Tag Archives: Personal Finance

Technology

In Japan, pet fish playing Nintendo Switch run up bill on owner’s credit card

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CNN
 — 

Here’s something you don’t see everyday. Pet fish playing a video game in Japan managed to log on to the Nintendo Switch store, change their owner’s avatar, set up a Pay Pal account and rack up a credit card bill.

And it was all seemingly livestreamed, in real time, on the internet.

The fish in question belong to a YouTuber known as Mutekimaru, whose channel is popular with the gaming community for its videos featuring groups of tetra fish that “play” video games.

Mutekimaru had previously installed sophisticated motion detection tracking software in fish tanks, enabling the fish to remotely control a Nintendo Switch console.

But the technology, and the fishes’ apparent mastery of it, led to an unexpected turn of events earlier this month while Mutekimaru was live-streaming a game of Pokémon.

Mutekimaru had stepped away for a break when the game crashed due to a system error and the console returned to the home screen.

But the fish carried on swimming, like fish tend to do, and seemingly continued to control the console remotely from their tank.

During the next seven hours, the fish reportedly managed to change the name of their owner’s Switch account before twice logging into the Nintendo store, where users can purchase games and other downloadable content.

They also managed to “check” legal terms and conditions, downloaded a new avatar and even set up a PayPal account from the Switch – sending an email out to their owner in the process, video from the livestream appeared to show.

But things didn’t end there. The fish were also seen adding 500 yen ($4) to Mutekimaru’s Switch account from his credit card during the livestream – exposing his credit card details in the process, the YouTuber revealed in a follow-up video about the episode.

By this point, thousands of comments were streaming in as viewers watched the unintended takeover being livestreamed on the channel, and the incident went viral on Twitter, where thousands of Japanese users shared their amusement.

Mutekimaru later said that he had contacted Nintendo to explain what happened and asked for a refund of his 500 yen.

Nintendo declined to comment to CNN, citing customer confidentiality.



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Business

Here’s how to report Roth IRA conversions on your taxes

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If you made a Roth individual retirement account conversion in 2022, you may have a more complicated tax return this season, experts say. 

The strategy, which transfers pretax or non-deductible IRA funds to a Roth IRA for future tax-free growth, tends to be more popular during a stock market downturn because you can convert more assets at a lower dollar amount. While the trade-off is upfront taxes, you may have less income by converting lower-value investments.

“You get more bang for your buck,” said Jim Guarino, a certified financial planner and managing director at Baker Newman Noyes in Woburn, Massachusetts. He is also a certified public accountant.

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Tax season opens for individual filers on Jan. 23, says IRS
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After ‘misery’ for tax filers in 2022, IRS to start 2023 tax season stronger, taxpayer advocate says

If you completed a Roth conversion in 2022, you’ll receive Form 1099-R from your custodian, which includes the distribution from your IRA, Guarino said. 

You’ll need to report the transfer on Form 8606 to tell the IRS which portion of your Roth conversion is taxable, he said. However, when there’s a mix of pretax and non-deductible IRA contributions over time, the calculation may be trickier than you expect. (You may have non-deductible contributions in your pretax IRA if you don’t qualify for the full or partial tax break due to income and workplace retirement plan participation.)

“I see a lot of people making a mistake here,” Guarino said. The reason is the so-called “pro-rata rule” which requires you to factor your aggregate pretax IRA funds into the calculation. 

How the pro-rata rule works

JoAnn May, a CFP and CPA with Forest Asset Management in Berwyn, Illinois, said the pro-rata rule is the equivalent of adding cream to your coffee then finding you can’t remove the cream once it’s poured.

“That’s exactly what happens when you mix pretax and non-deductible IRAs,” she said, meaning you can’t simply convert the after-tax portion.

For example, let’s say you have a pretax IRA of $20,000 and you made a non-deductible IRA contribution of $6,000 in 2022.

If you converted the entire $26,000 balance, you would divide $6,000 by $26,000 to calculate the tax-free portion. This means roughly 23% or about $6,000 is tax-free and $20,000 is taxable. 

Alternatively, let’s say you have $1 million across a few IRAs and $100,000, or 10% of the total, is non-deductible contributions. If you converted $30,000, only $3,000 would be non-taxable and $27,000 would be taxable.

Of course, the bigger your pretax IRA balance, the higher percentage of the conversion will be taxable, May said. Alternatively, a larger non-deductible or Roth IRA balance reduces the percentage. 

