Does homeowners insurance cover water damage? It Depends

This is one of the first questions homeowners ask — or should ask — when they are shopping for insurance for their home:

“Does homeowners insurance cover water damage?”

The answer they are given is “it depends,” and such is the way with understanding what homeowners insurance covers and what it does not. Read this story to learn what insurance protects in general.

You pay for homeowners insurance because you must in order to get a mortgage, and you hope you never need to use it. But a variety of ills — natural or human made — can put you in a position to make a claim of loss or damage to property. You hope the coverage you have paid for all of these years will extend to the situation you are dealing with, but you just never know.

Again, It depends.

Below, you can find what to do when you need to contact your insurance company because you have suffered property loss or your home is damaged. Then you will find out what to do when your claim is denied.

But, first, let’s look at all the ways your home can be damaged by water, and the chances that your homeowners insurance will cover your loss in that event.

Does Homeowners Insurance Cover Water Damage?

The answer to the question “does homeowners insurance cover water damage?” is multileveled, just as the water damage might be.

In general, water damage caused by accident or mechanical failure of an appliance (washing machine, dishwasher, water heater, etc.) is going to be covered by standard policies. The same is true of a toilet that suffers a sudden leak.

But, if the water damage is a result of poor maintenance, such as broken pipes, mold or rotting pipes or water lines, the claim is likely to be denied.

Coverage for water damage is separated into dwelling damage and personal property damage, What is not covered is replacement of the appliance or machinery that caused the water damage. If your dishwasher develops a sudden leak which causes damage to your home, the structural damage and personal property damage likely will be covered but the cost of replacing the dishwasher will not.

If your home suffers water damage from a backed-up sewer or drain, traditional homeowners insurance doesn’t cover such occurrences. Many companies offer water backup coverage, however.

Flood damage is rarely covered by a standard homeowners insurance policy. Flood insurance policies are available thanks to the National Flood Insurance Program (NFIP) , but it is pricey.

According to the National Flood Insurance Program, the average cost of flood insurance for 2021 is $958 annually. That comes out to about $80 a month. 

If you wonder “does homeowners insurance cover water damage?” check with your agent to determine just what is covered and what is not, and whether you need to consider extended water damage coverage due to current climate conditions or the age of your home.

Making a Claim with Insurance Company

If you have not yet been in a position to make a claim against your homeowner’s policy but know someone who has been denied and you worry about your own policy’s virtues, take time to consider your choices in company and coverage.

What follows is a simplified representation of what is involved in making a homeowners insurance claim for water damage, including the possibility of having your claim denied and what to do in that event.

Step One: Your Home or Property Suffers Water Damage

When your home suffers water damage, you need to determine the actual extent of damage, and if you can, how the damage was caused.

Then contact your insurance company to determine if the damage is covered by your policy. This response to this question is not cut and dried, but it is the starting point for recovering some of your losses.

Step Two: Take an Inventory of What Was Damaged

Take photos or video of water-damaged possessions, structure or property (actually, it would be wise to take a video of your pre-disastered home right now, so you can refer to post-disaster).

Attempt to determine the value of individual items that need to be replaced, and find receipts if you have them (which is actually easier these days since most purchases occur with some form of electronic transaction). If the damage is structural, that will create a need for damage assessment and estimates, but that will occur after the insurance company has agreed to pay up.

Step Three:  Meet with the Adjuster

The insurance company will assign you an adjuster, who will eventually come to your home and assess the damage.

Do not assume this person is out to prevent you from covering your damages, but remember that the adjuster is protecting the interests of the insurance company to prevent fraudulent claims.

The adjuster will require a list of lost or damaged items with an estimated value of those items, and will assess structural or property damage that will require estimates to determine repair costs. Putting together a list of the valuable contents of your home is another thing to do before disaster strikes.

How much homeowners insurance do you need? Our insurance checklist will guide you to make the right decision. 

Step Four: Get the Verdict

The adjuster will eventually call you with a detailed list of what the company is going to cover, the amount it will give you for your lost or damaged items, and what structural damage the company will pay to be repaired. You may or may not like the dollar figures the adjuster offers.

You may also be surprised to hear that the insurance company can deny your claim, in part or in whole. This is where the insurance company is covering its assets: it will present in written form why it is denying your coverage claim. This letter should provide a complete and specific explanation why your policy does not cover the losses you claim.

If your policy explicitly states certain items or losses are exempt from your coverage, that is the end of the conversation. However, if you believe your policy should cover the damage you suffered, speak to the agent who sold you the policy, if possible, or ask to have an in-person conversation with the adjuster to discuss the situation.

Proving that your policy should cover your losses will not be easy. However, if you have a different interpretation of the language in your policy than what the adjuster suggests, or you have notes from your original conversation with your agent at the time you bought the policy, you can go on to the next step.

What’s God Got to Do With It?

Most standard homeowners insurance policies include an Act of God provision. From an insurance standpoint, an Act of God is damage that occurs as a result of natural causes with no human component, something that could not have been prevented by proper care or maintenance.

Earthquakes or floods are often considered an Act of God. Wildfires may also be considered an Act of God if started by lightning rather than humans (campfire gone bad, tossed cigarette and more).

Homeowner’s insurance policies spell out which Acts of God are covered. For instance, floods are Acts of God, although homeowners in flood plains or near coasts or lakefronts can purchase flood insurance at an additional cost.

Often, standard homeowners insurance policies do cover damage from high winds from natural events like hurricanes and tornadoes. If this is a possible factor in your claim, determine what your policy covers before going onto the next extensive and expensive step.

The increased occurrence of wildfires in the Pacific Northwest has made fire protection a must for homeowners in that area. But different companies provide different levels of coverage and full coverage can be expensive.

How to Fight a Denied Claim

You feel your insurance company is not fulfilling its legal promise to cover the cost of water damage to your home. You have documentation of your losses, a detailed description of the event that caused your damage (malfunctioning appliances or plumbing mishap), and you are in a position where it will behoove you financially to argue your case.

Pro Tip

In most cases, there is a limited time frame in which a denied insurance claim can be appealed, and the time frame begins from the moment you are notified of the denied claim.

Your homeowner’s insurance policy includes language stating how to appeal a denied claim. Getting involved in a battle with your insurance company may seem like a lost cause, but often, insurance companies can be convinced to adjust their decision to your benefit.

You might want to consider improving your chances by consulting a property insurance claims professional. These are licensed public insurance adjusters who can assess your claim from an objective viewpoint and will negotiate with our insurance company for you. Deciding on whether to hire a professional outside adjuster will be based on the cost of his or her service versus the amount of money you hope to recover.

