself what to do with that information.
Are we clear? Let’s get to the good stuff.
How I Invest, and In What Accounts…?
In this section, I’ll detail how much I save for investing. Then the next two sections will describe why I use the investing accounts I use (e.g. 401(k), Roth IRA) and which investment choices I make (e.g. stocks, bonds).
How much I save, and in what accounts:
401(k)—The U.S. government has placed a limit of $19,500 on employee-deferred contributions in 2020 (for my age group). I aim to hit the full $19,500 limit.
401(k) matching—My employer will match 100% of my 401(k) contributions until they’ve contributed 6% of my total salary. For the sake of round numbers, that equates to about $6,000.
Roth IRA—The U.S. government has placed a limit of $6,000 on Roth IRA contributions (for my earnings range) in 2020. I am aiming to hit the full $6,000 limit.
Health Savings Account—The U.S. government gives tremendous tax benefits for saving in Health Savings Accounts. And if you don’t use that money for medical reasons, you can use it like an investment account later in life. I aim to hit the full $3,500 limit in 2020.
Taxable brokerage account—After I achieved my emergency fund goal (about 6 months’ of living expenses saved in a high-yield savings account), I started putting some extra money towards my taxable brokerage account. My goal is to set aside about $500 per month in that brokerage account.
That’s $41,000 of investing per year. But a lot of that money is actually “free.” I’ll explain that below.
Why Those Accounts?
The 401(k) Account
First, let’s talk about why and how I invest using a 401(k) account. There are three huge reasons.
First, I pay less tax—and so can you. Based on federal tax brackets and state tax brackets, my marginal tax rate is about 30%. For each additional dollar I earn, about 30 cents go directly to various government bodies. But by contributing to my 401(k), I get to save those dollars before taxes are removed. So I save about 30% of $19,500 = $5,850 off my tax bill.
Editor’s Note: The original version of this article incorrectly stated that 401(k) contributions are taken out prior to OASDI (a.k.a. social security) taxes. That claim was incorrect. 401(k) contributions occur only after OASDI taxes are assessed.
Many thanks to regular reader Nick for catching that error.
Second, the 401(k) contributions are removed before I ever see them. I’m never tempted to spend that money because I never see it in my bank account. This simple psychological trick makes saving easy to adhere to.
Third, I get 401(k) matching. This is free money from my employer. As I mentioned above, this equates to about $6,000 of free money for me.
Roth Individual Retirement Account (IRA)
Why do I also use a Roth IRA?
Unlike a 401(k), a Roth IRA is funded using post-tax dollars. I’ve already paid my 30% plus OASDI taxes, and then I put money into my Roth. But the Roth money grows tax-free.
Let’s fast-forward 30 years to when I want to access those Roth IRA savings and profits. I won’t pay any income tax (~30%) on any dividends. I won’t pay capital gains tax (~15%) if I sell the investments at a profit.
I’m hoping my 30-year investment might grow by 8x (that’s based on historical market returns). That would grow this year’s $6000 contribution up to $48000—or about $42000 in profit. And what’s ~15% of $42000? About $6,300 in future tax savings.
Health Savings Account (H.S.A.)
The H.S.A. account has tax-breaks on the front (36.7%, for me) and on the back (15%, for me). I’m netting about $1300 up-front via an H.S.A, and $4,200 in the future (similar logic to the Roth IRA).
Taxable Brokerage Account
And finally, there’s the brokerage account, or taxable account. This is a “normal” investing account (mine is with Fidelity). There are no tax incentives, no matching funds from my employer. I pay normal taxes up front, and I’ll pay taxes on all the profits way out in the future. But I’d rather have money grow and be taxed than not grow at all.
Summary of How I Invest—Money Invested = Money Saved
In summary, I use 401(k) plus employer matching, Roth IRA, and H.S.A. accounts to save:
About $7,100 in tax dollars today
About $6,000 of free money today
And about $10,500 in future tax dollars, using reasonable investment growth assumptions
Don’t forget, I still get to access the investing principal of $41,000 and whatever returns those investments produce! That’s on top of the roughly $25,000 of savings mentioned above.