But here’s the kicker: Taxpayers also use the Form 8606 to report non-deductible IRA contributions every year to establish “basis” or your after-tax balance. 

However, after several years, it’s easy to lose track of basis, even in professional tax software, warned May. “It’s a big problem,” she said. “If you miss it, then you’re basically paying tax on the same money twice.” 

Timing conversions to avoid an ‘unnecessary’ tax bump

With the S&P 500 still down about 14% over the past 12 months as of Jan. 19, you may be eyeing a Roth conversion. But tax experts say you need to know your 2023 income to know the tax consequences, which may be difficult early in the year.

“I recommend waiting until the end of the year,” said Tommy Lucas, a CFP and enrolled agent at Moisand Fitzgerald Tamayo in Orlando, Florida, noting that income can change from factors like selling a home or year-end mutual fund distributions. 

Typically, he aims to “fill up a lower tax bracket,” without bumping someone into the next one with Roth conversion income.

For example, if a client is in the 12% bracket, Lucas may limit the conversion to avoid spilling into the 22% tier. Otherwise, they’ll pay more on the taxable income in that higher bracket.

“The last thing we want to do is throw someone into an unnecessary tax bracket,” he said. And boosting income may have other consequences, such as reduced eligibility for certain tax breaks or higher Medicare Part B and D premiums.

Guarino from Baker Newman Noyes also crunches the numbers before making Roth conversion decisions, noting that he’s “essentially performing the Form 8606 calculation during the year” to know how much of the Roth conversion will be taxable income.

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Health

These healthy diets were associated with lower risk of death, according to a study of 119,000 people across four decades

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Eat healthy, live longer.

That’s the takeaway from a major study published this month in JAMA Internal Medicine. Scientists led by a team from the Harvard T.H. Chan School of Public Health found that people who most closely adhered to at least one of four healthy eating patterns were less likely to die from cardiovascular disease, cancer or respiratory disease compared with people who did not adhere as closely to these diets. They were also less likely to die of any cause.

“These findings support the recommendations of Dietary Guidelines for Americans that multiple healthy eating patterns can be adapted to individual food traditions and preferences,” the researchers concluded, adding that the results were consistent across different racial and ethnic groups. The eating habits and mortality rates of more than 75,000 women from 1984 to 2020 over 44,000 men from 1986 to 2020 were included in the study.

The four diets studied were the Healthy Eating Index, the Alternate Mediterranean Diet, the Healthful Plant-Based Diet Index and the Alternate Healthy Eating Index. All four share some components, including whole grains, fruits, vegetables, nuts and legumes. But there are also differences: For instance, the Alternate Mediterranean Diet encourages fish consumption, and the Healthful Plant-Based Diet Index discourages eating meat.

The Alternate Mediterranean Diet is adapted from the original Mediterranean Diet, which includes olive oil (which is rich in omega-3 fatty acids), fruits, nuts, cereals, vegetables, legumes and fish. It allows for moderate consumption of alcohol and dairy products but low consumption of sweets and only the occasional serving of red meat. The alternate version, meanwhile, cuts out dairy entirely, only includes whole grains and uses the same alcohol-intake guideline for men and women, JAMA says.

The world’s ‘best diets’ overlap with study results

The Mediterranean Diet consistently ranks No. 1 in the U.S. News and World Report’s Best Diets ranking, which looks at seven criteria: short-term weight loss, long-term weight loss, effectiveness in preventing cardiovascular disease, effectiveness in preventing diabetes, ease of compliance, nutritional completeness and health risks. The 2023 list ranks the top three diets as the Mediterranean Diet, the DASH Diet and the Flexitarian Diet. 

The DASH (Dietary Approaches to Stop Hypertension) Diet recommends fruits, vegetables, nuts, whole grains, poultry, fish and low-fat dairy products and restricts salt, red meat, sweets and sugar-sweetened beverages. The Flexitarian Diet is similar to the other diets in that it’s mainly vegetarian, but it allows the occasional serving of meat or fish. All three diets are associated with improved metabolic health, lower blood pressure and reduced risk of Type 2 diabetes.

Frank Hu, a professor of nutrition and epidemiology at the Harvard School of Public Health and co-author of the latest study, said it’s critical to examine the associations between the U.S. government’s Dietary Guidelines for Americans and long-term health. “Our findings will be valuable for the 2025-2030 Dietary Guidelines Advisory Committee, which is being formed to evaluate current evidence surrounding different eating patterns and health outcomes,” he said.