The last step to recover funds would be to sue your insurance carrier, which would require hiring an attorney who specializes in property insurance claims. Get references and verifiable information on previous claims regarding water damage that were settled to the homeowner’s benefit.

Here’s hoping this helps and that you never need it.

Kent McDill is a veteran journalist who has specialized in personal finance topics since 2013. He is a contributor to The Penny Hoarder.

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Source: thepennyhoarder.com

Marcus Bank Review | The Simple Dollar

Anyone looking for no-fee savings accounts might want to look into Marcus. Its rates are high compared to the competition. The downside, though, is that it’s an outgrowth of a traditional bank, which means that in some cases Marcus’ technology isn’t as advanced as other banks.

Savings APY

0.50%

Min. Deposit

N/A

1Y CD Rate

0.55%

SimpleScore

3.8 / 5.0

SimpleScore Marcus by Goldman Sachs 3.8

Savings APY 5

1Y CD APY 5

Customer Satisfaction N/A

Mobile App 4

Product Variety 1

Goldman Sachs is an investment bank that was founded in 1869, and Marcus is its online offshoot that launched in the U.S. in 2016. These days, the bank’s headquarters are in New York City. Marcus is known to offer high-yield savings and certificate of deposit (CD) accounts that are accessible even with a low deposit, and its No-Penalty CD is a unique option compared to the competitors.

In this article

Marcus Bank at a glance

Bank Min Savings Deposit Max Savings APY 1-Year CD Rate J.D. Power Survey Score Key Benefit
Marcus Bank $0 0.50% 0.55% 899 out of 1,000 No-penalty CD

What we like about it

Marcus Bank offers an easy-to-access savings account with a high rate but no minimum deposit. The rates on the CD accounts are also very high. If you’re looking for a quick way to store your money and continue earning a good amount of interest, Marcus Bank might be a good option. We also like the No-Penalty CD, which could be useful for people who aren’t sure if they can store their money for a full 12-month term.

Things to consider

Marcus Bank doesn’t offer a checking account or ATM access, so there’s no quick way to access your cash. To transfer money in, you’ll need to move it from an external account, so there could be delays. However, you can wire in money, which doesn’t cost a fee from Marcus, but it may come with charges from the other bank. Wires are usually available the next day.

The biggest complaint among reviewers is the lack of a mobile presence. Without an app or access to ATMs, it’s nearly impossible to deposit a paper check into your savings account. To deposit a paper check, you have to mail it directly to the bank, and the bank will file it for you. This extra step seems like a slight oversight for a bank that is online only.

Marcus checking accounts

Marcus Bank doesn’t offer checking accounts, so customers don’t have access to a debit card or checks. If you only need a savings account or a CD, Marcus could work for you. Otherwise, the lack of an ATM card could be a burden to customers who don’t want their accounts scattered across many different banks. A good alternative is HSBC, which offers three separate checking accounts, all of which offer free overdraft protection.

Marcus savings accounts

The high-yield savings account at Marcus Bank has a rate of 0.50%. There are no related account fees and no minimum deposit to contend with, either. To deposit money into the account, you have three options: link to an external account and transfer money, mail in a check or wire the cash.

The customer service center for Marcus Bank is open seven days a week, so even though there are no physical branch locations, help should be easily accessible by phone. All Marcus accounts are FDIC-insured.

Marcus money market accounts

Marcus Bank doesn’t offer a money market account (MMA). If you’re in the market for an MMA, try CIT Bank or UFB Direct. If you have a large amount of money to deposit, UFB Direct offers rates of 0.20% APY for balances over $25,000, although you only need $5,000 to open an account. CIT Bank only requires a $100 deposit and offers high rates of 0.45% APY.

Marcus CDs

Marcus Bank provides customers with two certificates of deposit (CD) account options. The High-Yield CD has a rate of 0.55% APY for a 12-month term. There are nine different term lengths varying from six months to six years. The most extended 6-year term has the highest rate of 0.60% APY.

You need at least $500 to open a CD with Marcus Bank, and the account comes with a 10-day rate guarantee. That means if you open an account and the rate increases within 10 days, you will qualify for the higher rate.

Marcus Bank also offers a No-Penalty CD. You don’t get charged a fee if you withdraw your money after it has been in your account for at least seven days. You can also keep all the interest earned, even if you withdraw before the term is over. You can choose between a 7-month, 11-month, and 13-month term plan, although the longer the term, the lower the rate gets.

Marcus IRA accounts

Marcus Bank doesn’t offer IRAs. For customers looking for a reliable IRA, you could look into Vanguard or Merrill Edge. Merrill Edge is a branch of Merrill Lynch that Bank of America now owns, so it has a lot of experience and research to back up its funds. Vanguard, on the other hand, is excellent for customers looking to keep their IRA management fees low.

Marcus credit cards

Marcus Bank has no credit cards of its own.

Marcus investing

Marcus Bank doesn’t have an investing arm of its own. If you want to invest your money, you could try a well-respected online stockbroker like Fidelity or Charles Schwab. Fidelity’s fees are lower at $4.95 per stock versus $6.95 at Charles Schwab, but both of the costs are competitive. Additionally, both institutions have a user friendly online platform that you can use for trading on your own.

Compare top bank accounts

Source: thesimpledollar.com

Stock Market Today: Stocks Buck Surprise Jump in Jobless Claims

The major stock indexes improved for a third consecutive session, logging mild (but pleasantly surprising) gains Thursday in the face of a disappointing jump in weekly unemployment filings.

The Labor Department reported that first-time claims for jobless benefits jumped to 419,000 for the week ended July 17 – an increase of 51,000 filings and far more than economists’ forecast for 350,000.

However, Anu Gaggar, senior global investment analyst for Commonwealth Financial Network, says the news isn’t as bad as the headline figure suggests.

“We need to filter the noise in the data points and not lose sight of the big picture, which is that the trend line continues to head lower,” she says. “There has been some distortion in data and in consensus expectations around automakers’ annual retooling shutdowns that will work its way through the system in the upcoming weeks.”

Although investors initially reacted with early selling, stocks gradually recovered over the course of the day. The Nasdaq Composite (+0.4% to 14,684), S&P 500 (+0.2% to 4,367) and Dow (up marginally to 34,823) all logged modest gains, helped by the likes of mega-caps Apple (AAPL, +1.0%) and Microsoft (MSFT, +1.7%).

The industrial average also benefited from a boost in shares of chemical giant Dow Inc. (DOW, +1.3%), which reported Street-beating earnings and sales.

Sign up for Kiplinger’s FREE Investing Weekly e-letter for stock, ETF and mutual fund recommendations, and other investing advice.

