Latest news with #savers
CBS News
2 hours ago
- Business
- CBS News
$10,000 6-month CD vs. $10,000 high-yield savings account: Here's which could earn more interest
The concept of giving up access to your money in today's economic climate can be daunting for many. After all, inflation just rose in June (for the second month in a row) and borrowing costs remain elevated thanks to higher interest rates. With stock market uncertainty still a concern, too, foregoing access to your funds may not make sense right now. And that's what will be required if depositing money into a certificate of deposit (CD) account. In exchange for a high, fixed interest rate, savers will need to keep their funds in the account untouched or risk having to pay an early withdrawal penalty. Depositing $10,000 into this account type, then, may not seem advantageous on the surface, especially when there are alternative accounts that won't mandate this loss of access. A high-yield savings account, by comparison, has rates competitive with the highest CD accounts and it functions similarly to a traditional savings account, meaning you'll maintain the ability to make deposits and withdrawals. On the other hand, these accounts have variable rates that will change over time based on market conditions. When faced with both account types, then, savers should pause before depositing their $10,000. To better determine which account is advantageous, they can calculate their potential interest earnings. Below, we'll do the math. Start earning more interest on your money with a high-rate CD account here. It's easy to calculate the interest earnings on a CD account because it has a fixed rate. Determining the interest on a high-yield savings account is more difficult because the rate there will change over time, potentially to a significant degree. Here's what both account types could earn with a $10,000 deposit tied to today's available interest rates, assuming the CD account isn't hit with an early withdrawal penalty and that the high-yield savings account rate remains the same for the full six months: Not only will the CD account earn around $8 more than the high-yield savings account, but that return is guaranteed, while the high-yield savings account's return is not. And with the chances of rate cuts being issued later in 2025 significant, savers here should expect the rate they open their high-yield savings account with this July to be lower by the end of the year. In other words, if you can afford to keep your funds in the CD untouched for the full six months, the return will likely outweigh what the high-yield savings account can offer now. Get started with a top CD account online today. Money market accounts also come with high interest rates now (around 4.30% according to Bankrate). They won't require you to lock your money away the way a CD would, and they'll offer benefits a high-yield savings account won't (like check-writing services). But the caveat here remains the same as the high-yield savings account: A money market account has a variable interest rate that's likely to decline in the months to come. Between the three account types, then, a CD becomes the clear best choice for those savers looking to earn as much guaranteed interest on their $10,000 deposit as possible right now. Both CDs and high-yield savings accounts offer savers a critical benefit right now: The chance to earn a high interest rate on their money. But only a CD guarantees that return. So, if you want to both protect and grow your money and want to take a break from worrying about today's constantly evolving interest rate climate, a CD account may be worth exploring now.
CBS News
a day ago
- Business
- CBS News
Here's how much interest a $20,000 CD can earn now compared to a year ago
If you have $20,000 saved up now, you may be tempted to play the stock market. Returns on the market, historically, are reliable and the potential for making a quick profit or even more than you expected can be appealing now, especially when the economy is in a transition phase with inflation recently rising and high interest rates remaining frozen. On the other hand, if the volatility in the market and the aftereffects of the inflationary climate of recent years are too much to endure, you may find it easier to turn to a fixed-rate savings vehicle instead. A certificate of deposit (CD) account could be the perfect account to choose. Interest rates on CDs are fixed, allowing savers to calculate their earnings with precision. And with a $20,000 deposit, the returns could be worth hundreds and potentially thousands of dollars. But today's high rates may not last for much longer and they're already lower than what may have been secured last summer. To better determine the worth of a $20,000 CD now, then, it may help to compare the interest earnings available currently to what was available one year ago. Below, we'll complete the calculations. Lock in a high rate on a CD account here today. With CD rates being fixed, calculating the future interest earnings is simple to do. And while rates here have declined since last summer, they haven't fallen so significantly to render a CD account ineffective. Here's how much interest a $20,000 CD can earn now compared to a year ago, using advertised rates then and rates from Bankrate that are available now (on the assumption no early withdrawal penalties are issued): Comparing the two accounts, one year apart, the difference between earnings is stark. But this shouldn't discourage savers from acting and it should incentivize them to take advantage while the potential returns are still substantial, if not as high as they once were. At the start of the 2020s, rates on CDs were hovering around 1%, so today's rates are still exponentially higher. Get started with a high-rate CD while you still can here. If you're looking for a predictable and guaranteed return on your $20,000, it would be difficult to find a more reliable way to get it than with a CD account now. Rates here have declined over the past years and the interest-earning potential has waned accordingly. But with rates still substantial, returns worth hundreds and even thousands of dollars and the reality of interest rate cuts looming for later in 2025, this could be one of the better ways to protect and grow your hard-earned $20,000 right now.