I choose to invest a lot today because I know it saves me money both today and tomorrow. That’s a high-level thought-process behind how I invest.
How I Invest: Which Investment Choices Do I Make?
We’ve now discussed 401(k) accounts, Roth IRAs, H.S.A. accounts, and taxable brokerage accounts. These accounts differ in their tax rules and withdrawal rules.
But within any of these accounts, one usually has different choices of investment assets. Typical assets include:
Stocks, like shares of Apple or General Electric.
Bonds, which are where someone else borrows your money and you earn interest on their debt. Common bonds give you access to Federal debt, state or municipality debt, or corporate debt.
Real estate, typically via real estate investment trusts (REITs)
Commodities, like gold, beef, oil or orange juice
Here are the asset choices that I have access to in my various accounts:
401(k)—my employer works with Fidelity to provide me with about 20 different mutual funds and index funds to invest in.
Roth IRA—this account is something that I set up. I can invest in just about anything I want to. Individual stocks, index funds, pork belly futures etc.
H.S.A.—this is through my employer, too. As such, I have limited options. But thankfully I have low-cost index fund options.
Taxable brokerage account—I set this account up. As such, I can invest in just about any asset I want to.
My Choice—Diversity2
How I invest and my personal choices involve two layers of diversification. A diverse investing portfolio aims to decrease risk while maintaining long-term investing profits.
The first level of diversification is that I utilize index funds. Regular readers will be intimately familiar with my feelings for index funds (here 28 unique articles where I’ve mentioned them).
By nature, an index fund reduces the investor’s exposure to “too many eggs in one basket.” For example, my S&P 500 index fund invests in all S&P 500 companies, whether they have been performing well or not. One stellar or terrible company won’t have a drastic impact on my portfolio.
But, investing only in an S&P 500 index fund still carries risk. Namely, it’s the risk that that S&P 500 is full of “large” companies’ stocks—and history has proven that “large” companies tend to rise and fall together. They’re correlated to one another. That’s not diverse!
Lazy Portfolio
To battle this anti-diversity, how I invest is to choose a few different index funds. Specifically, my investments are split between:
Large U.S. stock index fund—about 40% of my portfolio
Mid and small U.S. stock index fund—about 20% of my portfolio
Bond index fund—about 20%
International stocks fund—about 20%
This is my “lazy portfolio.” I spread my money around four different asset class index funds, and let the economy take care of the rest.
Each year will likely see some asset classes doing great. Others doing poorly. Overall, the goal is to create a steady net increase.
An asset class “quilt” chart from 2010-2019, showing how various asset classes perform each year.
Twice a year, I “re-balance” my portfolio. I adjust my assets’ percentages back to 40/20/20/20. This negates the potential for one “egg” in my basket growing too large. Re-balancing also acts as a natural mechanism to “sell high” and “buy low,” since I sell some of my “hottest” asset classes in order to purchase some of the “coldest” asset classes.
Any Other Investments?
In June 2019, I wrote a quick piece with some thoughts on cryptocurrency. As I stated then, I hold about $1000 worth of cryptocurrency, as a holdover from some—ahem—experimentation in 2016. I don’t include this in my long-term investing plans.
I am paying off a mortgage on my house. But I don’t consider my house to be an investment. I didn’t buy it to make money and won’t sell it in order to retire.
On the side, I own about $2000 worth of collectible cards. I am not planning my retirement around this. I do not include it in my portfolio. In my opinion, it’s like owning a classic car, old coins, or stamps. It’s fun. I like it. And if I can sell them in the future for profit, that’s just gravy on top.
Enter full nerd mode!
Summary of How I Invest
Let’s summarize some of the numbers from above.