Reducing salt intake is a good place to start. In 2021, the Food and Drug Administration issued new guidance for restaurants and food manufacturers to, over a two-and-a-half-year period, voluntarily reduce the amount of sodium in their food to help consumers stay under a limit of 3,000 milligrams per day — still higher than the recommended daily allowance. Americans consume around 3,400 milligrams of sodium per day, on average, but the Centers for Disease Control and Prevention recommends that people consume less than 2,300 milligrams each day.

Related: Eating 400 calories a day from these foods could raise your dementia risk by over 20%

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US

Mega Millions jackpot is $1.1 billion. How to plan for sharing it

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Scott Olson | Getty Images

If you’ve never had family or friends hit you up for money, that is likely to change if you were to win the $1.1 billion Mega Millions jackpot.

The grand prize has been climbing through twice-weekly drawings since mid-October, with no ticket matching all six numbers drawn to land the grand prize. This marks the fourth time the game’s jackpot has passed $1 billion, and if won at this level it would be the fifth-largest lottery jackpot ever.

Of course, the advertised $1.1 billion is what you’d get if you were to choose to take your winnings as an annuity spread over three decades. The lump-sum cash option — which most jackpot winners choose instead — is $568.7 million.

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While a chunk of your winnings would go to taxes, the amount you’d end up with after those levies would be more than most people see in a lifetime. It also may make you a target for people who want a piece of your newfound wealth, experts say.

Of course, not everyone will be preying on you, said Emily Irwin, managing director of advice and planning at Wells Fargo Wealth & Investment Management. “But … you never know what’s going to happen.”

When “the inevitable asking for money occurs,” she said, “how can you make sure you feel comfortable saying yes or no?”

Here are some tips to head off trouble.

Share the news with as few people as possible

If you manage to beat the odds stacked against a single ticket hitting the jackpot — the chance of hitting the motherlode is about 1 in 302.6 million — one of the most important things to do is share the news with as few people as possible.

“It’s hard for even your inner circle of people not to say anything,” said certified financial planner Susan Bradley, founder of the Sudden Money Institute in Palm Beach Gardens, Florida.

If you can shield your identity from the public, that can help minimize who finds out and protect you from random strangers hoping to get a piece of your winnings. Some states allow you to claim anonymously, while in others you may be able to set up a legal entity — for example, a trust — that claims the windfall, thereby shielding your name from the public.

Create a plan for how and when to donate

Before you even claim your prize, you should set up a team of professionals to help you navigate your new wealth. This group should include at least an experienced attorney, financial advisor and tax advisor.

One thing you can think about during this pre-claiming phase, with the guidance of your team, is whether and how you want to use some of the winnings to benefit others.

Pichai Pipatkuldilok / Eyeem | Eyeem | Getty Images

Some jackpot winners tap their philanthropic side by either setting up a private foundation or using other tax-advantaged ways to make charitable contributions. If you determine from the start which causes you want to support — say, protecting the environment or battling hunger — it can make it easier and more rewarding to use those charitable dollars, experts say.

You also could determine a yearly limit to what you give away, whether to charities or individuals.

Set up boundaries for money going to family, friends

For sharing with family and friends, you also should set up parameters, Irwin said.

“I think it’s helpful to think about under what terms you would gift money,” Irwin said. “Are you now the bank for family?

“If there’s a catastrophic event, will you be there?” she added. “If someone wants to start a business, would you be giving them seed money, or is it a loan?”

The benefit of establishing a plan, Irwin said, is that it can “eliminate feelings of guilt when you say no to individuals or organizations.”

Moreover, without boundaries, she said, “you could be in a position where you’re running through funds at an accelerated rate … and finding yourself saying yes more often than you wish.”

Additionally, keep in mind that some gifts come with “carrying costs” that need to be considered, Irwin said. For example, if you were to purchase an expensive home for yourself and each of your four siblings, those properties may come with ongoing, outsized bills and maintenance costs that you may be expected to cover.

Most importantly, winning hundreds of millions of dollars would be a chance to create long-term financial stability for you and loved ones if you approach it with foresight.

“Take care of yourself first and your family first,” Irwin said. “Make sure you don’t make decisions that could unduly harm your own balance sheet and comfort.”

Meanwhile, Powerball’s jackpot for Monday night’s drawing is $340 million (the cash option is $178.2 million). The chance of hitting Powerball’s top prize is a tad better than in Mega Millions: 1 in 292 million.

