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The Top IRA CD Rates – October 2017

The editorial content on this page is not provided by any financial institution and has not been reviewed, approved or otherwise endorsed by any of these entities.

Top IRA CD rates
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Perhaps you’ve decided to build a CD ladder within your IRA, or maybe you’re looking for a safe way to store your retirement cash for a specific period of time. Whatever the reason, you’re interested in getting an IRA CD and, understandably, want to know what products will give you the best rate of return.

You can get an IRA CD with terms ranging from three months to more than six years, with interest rates generally increasing with the term length. There are lots of options, so we’ve rounded up the top IRA CD rates that are available right now for a variety of terms. You’ll select your IRA CD terms based on your CD-ladder master plan or whenever you’ll need access to your money.

Every month, we choose the top IRA CD rates using data from another LendingTree company DepositAccounts.com, a database of offerings at more than 17,100 banks and credit unions. On Oct. 2, 2017, we sorted the products by APY, then eliminated institutions with a health rating below a B. We then eliminated products that are not available nationwide. From there, we chose the IRA CD with the highest APY among products with a minimum deposit no greater than $5,000. Here are the best options.

The top IRA rates in October 2017

3 Month IRA CD – EverBank, 3 Month Yield Pledge IRA

3 Month IRA CD Three-month IRA CDs typically offer the lowest interest rates of any IRA CD term. EverBank offers the best rate of 1.01% APY and a minimum deposit of $5,000. That rate is well above the national average.

6-Month IRA CD – Nationwide Bank, 6-month IRA

6-Month IRA CD Six-month IRA CDs typically earn a little bit better, but they’re still not great. Nationwide Bank offers the highest interest rate at 1.20% APY for deposits less than $100,000. That translates into an earning of $5.98 on a $1,000 deposit. Compare that to the average of all regular 6 month CDs, at 0.384%.

1-Year IRA CD Rates – First Internet Bank of Indiana, 12 Month IRA

1 Year IRA CD Rates Regular one-year CDs earn an average interest rate of 0.61% APY. First Internet Bank of Indiana, however, is offering a one-year IRA CD at 1.62% APY. You’ll need a $1,000 minimum deposit to earn an additional $16.20 once the CD matures.

18-Month IRA CD Rates – First Internet Bank of Indiana, 18 Month IRA

18 Month IRA CD Rates Regular 18-month CDs earn an average interest rate of 0.74% APY. The top pick in this category is again the First Internet Bank of Indiana, which offers an interest rate of 1.70% APY on a $1,000 minimum deposit. With those terms, you would earn $25.61 by the time the CD matured.

2-Year IRA CD Rates – Garden Savings Federal Credit Union, 2 Year IRA Share Certificate

2 Year IRA CD Rates Two-year regular CDs earn an average interest rate of 0.86% APY. Garden Savings Federal Credit Union, on the other hand, is currently offering 2.02% APY on their 2-year IRA CDs. This would translate into an earning of $20.40 with a minimum $500 deposit.

3-Year IRA CD Rates – GTE Financial, 36-Month IRA Certificate – Member Advantage

3-Year IRA CD Rates GTE Financial Three-year regular CDs are earning an average interest rate of 1.08% APY currently. GTE Financial is nearly doubling that, with an interest rate of 2.02% APY with their Member Advantage 36-month IRA Certificate. With those interest rates and a $500 minimum deposit, you would earn $30.92 when the certificate matures. Anyone can qualify for this credit union membership with a one-time $10 membership fee to GTE Financial’s nonprofit educational financial club, CUSavers.

4-Year IRA CD Rates – GTE Financial, 48-Month IRA Certificate – Member Advantage

4-Year IRA CD Rates GTE Financial Four-year regular CDs are currently earning an average interest rate of 1.29% APY. GTE Financial again claims the top interest rate for these IRA CDs, with an interest rate of 2.27% APY. You would earn $46.97 on this CD with a $500 minimum deposit.

