The 6 Best Ways to Save Money for Kids

If you think higher education is in your child’s future, consider a 529 college savings plan.
Ready to stop worrying about money?
If you plan on covering some, but not all college expenses, you can tweak this formula to suit your situation. For instance, Fidelity recommends targeting a savings goal of ,000 multiplied by your kid’s current age if you plan on covering 50% of college costs and assume your child will attend a four-year public school. The financial institution provides a couple of examples of parents covering different percentages of fees and what that would look like at different ages of their children.
First, assess your total financial picture. Take inventory of your outstanding debt, and create a budget if you haven’t already.
If you want to save money, there are many ways you can go about it. Whether you’re thinking ahead to your child’s college education or just want to set aside a little something for when your child reaches a certain age, you have more than a few options to reach your savings goals.
(Have you picked your jaw up off the floor yet? Good. Keep reading.)
As with all investments, there are fees and risks associated with 529 plans.
There are also plenty of child-friendly bank accounts you can choose from to encourage your children to start saving early and often. A savings account is a good start.

Planning for Your Kids’ College Savings and Future Expenses

Source: thepennyhoarder.com
Now on to the good news: You have many options to start saving for your child’s future today, no matter your budget.
Again, that’s just the estimated cost. And there are grants and college scholarships available to help families chip away at the fees.
With this plan, a saver opens an investment account for the beneficiary’s qualified college education expenses, including room and board. This money can be applied toward universities (and some outside the U.S.), and withdrawals can also be used to pay up to K at elementary and high schools.

5 Ways to Save Money For Your Kids’ College Education

What’s the best type of savings account for a child? We’re glad you asked!

1. 529 College Savings Plans

How much money you “should” save depends on a few factors. For one, there are a lot of variables to consider: How much will a university degree cost in X number of years? How long do you think your child will go to school for? (Two years, four years or more years for advanced degrees.) What amount can you afford to regularly sock away for expenses?
These plans are sponsored by state governments as well, but there are fewer residency requirements. Investments in mutual funds and ETFs are not guaranteed by the federal government, but some bank products are protected.
A Roth IRA is an individual retirement account. You fund it with money you’ve already paid taxes on. So, when the time comes (typically at age 59 ½), you can withdraw your Roth IRA contributions and earnings tax free. However, you can withdraw this money earlier, penalty-free, to pay for higher education costs for your child.

Prepaid Tuition Plan

A 529 plan, or qualified tuition plan, is a tax-advantaged investment account. This means the money grows tax free and you can also take it out tax free. Each state (plus the District of Columbia) offers at least one plan. You can view minimum and maximum contribution limits and other considerations by state here.
With this plan, a saver or account holder can purchase units or credits at a participating university and lock in current prices for future tuition costs for the beneficiary. Typically, this money can’t be used for elementary and high school costs, nor be put toward room and board at college.

Education Savings Plan

While interest rates are low and whatever interest you earn is taxed as income, an FDIC-insured bank savings account is a tried and true (and safe) place to store money — whether yours or your kid’s.
With a Roth IRA, they’ll get tax-free money when they retire. They can also use these funds to help pay for their own qualified college expenses. While your child will have to pay taxes on the earnings, they won’t face an early withdrawal penalty.
You generally have more flexibility with brokerage accounts: You can choose from a variety of investments and make withdrawals at any time. Note: If your child does plan on going to college, the value of this account will be included in financial aid calculations.
There are other online calculators that can help you determine what you should save, depending on what your child’s future education plans might entail (like grad school). Again, a financial advisor or certified financial planner (CFP) can help you plan for college costs in way that accommodates your needs.

2. Roth IRA

Anyone can use a 529 college savings plan (no annual income restrictions!) and you can change the 529 beneficiary to another family member without incurring a tax penalty.
Here are three questions we see pop up time and again when it comes to investing in your child’s future. Oh. And this figure doesn’t even factor into university costs.
Of course, you can invest your money in a few different ways — some combination of a 529 plan; Roth IRA; or, UGMA, UTMA, brokerage or savings accounts — so you have options.

3. UGMA and UTMA Accounts

Sticking with college, here are additional ways to save that you and your child can work toward. Whether you’re a new parent or a year out from sending your kid off to college, consider these opportunities to save money.

Uniform Gift to Minors Act (UGMA)

A brokerage account allows you to invest money in stocks, bonds and mutual funds. Once you deposit your money, you can work with a financial advisor or robo-advisor, or both, to invest and grow your money.

Uniform Transfers to Minors Act (UTMA)

File this under “Things You Already Know” — kids are expensive. What you might not know is the best ways to save money for kids, and we’ve got your back on that.
This account establishes a way for someone under 18 years old to own securities without requiring a trustee or prepared trust documents.

4. Brokerage Account

Here are several ways you can invest and save money for your children, whether you want to open a college savings plan or start a rainy-day fund.
A parent or guardian will need to serve as the custodian, since minors generally can’t open brokerage accounts. Children need to have an earned income (part-time jobs, like babysitting, count) to contribute to it. Like adults up to and under age 50, they can only contribute up to K to the Roth IRA annually. Once the child turns 18 or 21 years old (depending on the state in which they live), control of the account must be transferred to them.
Get the Penny Hoarder Daily

5. Savings Account

College is an investment, and it can be a pricey one. By saving early (and with the magic of compound interest on your side), you can earn a bigger return on your money down the line.
And, mom and dad, when the time comes, make sure you fill out the Free Application for Student Aid (FAFSA).
There are two types of 529 plans: prepaid tuition plans and education savings plans.
Consider meeting with a financial expert to help you craft a plan that’s best for you.
The cost of raising a child from birth through age 18 is roughly 3,610, according to the United States Department of Agriculture (USDA). To break that down further, that’s around K per year, per kid.

graduation cap filled with money on sidewalk
Aileen Perilla/The Penny Hoarder

Additional Ways to Save Money for College

Save early and save regularly, and you’ll be off to a good start.Contributor Kathleen Garvin (@itskgarvin) is a personal finance writer based in St. Petersburg, Florida, and former editor and marketer at The Penny Hoarder. She owns a content-writing business and her work has appeared in U.S. News, Clark.com and Well Kept Wallet.

  • Ask for gifts toward their education expenses. If friends and family would like to give a gift to your child, ask them to consider putting any money toward their college fund. You can do this for any birthday or holiday, though the earlier you start investing in their education, the better. (Bonus: Your 1 year old doesn’t have the capacity to ask for the latest toy and won’t object to this gift.)
  • Encourage your kid to work and save. Once your child is of legal working age, they can get a job and start saving money for their school expenses. Even saving a small amount per paycheck can help them make a dent in later costs; you might also consider “matching” their savings to incentivize them (for example, give them $1 for every $20 they put away for college).
  • Look to companies and professional organizations. Your workplace may offer opportunities to children of employees looking to earn money for college. Some large companies, like UPS, offer such scholarships. Review your company handbook or ask your HR department about any available opportunities. Professional organizations, like the Rotary Club, are also known to offer scholarships and grants for continuing education. If you belong to any organizations or other clubs, look out for these benefits.
  • Apply for scholarships and grants. Additionally, encourage your high school student to look for scholarships and grants to help mitigate their college costs. Universities typically offer money for students who fit certain criteria — such as transfer students or people in certain majors — and meet other requirements. There are all sorts of weird scholarships, contests and even apps that can help them earn money for school, too. Just make sure they weigh the pros and cons of any entry fees and stay on top of contest deadlines.

If we use the earlier figures from CollegeCalc that forecast what a four-year education will cost in 2039 (5,167.67 / 4 = ,792 a year), it’s recommended you put 1 a month into a college savings plan. This calculation assumes an after-tax return of 7%, an annual tuition increase of 7% and four years of school.

Frequently Asked Questions (FAQs) 

It’s great if you’re able and want to contribute to your children’s future expenses and education fund — student loan debt has surpassed a whopping .7 trillion in the U.S. — but you need to be smart about it. If you put yourself in a precarious financial situation, it can be more difficult for you to course-correct later.

When Is the Best Time to Invest Money for College?

With that said, don’t let getting started “later” deter you from saving at all. It’s kind of like the Chinese proverb, “The best time to plant a tree was 20 years ago. The second best time is now.” You want to save what you can as early and regularly as possible. But if life circumstances prevented you from doing so before, right now is the next best time to start saving.
On average, tuition and fees ran ,411 at private colleges and ,171 for in-state residents at public colleges for the 2020-2021 school year. The estimated cost of a four-year degree, 18 years out?

What’s the Best Way to Invest Money for a Child?

Most prepaid tuition plans have residency requirements for the saver and/or beneficiary, and are sponsored by the state government (and not guaranteed by the federal government). However, not all state governments guarantee the money paid into them, so it is possible to lose money. Additionally, your mileage may vary with this plan if the beneficiary doesn’t attend a participating college, resulting in a smaller return on investment.
First things first: If you have nothing saved for retirement, focus on your own needs before you start saving for someone else. You’re on a more fixed timeline. Plus, you can’t borrow for retirement savings like your child can for their education.
5,167.67.

How Much Money Should I Save for My Child?