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Business

New 2023 EV tax incentives: How they work, which cars qualify, and where to get even more savings

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Quick facts about federal incentives for electric cars:

  • The government delayed some rules for EV tax credits until March 2023.
  • Select GM
    GM,
    +2.60%
    and Tesla
    TSLA,
    +2.47%
    electric vehicles became eligible (again) for federal tax incentives in January 2023.
  • Many electric cars do not qualify, but we help you find the ones that do.

Consumers considering an electric vehicle right now may want to weigh how tax credits on zero-emissions cars work and how they could affect any upcoming buying decisions.

The Inflation Reduction Act signed in August 2022 includes electric vehicle tax credits provisions set to reshape how Americans buy electric cars and plug-in hybrids.

Read on to learn the impact. We will tell you about the new changes to federal tax incentives for electric cars. The new tax credits can help defray the cost of buying a zero-emission vehicle when combined with state and local rebates.

How the new EV tax credits work

According to Kelley Blue Book research, a new electric car’s average transaction price came in at about $65,000 in November, nearly a 9% jump from a year ago. The industrywide average that includes gas-powered vehicles and electric cars reached about $48,900 in the same timeframe.

  • Extends $7,500 tax credit. The Inflation Reduction Act extends the current incentives of up to $7,500 in tax credits for select electric cars, plug-in hybrids, and hydrogen-powered vehicles that meet its qualifications. The federal government continues to update the list of qualifying vehicles.
  • Discount up front. In the future, it’s possible you can qualify to get your EV tax credit at the time of purchase on new vehicles, though if the dealership does not offer it immediately, you can still request the credit on your taxes.
  • Caps EV price tags. The new incentives restrict qualifying vehicles to low-emissions trucks, SUVs, and vans with manufacturer’s suggested retail prices of up to $80,000 and cars up to $55,000.
  • No limits for manufacturers. As of Jan. 1, 2023, manufacturers like GM and Tesla were no longer limited on incentives to the first 200,000 EVs sold, which was the case under the old tax credits.
  • Used electric vehicle rebate. Anyone considering a used electric car under $25,000 could obtain a new $4,000 tax credit, subject to income and other limits. To qualify, used cars must be two model years old. The vehicle also must be purchased at a dealership. The vehicle also only qualifies once in its lifetime. Purchasers of used vehicles can only qualify for one credit every three years, and to qualify, individuals must make $75,000 or less, or $112,500 for heads of households and $150,000 for joint return filers. The credit ends in 2032.
  • Income caps to qualify. The rebates are limited to individuals reporting adjusted gross incomes of $150,000 or less on taxes, $225,000 for those filing as head of household, and $300,000 for joint filers.
  • Ineligible cars become eligible. Additionally, the measure allows carmakers like Tesla and General Motors, which had run out of available credits under the old plan, to be eligible for them again in January 2023. However, many of their products would still not qualify due to car price caps.
  • New rules on manufacturing locations. To qualify for the subsidy, electric car batteries must be manufactured in the U.S., Canada, or Mexico, while the batteries’ minerals and parts must also come from North America to qualify. Cars with Chinese-made battery components would be ineligible. These rules render many current EVs ineligible. This requirement phases in over time. That means some cars eligible now could become ineligible over time unless manufacturers change their supply chains. However, the U.S. Treasury Department delayed until March the regulations that govern where battery minerals and parts must be sourced.
  • Some leased vehicles may qualify.
  • Hydrogen fuel-cell cars remain eligible. The $7,500 credit also applies to hydrogen fuel-cell cars like the Toyota Mirai or Hyundai Nexo. However, those make sense only for buyers who live near one of America’s few hydrogen refueling stations. Those stations are mostly concentrated in California. 

Learn more: What is EV, BEV, HEV, PHEV? Here’s your guide to types of electric cars

What the old EV tax credits provided

Before the Inflation Reduction Act, buyers could claim a tax credit on just the first 200,000 electric cars a manufacturer sold. That meant that the most popular models lost the credit. The incentive did not restrict income or purchase prices.

The old tax credits also applied to plug-in hybrids and fuel cell vehicles, but not used vehicles.

President Biden signed the act into law on Aug. 1, 2022. Most of its provisions kicked in on Jan. 1, 2023. That created a brief window when the law required qualifying cars to be built in North America, but the 200,000-car-per-manufacturer limit still applied. If you bought an electric car between Aug. 16, 2022, and Jan. 1, 2023, it qualified for a credit only if it was built in North America by a manufacturer that hadn’t sold 200,000 or more qualifying cars.