Each year, I aim to save and invest about $41,000. But of that $41K, about $15K is completely free—that’s due to tax benefits and employer matching. And using reasonable investment growth, I think these investments can save me $15,000 per year in future tax dollars.
Plus, I eventually get access to the $41K itself and any investment profits that accrue.
I take that money and invest in index funds, via the following allocations:
40% into a large-cap U.S. stock index fund
20% into a medium- and small-cap U.S. stock index fund
20% into an international stock index fund
And 20% into a bond index fund
The goal is to achieve long-term growth while spreading my eggs across a few different baskets.
And that’s it! That’s how I invest. If you have any questions, please leave a comment below or drop me an email.
If you enjoyed this article and want to read more, I’d suggest checking out my Archive or Subscribing to get future articles emailed to your inbox.
This article—just like every other—is supported by readers like you.
Share This Post:
Tagged 401(k), how i invest, hsa, index fund, roth ira
One of the best things you can do for your future self is to save for retirement. Unfortunately, according to recent research, about one-third of Americans have $5,000 or less set aside for retirement. It’s never too early to start thinking about your financial future, and your retirement savings are key.
If you’re looking for a way to sock money away for retirement, your 403(b) plan could be just what you need. These retirement plans are offered by employers in the nonprofit sector, as well as in some other careers, like public education and healthcare. Here’s what to expect if your employer offers a 403(b) plan.
403(b) Plan
A 403(b) is sometimes also called a Tax-Sheltered Annuity (TSA) plan. For practical purposes, it’s basically a 401(k) plan for people who work for qualifying tax-exempt organizations, certain hospital organizations, or employees of public schools. Government employees, church workers, and even librarians might also have access to a 403(b) plan.
See also: What’s the Difference Between a 401(k) and 403(b)?
Your employer chooses what type of plan they are willing to offer, so you can’t choose to participate in a 401(k) instead. Your 403(b) plan will come with different investment options, usually in the form of mutual funds that allow you to create a portfolio that matches your risk tolerance.
However, it’s important to understand that the annuity agreement involved makes for a couple of tricky situations that might not apply to other retirement plans:
Withdrawals are subject to a 20 percent federal income tax withholding, except in specific circumstances.
To dissolve the annuity investment aspect of a 403(b), there might be a surrender charge of up to 8 percent.
Speaking with a professional to help you with these situations can help you navigate some of the quirks involved.
How Does a 403(b) Work?
In many cases, your employer will automatically deduct your contributions to the 403(b) from your paycheck. This deduction is usually expressed as a percentage. If you make $2,500 each paycheck, and you want your employer to withhold 4 percent of your income, $100 will be diverted to your retirement account each payday.
If you choose a traditional 403(b) arrangement, your contribution will be deducted from your pay before taxes are figured. This reduces your tax bill today, but you’ll still have to pay taxes when you withdraw money later. On the other hand, your employer might offer a Roth option, which doesn’t result in a tax benefit today. Instead, your money grows tax-free and you won’t have to pay taxes when you withdraw.
Some employers also match your contributions. They may match a certain percentage of your income, or they may offer a dollar-for-dollar match up to a cap. Either way, an employer match on your plan is free money that you can put toward your retirement.
The money grows over time, thanks to compounding returns, and you have a chance to build wealth so you have financial resources when you quit working. It’s possible to adjust how much you save by letting your human resources representative know, or by managing your contributions through your employer’s online benefits portal.
403(b) Contribution Limits
The government wants to encourage retirement saving, and so offers tax advantages when you contribute to a 403(b) plan. However, you can’t just put everything into a tax-advantaged plan. Your 403(b) comes with limits.
For 2021, you can contribute up to $19,500 a year, which is a $500 increase over the 2019 limit. If you’re age 50 or over, you can make extra contributions totaling $6,500 a year in 2021. The IRS also allows for additional catch-up contributions if you’ve given 15 years of service with an employer. Pay attention to the contribution limits and your employer’s plan so you can take advantage of what’s available to you.