Small caps weren’t so fortunate. The Russell 2000, which had outperformed the major indexes the past two sessions, dropped 1.6% to 2,199.

Other action in the stock market today:

  • Amid the onslaught of earnings reports hitting the Street, Netgear (NTGR) was a notable loser in the wake of its results, sinking 9.5%. In its second quarter, the computer networking company generated adjusted earnings of 66 cents per share, well below what analysts were expecting. Revenue of $308.8 million also fell short of the consensus estimate. In addition, NTGR lowered its current-quarter revenue and operating margin forecasts.
  • On the flipside, foam clog maker Crocs (CROX) surged 10.0% in the wake of its second-quarter earnings results. CROX reported better-than-expected adjusted earnings of $2.23 per share on record revenue of $640.8 million. The company also raised its full-year revenue guidance, now expecting annual sales growth of 60% to 65%.
  • U.S. crude oil futures rose for a third straight day, climbing 2.3% to settle at $71.91 per barrel.
  • Gold futures edged up 0.1% to $1,805.40 an ounce.
  • The CBOE Volatility Index (VIX) dipped slid 1.2% to 17.69.
  • Bitcoin rallied for a second straight day, improving 2.2% to $32,394.24. (Bitcoin trades 24 hours a day; prices reported here are as of 4 p.m. each trading day.)
stock chart for 072221stock chart for 072221

It Will Pay to Be Picky

Although Thursday’s disappointing unemployment claims are by no means a reason to panic, they do add to the argument that stocks might be rallying on increasingly wobbly ground.

“There are over 9.2 million job openings, the highest on record by a long shot, yet many are hesitant to get back in the labor force,” says Cliff Hodge, chief investment officer for Cornerstone Wealth. “One data point isn’t a trend, and a one-off can probably be chalked up to delta variant concerns. If jobs data doesn’t inflect soon, the markets and the Fed will be put on notice.”

If data undermining the case for continued economic recovery keeps stacking up, investors might want to be a touch more discerning about their stock picks than they would be during a true go-go period for markets.

Folks focused on generating income should prioritize companies with the financial mettle to easily pay (and generously raise) their dividends.

And as for those who prefer growth, don’t stick your neck out too far. These 11 growth-at-a-reasonable-price (GARP) stocks provide both attractive growth prospects and reasonable risk profiles that will cushion any downside in a broader market selloff.

Another potential source of protection and upside potential are these 11 “safe” stocks – a collection of equities highlighted by investment research firm Value Line for both their fundamental strength and their bright forward-looking prospects. Read on as we run down this group of stable stocks expected to deliver sizable gains over the next year-plus.

Source: kiplinger.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

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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.

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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.

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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,

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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.

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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.

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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.

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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.

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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.

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Source: thepennyhoarder.com

How Can I Correct Negative Credit Reporting From Fraud?

“John, I’ve been watching with interest the stories about Target’s data breach and how the information compromised has evolved from payment information to now include personal information. If someone uses my personal information, opens a new account in my name, and never makes payments how can I get that off my credit reports?”

This is a great question and very timely considering some fraudster is running around with payment and/or personal information belonging to at least 70,000,000 Target customers.

Thankfully the Fair Credit Reporting Act (hereafter “FCRA”) provides VERY aggressive consumer protections regarding identity theft protection and fraud.  And, every state has additional protections that

Federal Law

The FCRA has an entire section that addresses fraud and identity theft.  You have the right to the following at no cost:

One-call Fraud Alerts: You can place a fraud alert on your credit reports that will remain for 90 days.

You only have to contact one of the credit bureaus to place the alert and they have to “refer” the information to the other credit reporting agencies.

A fraud alert asks new creditors to verify that you are, in fact, the person applying for credit in your name and makes it illegal for them to extend credit in your name without your authorization.

Extended Fraud Alerts: You can extend the 90-day fraud alert to remain for 7 years. You’ll have to submit something called an “identity theft report” to the credit bureaus.

An identity theft report is any fraud affidavit or police report filed with a law enforcement agency.

This helps to separate the real victims of fraud from those who are crying fraud to get legitimate information removed from a credit report, as filing a false police report is a crime.

Placing the extended alert is another “one-call” action, as the credit bureau receiving your request has to share it with the others.

Correcting Credit Reports Containing Fraudulent Data: Despite the protections afforded under the FCRA, we all know that true name fraud happens.

And, it can result in derogatory account and collection information appearing on your credit reports.

That’s bad news because now it’s likely harming your credit scores and you’re receiving calls and letters from collection agencies.

If you have information on your credit reports that has been caused by fraud it’s not the end of the world because you have some fantastic protections under the FCRA.

Once you notify the credit bureaus that you have information on your reports caused by identify theft they have to block it from your credit reports, within 4 business days.

That’s 26 days sooner than they have to complete garden-variety credit disputes.

You’ve got to provide them with some paperwork, including the same type of identity theft report I explained above, but once it’s blocked, it’s gone.  Done and done!

State Law

Every state in the country has a law that allows victims of fraud to place a security freeze on their credit reports for free.

A security freeze (also called a “credit freeze”) prevents any new credit from being issued in your name.

The freeze essentially takes your credit reports out of circulation and no new lender can get access to it, or your credit scores.

And, no access to credit reports/scores means no underwriting of any type of loan.

Be aware, however, that while a security freeze locks any new lenders out of your credit reports and prevents true name credit fraud, it can also delay legitimate credit applications that you’ve submitted.

You’ll have to proactively “thaw” your credit reports and put them back into circulation prior to submitting credit applications or you too will not be able to open an account in your name.

In my mind this is little reason to not freeze your credit reports especially if you have already been a victim of credit fraud.

Experian has a very good explanation of security freezes, the pros and cons, and the process of placing a freeze all on their website here.

A final note, which is actually more of a warning…if you’ve read this and think you can use these procedures to have negative but accurate information removed from your credit reports under the guise of it being fraudulent, I’d suggest you think twice as you’d be committing fraud and might find yourself on the wrong side of a Federal indictment.

I’ve served as an expert witness in more than one of these cases.

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.

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Source: mint.intuit.com

Employing an Active Wealth Strategy for Retirement

When investors save for retirement, they often make contributions and investment decisions based on saving to a certain level they think will be sufficient to support their desired lifestyle over a set period of time. As they approach retirement, they often re-evaluate their situation and may adjust their spending levels at the onset to make certain they can meet future expense targets.  Some may incorporate extraordinary expenses for travel, vacation homes and luxury items into the mix, as well as factor in wealth transfer and charitable giving into their plan.

 Regardless of how targets are established or how carefully you budget, the initial plan may end up being unsustainable later in retirement, and many retirees are not equipped to make meaningful adjustments once the situation changes.