5-Year IRA CD Rates – Mountain America Credit Union, 5 Year IRA

5 Year IRA CD Rates Five-year IRA CDs hold the top spot for interest rates out of any category on our list. National averages for a regular 5-year CD is 1.55% APY, however Mountain America Credit Union outperforms the average with a 2.60% APY on its 5-year IRA CD for members. The minimum deposit is $500

6+ Year IRA CD Rates – Air Force Federal Credit Union, 7 Year IRA

6 Year IRA CD Rates Interestingly, these very-long-term IRA CDs don’t offer higher interest rates than the shorter-term five-year IRA CDs. Air Force Federal Credit Union offers the highest term for their seven-year IRA CD, at 2.50% APY. That’s still a lot less than Mountain America Credit Union which offered a 2.60% APY for a five-year IRA CD. Still, with Air Force Federal Credit Union’s seven-year IRA CD, you would earn $471.71 on a minimum deposit of $2,500 when the IRA CD matures.

3 questions to consider before opening an IRA CD

Opening an IRA CD generally requires filling out a form or talking to a banker. You’ll have to have a way to fund your IRA CD, whether that’s rolling over an existing retirement account into an IRA CD or depositing cash into the product. The same limits that apply to IRA contributions apply to IRA CDs: $5,500 per year ($6,500 if you’re over age 50) of your own money across all your IRA accounts each year, and you can do a rollover once per year.

Unless you’ve invested in a bump-up IRA CD, you won’t be able to take advantage of a higher rate until your CD matures. Withdrawing funds from an IRA CD before they mature will result in a stiff penalty. Bump-up IRA CDs give you a chance to increase your interest rate to a higher level if it’s available, but you’re generally only allowed to do this once or twice during the life of the CD.

You can either use the the direct-transfer method or the indirect-transfer method. The direct transfer method requires setting up your new IRA account filling out a form authorizing the bank or credit union to transfer money from the old account into the new account. The indirect transfer method involves you asking for a check from your old IRA account. You have up to 60 days to deposit that check into your IRA CD to avoid incurring a penalty.

Lindsay VanSomeren
Lindsay VanSomeren |

Lindsay VanSomeren is a writer at MagnifyMoney. You can email Lindsay here

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Best of, Earning Interest

The Best Credit Union CD Rates – October 2017

The editorial content on this page is not provided by any financial institution and has not been reviewed, approved or otherwise endorsed by any of these entities.

The top credit union CD rates
Source: iStock

Certificates of deposit (CDs) are a great way to safely store your savings at a financial institution, as they offer a guaranteed rate of return, and CD rates tend to be higher than those on traditional savings accounts. Maybe you’ve even heard that credit union CD rates offer higher returns—but is that really the case? On average, yes. As of June 2017, the average one-year credit union CD had a 0.58% annual percentage yield (APY), compared to the 0.48% APY average among one-year bank CDs. (You may also want to view our picks for the overall best CD rates.)

Using data from DepositAccounts.com, another LendingTree company, we identified the top one-year credit union CD rates, as of Oct. 2, 2017. We then eliminated any credit union with a health rating lower than a B and identified the top three offerings in three categories: restricted, no cost, and best banking app. If there was a tie by APY, we went with the product with the lower minimum deposit. Here are the best one-year credit union CD rates.

Best CD rates for credit unions with no cost to join

The thing about credit unions is that they’re not usually just open to anyone. You usually need to meet some membership criteria in order to get in and get access to all of their really nice products. These credit unions, however, will let you in for free regardless of your personal details. (Note: Only two credit unions met our criteria for this list.)

 

Unify Financial Credit Union – 1-Year Share Certificate, 0.85% APY, min. deposit $1,000

UNIFY Financial Credit Union
Unify FCU offers the highest interest rates on CDs (which it calls share certificates) of any credit union with no cost to join. The interest rate on their 12-month CD, for example, is 0.85%, compared to the national average of 0.597% in August. You would earn $8.50 on a $1,000 deposit. If you withdraw your money early, however, you’ll face a penalty of 90 days’ worth of interest.