When Can You Withdraw Money from Your 403(b)?
Because your 403(b) is a retirement plan, you can’t just take money out when you want — at least not without paying a penalty. If you withdraw money before reaching age 59 ½, you’ll have to pay taxes and the IRS will charge you an extra 10 percent penalty. The only exception is if you have a Roth account. At that point, as long as the account is at least five years old, you can withdraw your contributions without penalty.
Be aware, too, that when you reach age 70 ½, you’ll have to start taking Required Minimum Distributions (RMDs) from your non-Roth 403(b). The government uses a formula to determine how much you should be taking each year in RMDs, and you’ll have to pay taxes on the amount, as with any other tax-deferred retirement plan withdrawal.
As you approach retirement and begin trying to figure out how much money to withdraw, and which accounts to start with, consult with a retirement professional. A knowledgeable professional can help you manage your different accounts, as well as figure out how withdrawals interact with Social Security benefits.
What Happens if You Leave Your Job?
You might have a vesting requirement with your 403(b). Vesting requires you to be with an employer for a set amount of time before you get to keep all the money from the match. The money you contribute on your own, however, is not subject to vesting.
In some cases, you might be able to keep your money in the 403(b) account, even after you leave. However, you can’t make new contributions. As a result, it might make sense to roll your money into an IRA. That will allow you to keep growing the account, and control where the money is invested.
How Much Should You Contribute to Your 403(b) Plan?
Putting money into an employer-sponsored retirement plan is one of the easiest ways to save. It comes out of your paycheck so you don’t have to think about it. However, you might be concerned about how much you can afford to divert from other goals.
A good place to start is to maximize your employer match. If your employer will match your contributions up to 3 percent of your income, consider saving 3 percent of your income. That way, you at least get some additional free money going toward your financial future.
If your employer doesn’t offer matching contributions, your 403(b) is not required to meet the burdensome oversight rules of the Employee Retirement Income Security Act (ERISA). This means you could have lower administrative fees may than you would with 401(k)s or other funds that are subject to greater oversight.
Factors to Consider
Next, you do need to consider different factors related to your current situation. Some things to keep in mind and you determine how much to put into your 403(b) include:
Debt: High-interest debt can weigh you down. It’s ok to save a little less for retirement in the name of paying down debt faster. You can work toward both goals, but just know where the bulk of your focus should be, based on your goals.
Emergency fund: Once you have a baseline established for retirement saving, you might want to focus on another goal. Consider building at least three to six months’ worth of expenses in an emergency fund.
Other savings goals: Maybe you have goals like buying a home or starting a college fund. You don’t want to put your own retirement at risk to pay for your child’s college, though. Think about what you want your money to accomplish, and then go from there.
Once your goals are met, go back to the 403(b) and considerably boost your retirement savings. In fact, it’s a good idea to boost your retirement savings each time your finances improve or you get a raise.
Are There Other Ways to Prepare for Retirement?
A 403(b) is not the only way for you to save for retirement. In fact, it’s important that you consider retirement planning holistically, working it into your other short-term and long-term money goals.
In addition to using a 403(b), you can also open an IRA to set aside money in an account that you have more control over. If you qualify, you might also be able to use a Health Savings Account to begin saving up for healthcare costs in retirement.
Don’t forget that you might have other accounts from previous jobs. Rolling them all into one IRA can help you consolidate the money so that you can more effectively plan for the future. Make sure you consider taxable investment accounts, savings accounts, pensions, and even Social Security benefits in your planning.
For the most part, though, the first step is getting in the habit of saving money. You might not feel like you have “enough” money to invest for retirement. This isn’t true. Even if you only set aside 1 percent of your income, it’s still better than nothing.
