Should You Break an Old CD Contract to Get a New CD at Today's High Rates?
If you locked into a certificate of deposit (CD) last year, you may be looking at today's rates through watery eyes. Not only have CD rates exploded to levels we haven't seen in decades, the Federal Reserve's rate hiking campaign may push them even higher. That raises a compelling question for previous CD owners: Should you break a CD contract to lock into today's jaw-dropping rates? Let's take a look. Yes, if the interest you would earn is greater than the penalty you would pay Unless you have a no-penalty CD, your CD contract likely has a clause stipulating early withdrawal penalties. Often, the penalty for withdrawing early means forfeiting a portion of the interest you've earned, along with the closure of your CD account. In general, the longer your CD term, the more hefty the penalty. And yes, the penalty can exceed the amount of interest you've accumulated.That said, if the interest you forfeit is less than the interest to be gained on a new CD contract, it might be worthwhile to break your contract. Let's look at an example. Let's say you've deposited $5,000 into a 2-year CD with a rate of 2.50% and the penalty for withdrawing early is six months of forfeited interest, which would be $62.50. You've earned 13 months of interest, which is about $135.42. If you were to walk away now, you would be left with $72.92 after the penalty is deducted. You weren't thinking about walking away, until you saw a 5.51% rate on a 12-month CD. At that rate, you would earn $275.50 after 12 months. That seems like a pretty good deal, but is it worth breaking up with your old CD? In this case, it would be worth breaking the old CD contract. If you keep your money in the old CD, you'd be left with $250 in interest after the CD term ended in 11 months. The new CD would earn you about $275, a difference of only $25. But if we add in the $72.92 from the old CD, you'd have $347.92, almost $100 more than if you had kept your old CD. Do the math for yourself Take a look at your CD contract and figure out if you'll come out on top by closing a CD and opening a new one at today's rates. If the difference between the forfeited interest and the interest you would earn is positive, then nine times out of 10 you'll likely fare well breaking up with your old CD. The best CD rates right now come with short terms, such as 6 months or 1 year. But you might find a compelling rate on a long-term CD, such as: 3 years4 years5 years One thing to consider is that CD rates may or may not have peaked. The Fed is watching the economy carefully and isn't afraid to raise rates if it thinks it will help it achieve its inflation goals. If the Fed raises rates again, CD rates would likely get a tiny bump. That's not to suggest you should try to time the CD market and open one when rates hit their peak (whenever that is). But you may have some time to let your current CD accumulate interest -- or perhaps even mature -- before you close your account and pay the penalty. Either way, closing an old CD for a new one is certainly worth considering, especially if your old CD has a rock-bottom rate (like 1% or lower). Take a peek at today's top-paying CDs and see if it's worth breaking your contract for one.
This Is How Much You Should Have in Savings by 50. How Do You Compare?
You should have five to six times your annual income saved by age 50, according to most financial planners. So, if you earn $75,000 per year, this means you should ideally have $375,000 to $450,000 set aside in savings accounts, retirement accounts, brokerage accounts, and other liquid assets.Of course, like most topics in personal finance, there's not a perfect rule for everyone. However, this is a good starting point to help you determine whether you're on track for a financially secure retirement or not. Let's take a look at why you might need more or less than this guideline, and what you can do if you've fallen behind.This isn't a perfect rule for everyoneAs I mentioned, the "five to six times your income" rule isn't perfect for every 50-year-old. You might need more or less in savings than the average American for numerous reasons.One major factor is your retirement goals. If you want to retire at age 55, you should probably have more than five times your salary saved before you're 50, especially if you have ambitious plans to travel after you retire.Other streams of income can also play a big role. For example, if your job has a pension plan, and you'll get monthly payments equal to a substantial portion of your income after you retire, your savings needs will naturally be lower than someone planning to rely exclusively on retirement savings.If you own many assets other than a savings account, it can also play a role. As a personal example, I own investment properties and have substantial equity in them, so this is a factor when determining how much I'll need to retire comfortably.What should you do if you haven't saved enough?The good news is that most people who are turning 50 are still 10-20 years away from retiring, so there's time to have a big impact.The obvious answer is that if you don't have enough in savings at 50, it's time to start prioritizing retirement savings. The best places to set aside money are tax-advantaged retirement accounts such as IRAs, or employer-sponsored retirement plans like 401(k)s, where your money is free to grow and compound on a tax-deferred basis. All retirement accounts have special rules (known as catch-up contributions) that allow account owners 50 and older to set aside more money each year than younger savers.If you're having a tough time finding enough money to contribute to your savings, it might be a smart idea to take a closer look at your budget and try to identify opportunities to cut expenses. One of my favorite exercises is going through the last couple of bank and credit card statements and highlighting any purchase you didn't need to make. The point isn't to shame you for spending money you didn't need to spend, or even to get you to stop all unnecessary spending, but you might be surprised where you could cut back. As a personal example, a few years ago I did this and couldn't believe how much my family spent on dining out. I even identified a couple of costly subscriptions I wasn't using.The bottom line is that you still have time to get back on track by making budgeting, saving, and investing priorities. Seemingly small amounts of additional savings now could make a big difference in your quality of life after you retire.