An active wealth strategy addressing five key interrelated areas (Invest, Spend, Borrow, Manage and Protect) can help ensure investors make better decisions as they look more broadly at each significant variable when making their financial decisions.

Invest

Investing is often regarded as the key element for a successful retirement. However, investing should be considered among several other variables as investment choices need to be integrated with other decisions to ensure success.

An active wealth framework may involve reviewing investment allocation or location (whether investments are positioned in taxable or tax-deferred accounts), spending levels, managing taxes, borrowing and asset protection strategies. To use these fundamental areas to further evaluate retirement decisions, you may need to review your anticipated investment and retirement income, retirement duration, estimated withdrawals for all expenses, managing liquidity for tax payments and asset protection for contingencies such as medical or long-term care.

Evaluating these variables may highlight areas for improvement and alternate strategies.  For example, if you can’t keep up with your desired expenses on your existing savings, you may need to delay retirement or look for a palatable way to increase your income through a lucrative hobby or other business activity.

Spend

Though spending goals are also highlighted as one of the main drivers of retirement, don’t expect to be able to determine how much you’re going to need to spend at the onset of retirement without reviewing the situation and tweaking your plan periodically. Regardless of what portion of spending can be covered through current income from other sources, some retirees lock onto a retirement drawdown goal, and distribute a fixed percentage from their retirement portfolio to cover expenses. 

The “4% Rule” has been a traditional gauge for retirement success, and those employing the strategy often use it as a rule of thumb, expecting that assets would likely be preserved over the course of retirement when withdrawals hover around 4% of the portfolio. Trusting that 4% portfolio withdrawal decision can be alluring, but it can also be dangerous. Retirees need to be able to adapt drawdowns to address fluctuating market values. Those who try to manage the distributions using percentage-based withdrawals often find it unsustainable over the long-term, perhaps withdrawing too much in good years and finding themselves unable to cut back later.

Other variables, such as interest rates, can interfere with percentage-based distributions. Many retirees change their asset allocation in retirement, shifting assets away from equities to fixed income to lower overall portfolio risk. But in today’s low interest rate environment, lower bond yields can interfere with the ability of a portfolio to deliver suitable returns to cover expenses, especially using a 4% target. 

Periods of market volatility can also disrupt planning for retirement, and many retirees learn quickly that they cannot always rein-in expenses in a prolonged market decline.

An active wealth review considers expenses that cannot be so easily controlled. Expenses such as income taxes may increase in retirement, especially when distributions are being taken from tax-deferred retirement plans or traditional IRAs. Retirees who have no plan for managing those taxes can run into trouble if they haven’t accounted for those tax increases or planned for taxable v. tax-deferred portfolio withdrawals. Similarly, medical and long-term care expenses can occur unexpectedly and generally cannot be contained within predetermined levels.

An active wealth strategy will look at asset protection planning to provide adequate health and/or long-term care insurance to help minimize exposure to extraordinary expenses that may result in the portfolio being unable to recover from very large or ill-timed expenses.

Borrow

Borrowing strategies and managing use of leverage do not necessarily end when someone enters retirement. To address market volatility in retirement and spending, an active wealth plan may incorporate a prudent borrowing strategy using an investment credit line or other credit facility. The current low interest rate environment has created a compelling opportunity to borrow to cover current outflows without disrupting prudent long-term investments. Borrowing is particularly useful to address short-term liquidity, such as providing periodic payment of income taxes or funding extraordinary purchases. It may allow investors to avoid selling assets in down markets and dovetails with efforts to manage overall capital gains income/taxes when liquidating appreciated assets.  

Retirees need to be cautious with debt, and any borrowing strategy should be accompanied by a prudent repayment plan that addresses their ability to pay down debt quickly if rates increase to the point where risk/reward no longer warrants the use of leverage.    

The above strategies are some representative examples of how an active wealth framework can help retirees address issues beyond determination of their retirement spending level. They are not limited to solutions discussed in this article. The active wealth framework highlights considerations that compel investors to focus on broader issues and interrelated outcomes for each fundamental area: Invest, Spend, Borrow, Manage and Protect. Analyzing each of these variables can help retirees appreciate all the consequences of their financial decisions, become aware of new opportunities, and allow retirees to make informed, successful maneuvers over the course of their retirement.

The views expressed within this article are those of the author only and not those of BNY Mellon or any of its subsidiaries or affiliates. The information discussed herein may not be applicable to or appropriate for every investor and should be used only after consultation with professionals who have reviewed your specific situation.
This material is provided for illustrative/educational purposes only. This material is not intended to constitute legal, tax, investment or financial advice. Effort has been made to ensure that the material presented herein is accurate at the time of publication. However, this material is not intended to be a full and exhaustive explanation of the law in any area or of all of the tax, investment or financial options available. The information discussed herein may not be applicable to or appropriate for every investor and should be used only after consultation with professionals who have reviewed your specific situation.

Senior Wealth Strategist, BNY Mellon Wealth Management

As a Senior Wealth Strategist with BNY Mellon Wealth Management, Kathleen Stewart works closely with wealthy families and their advisers to provide comprehensive wealth planning services.  Kathleen focuses on complex financial and estate planning issues impacting wealthy families, key corporate executives and business owners.

Source: kiplinger.com

How Rising Inflation Affects Mortgage Interest Rates

Rising inflation can shrink purchasing power as prices of goods and services increase. This, in turn, can affect interest rates and the cost of borrowing. While the inflation rate doesn’t have a direct impact on mortgage rates, the two do tend to move in tandem.

What does that mean for homebuyers looking for a home loan and for homeowners who want to refinance a mortgage? Simply that as inflation rises, mortgage rates may follow suit.

Understanding the difference between the inflation rate and interest rates, and what affects mortgage rates for different types of home loans, matters in terms of timing.

Inflation Rate vs. Interest Rates

Inflation is defined as a general increase in the overall price of goods and services over time.

The Federal Reserve, the central bank of the United States, tracks inflation rates and inflation trends using several key metrics, including the Consumer Price Index, to determine how to direct monetary policy.

What to Learn from Historical Mortgage Rate Fluctuations

Inflation Trends for 2021 and Beyond

As of May 2021, the U.S. inflation rate had hit 5% as measured by the Consumer Price Index, representing the largest 12-month increase since 2008 and moving well beyond the 2% target inflation rate the Federal Reserve aims for.

While prices for consumer goods and services were up across the board, the biggest increase overall was in the energy category.