NASA Federal Credit Union – 1-Year Share Certificate, 0.55% APY, min. deposit $1,000

NASA Federal Credit Union
If the rigid inflexibility of CDs makes you leery, NASA FCU might be your best bet. They have a lot of flexible certificates, such as add-on certificates that let you start with as little as $250, and bump-rate certificates that let you opt for a one-time interest rate increase if rates go up. You can even take out a loan from your certificate should you need the cash before it’s matured. You can join NASA FCU with a complimentary membership to the National Space Society.

If you do need to make an early withdrawal, you will face a penalty of 180 days’ worth of interest.

Best credit union CD rates with restricted memberships or membership fees

Each of these credit unions have restricted membership criteria, but don’t let that scare you away. If you don’t meet their membership criteria, it’s possible to make a small donation to their charity of choice in order to become eligible for membership. Furthermore, these credit union CD rates offer some of the highest-returning share certificates out of any category.

 

Air Force Federal Credit Union – 1-Year Certificate, 1.56% APY, min. deposit $1,000

Air Force Federal Credit Union
Members and family members of the military, civilian contractors, and certain employees are eligible to join the Air Force FCU, along with anyone willing to join the Airman Heritage Foundation ($25 annual membership fee).

This credit union comes in first place overall for highest interest rates for 12-month CDs. You can earn $15.60 by depositing a minimum of $1,000 in a 12-month CD, with an APY of 1.56%. You can also use your CD as collateral to earn a lower interest rate on a loan, and membership comes with a host of discounts for parks and businesses in the San Antonio, Texas area. Watch out for the early withdrawal penalties, however, worth half of whatever you would have earned between when you withdrew the funds and when it would have matured.

Andrews Federal Credit Union – 1-Year Share Certificate, 1.41% APY, min. deposit $1,000

Andrews Federal
Andrews FCU comes in just behind the Air Force Federal Credit Union in terms of the highest CD interest rates of any credit union on our list. With just a $1,000 minimum deposit, these CDs are much more attainable if you don’t have a lot to spare. You’ll earn $14.10 in interest on a 12-month CD, and if you withdraw your money early, you’ll face a penalty of 90 days’ worth of dividends (for CDs of less than 2 years), or 180 days’ worth of dividends (for CDs of 2 years of more).

Anyone can join Andrews FCU with a one-time $5 donation to the American Consumer Council, a national financial literacy organization.

Connexus Credit Union – 1-Year Certificate, 1.40% APY, min. deposit $5,000

Connexus
If you don’t meet Connexus CU’s regular membership criteria, you can always join by making a one-time $5 donation to the Connexus Association, the credit union’s education wing. Once in, you can take advantage of the one of the highest credit union CD rates. There’s just one catch: You’ll need more money than most credit unions require to open up a share certificate—$5,000. If you’re able to swing that much, you can earn $70 with just a 12-month CD. The early withdrawal penalty is 180 days’ worth of dividends on the amount you withdraw.

Alliant Credit Union – 1-Year Share Certificate, 1.35% APY, min. deposit $1,000

Alliant CU
You can join Alliant Credit Union by making a $10 donation to Foster Care To Success, a nonprofit that helps teenagers aging out of the foster care system, if you don’t meet their other membership criteria. A 12-month CD at Alliant CU earns 1.35% APY (still far above the national average of 0.597% APY), meaning you can earn $13.50 on a $1,000 deposit. Alliant CU is unique among credit unions in that they’ll allow you to withdraw your monthly dividends (not the whole CD) without penalty, although this will reduce your earnings.

Best CD rates for credit unions with the best mobile apps

By their very nature, CDs aren’t something that require constant attention, poking, and prodding. It’s a set-it-and-forget-it kind of a deal, so you won’t need any spiffy banking apps to use CDs.

But, if you’d like to switch all of your banking to the same institution that holds your CDs, it might be a wise idea to consider one of these credit unions if you’re a digital junkie. Most credit unions lag behind their bank compatriots in terms of mobile banking apps, but these credit unions offer top-notch mobile apps, according to MagnifyMoney’s 2016 mobile banking app analysis.