Looking for more options that aren’t exclusive to education? You can invest in a taxable brokerage account.
The good thing about putting away money for your children is that there is no one “right” way to do it. You can open a 529 plan for your child early on or later as they get closer to college aid. Or, you can fund a brokerage account so you’re not held to stricter rules about how the money’s spent.
If you want to invest in your kid’s future without choosing an account that’s for education expenses only, look into a Uniform Gift to Minors Act or UTMA Uniform Transfers to Minors Act.
Don’t forget the old standby: a traditional savings account.

The Best Way to Save Money for Kids

This account is similar to a UGMA. However, minors can also own property such as real estate and fine art.
A custodian will also need to be set up for this type of account. Parents can set up a custodial account and then make withdrawals to cover child-related expenses. Once the child is of legal age, the assets are transferred to their name. Since the funds for both UGMA and UTMA accounts are in the child’s name, they cannot be transferred to another beneficiary. <!–

–>




Privacy Policy

What Is a Carry Trade in Currency Markets?

Carry trade is a strategy used by some traders who invest in currency markets to take advantage of differences in interest rates. In a carry trade, an investor buys or borrows a security or asset at a low interest rate, and then uses it to invest in another security or asset that provides a higher rate of return.

Here’s what you need to know about how a carry trade strategy works and the risks associated with it.

What Is a Carry Trade?

In a carry trade, forex traders borrow money at a low interest rate in order to invest it in an asset with a higher rate of return. In the forex markets, the currency carry trade is a bet that one foreign currency will hold or increase its value relative to another currency. Of course, this strategy hinges on whether or not interest rates and exchange rates are in the traders’ favor. The wider the exchange rate between two currencies, the better the potential returns for the investor.

Recommended: What Is Forex Trading?

Even so, a carry trade strategy can be a relatively simple way to increase an investor’s returns, assuming they understand the difference in interest rates. In that way, it’s similar to understanding “spread trading” as they relate to stocks.

How Do You Execute a Carry Trade?

Carry Trade Example

Imagine that the US dollar has a 1% interest rate, but the British pound has a 2% interest rate. A trader could take 100 US dollars, and then invest that 100 dollars into the equivalent number of pounds (according to the exchange rate), and earn a higher return in interest. The discrepancy in interest rates allows traders to take advantage and earn higher returns.

This is a rather simplistic carry trade example, professional traders and investors can engage in complex carry trade strategies, and even employ the use of a carry trade formula to help them figure out expected returns, and whether the strategy is worth pursuing in a given situation.

Rather than simply buying one currency with another, traders often execute a carry trade that involves borrowing money in one currency and using it to purchase assets in another currency. In this scenario, traders want to borrow the money at the lowest possible interest rate, and do so using a weak or declining currency.

That can create higher profits when they close the deal and pay back the borrowed money. In general, carry trade is a short-term strategy, rather than one focused on the long-term.

Recommended: Short-Term vs Long-Term Investments

Is a Carry Trade Risky?

The concept of a carry trade is simple, but in practice it can involve investment risk. Most notably, there’s the risk that the currency or asset a trader is investing in (the British pounds in our previous example) could lose value. That could put a damper on a trader’s expected returns, as it would eat away at the gains the difference in interest rates could provide. Currency prices tend to be very volatile, and something as mundane as a monthly jobs report released by a government can cause big price changes.

The greater the degree of leverage an investor uses to execute a carry trade, the higher the potential returns–and the larger the risk. In addition to currency risk, the carry trade is subject to interest rate risk. Given the risks, carry trades in the currency markets may not be the most appropriate strategy for investors with a low tolerance for risk.

The Takeaway

Carry trades are one way for investors or traders to generate returns, although the approach involves some risks that aren’t present in other types of investment strategies. While the carry trade concept is straightforward, it can quickly get complex when institutional investors put it in place.

If you’re ready to start investing in less complicated investments, a great way to start is by opening an account on the SoFi Invest® brokerage platform, which allows you to buy or sell stocks, ETFs, trade crypto and more.

Photo credit: iStock/akinbostanci


SoFi Invest®
The information provided is not meant to provide investment or financial advice. Investment decisions should be based on an individual’s specific financial needs, goals and risk profile. SoFi can’t guarantee future financial performance. Advisory services offered through SoFi Wealth, LLC. SoFi Securities, LLC, member FINRA / SIPC . SoFi Invest refers to the three investment and trading platforms operated by Social Finance, Inc. and its affiliates (described below). Individual customer accounts may be subject to the terms applicable to one or more of the platforms below.
1) Automated Investing—The Automated Investing platform is owned by SoFi Wealth LLC, an SEC Registered Investment Advisor (“Sofi Wealth“). Brokerage services are provided to SoFi Wealth LLC by SoFi Securities LLC, an affiliated SEC registered broker dealer and member FINRA/SIPC, (“Sofi Securities).

2) Active Investing—The Active Investing platform is owned by SoFi Securities LLC. Clearing and custody of all securities are provided by APEX Clearing Corporation.

3) Cryptocurrency is offered by SoFi Digital Assets, LLC, a FinCEN registered Money Service Business.

For additional disclosures related to the SoFi Invest platforms described above, including state licensure of Sofi Digital Assets, LLC, please visit www.sofi.com/legal.
Neither the Investment Advisor Representatives of SoFi Wealth, nor the Registered Representatives of SoFi Securities are compensated for the sale of any product or service sold through any SoFi Invest platform. Information related to lending products contained herein should not be construed as an offer or pre-qualification for any loan product offered by SoFi Lending Corp and/or its affiliates.
SOIN0621245

Source: sofi.com

Here’s What You Need to Know About Investing in 2021

Here’s a good question for the new year: Is 2021 a good time to invest in stocks?

In turbulent times like these, it’s hard to know the right financial moves to make. A lot of the tried-and-true advice we’ve always relied on doesn’t seem relevant anymore. Is now a good time to invest? Should I focus on paying off debt? Or saving?

It’s helpful to consult with a pro. So we asked Robin Hartill, a certified financial planner, as well as an editor and financial advice columnist for The Penny Hoarder, for advice.

Here are six financial questions we’ve been getting from readers lately:

1. ‘The Cost of Waiting is High’

Question: “Is 2021 a good time to invest, or should I wait the market out?”

Hartill’s advice: Take the long view. The stock market will grow your money over time, so you might as well get started sooner rather than later.

“The timing of your investment matters much less than how much time you have to invest,” Hartill says. “The S&P 500 has delivered inflation-adjusted returns of about 7% per year on average for the past 50 years. The cost of waiting for the perfect time to invest is high. You’re missing out on long-term growth.”

Profitable investing is all about taking the long view. Not sure how to get started? With an app called Stash, you can get started with as little as $1.* It lets you choose from hundreds of stocks and funds to build your own investment portfolio. It makes it simple by breaking them down into categories based on your personal goals.

“If you were hoping to make a quick buck off the stock market, now may not be a great time,” Hartill said. “We’re still in a recession, but the stock market has recovered. But true investing isn’t about making a quick buck. It’s about growing your money over time.”

She recommends budgeting a certain amount of money to invest each month, no matter what.

If you sign up for Stash now (it takes two minutes), Stash will give you $5 after you add $5 to your investment account. Subscription plans start at $1 a month.**

2. ‘There’s Only So Much Fat You Can Cut’

Question: “My monthly expenses keep going up. Anything I can do?”

“There’s only so much fat you can cut from your budget. Eventually, you start chipping away at muscle and bone,” Hartill said. “Cutting costs is often a good way to meet your shorter-term goals, like saving for a vacation or a down payment. But for the really big long-term goals like retirement and protecting your family from a worst-case scenario, cutting back only goes so far.”

If you need to cut back, though, take a hard look at your mandatory monthly bills — like car insurance. When’s the last time you checked prices? You should shop around your options every six months or so.

And if you look through a digital marketplace called SmartFinancial, you could be getting rates as low as $22 a month — and saving yourself more than $700 a year. 

It takes one minute to get quotes from multiple insurers, so you can see all the best rates side-by-side. Yep — in just one minute you could save yourself $715 this year. That’s some major cash back in your pocket.

So if you haven’t checked car insurance rates in a while, see how much you can save with a new policy.

3. ‘If You Have Your Spending in Check… ’

Question: “My budget is tight. What debt should I focus on paying off?”

“The only way to get out of debt is by spending less than you earn,” Hartill said. “But if you have your spending in check, a debt-consolidation loan can help you shed your debt faster.”

She added a caveat: “This option only makes sense if it lowers your interest payments. Many people who don’t have good credit actually find that the interest rate they’re approved for is even higher than what they’re currently paying.”

There’s a quick way to find out if this would work out for you. It takes just a couple of minutes to check out your options on a website called AmOne. If you owe your credit card companies $50,000 or less, it’ll match you with a low-interest loan you can use to pay off every single one of your balances.

The benefit? You’ll be left with one bill to pay each month. And because personal loans have lower interest rates (AmOne rates start at 3.49% APR), you’ll get out of debt that much faster. Plus: No credit card payment this month.

It takes two minutes to see if you qualify for up to $50,000 online.

4. ‘You Don’t Have to Settle for Nothing’

Question: “My savings account bottomed out. Any other ways to make passive income right now?”