CBS News
2 days ago
- Business
- CBS News
$20,000 short-term CDs: 3 things to consider this July
Traditionally, interest rates were often higher on certificate of deposit (CD) accounts with longer terms and lower on those with short terms. And the logic was clear. Since savers were being asked to part with their money in the account for a longer period, they were frequently rewarded with better rates than they'd otherwise receive by just keeping their money in an account for a few months. But the volatile rate climate of the last five years, in which rates dropped to near zero and then surged multiple times higher during the peak of inflation, has caused this dynamic to change. Now, with lenders unsure about the long-term trajectory of the rate climate, rates are often higher on short-term CDs than long-term ones. This means you can get an interest rate of around 4.50% with a CD that will mature in six months or less, making it an attractive home for your money and especially so if you're looking for a place to park a large, five-figure sum like $20,000. Before getting started with a $20,000 short-term CD this July, however, there are some considerations that savers should account for. Below, we'll break down what to focus on right now. Start by seeing how much interest you could be earning with a top, short-term CD here now. Don't put $20,000 (or any amount of money) into a short-term CD this month before first familiarizing yourself with these items: The inflation rate rose to 2.7% in June, the Bureau of Labor Statistics revealed last week, after also creeping up in May. With high interest rates remaining frozen and concerns over inflation, economic policies and the stock market pertinent now, then, it could be smart to give your $20,000 some short-term protection against market fluctuations ahead. With a CD that matures in 12 months or less, you can do just that, earning a fixed interest rate in the interim while also giving yourself time to better gauge the economic outlook. This is always an advantage a CD can provide, but it's a particularly advantageous one to have right now. Get started with a short-term CD online today. Yes, short-term CDs come with slightly higher rates than long-term CDs do currently. Thanks to the extended interest-earning timeline the latter type comes with, though, you'll make more there than you would with the higher rate, short-term alternative. In other words, don't let the short-term CD rate blur your judgment. If your end goal is to earn as much interest as possible, even if it requires more time to do so, then you'll generally be better with the long-term option. That said, the interest rate climate is fluid, and if rate cuts are issued later this summer, things could change. So be prepared to act now while high-rate CD opportunities are still plentiful. Regardless of whether you ultimately decide to park the $20,000 into a short-term CD or a long-term one, either decision will likely see you having to forego the use of your regular bank. The local bank that you frequently visit is unlikely to have the high CD rate offers that online banks do. And if your goal is to earn as much interest as you can on your money, then you'll likely need an online bank to accomplish that. This can be tricky when depositing a large amount, like $20,000, into an account with a bank that you can't visit in person, so take the time to compare your options before jumping in. With most lenders requiring CD account holders to pay an early withdrawal penalty to regain access to their funds, it's important to make the right decision here. It may have been a painstaking and lengthy process to save $20,000, so don't automatically jump at the first short-term CD offer you receive this July. Instead, understand the realistic protections it can (and can't) offer against today's market fluctuations, calculate the interest earnings against what's available with long-term options and understand the reality that the best rates and offers may only be available online. By taking this informed approach this month, you can maximize your chances of CD success with your $20,000 or any amount of money that you're contemplating putting into a CD now.