 

Wright-Patt Credit Union – 1-Year Certificate, 1.39% APY, min. deposit $500

Wright-Patt Credit Union
Unlike many credit unions, you can’t just make a simple donation to join Wright-Patt CU if you fail to meet their membership criteria. You need to live in certain areas of Ohio, be associated with Wright-Patterson Air Force Base, or be an employee of their select employer group, among other options.

You can earn $6.95 on a 12-month CD with just a relatively small $500 deposit. Early withdrawal penalties vary depending on the original term of your CD, however they’ll be anywhere between 5-12 months’ worth of dividends.

Eastman Credit Union – 1-Year Investment Certificate, 1.25% APY, min. deposit $1,000

Eastman Credit Union
Eastman Credit Union also has pretty restrictive membership requirements. You’ll have to be an employee (or a family member of an employee) of one of their select employers, or live in certain parts of Tennessee, Texas, or Virginia.

Eastman CU is another one of the rare credit unions that allow you to withdraw your dividends penalty-free before the maturity date, although again, doing so will lower your total returns. Currently, you can earn an interest rate of 1.25% on a 12-month CD. With a minimum deposit of $1,000, that translates into earnings of $12.50 after one year. If you withdraw your money before the CD matures, you’ll owe a penalty fee of anywhere between seven days’ worth of dividend earnings or all of your dividend earnings.

Delta Community Credit Union – 1-Year Certificate, 0.75% APY, min. deposit $1,000

Delta Community Credit Union
There are many ways to join Delta Community CU, such as living in certain parts of Georgia, being a member of one of their select employers, or being a member of one of their partner organizations. Interestingly, citizens of many countries like Argentina, France, and Peru are also eligible to join.

At 0.75% APY for a 12-month CD, Delta Community CU ranks as one of the lowest-earning credit unions on our list—not much above the current national average of 0.597% APY. You’ll earn $7.50 on a 12-month CD with the minimum deposit of $1,000. Early withdrawal penalties range are 90 days worth of interest on a 12-month CD.

3 questions to consider before opening a credit union CD

Banks are more likely to call their products certificates of deposit, while credit unions often refer to them as share certificates. Aside from the name, the biggest difference between the two is that credit unions have higher average annual percentage yields (APYs), as of June 2017. That’s good news: It means more money back in your pocket when the CD matures (i.e., reaches the end of its term and is available for withdrawal).

There really is no difference in safety between depositing money in a CD with a credit union versus a bank, as long as they participate in either the National Credit Union Administration (NCUA) for credit unions, or the Federal Deposit Insurance Corporation (FDIC) for banks.

According to Neal Frankle, a Los Angeles-based Certified Financial Planner with Wealth Pilgrim, deposits of up to $250,000 per financial institution are “backed by the full faith and credit of United States Government, so it’s pretty solid.”

For the most part, choosing a CD at a bank or a credit union boils down to your preference as a consumer: Do you want to be a bank customer or a member of a credit union? Here’s a primer on the differences.

The biggest advantage of credit union CDs over bank CDs is that you can likely earn more interest. But with both products, the longer the CD term, the more interest you will earn. And with a CD laddering strategy, you can have the best of both worlds: frequent access to your money, yet you can still keep it locked away in high-interest, long-term CDs.

Beyond that, the disadvantages of opening a credit union CD are the same as if you’re opening a CD with a bank. You can’t access that money without paying an early withdrawal penalty until the CD matures. While CDs do offer some of the highest rates for any financial product you’re likely to come across at a bank or credit union, they still don’t really earn great interest. If you’re investing for the long-term (like retirement savings), your money is better invested in the riskier (but higher-earning) stock or bond market.

Lindsay VanSomeren
Lindsay VanSomeren |

Lindsay VanSomeren is a writer at MagnifyMoney. You can email Lindsay here

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Best of, Credit Cards

Best Credit Cards for Fair Credit October 2017

The editorial content on this page is not provided by any financial institution and has not been reviewed, approved or otherwise endorsed by any of these entities.