“Although interest rates will stay low until at least 2023, that doesn’t mean you have to settle for earning nothing on your savings,” Hartill said.

Most banks are paying account holders virtually no interest on their savings these days. Try switching to an Aspiration account. It lets you earn up to 5% cash back every time you swipe the card and up to 16 times the average interest on the money in your account. Plus, you’ll never pay a monthly account maintenance fee.

To see how much you could earn, enter your email address here, link your bank account and add at least $10 to your account. And don’t worry. Your money is FDIC insured and under a military-grade encryption. That’s nerd talk for “this is totally safe.”

5. ‘Most of Us Don’t Earn Enough’

Question: “How can I possibly earn enough to ever retire?”

Hartill shared a brutal truth with us: “The overwhelming majority of us don’t earn enough to get to save our way to retirement.”

Ouch, that hurts. But wait, she offers a solution: “Spending money by investing it in the stock market and earning returns that compound into even more money.”

“If you need a $500,000 nest egg to retire, you’d have to trim $10,000 from your budget for 50 years straight to get there through savings alone. But if you invested just $5,000 a year and earned 6% returns, you’d get there in less than 34 years.”

6. ‘The Only Practical Way to Give Your Family Security’

Question: “I have a family. How can I make sure they’re protected in these uncertain times?”

“Spending money on life insurance is the only practical way to give your family the security they deserve,” Hartill said. “Your life insurance needs are greatest when you have young children. Fortunately, this is often a time when you’re still young enough that life insurance is relatively inexpensive.”

Maybe you’re thinking: I don’t have the time or money for that. But this takes minutes — and you could leave your family up to $1 million with a company called Bestow.

We hear people are paying as little as $8 a month. (But every year you wait, this gets more expensive.)

It takes just minutes to get a free quote and see how much life insurance you can leave your loved ones — even if you don’t have seven figures in your bank account.

Mike Brassfield ([email protected]) is a senior writer at The Penny Hoarder. He is not a certified financial planner, but he has stayed in a Holiday Inn Express.

*For Securities priced over $1,000, purchase of fractional shares starts at $0.05.

**You’ll also bear the standard fees and expenses reflected in the pricing of the ETFs in your account, plus fees for various ancillary services charged by Stash and the custodian.

<!–

–>

Source: thepennyhoarder.com

Discover Bank Review | The Simple Dollar

Please Note: Information about Discover Bank has been collected independently by TheSimpleDollar.com. The issuer did not provide the details, nor is it responsible for their accuracy.

If you’re looking for easy banking options with no hidden fees and decent interest, Discover Bank is a good choice. If you prefer to do at least some of your banking in person, this online option isn’t your best fit.

1Y APY

0.50%

3Y APY

0.55%

J.D. Power Rating

N/A

SimpleScore

4 / 5.0

SimpleScore Discover, Member FDIC 4

Customer Satisfaction 5

Minimum Deposit 1

In 2000, the well-known credit card firm Discover launched Discover Bank, Member FDIC. These days, the bank operates primarily online. Along with no-fee bank accounts and excellent mobile support, Discover Bank offers higher-than-average interest rates and unique options, like cash back on debit purchases. Compared to traditional banking institutions, however, Discover Bank lacks variety in checking and savings accounts, making it ideal for customers who want straightforward, no-fee accounts, but less useful for clients with specific checking, savings or investment needs.

Find High-Yield Savings Accounts

View our top-rated partners and find the best rates today. It’s quick and easy.

In this article

Discover Bank at a glance

Bank Min Savings Deposit Max Savings APY 1-Year CD Rate J.D. Power Survey Score Key Benefit
Discover Bank, Member FDIC $0 0.40% 0.50% 860 out of 1,000 in overall customer satisfaction High interest, no fee accounts with awesome online access

What we like about it

Discover makes saving and investing simple, and offers solid interest rates, no-fee accounts and cash-back options. The bank’s mobile app also streamlines the process of money transfers and check deposits.

Things to consider

With only one physical branch, the vast majority of Discover customers can’t get help face-to-face. While Discover Bank’s online and phone support are above average, some customers still prefer brick-and-mortar locations for more complex investment or loan transactions.

Discover checking accounts

Discover Bank offers one checking account: Cashback Debit. It’s an online checking account that offers 1% cash back on eligible debit purchases up to $3,000 per month. It requires no monthly actions or balances to remain active and includes free online bill payments and check ordering.

The account doesn’t have fees for monthly maintenance, either, and customers can benefit from Discover’s policies on in-network ATM withdrawals, debit card replacements, standard check orders, stop-payment orders, insufficient funds or account closures.

Discover savings accounts

Discover’s Online Savings Account comes with above-average interest, which is compounded daily and paid into your account each month. It requires a $0 minimum opening deposit and there is no monthly fee, either. As with Discover Bank’s checking account, there are no fees for monthly maintenance, returned deposit items, stop-payment orders or account closures.

You can also deposit checks with Discover Bank’s mobile app by simply taking a photo of the check and indicating the destination account. Have both a Discover checking and savings account? Well, you can easily transfer money between them in the app.

Discover money market accounts

The money market account from Discover Bank features above-average interest rates — 0.30% APY for balances under $99,999. These accounts provide easy access to cash via the bank’s 60,000 in-network ATMs, and also feature no fees for official bank checks, standard checks, excessive withdrawals or minimum balances.

It’s also possible to freeze your money market debit card if you misplace it. To do this, simply use the Discover Bank mobile app to temporarily disable your card until you find it — or have a new debit card mailed out at no charge.

Discover certificates of deposit (CDs)

Discover Bank’s CD accounts offer terms ranging from 3 months to 10 years, along with the ability to “ladder” CDs with differing maturity rates. While rates under one year are on par with other online banks, CDs with terms of one year or longer offer above-average interest rates. There are no fees for Discover Bank CDs.

There are penalties for cashing in CDs early, though. Terms of less than 1 year incur a penalty of 3 months’ simple interest. Terms between 1 and 4 years face a penalty of 6 months’ simple interest. Terms of 4 to 5 years are 9 months’ simple interest, while penalties for early withdrawal on CD terms of 5 to 7 years are 18 months’ and 7 to 10 years are 24 months of simple interest.

Discover IRA accounts

Both traditional and Roth IRAs are offered by Discover Bank for 12-month, 24-month and 5-year terms. Roth IRAs are funded with after-tax dollars, earnings are tax-free and your contributions are not tax-deductible — but you can withdraw anytime without penalty.

Traditional IRAs are funded with pre-tax dollars and earnings are tax-deferred, but the money can’t be withdrawn until you’re 59 and a half. You can easily check in on the status of your IRAs with Discover Bank’s mobile application.

Discover credit cards

Not surprisingly, Discover Bank offers a host of credit card options, including:

  • Discover it® Cash Back: Get 5% cash back at different places each quarter like grocery stores, restaurants, gas stations, select rideshares and online shopping, up to the quarterly maximum when you activate. Plus, earn unlimited 1% cash back on all other purchases. In addition, Discover will match the cash back you earn in at the end of the first year, with no limitations on the total amount.
  • Discover it® Miles: The card earns unlimited 1.5x miles on all purchases, plus matching all miles earned at the end of your first year.
  • Discover it® Secured: Designed to help build your credit rating, this card requires a refundable security deposit (of at least $200 after being approved) and has a higher-than-average interest rate. Furthermore, the card offers 2% cash back on gas station and restaurant purchases (up to $1,000 in combined purchases every quarter, automatically) and 1% cash back on all other purchases, along with automatic cash back matching at the end of your first year.

Discover  investing

Discover Bank doesn’t offer any dedicated investment portfolios or products. Instead, the firm points customers to its combination of high-yield savings, money-market and CD options. If you’re looking for an online bank with more diversified investment options, consider Ally; their investment options include self-directed or managed portfolio trading across stocks, ETFs, bonds, mutual funds and margin accounts.

Compare top bank accounts

Please Note: Information about the Discover it® Secured, Discover it® Miles and Discover it® Cash Back have been collected independently by TheSimpleDollar.com. The issuer did not provide the details, nor is it responsible for their accuracy.

Source: thesimpledollar.com

5 Strategies for Paying Off Car Loan Early

Is your monthly car payment a burden to your budget? Paying off your car loan early can earn you much-needed financial freedom and save you potentially hundreds (or thousands) of dollars in would-be interest. 

You can pay off your car loan early using several effective strategies, but before you do, consider any potential penalties and effects to your credit score.

The True Cost of a Car Loan

It’s no secret that cars are our worst big-ticket investment. Unlike houses, which typically increase in value over time, and education, which theoretically opens the door to higher earning potential, cars lose their value over time. In fact, a new car depreciates in value as soon as you drive it off the lot and will lose 20% to 30% of its value in the first year.

That’s a big deal, especially given the average cost Americans are spending on new cars in 2021. According to KBB, that hard-to-swallow number is over $40,000, up more than 4% over 2020.

That means Americans are shelling out $40,000 for a car that, in a year, will be worth anywhere from $28,000 to $32,000, representing an $8,000 to $12,000 loss.

But there’s more than just the sticker price to consider. In addition to sales tax (average of 10.12% in 2020, though it varies by state), be prepared to pay interest on your car loan. Right now, the average car loan interest rate (also referred to as APR, the annual percentage rate, though there’s a difference) is over 4%.