Rising inflation rates in 2021 are thought to be driven by a combination of things, including:

• A reopening economy

• Increased demand for goods and services

• Shortages in supply of goods and services

The coronavirus pandemic saw many people cut back on spending in 2020, leading to a surplus of savings. State reopenings have spurred a wave of “revenge spending” among consumers.

Although the demand for goods and services is up, supply chain disruptions and worker shortages are making it difficult for companies to meet consumer needs. This has resulted in steadily rising inflation.

Fed Chair Jerome Powell said in June 2021 that he anticipates a continued rise in the U.S. inflation rate in 2021. This is projected to be followed by an eventual dropoff and return to lower inflation rates in 2022.

In the meantime, the Fed has discussed the possibility of an interest rate increase, though there are no firm plans to do so yet. Some Fed bank presidents, though, have forecast an initial rate increase in 2022.

Recommended: 7 Factors that Cause Inflation – Historic Examples Included

Is Now a Good Time for a Mortgage or Refi?

It’s clear that there’s a link between inflation rates and mortgage rates. But what does all of this mean for homebuyers or homeowners?

It simply means that if you’re interested in buying a home it could make sense to do so sooner rather than later. Despite the economic upheaval in 2020 and the rise in inflation that’s happening now, mortgage rates have still held near historic lows. If the Fed decides to pursue an interest rate hike, that could have a trickle-down effect and lead to higher mortgage rates.

good mortgage rate, especially as home values increase.

The higher home values go, the more important a low-interest rate becomes, as the rate can directly affect how much home you’re able to afford.

The same is true if you already own a home and you’re considering refinancing an existing mortgage. With refinancing, the math gets a bit trickier.

You might want to determine your break-even point when the money you save on interest charges catches up to what you spend on closing costs for a refi loan.

To find the break-even point on a refi, divide the total loan costs by the monthly savings. If refinancing fees total $3,000 and you’ll save $250 a month, that’s 3,000 divided by 250, or 12. That means it’ll take 12 months to recoup the cost of refinancing.

If you refinance to a shorter-term, your savings can multiply beyond the break-even point.

If your current mortgage rate is above refinancing rates, it could make sense to shop around for refinancing options.

Keep in mind, of course, that the actual rate you pay for a purchase loan or refinance loan can also depend on things like your credit score, income, and debt-to-income ratio.

Recommended: How to Refinance Your Mortgage – Step-By-Step Guide 

The Takeaway

Inflation appears to be here to stay, at least for the near term. Understanding what affects mortgage rates and the relationship between the inflation rate vs. interest rates matters from a savings perspective.

Buying a home or refinancing when mortgage rates are lower could add up to a substantial cost difference over the life of your loan.

SoFi offers fixed-rate home loans and mortgage refinancing. Now might be a good time to find the best loan for your needs and budget.

It’s easy to check your rate with SoFi.

Photo credit: iStock/Max Zolotukhin


SoFi Loan Products
SoFi loans are originated by SoFi Lending Corp. or an affiliate (dba SoFi), a lender licensed by the Department of Financial Protection and Innovation under the California Financing Law, license # 6054612; NMLS # 1121636 . For additional product-specific legal and licensing information, see SoFi.com/legal.

SoFi Home Loans
Terms, conditions, and state restrictions apply. SoFi Home Loans are not available in all states. See SoFi.com/eligibility for more information.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
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Source: sofi.com

Warning: You May Have to Pay Back Your Monthly Child Tax Credit Payments

The IRS is now making monthly child tax credit payments to eligible families. Depending on the age of your child, those payments can be as much as $300-per-kid each month from July to December. That’s an extra $1,800 per child in your pocket if you get the full amount for six months. But what if the IRS sends you too much money – do you have to pay it back? Maybe.

When the IRS was doling out stimulus check money, they occasionally overpaid someone. But there was nothing in the law requiring repayment of a stimulus check. So, if you got too much, you generally were allowed to keep it.

But that’s not the case with the monthly child tax credit payments. The law authorizing these payments specifically says that any excess amounts must be paid back when you file your 2021 tax return if your income is above a certain amount. There are exceptions to this rule for middle- and lower-income families, but they’re limited. Plus, the way the monthly payments are calculated, overpayments could be fairly common. So, this could be a big issue for a lot of families.

Changes to the Child Tax Credit for 2021

Before getting into how you might end up with an overpayment and the details of the payback rules, it’s probably a good idea to go over some of the changes to the child tax credit that apply for the 2021 tax year (and, so far, only for 2021). Last year, the maximum child tax credit was $2,000 per child 16 years old or younger. It was also phased-out if your income exceeded $400,000 for married couples filing a joint return or $200,000 for single and head-of-household filers. For some lower-income taxpayers, the credit was partially “refundable” (up to $1,400 per qualifying child) if they had earned income of at least $2,500 (i.e., you got a refund check for the refundable amount if the credit was more than the tax you owed).

The American Rescue Plan, which was enacted in March, made some major changes to the child tax credit for the 2021 tax year. For one thing, the credit amount was raised from $2,000 to $3,000 for children 6 to 17 years old and to $3,600 for kids 5 years old and younger. The $2,500 earned income requirement was also dropped, and the credit was made fully refundable (which means refund checks triggered by this year’s credit can be greater than $1,400).

There are also two phase-out schemes in play for families with higher incomes in 2021. The first one can’t reduce the credit amount below $2,000 per child. It kicks in if your modified adjusted gross income (AGI) is above $75,000 (single filers), $112,500 (head-of-household filers), or $150,000 (joint filers). The second phase-out is the same $200,000/$400,000 one that applied before 2021.

Finally, the American Rescue Plan requires the IRS to pay half of your total credit amount in advance through monthly payments issued this year from July to December (you can opt-out if you want). In most cases, the IRS will base the amount of these payments on information it pulls from your 2020 tax return. Next year, you’ll claim the remaining half of the credit on your 2021 tax return. In practice, this will be done by subtracting every dollar you received from July to December from the total credit you’re entitled to claim and then reporting the leftover amount, if any, as a child tax credit on your 2021 return. (Use our 2021 Child Tax Credit Calculator to see how much your monthly payments will be and what should be leftover to claim as a credit on your 2021 tax return.)

For complete coverage of the changes for 2021, see Child Tax Credit 2021: How Much Will I Get? When Will Monthly Payments Arrive? And Other FAQs.

How Child Tax Credit Overpayments Can Occur

You may be wondering why the IRS would send you too much money in the first place. If the goal is simply to give you a 50% advance of your total child tax credit over a six-month period, it doesn’t seem like that would be too difficult. It’s basic math – right?