Tesla and General Motors’ electric car tax credits were reinstated in January. So if you have your heart set on a Tesla Model 3 or perhaps a Cadillac Lyriq, now is the time to act.

Also see: 2.1 million EVs and plug-in hybrids on U.S. roads, and here’s how much gas they’ve saved

List of 2023 electric vehicles that qualify

According to the U.S. Internal Revenue Service, this is the latest list of electric and plug-in hybrid vehicles that qualify if purchased after Jan. 1, 2023. The site notes that several manufacturers had yet to submit information on specific eligible makes and models and for users to check back for updated information.

Vehicle MSRP Limit
Audi Q5 TFSI e Quattro PHEV $80,000
BMW
BMW,
+0.07%
330e 		$55,000
BMW X5 eDrive 45e $80,000
Ford
F,
+2.69%
Escape PHEV 		$80,000
Ford E-Transit $80,000
Ford F-150 Lightning $80,000
Ford Mustang Mach-E $55,000
Lincoln Aviator Grand Touring $80,000
Lincoln Corsair Grand Touring $55,000
Chevrolet Bolt EV $55,000
Chevrolet Bolt EUV $55,000
Cadillac Lyriq $55,000
Nissan
NSANY,
+2.85%
Leaf 		$55,000
Rivian
RIVN,
-0.97%
R1S 		$80,000
Rivian R1T $80,000
Chrysler Pacifica PHEV $80,000
Jeep Wrangler 4xe $80,000
Jeep Grand Cherokee 4xe $80,000
Tesla Model 3 $55,000
Tesla Model Y 7-Seat Variant $80,000
Volkswagen
VWAGY,
+2.00%
ID.4 		$55,000
Volvo
VLVLY,
+3.20%
S60 T8 Recharge PHEV 		$55,000
State and local incentives near you

Though the federal government’s effort makes up the lion’s share of government EV discounts, some states and local governments offer incentive programs to help new car buyers afford something more efficient. These can be tax credits, rebates, reduced vehicle taxes, single-occupant carpool-lane access stickers, and exemptions from registration or inspection fees.

States like California and Connecticut offer broad support for electric vehicle buyers. However, Idaho, Kentucky, and Wyoming are among the states offering no support to individual EV buyers. The U.S. Department of Energy maintains an interactive list of state-level incentives, while Plug In America posts an interactive map of EV incentives.

Also read: What California’s ban on gas cars could mean for you—even if you don’t live there

Your electric utility may help

Lastly, it’s not just governments that can help you with the cost of a new EV. Some local electric utilities provide incentive programs to help buyers get into electric vehicles. After all, they’re among the ones that benefit when you turn your fuel dollars into electricity dollars.

Read: 3 reasons the Hyundai Ioniq 6 makes the Tesla Model 3 seem a bit boring

Some offer rebates on cars. Others offer discounts on chargers or install them free when you sign up for off-peak charging programs.

For example, the Nebraska Public Power District offers a $4,000 rebate to customers who purchase a new electric car.

This story originally ran on KBB.com. 

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US

Mega Millions jackpot is $785 million. Here’s the tax bill

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Anadolu Agency | Anadolu Agency | Getty Images

Of course, the advertised amount is only what you’d get if you were to choose to take your winnings as an annuity spread over three decades. The lump-sum cash option — which most winners choose — for this jackpot is $403.8 million, as of midday Tuesday.

Regardless of how you’d decide to receive your windfall, taxes would take a bite out of it.

$96.9 million in taxes would be shaved off cash option

Assuming you’re like most winners and were to choose the cash option, a mandatory 24% federal tax withholding would reduce the $403.8 million by $96.9 million. That would cut your take to $306.9 million.

However, you could expect to owe more to the IRS at tax time. The top federal income tax rate is 37% and applies to income above $578,125 for individual tax filers and $693,750 for married couples who file a joint tax return.

This means that unless you were able to reduce your taxable income by, say, making large tax-deductible charitable contributions, you would owe another 13% — or about $52.5 million — at tax time. That would bring your winnings down to $254.4 million. 

There also could be state or local taxes depending on where the ticket was purchased and where you live. Those levies range from zero to more than 10%.

Most Mega Millions players, though, won’t have to worry about paying millions of dollars to the IRS or state coffers: The odds of a single ticket matching all six numbers to land the jackpot is about 1 in 302.6 million.

Meanwhile, the Powerball jackpot is $291 million (with a cash option of $147.9 million) for Wednesday night’s drawing. The chance of hitting the motherlode in that game is slightly better: 1 in 292 million.