APR includes the interest rate, in addition to other fees, like loan origination fees or mortgage insurance. You should use the APR, not the flat interest rate, when calculating what you’re paying.

Your APR will depend on the current market and your credit score. The better your credit score, the lower your APR. If you have a weak credit score and can put off buying a car, it is advisable to build up your credit score before applying for a loan.

For 2021, rates are expected to hover between 4% and 5% for 48-month (four-year) and 60-month (five-year) loans. 

Car Loan Calculator: An Example

Interest on a car loan adds up. Let’s take the $40,000 new car as an example, with a $995 dealer fee. Assume you put $2,000 down and have a tax rate of a clean 10% and an APR of 5%. You’ve agreed to pay off the loan over 60 months, or five years. (The typical car loan is anywhere from three to seven years; the shorter the loan period, the higher the monthly payment.)

In this scenario, the total cost of the vehicle after tax and dealer fees is $44,995, minus your $2,000 down payment. That leaves $42,995 to be financed. Given the 5% interest rate over 60 months, your monthly payment would be $811.37.

Over 60 months, you will end up having paid $50,682.20 (including down payment) for a car that, with taxes and dealer fees, cost just $44,995. That means, over five years, you’ve paid $5,687.20 in interest. 

And let’s just ignore the fact that, due to depreciation, that car that you’ve just paid $50,000+ on is now worth just $18,752.41 (average value of 37% of original cost after five years).

Use The Penny Hoarder’s car loan calculator to figure out how much you’ll pay with real-life numbers that match your scenario.

How Car Loan Interest Rates Work

Paying off your car loan early, if you can afford it, seems like a no-brainer then. However, before you start strategizing about how to pay off your car loan ahead of schedule, do some digging to determine what kind of car loan you have.

In an ideal world, your loan will be a simple interest loan. If you have not yet purchased your car, only consider lenders that will offer you a simple interest loan. This means the interest is calculated entirely on the principal balance of the loan.

But if your lender charges precomputed interest, that means they will calculate how much you will pay in interest over the life of the loan and include that in your total balance. That means, even if you pay off your car early, the payoff quote will include all the interest you would have paid had you kept the loan open. In this case, there are absolutely no financial savings in paying your car loan off early.

One other element of your loan to research is payoff penalties. Payoff penalties are legal in 36 states and allow lenders to charge you a penalty (usually a fixed percentage of the remaining balance) for paying off your car loan early. In this case, it may be more expensive than what you would have paid in interest over the life of the car loan.

Will Paying Off Your Car Loan Early Hurt Your Credit Score

It is not likely that paying off a car loan early will hurt your credit score, but it could be keeping you from growing your credit score. Regular, on-time payments account for roughly 35% of your FICO credit score, making it the most important factor. Making monthly payments on a car loan is a great way to show lenders you are responsible with repaying your debts.

In addition, lenders like to see a nice mix of credit (mortgage, car loan and credit cards are the big three). Keeping your car loan open also helps extend the length of your credit history. If you have no other open credit (like a credit card), keeping your car loan open may be advantageous in building up your score if you eventually intend to buy a house.

5 Strategies for Paying Off Your Car Loan Early

If you have a simple interest car loan, your credit is in good standing and your loan doesn’t have any payoff penalties, it may be wise to pay off your car loan ahead of schedule. Not only will you avoid spending heaps of money on interest, but it will also give you the financial freedom of hundreds of dollars back in your monthly budget.

The best advice for paying off a car loan early: treat it like a mortgage. If you are a homeowner, you have likely heard that making an extra (13th) payment toward your mortgage principal every year can shave years off your loan. If you pay even more toward the principal each year, you can easily get your 30-year mortgage down to 15 years—and you’ll be able to drop PMI (private mortgage insurance) costs much earlier.

Of course, home loans tend to be much bigger than vehicle loans, so the potential to save is much larger, but the logic works the same with your car loan.

These strategies for early payoff are all effective, if done right:

1. Make One Large Extra Payment Every Year

If you can count on your grandma slipping a fat check into your Christmas card every year without fail, don’t use that money to splurge on alcoholic eggnog (OK, maybe one bottle). Instead, apply it directly to your car loan as a lump sum.

If you have autopay scheduled online, you can log into your account and simply arrange to make a one-time payment. If you’re old-fashioned and pay by phone or mail, simply call your lender and let them know you’d like to make an extra, one-time payment toward the principal.

Apply this logic to any unbudgeted (aka, not-planned-for) funds, like a bonus at work or a tax refund.

2. Make a Half Payment Every Two Weeks

Talk with your lender to see if you can switch to biweekly payments, instead of monthly. If your lender allows you to pay half of your monthly loan amount every two weeks, you will wind up making 26 half payments. Divide 26 by 2, and you get 13 full months of payments, paid over 12 months. That means, by the end of the year, you will have essentially made an extra car payment.

Just check your budget first to ensure that kind of payment plan is feasible.

3. Round Up

Rounding up to the nearest $50 or even $100, if you can swing it, is a great way to add extra money every month to the principal. For example, if your monthly payment is $337, you could round up to $350 or even $400 to essentially pay an extra $13 or $63 a month. This will wind up knocking a few months off the life of your loan.

If you have autopay scheduled, log onto your loan platform and see if you can add the additional funds toward the principal each month so you don’t even have to think about it.

4. Resist the Urge to Skip a Payment

Some lenders may let you skip one or two payments a year. So kind of them, right? Wrong. They do this knowing it will extend the life of your loan, meaning they will rake in even more of your hard-earned cash in interest fees.

Unless you fall on very hard times, fight the urge to skip a payment. You will wind up paying more in the end if you do.

5. Refinance, but Exercise Caution

If you had a poor credit score when you bought your car and opted for a seven-year loan to keep payments low, it might make sense to refinance. Perhaps you’re two years into the loan, you’ve got a higher-paying job, and your credit score is in great shape. You could potentially refinance at a lower APR and build the loan out over 36 months, saving you two years and lots of money in interest.

But borrower beware: Don’t refinance to get a lower monthly payment by extending a loan, as you will end up just paying more in interest. 

When You Shouldn’t Pay Off Your Car Loan Early

As we’ve seen, it doesn’t always make sense to pay off your car loan early. But there are more reasons to hold your horses than just payoff penalties and precomputed interest.

Here are some other reasons not to pay off your car loan early:

  • Lack of emergency savings. Bankrate reported early in 2021 that most Americans could not afford a $1,000 emergency. Just 39% have enough to cover such an unexpected expense. If you are a part of that 61% without a well-padded emergency fund, prioritize adding funds to a high-yield savings account to protect yourself and your family should the unthinkable happen. And it’s not just your family’s medical emergencies; you may need to cover a deductible on your renter’s insurance in the case of a break-in, the cost of an unexpected car repair or even a terrifying trip to the vet when your dog eats something he shouldn’t.
  • Higher-interest loans. If you have a reasonable interest rate on your car loan but are drowning in credit card debt, focus on the debt that has the highest interest rate. Credit cards historically have interest rates in the high teens, so they make the most sense to pay off first. If you are free of credit card debt but have a mortgage or student loans, compare those interest rates to that of your car loan to figure out which makes the most sense to pay down with extra funds.
  • Lack of credit history. If you refuse to get a credit card and don’t yet have a house, a car loan is your best bet for building your credit score. Keeping your car loan open could positively affect your credit score.
  • Investments. For most drivers, car loan APRs are not terrible. If you have some extra funds and are thinking about paying off your low-interest car loan, consider instead investing in your retirement fund or even buying a few stocks on your own. The average stock market return is about 10%. Obviously, you could wind up losing money, but in general, if you invest and hold, over time, you should expect your money to grow.

Timothy Moore is a managing editor for WDW Magazine, and a freelance writer and editor covering topics on personal finance, travel, careers, education, pet care and automotive. He has worked in the field since 2012 with publications like The Penny Hoarder, Debt.com, Ladders, Glassdoor, Aol and The News Wheel. 

<!–

–>



Source: thepennyhoarder.com

How Does Non-Farm Payroll (NFP) Affect the Markets?

What Is Nonfarm Payroll?

A nonfarm payroll is an economic report used to describe the number of Americans employed in the United States, excluding farm workers and select other U.S. workers, including some government employees, private household employees, and non-profit organization workers.

Known as “the jobs report” the nonfarm payroll looks at the jobs gained and lost during the previous month.

The US Nonfarm Payroll Report Explained

The NFP report studies US employment via two main surveys by the US government of private employers and government entities.

•  The U.S. Household Survey. This report breaks down the employment numbers on a demographic basis, studying the jobs rate by race, gender, education, and age.

•  The Establishment Survey. The result of this survey tracks the amount of jobs by industry as well as the number of hours worked and average hourly earnings.

The US Bureau of Labor Statistics then combines the data from those reports and issues the updated figures via the nonfarm payroll report on the first Friday of every month, and some call the week leading up to the report “NFP week.” Economists view the report as a key economic indicator of the US economy.

How Does NFP Affect the Markets?