Times
5 days ago
- Business
- Times
The new middle-class tax revolt
Hundreds of thousands of savers are making big changes to the way that they make and spend money for one simple reason: tax. Some are cutting the hours they work, while others are turning down promotions, giving their pensions away to family members or even considering leaving the country — all because of frozen tax thresholds and upcoming tax changes. The phenomenon known as fiscal drag — where more people pay more tax as wages increase because tax thresholds remain frozen — means that 6 million more people will pay income tax this tax year than in 2021-22. Almost 7.1 million workers are now in the higher income tax band, up 2.6 million since 2021-22, and the number of additional-rate payers has almost doubled to 1.2 million. Collectively, we're set to pay £298.6 billion in income tax in 2025-26 — an extra £89 billion compared with four years ago, the latest government figures show, and this is set to rise further because income tax thresholds will remain frozen until at least 2028. We're also on track to pay £6 billion in tax on our savings and £18.6 billion on dividends. 'Fiscal drag has had a devastating impact on the tax we pay. These figures show just how much damage is being done to our finances by this horrible stealth tax — and there is plenty more to come,' said Sarah Coles from the investment platform Hargreaves Lansdown. So it's no wonder that some families are shaking up their financial behaviour to avoid bigger tax bills. We spoke to four to find out how. Income tax thresholds have been frozen since 2021, and even those on relatively modest wages are now being dragged into the higher-rate 40 per cent band that is applied to earnings above £50,270 a year. For families this comes with an added sting in the tail because they start to lose their child benefit entitlement not far above this threshold. Child benefit is worth £26.05 a week for the first child and £17.25 a week for other children, but once one parent earns above £60,000 a year of adjusted income, you have to repay 1 per cent for every £200 earned over that threshold. Once one parent earns £80,000 you get nothing. Justin King, 55, a financial planner from Christchurch in Dorset, reduced his working hours to ensure that he was still eligible for child benefit, worth about £2,250 a year for Olivia, 16, and Amy, 14. 'I had the option to work more, but the extra income would have been largely eroded by higher tax and the loss of child benefit. When I weighed it up, it just didn't seem worth missing out on time with my family,' he said. Because eligibility for child benefit is based on adjusted net income — your earnings after pension contributions and certain tax reliefs have been deducted — there are ways you can avoid this trap. Dean Butler from the life insurer Standard Life said: 'Higher earners could consider increasing their pension contributions to reduce their adjusted net income below £80,000. This way you could get some or all of your child benefit back, while also saving for your future.' • Why high earners are cutting their pay (clue: it's about 600% tax) There is evidence that more people are doing exactly this. There has been a steep increase in the number of taxpayers with adjusted earnings that are between £1 and £3,000 below the threshold — almost 1 million, up from 893,000 a year earlier, according to HM Revenue & Customs data. King has started to increase his working hours again now his children are older and the child benefit threshold has been raised — it was £50,000 until April 2024 and went up to £60,000. He said: 'As a financial planner, I often encourage clients to make life choices based on their values, and at that point, family time mattered more to me than extra income. You need to do your sums and work out whether that extra day's work may be more valuable to you and your family than contributing to the Treasury.' Salary sacrifice is another way to reduce your earnings. Offered by some workplaces, it means agreeing to reduce your salary by a certain amount in exchange for extra benefits such as pension contributions. It means you also save on national insurance payments because you 'give up' part of your salary to go into your pension. 'It's important to note, however, that salary sacrifice can harm mortgage applications and reduce payments based on salary, such as maternity pay, so it might not be right for everyone,' Butler said. • How free nursery hours for more children backfired The £100,000 cliff-edge is the most punitive threshold in the UK tax system, with workers in this band facing a marginal tax rate (the amount you pay on the next £1 earned) of 62 per cent. For every £2 you earn above £100,000 you lose £1 of your £12,570 personal allowance (the amount you can earn each year before paying tax), with the allowance cut to nothing by the time you earn £125,140. It gets worse for families: once one parent earns above £100,000 a year in adjusted net income, they are no longer eligible for tax-free childcare (a government-backed savings account for nursery fees worth up to £2,000 a year per child) and they lose entitlement to free childcare hours. Parents with children aged between nine months and two years can get between 15 and 30 hours of childcare funded by the government during term time (rising to 30 for all children aged nine months and up from September). Parents of three and four-year-olds can get 30 free hours. With an average full-time nursery place for a child under two costing £341 a week in England, this can be a vital lifeline. Once you earn more than £100,000 in adjusted net income you lose the free hours for younger children entirely, and only get 15 hours for three and four-year-olds. Emily Farmer, 32, from Hampshire, had always aimed to earn £100,000 in her career in marketing, but since her daughter Olivia was born 11 months ago, she has reduced her working hours because it's simply not worth earning more. 