Well, yes, the math itself is easy…but things change, which can make it difficult to find the right numbers to plug into the computers. For instance, what if your income increases in 2021 to a point where your child tax credit is now partially or completely phased out. The IRS is going to look at your 2020 tax return to calculate the amount of your monthly payment. If your 2020 income was below the credit’s phase-out thresholds, the IRS is probably going to send you the maximum amount each month. However, because of your higher 2021 income, your 2021 child tax credit is going to be lower than expected…which could create an overpayment.

Since the child tax credit phase-out thresholds are tied to your filing status, a similar situation can arise from a change to your family situation in 2021 (e.g., a divorce). For example, imagine that the IRS bases your monthly payments on your 2020 joint return and your 2021 income is lower than the credit phase-out threshold for joint filers. You then use a different filing status on your 2021 return with a lower credit phase-out threshold (e.g., single or head-of-household) that results in a reduced child tax credit amount. That can also generate an overpayment.

If you claim the child tax credit for fewer children in 2021 than you did in 2020, that can result in an overpayment, too. This can happen, for instance, if you’re divorced and you claimed your child as a dependent on your 2020 tax return, but your ex-spouse claims the child as a dependent for 2021 taxes (a common arrangement). In that case, the IRS is going to send you monthly payments for the child. However, since you won’t qualify for the child tax credit on your 2021 return (your ex will), all the money you received from July to December will be an overpayment.

And here’s one more example…your main home must be in the U.S. for more than half of 2021 to qualify for monthly child tax credit payments. If you satisfied that requirement in 2020, but not in 2021, the IRS could end up sending you monthly payments that you’re not supposed to get. That can result in an overpayment as well.

Payback Requirements for the 2021 Child Tax Credit

Now let’s talk about what happens if you end up with a child tax credit overpayment. Depending on your income, you might have to pay some or all of it back as an addition to the tax you owe when you file your 2021 return next year.

Lower-income people get a good deal. If your modified AGI for 2021 doesn’t exceed $40,000 (single filers), $50,000 (head-of-household filers), or $60,000 (joint filers), and your principal residence was in the U.S. for more than half of 2021, you won’t have to repay any overpayment amount. That’s a win for you!

On the other hand, parents with higher incomes don’t get any breaks at all. If your modified AGI for the 2021 tax year is at least $80,000 (single filers), $100,000 (head-of-household filers), or $120,000 (joint filers), you have to pay back your entire overpayment. Ouch!

It’s a little more complicated for people in the middle. All or part of your overpayment might be forgiven if your modified AGI for 2021 is between $40,000 and $80,000 (single filers), $50,000 and $100,000 (head-of-household filers), or $60,000 and $120,000 (joint filers). To determine how much of your overpayment is wiped out (if any), you first need to calculate what the IRS calls your “repayment protection amount.” This is equal to $2,000 multiplied by:

  • The number of children the IRS used to calculate your monthly child tax credit payments, minus
  • The number of children used to calculate the total credit amount on your 2021 tax return.

If there’s no difference between the number of children used to calculate the two amounts, then there’s no overpayment reduction, and the full amount must be repaid. If you have a positive repayment protection amount, it’s then gradually phased-out as your modified AGI increases within the income range above. The phase-out rate is based on how much your modified AGI exceeds the lower limit of the applicable income range. Once your final repayment protection amount is calculated, it’s subtracted from your overpayment to determine how much you need to repay (but your overpayment can’t be reduced below zero).

Here’s an example of how this works: Joe, who is single, claimed a child tax credit for two children on his 2020 tax return (the children are 2 and 4 years old at the end of 2021). As a result, the IRS sent him $3,600 in monthly payments in 2021. However, Joe can’t claim the child tax credit on his 2021 return because his ex-wife is claiming the children as dependents on her return. Since his 2021 child tax credit is $0, the entire $3,600 he received from the IRS is an overpayment. Joe’s initial repayment protection amount is $4,000 (i.e., $2,000 for each child). If Joe files a 2021 return with a modified AGI of $60,000, his modified AGI exceeds the lower limit of the applicable income range – $40,000 – by 50% ($60,000 – $40,000 / $80,000 – $40,000 = 0.5). As a result, Joe’s $4,000 repayment protection amount is reduced by 50% to $2,000. Therefore, Joe only has to repay $1,600 of his $3,600 overpayment ($3,600 – $2,000 = $1,600).

[Note: You may also have to pay a portion of your overpayment if your modified AGI is less than or equal to $40,000 (single filers), $50,000 (head-of-household filers), or $60,000 (joint filers) and you lived outside the U.S. for at least half of 2021.]

How to Prevent Child Tax Credit Overpayments

If you think an overpayment is in your future, there are two things you can do to minimize or eliminate any potential repayment obligation. First, you can opt-out of the monthly payments. If you’re no longer receiving monthly payments, then you might be able to avoid an overpayment altogether (just make sure you meet the deadline for opting out before the next scheduled payment). If you’ve already received enough money from the IRS to create an overpayment, opting out can at least prevent the overpayment from growing larger.

To opt-out, go to the Child Tax Credit Update Portal on the IRS’s website. You’ll need either an existing IRS account or an ID.me account to access the online tool. Although you can’t do it now, later this summer you’ll be able to restart monthly payments through the portal if you previously opted out.

You can also control a potential overpayment by updating any outdated information concerning your income, filing status, or qualifying children that the IRS pulled from your 2020 return or collected from some other source. Once the IRS gets the new information, it can adjust (i.e., lower) your remaining monthly payments to account for the change. This could also prevent or reduce an overpayment.

You’ll have to use the Child Tax Credit Update Portal to report any updates. However, this functionality is not available yet. Again, it should be ready later this summer.

Source: kiplinger.com

LTV 101: Why Your Loan-to-Value Ratio Matters

Are you thinking about taking out a home loan or refinancing your mortgage? If so, knowing your loan-to-value (LTV) ratio, or the loan amount divided by the value of the property, is important.

Let’s break down LTV: what it is, how to calculate it, and why it matters. (Hint: It could help save you a lot of money.)

LTV, a Pertinent Percentage

The relationship between the loan amount and the value of the asset securing that loan constitutes LTV.

To find the loan-to-value ratio, divide the loan amount by the value of the property.

LTV = (Loan Value / Property Value) x 100

Here’s an example: Say you want to buy a $200,000 home. You have $20,000 set aside as a down payment and need to take out a $180,000 mortgage. So here’s what your LTV calculation looks like:

180,000 / 200,000 = 0.9 or 90%

Here’s another example: You want to refinance your mortgage (which means getting a new home loan, hopefully at a lower interest rate). Your home is valued at $350,000, and your mortgage balance is $220,000.

220,000 / 350,000 = 0.628 or 63%

As the LTV percentage increases, the risk to the lender increases.