Many investors watch the nonfarm payroll numbers very closely as a measure of market risk. Surprise numbers can create potentially large market movements in key sectors like stocks, bonds, gold, and the US dollar, depending on the monthly release numbers.

Investors create a strategy based on how they think markets will behave in the future, so they attempt to factor their projections for jobs report numbers into the price of different types of investments. Changing or unexpected numbers, however, could prompt them to change their strategy.

If the nonfarm payroll number reflects a robust employment sector, for example, that could lead to a rise in US stock market values along with a hike in the US dollar relative to other global currencies. If the nonfarm payroll points to a downward-spiraling job sector, however, with declining wages and low employment growth, that could portend a stock market downturn and the US dollar could also decline in value, as investors lose confidence in the US economy and adjust their investment portfolios accordingly.

4 Figures From the NFP Report to Pay Attention To

Investors look specifically at several figures within the jobs report:

The Unemployment Rate

The unemployment rate is central to US economic health, and it’s a factor in the Federal Reserve’s assessment of the nation’s financial health and the potential for a future recession. A rising unemployment rate could result in economic policy adjustments (like higher or lower interest rates), which could impact the financial markets, domestically and globally.

Higher-than-expected unemployment could push investors away from stocks and toward assets that they consider more safe, such as gold, potentially triggering a stock market correction.

Employment Sector Activity

The nonfarm payroll report also examines employment activity in specific business sectors, like manufacturing or the healthcare industry. Any significant rise or fall in sector employment can impact financial market investment decisions on a sector-by-sector basis.

Average Hourly Wages

Investors may look at average hourly pay as a good barometer of overall US economic health. Rising wages point to stronger consumer confidence, and to a stronger economy overall. That scenario could lead to a stronger stock market, but it may also indicate future inflation.

A weaker hourly wage figure may be taken as a negative sign by investors, leading them to reduce their stock market positions and seek shelter in the bond market, or buy gold as a hedge against a declining US economy.

Revisions in the Nonfarm Payroll Report

Nonfarm payroll figures, like any specific economic benchmarks, are dynamic in nature and change all the time. Thus, investors watch any revisions to previous nonfarm payroll assessments to potentially re-evaluate their own portfolios based on changing employment numbers.

How to Trade the Nonfarm Payroll Report

While long-term investors typically do not need to pay attention to any single jobs report, those who take a more active, trading approach may want to adjust their strategy based on new data about the economy. If you fall into the latter camp, you’ll typically want to make sure that the report is a factor that you consider, though not the only one.

You’ll want to look at other economic statistics as well as the technical and fundamental profiles of individual securities that you’re planning to buy or sell. Then, you’ll want to devise a strategy that you’ll execute based on your research, your expectations about the jobs report, and whether you believe it indicates a bull or a bear market ahead.

For example, if you expect the nonfarm payroll report to be a positive one, with robust jobs growth, you might consider adding stocks to your portfolio, as they tend to appreciate faster than other investment classes after good economic news. If you believe the nonfarm payroll report will be negative, you may consider more conservative investments like bonds or bond funds, which tend to perform better when the economy is slowing down.

Or, you might opt to take a more long-term approach, taking the opportunity to potentially get stocks at a discount and invest while the market is down.

The Takeaway

Markets do move after nonfarm payroll reports, but long-term investors don’t have to make changes to their portfolio after every new government data dump. That said, active investors may use the jobs report as one factor in creating their investment strategy.

Whatever your strategy, a great way to start executing it is via the SoFi Invest® brokerage platform. It allows you to build your own portfolio, consisting of stocks, exchange-traded funds, and other investments such as IPOs and crypto currency. You can get started with an initial investment of as little as $5.


SoFi Invest®
The information provided is not meant to provide investment or financial advice. Investment decisions should be based on an individual’s specific financial needs, goals and risk profile. SoFi can’t guarantee future financial performance. Advisory services offered through SoFi Wealth, LLC. SoFi Securities, LLC, member FINRA / SIPC . SoFi Invest refers to the three investment and trading platforms operated by Social Finance, Inc. and its affiliates (described below). Individual customer accounts may be subject to the terms applicable to one or more of the platforms below.
1) Automated Investing—The Automated Investing platform is owned by SoFi Wealth LLC, an SEC Registered Investment Advisor (“Sofi Wealth“). Brokerage services are provided to SoFi Wealth LLC by SoFi Securities LLC, an affiliated SEC registered broker dealer and member FINRA/SIPC, (“Sofi Securities).

2) Active Investing—The Active Investing platform is owned by SoFi Securities LLC. Clearing and custody of all securities are provided by APEX Clearing Corporation.

3) Cryptocurrency is offered by SoFi Digital Assets, LLC, a FinCEN registered Money Service Business.

For additional disclosures related to the SoFi Invest platforms described above, including state licensure of Sofi Digital Assets, LLC, please visit www.sofi.com/legal.
Neither the Investment Advisor Representatives of SoFi Wealth, nor the Registered Representatives of SoFi Securities are compensated for the sale of any product or service sold through any SoFi Invest platform. Information related to lending products contained herein should not be construed as an offer or pre-qualification for any loan product offered by SoFi Lending Corp and/or its affiliates.
SOIN21127

Source: sofi.com

Can Missing Just One Payment Affect Your Credit Score?

By now you’ve probably begun, or perhaps even finished, your Christmas shopping.

And while December is a month filled with countless distractions one thing remains crystal clear, which is that you cannot forsake your obligations to lenders just because you’re distracted.

I just returned from a trial in Pennsylvania where one of the parties made countless excuses for why he couldn’t pay one of his loans on time and was constantly 30 to 60 days late.

The excuses ranged from falling down and hurting his knees to his dog being exposed to chemicals in his home.

And while everyone is sympathetic to the external pressures of life, due dates are never to be forsaken and lenders don’t care about your excuses.

Great Myths of Credit Scoring

One of the great myths of credit scoring is that minor late payments can’t hurt your scores if you quickly catch the account back up.

This is true BUT only if your late payment is isolated AND historical, meaning the account isn’t CURRENTLY delinquent.

In the world of credit scoring there are two categories of derogatory information; minor and major. The dividing line between the two categories is very clean.

Historical delinquencies that have not gone 90 days past due or worse are considered minor derogatory items. Everything else is considered a major derogatory item.

So, to be clear, minor would include only historical 30 and 60-day delinquencies.

Major would include defaults, any record of being 90 days late or worse, repossessions, tax liens, judgments, collections, foreclosures, bankruptcy, settlements, and accounts that are currently delinquent.

The influence on your credit scores is drastically different between a minor and major derogatory item.

Delinquency Vs. Major Derogatory Item

Using the only FICO credit score estimation tool in existence, I simulated the difference in scores between people who have never been delinquent on anything versus those who are currently delinquent, but not in default.

For those who are currently 30 days delinquent their scores were considerably lower, normally around 35-50 points in my simulations.

For those who were currently 60 days delinquent (but not in default) their scores were always over 100 points lower that those who have never missed a payment.

This is where the confusion begins because neither a 30 day or 60 day delinquency is considered a “major” derogatory item yet their influence on a consumer’s score is significant, which seems counterintuitive until you get a better explanation.

Scoring systems, like FICO and VantageScore, are designed to predict the likelihood that you’ll go 90 days delinquent soon after you apply for credit.

By being currently delinquent, even just 30 or 60 days, you’re making the credit score’s job easy because you’re currently proving that you’re willing to be past due on credit obligations, thus the drastic score drop.

There’s something else to keep in mind, and this isn’t a secret in my world although it’s not well known by consumers.

When you’ve got a “30 day late” on your credit report that means you’re actually at least 30 days late on the obligation.

Lenders are not permitted to report late payments to the credit bureaus until the borrower has gone a full 30 days past the due date.

So, if you’re a week or two behind on your loan payments those won’t ever be reflected on your credit reports, although you’ll likely have to pay late fees.

In fact, a 30 day late on a credit report actually means you’re 30-59 days late on the obligation. A 60 day late on a credit report actually means you’re 60-89 days late on the obligation, and so forth and so on.

Point being, even if an account is showing on the credit report as just being 30 days late it’s possible that it’s actually 40, 50 or almost 60 days late.

This is another reason credit scoring systems are so harsh on consumer’s who have currently delinquent accounts on their credit reports.

What’s the possible harm?

You may be thinking, “well, if I just catch up on the payment and I avoided going 90 days past due (major derogatory) then my score will recover.”

You’re exactly right, although you’re not going to fully recover your score but it will bounce back quite nicely.

However, this still doesn’t prevent significant downside to being currently past due.

Lenders only update your credit reports once a month. That means if you have an account that is showing up as being currently past due it will be that way for a full month.

And, that means your credit scores will likely be lower, and maybe considerably lower, for 30 days straight.

Many credit card and line of credit creditors pull your credit scores every month to determine if they still want to do business with you.

That practice is called “Account Management” or “Account Maintenance.”

Just look at your own credit reports and you’ll likely see a long list of inquiries that fall into those two categories.

If one of your creditors pulls your credit score during their account management process and sees that it has dropped due to the currently late account, they’ll likely react by closing your account, lowering your limits, or raising your interest rates.