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Business

A 39-year-old who makes $160,000/month in passive income shares his best advice

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When starting a business, it’s sometimes hard to know what to prioritize, and going at it alone can be overwhelming. But there are strategies you can use to avoid common pitfalls.

My mission is to teach people how to earn money from their passions. It’s what I did: I went from living on food stamps to building two online businesses.

Today, I run a music blog, The Recording Revolution, and a entrepreneurship coaching company. I work just five hours a week from my home office and make $160,000 a month in passive income.

Here’s what I tell my 3,000 clients to think about in the first 30 days of starting a business:

1. Be clear about how you want to spend your time.

Many new business owners I meet know only one thing: how much money they want to make. 

While that’s a great starting point, it’s incomplete. Your business should serve your life, not the other way around. So make sure it aligns with your hopes, dreams and goals.

To get clear about the type of business and life you want, ask three questions:

  1. What does a perfect day look like to you? Don’t just think about your typical workday. Consider other life activities you want to fit into your day, like exercising or spending time with family.
  2. How many hours do you want to work a week? You don’t have to follow the standard 40-hour workweek. Knowing exactly how many hours you want to work will help you better prioritize tasks.
  3. How important is time off? Some people don’t care much about taking time off, as long as they love what they do. Others value extended time off. In order to have money flowing in when you’re not working, you’ll need to have some sort of passive income stream.

2. Simplify your business model.

When I started my music education business, people told me I needed to test my sales pages, throw launch parties and pre-record a bunch of ads in order to grow.

Rather than stretching myself thin doing things that didn’t make sense to me, I kept it simple and focused on three things: creating weekly content for my blog and YouTube channel, growing my email list from that audience, and promoting the paid products I created to that list.

If you’re just starting out, develop content around your expertise to grow an audience. It doesn’t have to be perfect. You can iterate as you go and design new products based on what your customers want more of.

3. Cut out unnecessary daily tasks.

Identify what daily activities will help you earn more. Don’t waste time or burn yourself out focusing on unimportant tasks.

It might feel good to get to inbox zero or change the color of the buttons on your website, especially in the early days where you want to feel like you’ve achieved a goal. But neither of those things will make you money.

Before you start a new task, ask yourself three questions:

  1. What’s the expected outcome for doing this task? 
  2. Does it lead to more money?
  3. Can I point to a direct link between doing that task and earning income?
  4. What’s the cost of doing this instead of something else? 

4. Prioritize having fun.

People can tell if you’re just doing something for the money or if you actually love what you do. That authenticity will connect you deeper to your customers and it will sustain you for the long haul. 

You don’t want to burn out because you spent all your time doing things that weren’t meaningful to you.

I always give my students this framework when they are beginning their entrepreneur journey: Build a business around something you see yourself doing and enjoying for the next 10 years. 

Graham Cochrane is founder of The Recording Revolution and author of “How to Get Paid for What You Know.” He has helped more than 3,000 people launch and improve their own businesses. Follow him on Instagram and Twitter.

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Business

Wells Fargo settlement includes $2 billion for customers. What to know

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wdstock | iStock Editorial | Getty Images

People owed a piece of the $2 billion that Wells Fargo has agreed to pay to customers affected by some of its banking practices could soon receive those funds.

The nation’s fourth-largest bank reached a settlement with the Consumer Financial Protection Bureau, announced Tuesday, to resolve customer abuses related to auto lending, deposit accounts and mortgage lending, affecting about 16 million accounts.

related investing news

Wells Fargo also agreed to pay a $1.7 billion civil penalty — the largest ever doled out by the CFPB.

“We have already communicated with many of the customers who may have been impacted by the matters covered in the settlement, and those efforts are ongoing,” a Wells Fargo spokesperson told CNBC.

In other words, if you are among the affected customers, you may already have received your share of the $2 billion, or you will automatically hear from Wells Fargo. You do not need to take any action, the bank said.

The CFPB said that customers of the bank were illegally assessed fees and interest charges on auto and mortgage loans, had their cars wrongly repossessed and had payments to auto and mortgage loans misapplied. Additionally, Wells Fargo charged consumers unlawful surprise overdraft fees and applied other incorrect charges to checking and savings accounts, and improperly froze some accounts, the CFPB said.

$1.3 billion has already reached 11 million accounts

More than 11 million customer accounts already have received more than $1.3 billion related to auto loan issues. Another 5 million customers with deposit accounts are receiving $500 million in remediation, including $205 million related to surprise overdraft fees, and thousands of customers with mortgages will receive a piece of at least $195 million, a CFPB spokesperson said.