Here are some tips for managing your retirement portfolio:
Work toward increasing your contribution a little bit each year
Review your accounts once a year and rebalance as needed
Consolidate accounts to reduce fees and improve management
Be realistic about your retirement needs and plan accordingly
Incorporate other financial goals and prioritize retirement
Use windfalls, bonuses, and other unexpected income sources to pad your account
Bottom Line
The earlier you start saving for retirement, the less you have to contribute each month to meet your goals. However, it’s better to start late than never. Put as much as you can into your 403(b) from the get-go, taking special advantage of any employer match. As you develop the habit of setting goals and saving for them, you’ll position yourself for financial success.
online savings accounts currently offer an average of just 0.05% APY, according to the Federal Deposit Insurance Corporation (FDIC). Although your money might be safe in a basic savings account, you’re definitely not going to build wealth.
With that in mind, it’s smart to keep an eye out for ways to earn a steady return on savings without giving up flexibility and liquidity.
I’ve owned cryptocurrencies since 2014, but just recently found cryptocurrency interest accounts which claim to let you earn up to 8.6% on your crypto deposits. These accounts are the next evolution in Decentralized Finance’s (DeFi) fight with traditional centralized banking, but do they deliver on their promise of higher returns?
BlockFi is an industry leading crypto exchange. This company allows users to deposit stable cryptocurrency (pegged to the US dollar) in an account and earn up to 8.6%. That definitely sounds good, but we wanted to dig deeper to find out how these accounts work as well as who they might be the right fit for. If you’re eager to earn a higher rate of return on your assets, keep reading to learn more.
About the Company
Founded in 2017, BlockFi seeks to “bridge the worlds of traditional finance and blockchain technology to bring financial empowerment to clients on a global scale.”
The company allows customers to buy, sell and hold certain crypto assets, like Bitcoin.
When you hold an asset in your Blockfi Interest Account, you can earn interest paid to you in the same cryptocurrency.
BlockFi also lets customers borrow against their cryptocurrency at lower rates than they might get with a personal loan.
To help you keep your account safe, BlockFi offers security features like two-factor authentication, allowlisting, and internal PII verification.
This company is currently best known for their dynamic and innovative savings product, which lets you deposit cryptocurrency and receive a high rate of return.
BlockFi Products and Services
BlockFi builds alternative banking products for crypto investors, and they even have new offerings in the works. Here are the main ways you can use BlockFi to help you reach your financial goals.
BlockFi Interest Account (BIA)
This non-traditional “savings account” lets you deposit cryptocurrency you already hold and earn up to 8.6% APY in the process. Note that interest accrues daily on your account balance, yet it is paid out monthly. This account is also free of hidden fees and minimum balance requirements.
If you already have cryptocurrency as part of your portfolio and you’re a long-term investor, you might as well deposit it at BlockFi and earn interest on your account. Just keep in mind that how much you’ll earn depends on the type of cryptocurrency you hold. For example, as of writing, Bitcoin (Tier 1) currently earns 6%, whereas Ethereum earns 5.25% and PAX earns 8.6%.
Photo from BlockFi
BlockFi Trading Account
BlockFi also offers a platform for buying, selling, and trading cryptocurrency. You can conduct all your crypto moves using the innovative mobile app, and trades are instant. Currently, you can buy, sell, or trade BTC, ETH, LTC, and PAXG, as well as USD-based stablecoins like USDC, USDT, GUSD, and PAX.
Since trades and purchases are instant, you can begin earning interest on your crypto right away. You can also use the app to set up recurring trades.
BlockFi Crypto-Backed Loans
If you keep cryptocurrency on deposit with BlockFi, you can use the funds in your account to secure a low-interest loan. Currently, loan rates can be as competitive as 4.5%. Since you use your crypto balance as collateral for your loan, you can qualify without a hard pull or a soft pull on your credit. This makes crypto-backed loans easy to qualify for regardless of your credit score.
Crypto-backed loans from BlockFi also move along at a rapid pace. Once you apply, you can get your loan funds as soon as the same business day.