Having fair credit doesn’t mean you’re ineligible for great credit cards. We’ve rounded up the top credit cards with the best offers in a range of different categories that you’re still likely to be approved for, even with fair credit. These credit cards can help you build credit as long as you use them wisely. In this guide, we’ll show you the best credit cards for fair credit scores as well as how to use them to boost your credit score even higher.

Here are some of the products we will be discussing today:

Check If You’re Pre-qualified

Before applying for any credit card it’s helpful to check if you’re pre-qualified from a variety of institutions. The soft credit check the institutions perform does not harm your credit score and allows you to compare credit options. Sites such as CreditCards.com provide good tools that can match you to offers from multiple credit card companies without impacting your credit score. You can read our complete guide to getting pre-qualified for a credit card here.

Build Credit with Secured Cards

A great approach to rebuilding credit is to get a secured credit card. In order to get the card, you will have to deposit money that will be your line of credit. To effectively rebuild your credit, you must use the card, and we recommend not charging more than 20% of your credit line. For example, if you have a $500 credit line, you should not charge more than $100. Then, pay off your balance in full every single month. You can even build credit with $10 a month on a secured card and see your credit score rise.

After you’ve consistently managed your secured card well over a period of time, you may be able to increase your credit line beyond your initial deposit or migrate to an unsecured credit card.

We’ve reviewed the best secured cards in the market and found our top pick — the Discover it® Secured Card. This card has no annual fee, a reasonable security deposit and offers an easy transition to an unsecured card. In addition, Discover offers a rewards program and free access to your FICO score. These reasons are why we recommend the Discover it® Secured Card for people with fair credit.

Build Credit with Secured Cards

Discover it® Secured Card - No Annual Fee

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Best for Cash Back

If you have fair credit and want a cash back card the Capital One® QuicksilverOne® Rewards credit card is a good option. As a consumer with fair credit you may not qualify for all cash back cards, but you may qualify for the QuicksilverOne Rewards card since it is made for those with fair credit. With this card you will earn unlimited cash back, with no changing categories, and the rewards never expire.

However, this card comes with a high APR and annual fee. To earn enough cash back rewards to pay for the card itself each year you’ll need to spend $2,600 annually ($217 per month). To net a cash back of $50 you need to spend $5,933 in a year ($494 per month). This card may be an option for you if you want to earn more than 1% cash back.

Best for Cash Back

QuicksilverOne® Rewards from Capital One

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QuicksilverOne® Rewards from Capital One

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Best Low Ongoing APR

No one wants to carry a balance on their credit cards, but if you must, it’s best to get a card with a low ongoing APR. Many lenders charge high APRs around 25%, but you can potentially qualify for a variable APR as low as 8.90%. This card will charge you less money on your debt than the typical credit card, which can save you big dollars in the long run.

Best Low Ongoing APR

MasterCard Platinum from Aspire FCU

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MasterCard Platinum from Aspire FCU

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promotional rate

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Best for Small Business Owners

Running a business is hard. Small business credit cards can make it a bit easier for you by giving you rewards for everyday purchases. Nevertheless, be aware: Business credit cards forego certain protections that personal credit cards have under the Credit CARD Act. For example, card issuers can change the payment due date or interest rate without giving you prior notice.

Still, small business cards can be a great option for you to build your credit and save money, even if you don’t have a traditional brick-and-mortar business. You can apply for these cards with just a DBA or even your own name, if you’re a freelancer.

Best for Small Business Owners

Capital One® Spark® Classic for Business

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Capital One® Spark® Classic for Business

Annual fee
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Cashback Rate
1% on all spend
APR
23.99%

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fair-credit

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Best for Students

You may have a fair credit score because you are a student. Student cards provide a great way for you to build your credit score and establish good credit history. The Discover it® for Students card is made with students in mind and offers ways to help you build credit and also earn rewards.