The amount that each harmed consumer will get (or already got) depends on the specifics. For customers whose vehicles were wrongly repossessed, the remediation includes $4,000, but could be higher. For deposit accounts that were wrongly frozen, the settlement calls for $150 for each affected customer.

More from Personal Finance:
Used car prices are down 3.3% from a year ago
Key things to know about HSAs as you near retirement
Reduce your 2022 tax bill with these last-minute moves

“As we have said before, we and our regulators have identified a series of unacceptable practices that we have been working systematically to change and provide customer remediation where warranted,” said Charlie Scharf, Wells Fargo CEO, in the company’s press release about the settlement.

“This far-reaching agreement is an important milestone in our work to transform the operating practices at Wells Fargo and to put these issues behind us,” Scharf said.

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Business

What to do about the highest interest rate in 15 years

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Editor’s Note: This is an updated version of a story that originally ran on November 2, 2022.

In its last policymaking meeting of the year, the Federal Reserve on Wednesday raised its benchmark interest rate for the seventh time in a row, to a range of 4.25% to 4.5%. That is the highest it’s been in 15 years.

In a continued bid to tame decades-high inflation, the central bank may keep pushing rates higher next year, too, albeit at a more modest pace.

That, of course, means higher borrowing costs for consumers. But it also means your savings may actually start earning a little money after years of barely-there interest.

“Credit card rates are at a record high and still increasing. Auto loan rates are at an 11-year high. Home equity lines of credit are at a 15-year high. And online savings account and CD yields haven’t been this high since 2008,” said Greg McBride, chief financial analyst at Bankrate.

The good news: There are ways to situate your money so that you can benefit from rising rates and protect yourself from their costs.

If you’ve been stashing cash at big banks that have been paying next to nothing in interest for savings accounts and certificates of deposit, don’t expect that to change much, McBride said.

Thanks to the big players’ paltry rates, the national average savings rate is still just 0.19%, up from 0.06% in January, according to Bankrate’s December 7 weekly survey of large institutions.

But all those Fed rates hikes are starting to have a much more significant impact at online banks and credit unions, McBride said. They’re offering far higher rates — with some topping 3.75% currently — and have been increasing them as benchmark rates go higher.

As for certificates of deposit, there’s been a noticeable increase in return. The average rate on a one-year CD is 1.20% as of November 22, up from 0.14% at the start of the year. But top-yielding one-year CDs now offer as much as 4.5%.

So shop around. If you make a switch to an online bank or credit union, however, be sure to only choose those that are federally insured.

Given today’s high rates of inflation, Series I savings bonds may be attractive because they’re designed to preserve the buying power of your money. They’re currently paying 6.89%.

But that rate will only be in effect for six months and only if you buy an I Bond by the end of April 2023, after which the rate is scheduled to adjust. If inflation falls, the rate on the I Bond will fall, too.

There are some limitations: You can only invest $10,000 a year. You can’t redeem it in the first year. And if you cash out between years two and five, you will forfeit the previous three months of interest.

“In other words, I Bonds are not a replacement for your savings account,” McBride said.

Nevertheless, they preserve the buying power of your $10,000 if you don’t need to touch it for at least five years, and that’s not nothing. They also may be of particular benefit to people planning to retire in the next 5 to 10 years since they will serve as a safe annual investment they can tap if needed in their first few years of retirement.

When the overnight bank lending rate — also known as the fed funds rate — goes up, various lending rates that banks offer their customers tend to follow.

So you can expect to see a hike in your credit card rates within a few statements.

The average credit card rate hit a record high of 19.40% as of December 7, up from 16.3% at the start of the year, according to Bankrate. Some retail store credit cards are now carrying whopping rates of more than 30%.

“[Interest rate hikes] will most acutely impact those consumers who do not pay off their credit card balances in full through higher minimum monthly payments,” said Michele Raneri, vice president of US research and consulting at TransUnion.

Best advice: If you’re carrying balances on your credit cards — which typically have high variable interest rates — consider transferring them to a zero-rate balance transfer card that locks in a zero rate for between 12 and 21 months.

“That insulates you from [future] rate hikes, and it gives you a clear runway to pay off your debt once and for all,” McBride said. “Less debt and more savings will enable you to better weather rising interest rates, and is especially valuable if the economy sours.”