Coming Soon: BlockFi Bitcoin Rewards Credit Card
BlockFi is also launching a rewards credit card that lets you earn rewards in cryptocurrency (I’m on the waitlist!). You can currently join the waitlist for this product, which will eventually offer 1.5% back in Bitcoin on everything you buy.
There are scarce additional details available on the Bitcoin Rewards Credit Card for now, but we should find out more when this card is released later in 2021.
Note: You have to be a BlockFi client with an account to join the waitlist.
Cryptocurrency Savings Accounts: What to Watch Out For
When it comes to investing with cryptocurrency or using it to earn a higher return than a savings account, you should first know that some cryptocurrency is incredibly volatile. We’ve watched as the price of Bitcoin rose to $20,000, dropped below $4,000, then increased in value to over $30,000 over the last several years. That’s a fun ride to be on if you wind up winning in the end, but it’s safe to say that — for the time being — cryptocurrency isn’t stable.
Uninsured savings
Aside from the general volatility of crypto accounts, BlockFi Interest Account (BIA) doesn’t come with the same protections as a traditional savings account that comes with FDIC insurance. BlockFi accounts also come without SIPC insurance, which is a type of insurance that protects against the loss of cash and securities.
With FDIC insurance on the best savings accounts, the standard insurance amount is $250,000 per depositor, per insured bank, and for each account ownership category. This insurance can kick in to replace your funds if your traditional bank goes out of business and leaves you in the lurch.
With SIPC insurance, most investors are covered for $500,000, which includes a $250,000 limit for cash. BlockFi claims its BIA funds are “insured”, but it’s not easy to find how that insurance works or how reliable it is.
Who BlockFi is Best For
Current long-term bitcoin holders
If you already have bitcoin or ethereum and its sitting in Coinbase or other exchange, it seems to be a no-brainer to bring it over to Blockfi to earn interest. Fees and liquidity can vary, so if you are actively trading these coins, this might not be the best move.
If you have cryptocurrency already, then you might as well open a BIA and begin earning interest on your deposits.
You want to use your crypto to take out a loan
Because BlockFi lets crypto investors use their cryptocurrency to earn interest or as collateral for a loan, this company is best for seasoned cryptocurrency experts who already buy, sell, and trade cryptocurrency as part of their portfolio but need to take out a loan against their balance.
Toe-dippers
If you’re interested in crypto, but don’t want to take too much risk, the BIA is a great place to start. You can earn so much more than a traditional savings account. Although you do have more risk than an FDIC-insured bank, I view it as an acceptable risk with a portion (not all) of your cash.
Earn a little extra while you learn more about the world of crypto investing and then decide to make the leap later. Just keep in mind that your account funds are not protected by the same type of insurance as traditional bank accounts and brokerage accounts are.
Jeff’s Take on BlockFi
Watch Jeff’s key considerations about the crypto platform, and what to know before opening a BlockFi account.
[embedded content]
BlockFi vs. Other Industry Competitors with Crypto Savings Accounts
BlockFi
Nexo
CoinLoan
Potential APR
Earn up to 8.6% APY
Earn up to 8% interest on crypto and up to 12% on stablecoins, paid out daily.
Earn up to 10.3% interest on crypto
Minimum account balance required
$0
$0
$100
Fees
No hidden fees
No hidden fees
No hidden fees
What to Know About Crypto Savings Accounts
We’ve tried to drive the point home that crypto savings accounts are not the same as traditional bank accounts. There’s a considerable amount of risk when you’re dealing in cryptocurrency for starters, and cryptocurrency savings accounts can’t offer the same federal protections as regular banks.
Since cryptocurrency hasn’t been around as long, you’re putting your assets on the line if you use one of these accounts to secure a higher return. That doesn’t necessarily mean crypto savings accounts are a bad idea. However, you should know the risks and understand what’s at stake.
Here are some other details you should know and understand before you open this type of account:
Withdrawal restrictions. Where traditional savings accounts let you withdraw funds up to six times per month without any fees, crypto savings accounts may have more restrictive withdrawal limits.