Best for Students

Discover it® for Students

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APR
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Credit required
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FAQ

There’s a lot of math that goes into computing your credit scores, but at the end of the day, a fair credit score is defined as being between 649 and 699. Here’s how a fair credit score sits in relation to other credit scoring classes:

  • Excellent: Above 760
  • Good: 700-759
  • Fair/Average: 649-699
  • Poor: 600-648
  • Very Poor: Under 599

You can check your credit score for free on sites like Credit Karma, Chase Credit Journey, or AnnualCreditReport.com.

Having a good or excellent credit score unlocks a lot of advantages, such as lower interest rates and better approval odds for high-value credit cards and other financial products. These advantages will result in more dollars in your wallet at the end of the day. For example, having a high credit score can save you tens or even hundreds of thousands of dollars in interest payments over your lifetime, especially for big-ticket loans like a home mortgage.

But if you have a fair credit score, don’t fret! There is a reason that your score is less than optimal, and thus there are real, concrete steps you can take to boost your credit score into the good and excellent range.

If you play your cards right, you can even join the exclusive 800+ credit score club (unfortunately, it’s not an official club, and you don’t get a shower of balloons and confetti once you reach it — but you will get access to some of the most exclusive financial products).

There can be many reasons why your credit score is below 700. Here are some of the most common ones:

  • You have late payments on your credit report. Having even just one late payment on your credit report can seriously harm it because payment history makes up 35% of your credit score. Unfortunately, unless it’s an error, you’ll just need to wait for it to drop off of your credit report in seven years. To prevent this from happening, make sure all of your debt payments are set up on autopay. That way, you won’t have to worry about it.
  • You have a lot of credit card debt. Credit utilization ratio is one of the biggest factors in calculating your credit score — it affects 30% of the final score. It’s simply how much you owe relative to how much you are allowed to spend. For example, let’s say you have two credit cards with a $5,000 limit each, and you owe $2,000. Your credit utilization ratio is 20% because you owe $2,000 out of a possible $10,000. Luckily, this is one of the easiest factors to correct that will boost your credit score big time in the short run: Pay off your balance, and your score will bump up immediately.
  • You don’t have a long credit history. Although credit history doesn’t factor into the calculation of your credit score as much as the credit utilization ratio and payment history, it still makes up a sizable chunk at 15%. There’s not much you can do about this one: Simply wait for your accounts to age.
  • You have a lot of credit inquiries. Banks don’t like to see you applying for credit like an out-of-control spender in Las Vegas. Each time you apply for credit or a loan, it’s recorded on your credit report as a credit inquiry, and it stays there for two years. To minimize the number of credit inquiries you have, always shop around and make sure creditors use a soft pull credit check unless you’re absolutely ready to apply for the line of credit. This factor makes up just 10% of your credit score, but it’s an easy one you can affect as long as you’re careful about applying for credit.
  • You don’t have a wide variety of account types. You may be an ace at handling your student loans, but creditors also want to know you can handle other types of credit like mortgages and credit card debt, too. The more types of credit accounts you have on file, the better. However, we don’t recommend taking out a loan just for the sake of boosting your credit score — that costs money, and you’ll only receive a modest benefit from it because credit mix only makes up 10% of your credit score.

As you can see, you do have a lot of options when it comes to fine-tuning your credit score into the good or excellent category. We recommend the helpful credit score simulator at Chase Credit Journey to check your current score and see how these adjustments can potentially change your credit level. It’s available whether you’re a Chase customer or not. Give it a try!

Applying for a credit card is easy. You’ll need some basic information like name, address, and Social Security number. You’ll also need employment and income information. Simply enter it into the online form on the credit card company’s website, visit a branch of the bank (if they have one), or call the credit card company directly. You’ll usually receive instant notification if you’ve been approved or not.