John Ulzheimer is the Credit Expert at CreditSesame.com, and a credit blogger at SmartCredit.com, Mint.com, and the National Foundation for Credit Counseling.  He is an expert on credit reporting, credit scoring and identity theft. Formerly of FICO, Equifax and Credit.com, John is the only recognized credit expert who actually comes from the credit industry. The opinions expressed in his articles are his and not of Mint.com or Intuit. You can follow John on Twitter here.

Learn more about security

Mint Google Play Mint iOS App Store

Source: mint.intuit.com

How Important Is APY for a Savings Account? | The Simple Dollar

Even at a time when many Americans are simultaneously not saving money and saving more money than ever, savings accounts remain a valuable place to safely store your money. With FDIC insurance, your balance isn’t at risk, and you can withdraw it as needed. 

The drawback, however, is the relatively low interest rates as the Federal Reserve cut rates in March 2020 in response to the COVID-19 pandemic.

Most people know that when a bank offers you an APY on a savings account, it’s talking about interest rates. In general, the higher the interest rate, the better. However, APY is subtly different from the interest rates you may be familiar with, and that difference can cost you if you’re not aware of it. 

Let’s take a closer look at what exactly APY is, how it affects your savings account, and what that means for you in terms of depositing and withdrawing money.

In this article

What is APY?

APY is short for annual percentage yield, and it describes the percentage of your balance you would earn if you left the money sitting in that account for a full year, untouched. This includes any interest earned later in the year on interest accumulated earlier in the year.

APR, on the other hand, is short for annual percentage rate, and that’s the actual annual interest rate offered on your savings account. It does not include any interest earned later in the year on interest accumulated earlier in the year.

Knowing the difference is critical, and it’s all about understanding compounding.

Different savings accounts pay out interest at different times throughout the year. Some pay out interest once per quarter, while others do it once per month. 

When interest is paid out, the bank calculates the average balance of your account during that time span, then uses that number to determine how much interest to pay you. It uses a fraction of your APR that matches the fraction of the year that it’s paying out for.

APR and APY would be exactly the same if banks paid out interest once a year, but when they pay it out more frequently, the interest you earn in, say, the first quarter begins to earn interest itself in later quarters.

So, let’s say that your bank pays out a 1.2% APR on your savings account, but they compound monthly. That means that each month, it pays out 1.2%/12, or 0.1% of your average balance for the month. If that average balance is $10,000, it pays you $10.

The next step is where APR and APY begin to diverge. The next month, if you left the account alone, you have an average balance of $10,010 in there. Again, the bank pays out 0.1% of your average balance, but that now means you accumulate $10.01 in interest — 0.1% of $10,010. Now, your balance is $10,020.01. The next month, the bank pays $10.02 in interest, changing your balance to $10,030.03. This keeps repeating until you wind up with a balance, at the end of the year, of $10,120.66.

For this account, which offers a 1.2% APR and compounds monthly, you would be quoted the APY instead, and that’s 1.2066% (likely rounded to 1.21%). In other words, the APY is just a bit higher than the APR, and the difference gets bigger when the APR is higher and when interest is paid out more frequently (monthly is better than quarterly, for example, and produces a bigger gap between APY and APR).

The important thing to remember is that to get the full APY savings, you have to leave your money there untouched for the full year. If you pulled your money out after two months, with a balance of $10,020.01, your annual rate of return on that money would only be 1.2006%, not the 1.21% you’d get over the course of a full year. You only get the full APY value if you leave your money alone for a full year.

Why is APY so important? 

There are two big reasons why it’s so important to understand APY.

First, APY indicates what your annual rate of return would be if you left the money alone for a full year. You only get your full APY if you leave the money completely alone — interest included — for a full calendar year. You can withdraw it earlier, but your rate of return on that money will be lower because you didn’t allow for the time needed for your interest earnings to fully grow. This tends to be a small difference when interest rates are as low as they are now, but it can make a big difference in times with higher interest rates.

Even with that catch, APY is the preferred number banks like to quote you because it’s a little higher than APR and thus looks better. In other words, APY is the number you should use to compare the interest rates on various savings accounts, and it’s the most important number if you’re simply using a savings account to hold a lump of cash for a while until you need to withdraw it.

Where can I get the best APY?

Let’s take a snapshot look at the current APY offerings from several of our top savings account picks. In general, the best savings account rates are found with online banks, so it’s worthwhile to know the basics of online banking before choosing one.

*Rates accurate as of July 2021.

If your goal with a savings account is to simply deposit a sum of money, let it sit until you need it, then withdraw it, with minimal transactions or other needs, then APY is the most important factor in a savings account. 

Thus, for simply putting aside a windfall for the future, Varo is currently on of  the best high-yield savings accounts. This will change over time as interest rates change, however.

If you’re looking for a more full-featured bank, want a checking account and strong customer service features, APY becomes a less essential factor, particularly when interest rates are low. This is because banks change their interest rates somewhat regularly, and because the amount you’ll earn is usually relatively small compared to other banking fees and potential inconveniences due to poor customer service. 

For a good all-around bank with strong interest rates, I recommend Ally Bank. Its mix of great customer service, strong online banking tools, and a wide ATM network make it a great choice as a primary bank, and its interest rates are competitive, too. 

Re-evaluating your banking options is a great end-of-the-year financial task, even if you decide to stick with your current bank.

It’s also worth asking if putting money in a savings account is the best option, particularly while interest rates are low. Savings accounts are perfect vehicles for emergency funds, but you may want to consider other financial options if you have a large windfall on your hands. Consider paying down debt instead of saving or investing for retirement.

We welcome your feedback on this article. Contact us at inquiries@thesimpledollar.com with comments or questions.

Source: thesimpledollar.com

Varo vs. Chime: Which Online Bank Is Best?

Tired of looking for a branch or navigating a clunky app when you need to manage your bank account?

For anyone who’s ready to walk away from traditional branch banks, an industry of online challenger banks has blown up over the past decade. Technology companies have swooped in to respond to the need for more mobility, better apps and lower fees.

Varo and Chime, two of the top players in the online banking space, compete for customers with no-fee bank accounts and high-yield savings you can set up and manage from your smartphone.

Which is a better fit for you? See how they compare:

Varo vs. Chime Comparison

Varo (previously Varo Money) and Chime each offer checking and savings accounts through user-friendly mobile apps and online banking. Here’s how we rated each company.

Chime and Varo offer most of the same account options aimed at simplifying banking and savings for anyone who’s ready to say goodbye to traditional banks.

  Varo Chime
Checking Account A A-
Savings Account A+ B
Convenience B+ A-
Mobile Banking A B
Small Business Banking n/a n/a
Fees $2.50 + third-party fees for out-of-network ATMs; up to $5.95 retailer fee for over-the-counter deposit or withdrawal $2.50 + third-party fees for out-of-network ATMs; up to $5.95 retailer fee for over-the-counter deposit; $2.50 + up to $5.95 retailer fee for over-the-counter withdrawal
Average Grade A B+
Full Review Varo Bank Review Chime Bank Review

Back to Top ↑

Chime Overview

Chime is the leader in online banking, offering a no-frills account with features meant to simplify your money management and help you reach savings goals.

Chime Features and Fees

Chime offers fee-free online spending and saving accounts. It includes built-in automatic saving features, SpotMe fee-free overdraft protection, access to two fee-free ATM networks and more.

Chime is known for fee-free services, so you won’t pay for much. You’ll just pay a $2.50 out-of-network ATM fee, plus any fee charged by the ATM operator. And you could pay up to $4.95 to withdraw or deposit cash through your debit card at a Green Dot retail location.

Chime Bank Review

Is Chime right for you? Read our full Chime review to learn more about its features and see what it has to offer.

Back to Top ↑

Varo Overview

As of July 2020, Varo is the first banking app to gain approval for a full bank charter in the U.S. That means it’s its own bank, unlike other banking apps, which provide technology and work with national banks to provide the financial services and accounts behind the scenes.

It hasn’t yet taken full advantage of its status to offer a full suite of financial services, but it does offer services beyond its original stripped-down checking and savings account, including a forthcoming credit builder program and small cash advance loans.

Is Varo a good bank? Read our full review to learn more about its features and decide whether it’s a good fit for you.

Varo Features and Fees

Varo offers an online, app-based checking and savings account with built-in automatic savings tools, optional overdraft protection called Varo Advance, access to a network of fee-free ATMs and more. It also offers cash advance loans and is developing a credit builder program called Varo Believe for qualifying customers.

Nearly all Varo features are fee free. You’ll just pay $2.50 to Varo to use an out-of-network ATM, plus third-party ATM fees. And you could pay a third-party fee up to $4.95 to the retailer if you deposit or withdraw cash over-the-counter at a Green Dot location. If you use Varo Advance, you’ll pay a fee between $0 and $5, depending on how much cash you draw.

Varo Bank Review

Is Varo a good bank? Read our full Varo review to learn more about its features and decide whether it’s a good fit for you.

Back to Top ↑

More Details: Chime and Varo Bank Account Features

Both accounts offer these features:

Fee-Free Checking and Savings Accounts

Both Chime and Varo include a debit account (a.k.a. checking) and optional savings account, both with no monthly fees.

Automatic Savings Tools

Both accounts include simple ways to automatically build your savings account by setting rules to move money from checking to savings when you get paid and when you shop.