Lack of compound interest. Because of the way crypto savings accounts work, you won’t necessarily earn compound interest like you would with a traditional savings account.
Ownership issues. With crypto savings accounts, you will likely be asked to give up the “keys” to your account since this allows the administrator to lend your crypto out. Many investors are not comfortable with this arrangement, and some would say for good reason.
Security risks. While crypto savings accounts tend to have a high level of security, you should know that cryptocurrency is a target for hackers and thieves. According to Coindesk, hackers and scammers have managed to steal $7.6 billion in cryptocurrency since 2011.
The Bottom Line
Earning up to 8.6% APY on your crypto assets sounds pretty good, but don’t forget to read the fine print. These accounts do offer big returns, but you won’t have the same protections as you would with a traditional savings account.
Your best bet is taking time to read all you can about cryptocurrency and crypto savings accounts, as well as the steps you can take to protect yourself.
A cryptocurrency savings account may help you “beat the bank,” but you’ll have to accept more risk along the way.
BlockFi Frequently Asked Questions (FAQ)
Before you get started with a BlockFi product, you should strive to learn as much as you can about this company and all they offer. These FAQs can help.
Paying yourself first is a budgeting strategy that suggests individuals should contribute to a retirement account, emergency fund, savings account, or other savings vehicle before spending their paycheck on anything else.
The pay yourself first method is a pretty simple concept to understand, but actually applying to your own finances can become a little more complex. To help our Minters put this plan into practice, we’re breaking it down step-by-step and revealing some of the advantages and drawbacks of paying yourself first.
If you already have a solid grasp on the topic, use the links below to navigate throughout the post, or read all the way through for the full picture.
What does it mean to pay yourself first?
Pay yourself first definition: The pay yourself first method, also known as reverse budgeting, is a savings strategy that says individuals should save a portion of their paycheck before spending any other money on bills, groceries, or discretionary items.The amount saved is typically predetermined as part of a larger savings goal, and is often funneled into retirement funds and/or savings accounts.
Many financial experts and individual consumers who subscribe to this method choose to have funds automatically redirected into their elected savings account(s).
For example, if you want to put $200 of every paycheck toward your 401k, you could set up an automatic contribution rather than physically transfer funds each pay period. For many savvy savers, this makes it easier to commit to a monthly goal, because the amount never actually reaches your checking account, but is rather allocated directly toward your savings.
Note: There are several options you can employ to make the pay yourself first strategy work for your finances. If you prefer to make the transfers on your own instead of automatically, that’s totally okay! This budgeting style is really all about consistency — contributing a set amount each month to your retirement plan or savings account can really pay off over time.
Advantages of the pay yourself first method
Like any financial decision you’ll make in your lifetime, you’ll want to consider the pros and cons of subscribing to the pay yourself first philosophy.
The primary benefit of setting aside savings first, is building the amount you have saved over time. This strategy forces you to live within, or below your means — so long as you don’t start swiping your credit card recklessly instead.
Here are a few other potential benefits you could reap if you employ the pay yourself first strategy:
You can save up for big purchases, like a home, car, or dream vacation. Or, put your hard-earned dollars toward an emergency fund, personal savings, or retirement.
Contributing to accounts that earn compound interest allows your money to continue growing the longer you leave it untouched.
Many retirement funds and other savings options are considered “tax-advantaged.” This means that your dollars may be exempted from tax, or in the case of IRAs and 401ks, tax-deferred; so you’ll pay taxes later on when you make a withdrawal.
Drawbacks of the pay yourself first method
In addition to the positive aspects a pay yourself first budget may offer, there are some potential drawbacks that could ensue under certain circumstances. Put simply, the strategy simply does not work for everyone. As you learn about the pay yourself first method, consider how it fits into the context of your personal finances.