There are many ways for you to increase your credit score. Ultimately practicing responsible credit behavior is the best way to see your score rise. Here are a few ways you can increase your credit score:

  • Have someone add you as an authorized user: If you have a willing (and very trusting) friend or family member with better credit, you can ask them to add you as an authorized user onto one or more of their credit cards. Their credit will not be harmed by this (as long as you don’t rack up charges or missed payments), and the credit card will show up on your credit report just as if you had applied for it — boosting your credit utilization ratio, number of accounts, and account age if you keep it for a long time.
  • Increase your credit history length: Unfortunately, you can’t go back in time, but you can still affect your credit history length. Your credit score is partially based off of average credit history length, and the more old accounts you have, the better. If you already have credit cards open, consider keeping them open so your average credit history won’t decrease and ding your credit. Each new credit card you get will drop your average account age, and it’ll take longer to boost this portion of your score.
  • Maintain a low credit utilization: Credit utilization (the percentage of available credit you’re using) is one of the biggest factors in calculating your credit score. The lower, the better. To decrease your utilization ratio, simply pay off your credit card. You can also request a credit limit increase from your credit card issuer to lower your credit utilization ratio — just make sure not to rack up a balance again with that extra credit or you’ll be back to square one.

Missing a payment can single-handedly cause your credit score to drop by 100 points or more. To avoid this, simply set up your credit card on autopay for the minimum amount due — that way you’ll never have to worry about missing a payment.

You can always apply for a personal loan if you need some cash right now for something. You can use this tool to shop around for the best interest rates without hurting your credit score. It’s smart to avoid hard inquiries until you’re ready to actually apply for a personal loan so that your credit isn’t dinged with multiple inquiries.

Each credit card is different, so you’ll need to check the fine print. Usually, though, you’ll need to both charge a purchase and pay off your bill before you’re eligible for those cash back rewards. Then, they’ll tally up this amount and periodically either send you a check, or offer a statement credit.

If you’re running a small business, it’s often easy to mix your personal and business accounts, especially if you’re self-employed. This creates an accounting nightmare to sort through, so it’s recommended (but not required) that you have a separate business banking account and credit card, if you need one.

Lindsay VanSomeren
Lindsay VanSomeren |

Lindsay VanSomeren is a writer at MagnifyMoney. You can email Lindsay here

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Best of, College Students and Recent Grads, Credit Cards

Best Student Credit Cards October 2017

The editorial content on this page is not provided by any financial institution and has not been reviewed, approved or otherwise endorsed by any of these entities.

Getting a credit card while you’re in college might seem dangerous or confusing. But if you are able to use a student credit card responsibly, you do not need to be afraid, and you can set yourself up for financial success after you leave school.

Fortunately, learning how to choose and use the right student credit card is relatively simple. Make sure you avoid annual fees and go with a bank or credit union you can trust. When you get the card, make sure you use it responsibly and pay the balance in full and on time every month. If you do these things consistently over time, you can leave school with an excellent credit score. And if you want to rent an apartment or buy a car, having a good credit score is very important.

Our Top Pick

Discover it® for Students

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Best for Commuter Students

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Best Flat-Rate Card

Journey® Student Rewards from Capital One®

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Journey® Student Rewards from Capital One®

Annual fee
$0 For First Year
$0 Ongoing
Cashback Rate
up to 1.25%
APR
24.99%

Variable

Credit required
fair-credit

Average Credit

Best Intro Bonus

Wells Fargo Cash Back College℠ Card

Annual fee
$0 For First Year
$0 Ongoing
Cashback Rate
up to 3%
APR
11.90%-21.90%

Variable

Credit required
fair-credit
Fair Credit

Best Credit Union Card

Altra Federal Credit Union Student Visa

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Altra Federal Credit Union Student Visa

Annual fee
$0 For First Year
$0 Ongoing
Rewards
1 point per dollar spent
APR
14.90%

Fixed

Credit required
zero-credit
New to Credit

Also Consider Also Consider

Golden 1 Platinum Rewards for Students

Golden 1 Credit Union Platinum Rewards for Students:

This credit card offers a snazzy rewards program: rather than accumulate points, you’ll get a cash rebate instead. All you have to do is make a purchase. At the end of the month, you’ll get a rebate of 3% of gas, grocery, and restaurant purchases, and 1% of all other purchases deposited back into your Golden 1 savings account at the end of the month. You can join Golden 1 by joining the Financial Fitness Association for $8 per year and keeping at least $5 in a savings account.