High-Yield Savings

Both savings accounts offer higher-than-average APY on your savings account balance.

Chime offers 0.50% APY on savings with no minimum balance requirement.

Varo offers 0.20% APY on savings to any customers, and you can earn 3.00% APY in a given month if you receive at least $1,000 in direct deposits, maintain a minimum balance of $5,000 and keep both of your accounts above a $0 balance during that month.

Early Direct Deposit

As with many online banks, both accounts make your paycheck available up to two days early if you get paid through direct deposit. The money is available in your account as soon as your employer processes payroll, which could be up to two days before the scheduled payday.

Overdraft Protection

Through Chime’s SpotMe overdraft protection program, the company will spot you up to $20 with no fee as long as your account has at least $500 per month in direct deposits. That limit can go up to $200 based on your account activity.

Through Varo Advance, you can add instant overdraft protection through the app with a small cash advance loan of $20, $50, $75 or $100, for a fee of $0, $3, $4 or $5, respectively.

Cash Deposits

With both Varo and Chime, you can deposit money into your bank account at more than 60,000 retail locations with Green Dot, which is a function many online banks don’t allow.

Bill Pay

With either account, you can pay bills through ACH transfer by giving companies your bank account and routing numbers, or mail a paper check.

Secure Deposits

Both companies provide FDIC-insured accounts up to $250,000 (the typical amount for any bank account). Chime partners with The Bancorp Bank and Stride Bank, N.A., and Varo Money is backed by its own Varo Bank.

Instant Money Transfer

With both Chime and Varo, you can send money instantly with no fees to others who use the same app. Varo Bank also works with Zelle for money transfers to folks who use other banks, though it admits the connection isn’t always reliable (and is working to fix that).

Second-Chance Banking

Neither company uses ChexSystems, which many traditional financial institutions use to determine your eligibility for a bank account, so a bad banking history won’t necessarily disqualify you for these accounts. Neither company checks your credit report for a banking account or credit builder card, either.

A woman with a yellow blouse and red book bag uses an ATM machine.
Getty Images

Free ATM Withdrawals

A Chime account gives you access to 38,000 fee-free ATMs in the United States through the MoneyPass and Visa Plus Alliance networks. Varo’s account connects you to more than 55,000 fee-free Allpoint ATMs in the U.S.

Live Customer Support

Talk to a real person from either company via chat in the app, email or on the phone seven days a week.

Reach Chime customer service via email at [email protected], or by phone at 844-244-6363 during business hours: Monday through Friday 6 a.m. to 10 p.m. Central, and Saturday and Sunday 7 a.m. to 9 p.m.

Reach Varo customer service via email at [email protected], or by phone at 800-827-6526 during call center hours: Monday through Friday 8 a.m. to 9 p.m. Eastern, and Saturday and Sunday 11 a.m. to 7 p.m.

Push Notifications

Stay on top of your Varo account balance with optional notifications anytime money moves in or out of your account. Chime gives you the option to receive  a push notification when a direct deposit hits.

Credit Building Programs

Both companies offer a new, secure way to build credit.

Chime’s Credit Builder Visa credit card is a secured credit card with no annual fee, no credit check to apply and no minimum required deposit (an unusual feature for a secured card). It works like a debit card that lets you build credit.

Through the program, Chime members can move money into their Credit Builder account to back the card, make purchases with the card and have the balance automatically paid off from their Credit Builder account. Chime reports activity to credit bureaus, so the card is a less risky way to build or rebuild your credit.

Varo’s forthcoming Varo Believe program is nearly identical, backing a secured credit card with a dedicated amount of your choice from your Varo Bank account.

What They Don’t Offer

Neither platform offers these features:

  • Joint accounts or additional authorized debit card users.
  • Other financial products, like personal loans, auto loans and mortgages.
  • Refinancing.
  • Small business banking services.
  • Paper checks (though you can use bill pay to have the banks send checks for you,

Back to Top ↑

A woman peaks up from a book.
Getty Images

Which Is Better: Varo or Chime?

Chime and Varo bank account features are nearly identical, with details that could sway you one way or the other.

Checking

Varo Bank Account: A

Chime Spending Account: A-

Both banks offer a fee-free checking account for deposits and spending. In both cases, you’ll automatically apply for this account when you set up your account in the app (or online). You can fund it through direct deposit or transferring money from an external bank account.

Both Chime and Varo eschew traditional banking fees, including monthly maintenance fees, minimum balance fees and overdraft fees.

Both accounts let you get your paycheck up to two days early compared with a traditional bank, because they release the funds as soon as your employer initiates the deposit.

Both accounts come with a Visa debit card you can use for transactions anywhere Visa is accepted, and for ATM withdrawals. Both are also connected to the Green Dot network, so you can deposit or withdraw cash at retail locations around the U.S.

Overdraft Protection

Both Chime and Varo charge no overdraft fees and offer optional overdraft protection — but eligibility and details vary.

  • Chime SpotMe: Chime will spot you for an overdraft up to $200 and take it out of your next deposit. To be eligible, you just have to receive $500 in direct deposits every month.
  • Varo Advance: You can opt into overdraft protection as you need it with Varo Advance, a small paycheck advance you select instantly through the app. Choose an advance of $20, $50, $75 or $100, and pay a fee of $0, $3, $4 or $5, respectively. You’ll choose an automatic repayment date anytime between 15 and 30 days of the advance. To qualify, you have to have at least $1,000 in direct deposits within the past 31 days.

Savings

Varo Savings Account: A+

Chime Savings Account: B

Both Varo and Chime offer optional savings accounts that facilitate automatic savings and yield competitive interest rates.

Funding the Account

You can only fund a Chime Savings account by transferring money from your Chime Spending account — not through direct deposit or an external bank account. To add money from another source, you must first deposit it into your Spending account, then make an instant transfer.

You can deposit money into a Varo Savings account from your Varo Bank account in the app or directly from an external account through ACH transfer.

Savings Account Interest Rates

Both Chime and Varo savings yield interest at an annual percentage yield (APY) above the 0.06% national average for savings accounts reported by the FDIC.

Chime Savings offers a 0.50%% APY with no additional requirements.

Varo Savings offers a 0.20% APY with no requirements. You can earn up to 3.00% APY on balances up to $10,000 by receiving at least direct deposits of at least $1,000, maintaining a minimum $5,000 balance and keeping both your Bank and Savings accounts above $0 for the month.

Automatic Savings

Chime and Varo each let you select one or both of two savings “rules” that automatically move money into your savings account. Varo’s options are slightly broader than Chime’s.

  • Chime: Save when you get paid by transferring 10% of any direct deposit of $500 or more into savings. Save when you spend by rounding up Chime debit card transactions to the nearest dollar and depositing the digital change into savings.
  • Varo: Save Your Pay lets you set a percentage of your direct deposits to automatically transfer to savings. Save Your Change rounds up every transaction from your Varo Bank account — including debit card purchases, bill payments and transfers — to the next dollar and deposits the difference into your savings account.

Convenience

Varo: B+

Chime: A-

All online-only banks are convenient relative to traditional branch banks, unless you prefer face-to-face service from bank tellers at a brick-and-mortar bank.

Each bank’s mobile app lets you manage your account 24/7, including mobile check deposit and money transfers, and live customer service agents are available if you need questions answered.

Varo and Chime accounts offer features many online banks don’t, including cash deposits via Green Dot, early paycheck access and flexible overdraft protection.

Mobile Banking

Varo App: A

Chime App: B

Chime and Varo both offer mobile banking apps that are more user-friendly and easier to navigate than what you’ll get for most traditional bank accounts. However, both are pretty simplistic, lacking the budgeting tools you’d find in a lot of mobile apps.

In both apps, you can:

  • View and manage your accounts.
  • Transfer money between savings and checking, to and from external accounts, and to other customers of the same bank.
  • Deposit checks using your smartphone camera.
  • Locate in-network ATMS.
  • Freeze your debit cards.
  • Manage overdraft protection.
  • Contact customer support (via chat or email).

Push Notifications

Both apps give you the option to stay on top of your bank account balance by receiving a push notification every time money moves in or out of your account — via deposit or withdrawal, debit card purchase, or over-the-counter or ATM cash withdrawal. Chime also sends daily account balance alerts.

Small Business Banking

Neither Varo nor Chime offer small business banking accounts or products and services.

Account Fees

Both companies tout fee-free banking that eliminates many of the costs associated with traditional banks — largely because they don’t bear the expense of running brick-and-mortar locations.

You’ll pay no maintenance fees, overdraft fees or foreign transaction fees, and you can avoid ATM fees by using in-network ATMs.

With both banks, you’ll just pay for:

Out-of-network ATM: $2.50 for using an out-of-network ATM, plus any fee the ATM owner charges.

Cash deposit: You’ll pay a retailer fee up to $5.95 to deposit cash via Green Dot.

OTC cash withdrawal: You’ll pay a retailer fee up to $5.95 for a cash withdrawal via Green Dot. Chime also charges a $2.50 fee for over-the-counter withdrawal, while Varo does not.

Varo Advance: You’ll pay between $0 and $5 to use overdraft protection with Varo, while Chime’s SpotMe overdraft protection is free.