Just be sure to find out what, if any, fees you will have to pay (e.g., a balance transfer fee or annual fee), and what the penalties will be if you make a late payment or miss a payment during the zero-rate period. The best strategy is always to pay off as much of your existing balance as possible — on time every month — before the zero-rate period ends. Otherwise, any remaining balance will be subject to a new interest rate that could be higher than you had before if rates continue to rise.

If you don’t transfer to a zero-rate balance card, another option might be to get a relatively low fixed-rate personal loan. Average personal loan rates range from 10.3% to 12.5% for those with excellent credit scores, according to Bankrate. The best rate you can get would depend on your income, credit score and debt-to-income ratio. Bankrate’s advice: To get the best deal, ask a few lenders for quotes before filling out a loan application.

Mortgage rates have been rising over the past year, jumping more than three percentage points.

The 30-year fixed-rate mortgage averaged 6.33% in the week ending December 9, according to Freddie Mac. That is more than double where it stood a year ago.

“After cresting above 7%, mortgage rates have pulled back a bit but not enough to impact buyer affordability. The year-to-date rise in mortgage rates has still stripped would-be homebuyers of one-third of their buying power,” McBride said.

What’s more, mortgage rates may climb further.

So if you’re close to buying a home or refinancing one, lock in the lowest fixed rate available to you as soon as possible.

That said, “don’t jump into a large purchase that isn’t right for you just because interest rates might go up. Rushing into the purchase of a big-ticket item like a house or car that doesn’t fit in your budget is a recipe for trouble, regardless of what interest rates do in the future,” said Texas-based certified financial planner Lacy Rogers.

If you’re already a homeowner with a variable-rate home equity line of credit, and you used part of it to do a home improvement project, McBride recommends asking your lender if it’s possible to fix the rate on your outstanding balance, effectively creating a fixed-rate home equity loan.

If that’s not possible, consider paying off that balance by taking out a HELOC with another lender at a lower promotional rate, McBride suggested.

Given that inflation may have peaked, market returns may be better next year, said Yung-Yu Ma, chief investment strategist at BMO Wealth Management. “The outlook for equity and fixed income returns has improved, and a balanced approach [in your portfolio] makes sense.”

That’s not to say markets won’t remain choppy in the near term. But, Ma noted, “A soft landing for the economy looks not only possible but likely.”

Any cash you have sitting on the sidelines might be put into the equity and fixed income markets in regular intervals over the next six to 12 months, he suggested.

Ma remains bullish on value stocks, especially small cap ones, which have outperformed this year. “We expect that outperformance to persist going forward on a multi-year basis,” he said.

Regarding real estate, Ma noted, “the sharply higher interest and mortgage rates are challenging…and that headwind could persist for a few more quarters or even longer.”

Commodities, meanwhile, have come down in price. “But they still are a good hedge given the uncertainty in energy markets,” he said.

Broadly speaking, however, Ma suggests making sure your overall portfolio is diversified across equities. The idea is to hedge your bets, since some of those areas will come out ahead, but not all of them will.

That said, if you’re planning to invest in a specific stock, consider the company’s pricing power and how consistent the demand is likely to be for their product, said certified financial planner Doug Flynn, co-founder of Flynn Zito Capital Management.

To the extent you already own bonds, the prices on your bonds will fall in a rising rate environment. But if you’re in the market to buy bonds you can benefit from that trend, especially if you purchase short-term bonds, meaning one to three years. That’s because their prices have fallen more, relative to long-term bonds, and their yields have risen more. Ordinarily, short- and long-term bonds move in tandem.

“There’s a pretty good opportunity in short-term bonds, which are severely dislocated,” Flynn said.

“For those in higher-income tax brackets, a similar opportunity exists in tax-free municipal bonds.”

Muni prices have dropped significantly and, while they have started to improve, yields have risen overall and many states are in better financial shape than they were pre-pandemic, Flynn noted.

Ma also recommends short-term corporate bonds or short-term Agency or Treasury securities.

Other assets that may do well are so-called floating rate instruments from companies that need to raise cash, Flynn said. The floating rate is tied to a short-term benchmark rate, such as the fed funds rate, so it will go up whenever the Fed hikes rates.

But if you’re not a bond expert, you’d be better off investing in a fund that specializes in making the most of a rising rate environment through floating rate instruments and other bond income strategies. Flynn recommends looking for a strategic income or flexible income mutual fund or ETF, which will hold an array of different types of bonds.

“I don’t see a lot of these choices in 401(k)s,” he said. But you can always ask your 401(k) provider to include the option in your employer’s plan.

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