Here are a few examples where paying yourself first may not work to your benefit:
Without following careful money management advice, you may find yourself scraping for change to make ends meet. Before you commit to a monthly savings goal, use a budgeting calculator to determine how much money you can reasonably afford to save each month.
While prioritizing your savings can help you boost the balance in your savings account, it may be worth paying down debt first. Because interest compounds over time, waiting to pay off a credit card or a student loan, for example, means that you’ll pay more interest the longer there is an outstanding balance.
As you consider the various strategies you can use to build your savings, remember to take a close look at the potential pros and cons you may encounter. There are plenty of saving styles you can leverage, so don’t count yourself out if this one isn’t the best fit for you. For more help creating a budget and savings plan that meets your needs, check out how Mint can help!
How to Pay Yourself First
Now that you know what it means to pay yourself first, and have had a moment to consider the potential benefits and drawbacks, let’s take a look at how this strategy actually plays out, step-by-step.
1. Evaluate your monthly income + expenses
Before you decide on the amount you want to save each month, take a look at both your fixed and variable expenses. Your fixed expenses are those costs that stay consistent month over month, like your rent or mortgage payments, student loan bill, and health insurance, for example.
Your variable expenses, on the other hand, aren’t always the same amount each time, and sometimes you don’t incur them at all. Entertainment costs, vehicle maintenance, and groceries are all examples of variable costs, and so, their price tag may vary from one month to the next — just do your best to estimate these.
Once you can project your monthly expenses, subtract the amount from your monthly income to see what’s leftover. Depending on your savings and greater financial goals, you can tweak some of your spending to free up more cash.
2. Identify your savings goals + commit
Now that you have a better understanding of your income and expenses, you can set some savings goals!
If you’re not sure where to start, consider the 50/30/20 rule.
The rule says…
50% of your budget should go toward essential expenses such as housing, food, utilities, an minimum debt payments
30% should be reserved for wants and lifestyle expenses
20% should be funneled into your savings and any extra debt payments
If you don’t want to crunch the numbers on your own, try out our 50/30/20 calculator and we’ll do the heavy lifting for you!
In addition to setting forth a savings target, you’ll also want to think about where you want your reserved cash to live, and hopefully, grow. If you want to save up for retirement, a 401k or an IRA might make sense, whereas traditional savings accounts might work better for those wanting to save up funds for a shorter length of time.
3. Review + reevaluate
Whether you’re using the pay yourself first method or another savings strategy, it’s important to remember that your budget should never be static. As life changes, your finances follow. A better salary or a reduction in your living expenses could present more opportunities to save, while a pay cut or recently incurred expense could have the opposite effect.
To keep your budget optimized and up to date, take the time to review and reevaluate it on a regular basis, and when significant changes arise.
Wrapping Up
The pay yourself first budgeting style can be a favorable way to boost the balance in your savings account, retirement fund, or other savings goal. However, budgeters should reflect on their unique financial situation to assess whether this strategy suits them. In most circumstances, it would be in your best interest to pay down debt before you start making monthly contributions to your savings.
If you subscribe to the pay yourself first philosophy, follow these three steps:
Evaluate your monthly income + expenses
Identify your savings goals + commit
Review + reevaluate
Need some extra guidance to find the right budget for your lifestyle? Mint gives you a data-driven perspective, helps you launch and track savings objectives, and empowers you to actualize your greater financial goals.
CIT Savings Builder – Earn 0.85% APY. Here’s how it works: Make at least a $100 minimum deposit every month. Or Maintain a minimum balance of $25k. Member FDIC. Click Here to Learn More.
Preparing for the New Year can always be a challenge. After all, most of us are trying to figure out how to make sure we do it better than we did this year. And with the pandemic going on this year, next year is certainly no exception! Because of COVID-19, a lot of us took some pretty big financial hits this year. I don’t know about you, but we want to make sure that we do everything in our power to secure our financial success next year so it won’t be as painful. Therefore, we wanted to give you a good guide to help you prepare your finances for the New Year and help ensure your future financial success.