'Reaching £100,000 always felt like a career milestone for me, but after having my daughter and nearing this threshold, I made the strategic decision to move to a four-day week,' Farmer said. 'It's a shame to have to sacrifice career progression to make my family finances work.' Making extra pension contributions can also help workers at this cliff-edge reduce their take-home pay and avoid punitive marginal tax rates, Butler said. 'This could also help you recover some or all of your personal allowance, depending on how much you put in.' Savers can put up to £60,000 a year into a pension, including tax relief, or 100 per cent of their earnings, whichever is lower. This can be particularly valuable when employer contributions are factored in. However, it is important to consider whether you may need the money early because it is not usually possible to get at your pension savings before 55 (rising to 57 from April 2028) without incurring a large tax bill. • I spend £200 a week on summer holiday childcare From April 2027 pensions are set to be included as part of an estate for inheritance tax (IHT) purposes, and this has upended many peoples' financial plans. Defined contribution pensions (when your pot is based on what you pay in plus investment growth) are exempt from inheritance tax, but with this set to change, many savers are rushing to give away their wealth to avoid a 40 per cent IHT bill when they die. The tax is paid on estates worth more than £325,000 (£500,000 if they include a main home left to a direct descendant on estates worth up to £2 million). Couples who are married or in a civil partnership can inherit each other's allowances, meaning up to £1 million can be passed on IHT-free. Just under 5 per cent of estates pay IHT in the UK, but this is expected to rise to 8 per cent after 2027, according to HMRC. Alistair Dickson is concerned that the changes could leave his children with an unwelcome tax bill and is making plans to pass his wealth on as tax-efficiently as possible, including considering putting his house into trust. Dickson, 57, who lives in Glasgow, is also spending more, using his annual gifting allowance, and is even exploring the idea of moving to Portugal, which has a favourable tax set-up. Everyone in the UK can give away up to £3,000 a year and it won't count as part of your estate for IHT purposes. You can also make small gives of up to £250 per person, as long as they also haven't benefited from the £3,000 allowance. It is possible to give away much larger sums IHT-free as long as you live for seven years afterwards, after which the gift will no longer be counted as part of your estate. • Surge in wealthy using insurance to beat inheritance tax hit You can also give away unlimited regular amounts out of surplus income, as long as it does not affect your standard of living and you keep records to show a pattern of giving. The money must come from income such as earnings, rent, pensions or an annuity, and not from savings. Adrian Murphy from the financial advice firm Murphy Wealth said: 'For years it was assumed that pensions would be the last port of call for income in retirement — or might never be touched at all — and most of it would find its way to your children,. But that has now changed. This will only drive more people to give assets away or look at alternative strategies.' Proposed changes to the Isa system are causing more savers to alter their plans. Adults can save up to £20,000 a year into an Isa, in cash or investments, or a mix of both, but it is thought that the chancellor, Rachel Reeves, may slash the cash Isa limit in her October budget, in a bid to encourage more people to invest. The uncertainty could be having the opposite effect. Savers poured a record £14 billion into cash Isas in April, according to the Bank of England. Rob Mack usually invests about £500 a month but has been funnelling any spare money into his cash Isa in case the allowance is cut. Mack, 50, from north London, has saved £5,000 so far this tax year and hopes to use as much of the £20,000 allowance as possible before the budget. 'We've made some adjustments to our family finances, moving savings into cash Isas to keep them accessible and tax-efficient. It's essential to have quick access to funds when unexpected expenses arise, like a car repair or a boiler breakdown,' he said. Murphy is advising clients to use the changes as a starting point to review their investments: 'Cash saving in most cases should be for emergencies and short-term liabilities or expenditure.'