Back to Top ↑

How They Differ: Choosing the Right Bank for You

Overall, Chime and Varo offer similar banking products that will likely appeal to the same types of banking customers — but each has slight differences that might appeal to certain customers.

Who Should Join Either Bank?

You might prefer either account over traditional banks if:

  • You prefer the easy access and mobility of online banking.
  • You regularly run your account balance close to $0 or live paycheck to paycheck.
  • You’re often paid through direct deposit — you could benefit from an early payday!
  • You’re often paid in cash but want an online bank account.
  • You want an easy way to save money automatically.
  • You want a flexible and secure way to build credit without the risk of accruing debt.

A traditional bank or credit union is probably a better fit if you want to manage your checking, savings, loans, credit cards and investment accounts all in one place.

Who Should Join Varo?

Varo is better than Chime if:

  • You want to build an emergency fund. Varo’s Save Your Pay rule lets you set aside any percentage of your paychecks you want, so you can set it above Chime’s 10% Save When You Get Paid rule to help you reach your savings goals faster.
  • You want to make the most of your savings. Varo offers six times Chime’s interest rate on savings for qualifying account holders, though the rate comes with balance requirements.
  • You live in the Mountain states. Although services in general tend to be limited in this region, Allpoint’s ATM network has a little more coverage than both MoneyPass and Visa Plus Alliance in Montana, Idaho, Wyoming, Colorado, Utah and Nevada.

Who Should Join Chime?

Chime is better than Varo if:

  • You run on a tight budget. Chime provides overdraft protection with just $500 in monthly direct deposits compared to Varo’s $1,000-deposit requirement. It covers you up to $200 compared to Varo’s $100 and doesn’t charge a fee for the service.

Back to Top ↑

FAQs

Are Chime and Varo the same?

Chime and Varo are distinct companies operating online banking apps, but they each offer similar services.

Is Varo Bank a good bank?

Varo Money is a reputable and popular banking app backed by FDIC-insured accounts through Varo Bank. The mobile bank is a good option for anyone who likes online banking and has simple banking needs that don’t require all financial services to live under one roof.

Is Varo an actual bank?

Yes, Varo Bank, N.A. received approval for a U.S. bank charter in July 2020 and is an FDIC member. Varo Bank is a wholly-owned subsidiary of the financial technology company Varo Money, Inc., which operates the Varo Money banking app.

Which bank is better: Current or Chime?

Current is an online bank account that offers many of the same features as Chime and other neo bank competitors. Current stands out for offering “savings pods,” which help you save toward specific goals, and separate accounts for teens; but it charges fees to access those unique features.

Back to Top ↑

Bottom Line

You can sign up for either Varo or Chime by downloading their mobile apps or visiting their websites.

Neither account requires a minimum opening deposit, but you can connect an external bank account to transfer money in right away or set up direct deposit to fund your account when you get paid.

Back to Top ↑

Our Bank Review Methodology

The Penny Hoarder’s editorial team considers more than 25 factors in its bank account reviews, including fees, minimum daily balance requirements, APYs, overdraft charges, ATM access, number of physical locations, customer service support access and mobile features.

To determine how we weigh each factor, The Penny Hoarder surveyed 1,500 people to find out what banking features matter most to you.

For example, we give top grades to banks that have low fees because our survey showed that this is the No. 1 thing you look for in a bank. Because more than 70% of you said you visited a physical bank branch last year, we consider the number of brick-and-mortar locations. But more than one-third of you use mobile apps for more than 75% of your banking, so digital features are also considered carefully.

Ratings are assigned across the following categories:

  • Personal checking accounts
  • Personal savings accounts
  • Small-business banking
  • Convenience
  • Mobile banking

Credit card and loan products are not currently considered.

Dana Sitar (@danasitar) has been writing and editing since 2011, covering personal finance, careers and digital media.

<!–

–>



Source: thepennyhoarder.com

3 Questions About Compound Interest — Answered | The Simple Dollar

Compound interest is an incredibly powerful force. It allows your money to start growing on its own, with the returns exploding in value over time, if you have the patience.

While the idea is easy to understand, the actual application of it can be tricky. Does it make a difference if money is compounded monthly or quarterly? How does one teach the idea to young children? Are there any places that offer steady compound interest with a high interest rate? Let’s dig in!

In this article

Impact of bank compounding quarterly

Angie writes:

I used to keep my savings at one bank but I didn’t like their service so I switched everything to a new bank. The new bank is great except that they only put interest in my checking account quarterly. The APR on both accounts is the same. I’m trying to figure out how much I’m losing and if it is worth it to find another bank.

It’s probably not worth it to find another bank if you like the customer service at your current bank.

Let’s say you have a large amount in savings — $100,000. Let’s also say that the bank offers 0.5 percent APR on their savings account, which is a reasonable amount in the current banking world. I’m guessing that your old bank compounded monthly, as that’s very common in banking, and your new bank compounds quarterly.

At your old bank, with monthly compounding, you would earn $501.15 in interest in a year. At your new bank, with quarterly compounding, you would earn $500.94 in interest in a year. That’s right, over the course of a year, with $100,000 in the account at 0.5 percent APR, the difference between the two is about 20 cents.

With interest rates as low as they are, different compounding rates don’t make a huge difference. However, if interest rates rebound strongly, you may want to pay attention. Let’s say that interest rates were 5 percent instead of 0.5 percent. In that case, the monthly compounded account would generate $5,116.19 in interest, whereas the quarterly compounded account would generate $5,094.53 in interest. Suddenly, you’re talking about $22, which might be enough to be concerned with.

Unless interest rates rebound a lot, I wouldn’t worry too much about the rate of compounding in your savings account. If you have a big enough balance that it’s making a large difference, there are likely better places to keep your money than a typical savings account at a local bank. Your best approach is to simply find a bank with a good interest rate and good customer service and stick with them rather than chasing a better compounding frequency.

[Read More: What Kind of Bank Account Is Best for Your Money?]

Teaching son about compound interest

Mindy writes:

How can I teach my son about the power of compound interest? He is 6. We put some money in a savings account but it is growing slowly and he doesn’t really get it.

Speaking from personal experience when teaching my own children this lesson, the key is to make the compounding periods small and the interest rate big so that they see what’s happening.

For my own children, when they were very young, we illustrated compound interest with a bowl of pennies. The goal was to make compound interest as tangible and physical as possible.

We withdrew a bunch of rolls of pennies from the bank and put a bowl of pennies out on the table, starting with 30 or so. We told them that each day, the number of pennies in the bowl would grow by 10 percent — in other words, for every 10 pennies in the bowl, we would add one penny.

We had them guess how many pennies would be in the bowl in one month. Each night, we’d count the pennies, then we would add one penny for every 10 we counted.

Their guesses were all super low, so they were blown away by the growth of it — the bowl was literally overflowing by the end of the month, with incredibly fast growth over the last week.

Later, we offered them a very high weekly compound interest rate on their allowance money if they deposited it at the “Bank of Mom and Dad.” In other words, if they held their allowance in their hand and decided to deposit it with us, we would give them 5 percent interest each week on their savings. At first, our children were hesitant to take advantage of it, but when one of them started to save for a big goal and they saw how the savings were accelerating thanks to the power of compound interest, they all jumped on board. We actually had to put a cap on weekly interest!

The message is simple. If you want your kids to learn about compound interest, make it tangible and visual. Make it important to them. Make the rate of growth rapid, so that their patience is not overly tested. Once they see the idea, it will stick with them for life.

[Read More: Some Thoughts on Parenting and Personal Finance Success from an Experienced Parent]

High rate of steady compound interest

Jerry writes:

Are there any investments that offer a high rate of steady interest? Bank accounts are so low these days and everything else is so variable.

Unfortunately, investments that offer a very steady rate of return offer a very low rate of return these days. It’s not like it was in the late 1970s and early 1980s, when you could buy U.S. Treasurys that paid 10 percent or more. Even as recently as 2007, online bank accounts could be found that paid as much as 6 percent per year.

Before we dig too much into this, consider why banks offer interest on bank accounts in the first place. In really simple terms, they do it because they need to have a certain amount in their vaults in order to lend out money to other customers. In essence, the money in your checking or savings account ends up being the money that banks lend out to people getting mortgages and business loans.

The reason that you won’t find steady, solid interest rates much above 1 percent right now is because of the Federal Reserve. The Federal Reserve sets a number of interest rates that dictate how much banks can charge each other for temporary loans and how much the Federal Reserve charges them for emergency loans. If banks have access to money at the low interest rates that the Federal Reserve offers, they don’t have a whole lot of incentive to offer high interest rates to customers.

Think about it this way. If a bank can borrow money from another bank for 0.25 percent, why would they give you much more than that in interest on your deposits? All a bank wants is money in their vaults as inexpensively as possible so they can lend it out in the form of business loans and car loans and mortgages. If they charge a lot more than 0.25 percent, they’re probably going to lose money by doing so.

So, as long as the Federal Reserve keeps interest rates low, your bank will give you low interest rates on your savings and checking accounts. It will only go up when the Federal Reserve raises rates.

We welcome your feedback on this article. Contact us at inquiries@thesimpledollar.com with comments or questions.

Source: thesimpledollar.com