SNAP Benefits Will Increase in 2024. Here's How Much a Family of 4 Will Receive
Are SNAP benefits enough?A monthly payment of $973 for a household of four equates to around $8 per person per day. While SNAP benefits aren't designed to cover everything, it isn't easy to feed a family on around $2.66 per person per meal. Indeed, research from the Urban Institute showed that the maximum benefits often don't cover a family's food costs. "Amid inflation, SNAP benefits did not cover the cost of a meal in 99 percent of counties in 2022," said the report.The new benefit amount -- a monthly increase of $34 for a household of four -- is roughly in line with cost-of-living increases measured by the Bureau of Labor Statistics (BLS). Its latest Consumer Price Index figures show that the cost of all items in June, 2023 was up 3% over the year before. However, inflation does not impact all aspects of life equally.The BLS data also shows that food at home increased by 5.7% year over year. The new SNAP benefits do not match this. Hypothetically, a 5.7% increase in benefits for a family of four would mean a new monthly payment of $992, rather than the planned $973.In addition, this year brought the end of the pandemic-era emergency food benefits throughout the country. According to CBPP calculations, this meant the average person received about $90 a month less in SNAP benefits. Even factoring in the increased SNAP benefit amount, many households have seen a significant drop in their food benefit amount, and the revised 2024 payments will do little to close this gap.How to make your SNAP benefits go furtherIt can take time and energy to provide healthy food for your family on a strict budget. The challenge is that in a busy household, time and energy are also limited resources. Even so, if you can carve out some time to plan your grocery-shopping trip, it can make a big difference.Here are some ways you might stretch your SNAP benefits a little:Use cash back apps and coupons: Look for cash back apps that work in stores that take your EBT card. You'll usually need to download an app and then scan your receipt after you've been to the store. Pay attention to coupons, whether in store or online as these can often carry hefty discounts.Always shop with a list: Planning your food shopping is one of the best ways to reduce costs. Even more so if you use a cash back app or coupons. Check what offers are available on items you normally buy before you go shopping. Mark the items that qualify for rewards or discounts on your list, so you don't miss them when you're shopping.Look for double up programs: There are Double Up Food Bucks or other programs in various states that essentially give you two for one on all produce at participating farmers markets and stores. It's a great way to get more fruit and vegetables for your SNAP dollars.Buy in bulk and batch cook: It isn't always easy to find the extra cash for bulk buying when you're eking out every cent. However, if you can manage it, you may be able to save both money and time. You might, for example, batch cook a stew and freeze portions for future meals.Unfortunately, food insecurity still impacts many American households. If you don't have enough money to feed your family this month, look for additional help. Find out what food pantries and soup kitchens are operating in your area on which days, and whether you'll need to present any documents. Call United Way at 211 for information about assistance programs in your area.
6 Little-Known Perks of Dollar Store Shopping
Items in dollar stores rarely cost $1 anymore, but that hasn't stopped people from flocking to these discount meccas. As Americans continue to grapple with high living costs -- particularly when it comes to food shopping -- sales at the likes of Dollar Tree, Dollar General, and Family Dollar are booming.Whether you're a recent convert or an old hand at dollar store shopping, here are some little-known tricks that could help you save even more. Every extra dollar in your bank account is a dollar you can spend on meeting other financial goals.1. You can use cash back appsCash back apps work in different ways, but a number of them will work in dollar stores. This is especially true for those that allow you to scan your receipts after you've been to the store. These apps let you earn money or points on your shopping and often also have bonus offers on specific products. Pay attention to the product sizes, as dollar store products may not fit the offer requirements.Dollar General recently announced it had teamed up with Ibotta to create a new DG Cash Back Program. Sign up online or download the app to get extra savings and special deals when you shop at Dollar General.2. You can use coupons…sometimesWatch out for store-specific coupons as these can be a great way to snag the best bargains. Most dollar stores also accept manufacturer and other coupons, though there may be restrictions about how you can use them. For example, the Krazy Coupon Lady says you have to print online coupons to use them at Dollar General.Check the fine print. As with cash back apps, the different-sized packaging in dollar stores can mean some coupons aren't valid. For example, if a coupon is only valid for a 52-fluid-ounce bottle of juice, you won't be able to redeem it on other sizes. You may also find there are limits on how many coupons you can use on any one day.3. You don't have to do all your shopping thereDollar stores are not always the cheapest option, especially not if you can bulk buy. The trick is to combine your dollar store shopping with regular stores and know where to get the best value for the things you buy frequently. Work out the cost per ounce and use your cellphone to check prices, even when you're in the store. Every home is different, so try to find a system that works for you.For example, I go once a month to a high-end grocery store to buy cheese, tea, and a couple of other items I can't get anywhere else. I buy cleaning products, snacks, spices, household items, and office supplies at a nearby dollar store. Fresh produce is usually