CBS News
5 days ago
- Business
- CBS News
Why a $10,000 short-term CD makes sense with inflation rising again
After the inflation rate barely moved from 2.3% to 2.4% in May, many borrowers held out hope that the increase was temporary. But those hopes were diminished this week after the Bureau of Labor Statistics reported another rise in the rate, up to 2.7% in June. That pushed the rate further away from the Federal Reserve's target of 2%, all but ensuring another pause in the Fed's rate cut campaign when it meets again at the end of July. And it could even wipe out the chances of a Fed rate cut when the central bank meets again in September, too. While this isn't the news borrowers had hoped for, it does offer savers an extended opportunity to take advantage of today's high rates in a strategic way. One of the better ways to do so is via a short-term certificate of deposit (CD) account. Specifically, a $10,000 short-term CD could be a smart way to capitalize on this latest inflation development. Below, we'll break down three reasons why a $10,000 short-term CD, specifically, makes sense with inflation rising again. Start by seeing how much interest you could be earning with a high-rate CD here. Unsure if a $10,00 short-term CD is the right move for your money now? Here are three timely reasons why it can be: Ahead of imminent rate cuts, savers typically don't have the luxury of shopping around to find lenders offering the highest rates and lowest fees. But now, with inflation rising again, savers will have a bit more time to shop around to find an ideal bank. As noted, rate cuts are essentially out of the question for July (the CME Group's FedWatch tool has a cut listed at less than a 3% chance now). And there's no Fed meeting scheduled for August. So, a rush to lock in a high rate isn't necessary. This is particularly important with a large, five-figure sum like $10,000. With this much money set to be locked away in a CD, you'll want to make sure you've picked the right lender. Fortunately, now you'll have a bit more time to do just that. Start shopping for CD accounts online now. Long-term predictions about the economy and, more specifically, about the interest rate climate are difficult to make right now. If inflation continues to rise, interest rates could rise with it. So you don't want to lock too much money away for too long, as you may have greater interest-earning opportunities in the coming year. But that's not a guarantee, either. Fortunately, short-term CDs will allow you to adapt more effectively to a changing economic landscape as accounts here will mature in 12 months or fewer. And flexibility is critical in today's economy and even more so when moving around $10,000. A top 1-year CD rate is 4.40% now or, put another way, $440 earned on a $10,000 deposit. But if you're looking for an account that will mature sooner, you'll have attractive options then, too. A 9-month CD comes with a rate of 4.26% now (around $318 earned) and a 6-month CD can be found with a 4.45% rate (approximately $220). While waiting for the economic landscape to shake out, then, you can still earn hundreds of dollars in the interim with the right short-term CD account. But not every bank will offer rates this high, with online banks frequently offering better rates and terms than those with physical branches. Consider starting with your local bank but be cognizant of the online offers, too, to better determine which makes more sense for your money now. A $10,000 short-term CD may not be the right choice for every saver currently. But with inflation rising and the chances of a rate cut that could impact CD returns diminished, now is a smart time to diligently shop for rates and accounts. A short-term CD offers savers flexibility to adapt to changing market conditions, thanks to a maturity date under one year all while allowing savers to earn hundreds of dollars worth of interest in the interim. So if you're looking to take advantage of what appears to be an extended pause in today's elevated interest rate climate, a $10,000 short-term CD offers a smart and effective way to accomplish that goal.