Why Does LTV Matter?

Two major components of a mortgage loan can be affected by LTV: the interest rate and private mortgage insurance (PMI).

Interest Rate

LTV, in conjunction with your income, financial history, and credit score, is a major factor in determining how much a loan will cost.

When a lender writes a loan that is close to the value of the property, the perceived risk of default is higher because the borrower has little equity built up—and therefore, little to lose.

Should the property go into foreclosure, the lender may be unable to recoup the money it lent. Because of this, lenders prefer borrowers with lower LTVs and will often reward them with better interest rates.

Though a 20% down payment is not essential for loan approval, someone with an 80% LTV is likely to get a more competitive rate than a similar borrower with a 90% LTV.
The same goes for a refinance or home equity line of credit: If you have 20% equity in your home, or at least 80% LTV, you’re more likely to get a better rate.

If you’ve ever run the numbers on mortgage loans, you know that a rate difference of 1% could amount to thousands of dollars paid in interest over the life of the loan.

Let’s look at an example, where two people are applying for loans on identical $300,000 properties.

Person One, Barb:

•  Puts 20%, or $60,000, down, so their LTV is 80%. (240,000 / 300,000 = 80%)

•  Gets approved for a 4.5% interest rate on a 30-year fixed-rate mortgage

•  Will pay $197,778 in interest over the life of the loan

Person Two, Bill:

•  Puts 10%, or $30,000, down, so their LTV is 90%. (270,000 / 300,000 = 90%)

•  Gets approved for a 5.5% interest rate on a 30-year fixed-rate mortgage

•  Will pay $281,891 in interest over the life of the loan

Bill will pay $84,113 more in interest than Barb, though it is true that Bill also has a larger loan and pays more in interest because of that.

So let’s compare apples to apples: Let’s assume that Bill is also putting $60,000 down and taking out a $240,000 loan, but that loan interest rate remains at 5.5%. Now, Bill pays $250,571 in interest;

The 1% difference in interest rates means Bill will pay nearly $53,000 more over the life of the loan than Barb will.

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PMI or Private Mortgage Insurance

Your LTV ratio also determines whether you’ll be required to pay for PMI. PMI protects your lender in the event that your house is foreclosed on and the lender assumes a loss in the process.

Your lender will charge you for PMI until your LTV reaches 78% (by law, if payments are current) or 80% (by request).

PMI can be a substantial added cost, ranging from 0.5% to 2.25% of the value of the loan per year. Using our example from above, a $270,000 loan at 5.5% with a 1% PMI rate translates to $225 per month for PMI, or about $18,800 in PMI paid until 20% equity is reached.

How Does LTV Change?

LTV changes when either the value of the property or the value of the loan changes.

If you’re a homeowner, the value of your property fluctuates with natural market pressures. If you thought the value of your home increased significantly since your last appraisal, you could have another appraisal done. You could also potentially increase your home value through remodels or additions.

The balance of your loan should decrease over time as you make monthly mortgage payments, and this will lower your LTV. If you made a large payment toward your mortgage, that would significantly lower your LTV.

Whether through an increase in your property value or by reducing the loan, decreasing your LTV provides you with at least two possible money-saving options: removal of PMI and refinancing to a lower rate.

The Takeaway

The loan-to-value ratio affects two big components of a mortgage loan: the interest rate and private mortgage insurance. A lower LTV percentage typically translates into more borrower benefits.

Whether you’re on the hunt for a new home loan or a refinanced mortgage, it’s a good idea to shop around for the best deal. Check out what SoFi has to offer.

See if a SoFi mortgage or refi is a good fit in just a few clicks.


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SoFi loans are originated by SoFi Lending Corp. or an affiliate (dba SoFi), a lender licensed by the Department of Financial Protection and Innovation under the California Financing Law, license # 6054612; NMLS # 1121636 . For additional product-specific legal and licensing information, see SoFi.com/legal.

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Terms, conditions, and state restrictions apply. SoFi Home Loans are not available in all states. See SoFi.com/eligibility for more information.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

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Source: sofi.com

Best Money Transfer Apps: How They Stack Up

In July 2019, Venmo surveyed 1,000 users and then partnered with an etiquette expert to help create some modern money manners.
International transfers: You can transfer money internationally, but if you’re sending money to someone outside of the United States, be aware that you’ll be subject to a different fee structure.
Sadly, that depends on the app. In some cases, you can contact customer service and they can help reverse the process. In others, you have to rely on the honesty of the wrong recipient to decline the transfer

How Money Transfer Apps Work

How it works: Facebook Pay isn’t a standalone app, but rather an enhancement to those primary social media apps, so you’ll need to set it up in each app.
To set up Facebook Pay: Pros and Cons: The fact Venmo feels like social media can be both good or bad, depending how you look at it. Others you are connected to will know who you’re conducting business with and when. For those of us who are bad at math, a function of the app will help you split bills. It is also easy to request money from people within the app.
When someone sends you money through the app, you can get access to the money by initiating a transfer to your bank account. Some apps allow you to store money with their service for easy access.
Pros and Cons: PayPal has many protections in place to keep you from losing money. If either the sender or recipient has an issue, PayPal will put a hold on the funds. There are also business accounts to pay for goods and services, but the fees are higher than for personal use.

What to Look for With Money Transfer Apps

Zelle is part of most banking apps and allows you to securely send money almost instantly between bank accounts. It works with hundreds of US banks.

  • Fees: Some apps charge a fee for paying someone by credit card or sending money internationally.
  • Transfer time: How long does it take to get your money? Some are instant, while some take some time.
  • Security: Is the transaction encrypted on both ends?
  • Limits: Some apps limit the number of transactions you can do in a set period of time. Others limit the amount of money you can send.
  • Customer service: How can you contact someone if there is a mistake with a transfer or a transfer happens that you didn’t authorize?
  • Protection: Unlike bank accounts, many balances in money transfer apps are not insured against loss or fraud.
  • Correct information: Make sure you check and double check the recipient’s information before you confirm a payment. Once you send a payment, is it often impossible to get it back unless the recipient refuses it.

How the Best Money Transfer Apps Stack Up

From our research, you don’t need dedicated international money transfer apps. One of the apps discussed in this story will work as an international money transfer service.