better quality and better value from the fruit and vegetable shop. And I get most of my other groceries online. That way I can find the lowest prices without trailing around too many stores.4. You can snag bigger savings on sale daysWatch out for clearance days at your local dollar store. For example, Dollar General has regular clearance sales where you can save as much as 50% or more. Watch out for sale alerts online. It's also worth signing up to your favorite dollar store's membership club so you're the first to hear about events and discounts. Dollar Tree has a Value Seekers Club and Dollar General has myDG.5. You can use your SNAP food benefits in dollar storesSNAP food benefits are designed to help low-income families access nutritious food. The benefits are usually paid onto an EBT card, which can then be used in stores -- including dollar stores -- to pay for certain items. Wherever you shop, there are restrictions on what you can buy using SNAP dollars. For example, you can't use your food benefits to buy hot food, pet food, cleaning supplies, or pharmacy items.6. You're never far from a dollar storeIt's fair to say that dollar stores have multiplied like rabbits in recent years. One report from the Institute for Local Self Reliance found that nearly half the new stores that opened in the U.S. in 2021 were dollar stores. And, 75% of Americans live within five miles of a Dollar General, according to its website. That makes it easier to combine a dollar store stop with the rest of your grocery shopping.A word of cautionThere are many ways to save money by shopping in dollar stores, but don't get too carried away. Items in dollar stores are not always cheaper, especially if you look at the price per ounce. It's also important to check sell-by dates and make sure the packaging isn't damaged. All the same, if you can incorporate dollar store shopping into your grocery habits and you may well find your monthly grocery budget will stretch a little further.
Here's How Often You'd Have to Buy Gas at Costco for a Membership to Pay for Itself
Costco is a beloved warehouse club for good reason. The deals that the store offers tend to help people spend less on their credit cards for basic necessities like groceries and household products. Plus, Costco's Kirkland brand has many devoted fans because of its unique offerings and quality. But it also costs money to be a warehouse club member. And you need to make sure that paying the fees out of your bank account is worth it for you. The fees can be justified by saving on home essentials like pantry items and frozen food. But they can also be justified by the gas savings you can benefit from if you fill up your tank at the warehouse club.The big question you should answer, though, is how much gas you'd actually have to buy there for a membership to pay for itself. Here's how you can figure that out. Will gas savings make your Costco membership worth it?There's a very simple way to determine if you can justify a Costco membership just based on gas savings alone. You'll need to determine how many times you'd have to fill up each month at Costco for the membership to pay for itself -- and then ask yourself if you're likely to hit the club's gas station at that frequency. The least expensive Costco membership, called a Gold Star membership, costs $60 per year. You can figure out if your gas savings will cover that cost by doing the following calculation:$60 (for the membership fee) divided by the number of gallons in your gas tank times the amount that you save by shopping at Costco. Let's take a look at some examples. Say that gas costs $3.87 per gallon (which is the current national average as of Aug. 16, 2023, according to AAA). Costco gas tends to be around $0.16 to $0.20 per gallon cheaper than what competitors offer. So, you might be able to get your gas for around $3.67 to $3.71 at Costco. And let's say your car holds 14.5 gallons of gas. If you're saving $0.20 per gallon and you put 14.5 gallons in your car at a time, you'd save $2.90 each time you filled up your tank. Divide this amount by the $60 annual membership cost to find that you would need to fill up your car about 21 times per year at Costco in order to break even for the membership fee. If you end up filling your car at Costco just twice a month, you'd more than cover the membership cost. Should you join Costco for the gas savings alone?Since most people fill up their tank more than twice per month, it may seem like an easy call to join Costco and assume the gas savings will justify the price. But you should also consider other factors, such as the following: Is it convenient for you to fill up at Costco? If you have to drive out of your way to get your gas there, it may not be worth it. You'd be wasting time, which has value, and would negate some of the savings due to the extra driving. Plus, you might not follow through on going there if it ends up being a hassle. Will you overspend at Costco in other ways? It does you little good to save a bit on gas if the club presents too great a temptation and you end up filling your cart with a giant tub of Cheetos you can't finish before they go bad or splurging on a giant jigsaw puzzle you spotted on your way to the grocery aisle. Costco is very good at encouraging spending by making you feel like you're getting a deal, by regularly moving items around so you have to walk through the whole store to find what you need, and by presenting limited-time deals to give you a sense you may miss out if you don't buy. If you can't control your spending, then not getting a membership eliminates that temptation. Now, if you can count on yourself to get gas there and you know you'll spend responsibly, then there's little reason not to get a membership when the fuel savings covers it -- especially since you may find yourself also saving on other items as well. Just be sure that you think carefully about whether a membership really makes sense for you before you dive in.
Author: Chris Neiger
Source: ©2018-2023
Retrieved from: fool.com
FINRA Compliance Reviewed by Red Oak: 3086474