App Fees Speed of Transfer Best Feature Protection & Security
Zelle None for transfers between bank accounts; can also enroll debit cards tied to a bank account Almost immediate Most accommodating Uses bank’s security infrastructure, so it is as secure as your bank
PayPal New as of Aug. 2, 2021: Free for linked bank account, 2.9% for credit or debit card A few days for bank account, instant transfers cost 1.5% Most experienced Encryption, fraud protection, dispute resolution, purchase protection
Venmo New as of Aug. 2, 2021: Free for linked bank account, 3% for credit card 1-3 days for standard transfer, instant transfer for 1.5% fee Most like social media Uses PayPal security features
Cash App None for linked bank accounts, 3% for credit card A few days, instant transfers are 1.5% Most global friendly Encryption, security locks, fraud protection, account notifications
Facebook Pay Uses credit cards, debit cards, or PayPal account, does not link directly to a bank account; No fees Up to one business day Most socially connected Can create a PIN or use device’s biometric security
Google Pay No fees With debit card up to 24 hours; 3 to 4 days with bank account Most adaptable Multiple layers of security protection
Apple Pay No fees 1 to 3 days or 30 minutes with Instant Transfer linked to eligible debit card Like Google Pay, also an adaptable app Multiple layers of security protection

PayPal: Most Experienced Money Transfer App

How it works: You need an email address or a phone number to send money. The sender and recipient don’t need to be customers of the same bank; they only need to both be enrolled in Zelle.
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In today’s world of instant gratification and constant connections, what is proper money transfer etiquette?
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The best app for you might not be the best for someone else. It all depends how you plan to use them. Chances are, you’ll use different ones for different purposes.
Tiffani Sherman is a Florida-based freelance reporter with more than 25 years of experience writing about finance, health, travel and other topics.
Source: thepennyhoarder.com
Pros and Cons: It’s super-convenient to be able to send money, donate money, and buy things from whatever app you might be using and familiar with. You might want to set up extra security features just in case someone gets a hold of your accounts. Customer support is available 24/7 via chat or email.
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You can also get special offers called “cash boosts,” which can include discounts like 20% off DoorDash or 15% off Chipotle. The cash boosts change regularly, which many users say makes the app worth checking out on a regular basis.
Fees: There are no fees to send or receive money between friends if you have a linked bank account or debit card with accepted financial institutions. There is a 3% fee to send money using a credit card.

Three men look at one of their phones while hanging out in a dorm.
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Venmo: Most Like Social Media Money Transfer App

Fees: There are no fees to send or receive money between friends if you have a linked bank account or debit card with accepted financial institutions. There is a 3% fee to send money using a credit card.

Zelle: Most Accommodating Money Transfer App

Fees: There are no fees to send or receive money between friends if you have a linked bank account or debit card with accepted financial institutions. There is a 3% fee to send money using a credit card.

Cash App (Formerly Square Cash): Most Global-Friendly Money Transfer App

Fees: There are no fees to send or receive money between friends if you have a linked bank account or debit card with accepted financial institutions. There is a 3% fee to send money using a credit card.

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Facebook Pay: Most Socially Connected Money Transfer App

Fees: There are no fees to send or receive money between friends if you have a linked bank account or debit card with accepted financial institutions. There is a 3% fee to send money using a credit card.

Google Pay and Apple Pay: Most Adaptable Money Transfer Apps

Fees: There are no fees to send or receive money between friends if you have a linked bank account or debit card with accepted financial institutions. There is a 3% fee to send money using a credit card.

Transferring Money Internationally

As for advice from the etiquette expert, Venmo suggests:
International transfers: Facebook Pay is expanding to other countries outside of the United States.
PayPal is the grandparent of money transfer apps, as it’s been around the longest and is probably the most familiar to many people.

  • WorldRemit: People in more than 50 countries can send money to people in more than 130 countries  using a phone or computer. Many of the transfers happen instantly. Fees vary. One recent change is WorldRemit no longer accepts Google Pay.
  • Western Union: Has been around for years and works in more than 200 countries and territories.
  • OFX: Competitive rates compared to banks and has a minimum of $1,000.
  • Azimo Money Transfer: The first two transfers are free. Instant or one-hour transfers are possible to many countries.
  • Remitly: This app adds the possibility of physically delivering the money to the recipient’s home instead of just a cash pickup or depositing it into a bank account. The rates vary by country.

People can also request payments through PayPal.

Money Transfer Etiquette

All of the apps mentioned have several security features in place to keep your account numbers and personal information private. Just make sure you send money to the right person. Once you tap send, it’s sometimes difficult to get the money back.
How it works: PayPal is secure and you can send money both domestically and internationally, although fees apply for international transfers. You can also use PayPal online and not just from a phone app.
However, popular apps for international money transfers are:

  • 75% said it’s appropriate to wait 24 hours before issuing a request for payment.
  • 24 hours is the longest you should wait before paying someone.
  • 42% said the person who pays for dinner when the check comes back for the entire group should be paid immediately — before anyone leaves the table.
  • 24% said no amount is too small to ask for, even $1 to $5.

Fees: There is no fee to send or receive money through Facebook Pay.

  • Practice social awareness: When using apps that have a social component, be careful of emojis and inside jokes that could embarrass someone. You never know who might see it.
  • Respond quickly: If you can’t pay someone within 24 hours, send the person a text or email saying why you can’t pay them back.
  • Stay in contact: Don’t just ghost someone and make your friends and family track you down. It isn’t fun.
  • Discuss: If you’re going to split payments, discuss this plan before an event. Don’t surprise someone with a money request. Also, if you pick up the check and say something like “I got this,” don’t expect people to pay you back.
  • Correct mistakes: If a money request has the wrong amount, politely point out the discrepancy, and decline the transaction. Send back money if someone sends you more than you were expecting.

Like the other apps, Cash App is secure and transferring your money to your bank account is free but can take a few days. Instant cash outs will cost 1.5% with a $.25 minimum.

A man checks his phone while laying in the grass on a blanket.
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Frequently Asked Questions (FAQ)

What Is The Safest App to Transfer Money?

PayPal also offers business accounts, which can be a simple way to get paid for goods and services you provide through your job or business. Please note the fees are different for merchant accounts. Many fees for business users increase Aug. 2, 2021.

What App Transfers Money Instantly to a Bank Account?

How they work: Now they’re also handling peer-to-peer payments, which means you can send or receive money if you have the other person’s email address or phone number.

What Happens If I Send Money to the Wrong Person?

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Do I Need a Smartphone to Use Money Transfer Apps?

Money transfer apps are an easy, secure way to exchange money between friends or family. By downloading an app on your phone, or in some cases going to a web site, you can send money to people. All you need is their mobile phone number or email address.
Transferring the money from PayPal to a linked bank account is free, but can take a few days. Instant transfers are available for a 1% fee. That fee increases to 1.5% on Aug. 2, 2021. You can also have PayPal mail a paper check to you for .50.
Cash App allows you to use your money to buy stocks or convert dollars to bitcoin, but there are fees associated with these services.