What should I look for in a student credit card?

The most important thing to consider when looking for a student credit card is that it charges no annual fee. You should never have to pay to build your credit score. Fortunately, most student cards don’t charge you an annual fee, but it’s still something to watch out for.

The second most important thing you should keep an eye out for are tools that help you learn about credit or even promote good credit-building habits. For example, some student credit cards will give you a free monthly FICO score update. You can use this freebie to see in real time how your credit score changes as you build credit history by keeping the card open, or paying down your credit card balance, for example.

The last thing you should be considering when picking out a student credit card is the rewards program. I know, I know, it seems counterintuitive. But stick with me — I’ll show you why in the next question.

Why shouldn’t I be concerned about maximizing my rewards while in college?

Rewards cards are nice to have. But if you’re a college student, here’s the truth: you probably won’t spend enough to earn meaningful rewards.

Why? With a good rewards program, you can earn points or cash back. A small percentage of your monthly spending can add up quickly. However, given the tight budget that most college students live on, it will probably take a while to earn meaningful rewards. For example, if you earn 1.25% cash back and spend $300 a month on your card, you would earn $45 of cash back during the year.

College students are very good at making good use of $45. And our favorite card offers a great cash back rewards program. Just don’t expect to earn a lot of cash back, given the tight budget of a college student.

Why should I get a credit card as a college student?

There are a lot of great reasons why you should get a credit card, as long as you can commit to using it responsibly.

The single biggest reason why you should get a credit card as a college student is because you can start establishing a credit history now. When you graduate from college, you will need a good credit score to get an apartment. And your future employer will likely check your credit report. Building a good credit history while still in college will help prepare you for life after graduation.

Getting a credit card while in college can also train you to develop good credit habits now. But you need to be honest with yourself. If you find that you can’t avoid the temptation of maxing out your credit card, you might want to switch to a debit card or cash.

Finally, getting a credit card now can be the motivation you need to start learning about credit. These skills aren’t hard to learn, and they could save you thousands or even hundreds of thousands of dollars later in life (when you want a mortgage, for example).

What is the CARD Act and why should I care about it?

Many years ago, credit card companies would market on college campuses. You could get a free beer mug or t-shirt in exchange for a credit card application. And you would be able to qualify for a credit card without having any income. The Credit Card Accountability Responsibility and Disclosure (CARD) Act was signed into law in May 2009 to change a number of practices.

How did the CARD Act change student credit cards?

The CARD Act made a lot of changes in how credit card issuers do business with students. One of the biggest changes was requiring students to be able to demonstrate an ability to pay. If you are under 21 and do not have sufficient income (a campus job, for example), you would need to get a co-signer.

In addition, colleges must now limit the amount of credit card marketing on campus. The days of free t-shirts and pizzas in exchange for credit card applications are gone. But that doesn’t mean it is impossible for a college student to get a credit card. Some highly reputable banks and credit unions still offer student cards. And building a good credit score while still in college is still highly recommended.

How can I protect myself from racking up debt?

When used properly, credit cards are a very convenient method of repayment. However, when not used properly, you can end up deep in credit card debt. It is important to establish a healthy relationship to credit now, with your first credit card.

You should try to ensure that you pay off your credit card bill in full and on time every month. Ideally, you should set up an automatic monthly payment. And to keep yourself on track, take advantage of alerts offered by most credit card companies. You can even get daily text messages reminding you of your balance.

How can I automate my credit card usage?

If all of this sounds confusing, don’t worry. There’s actually a way you can automate your payments so you never even have to bother with the hassle of using a credit card. All it takes is a few minutes of upfront work.

First, you’ll need at least one recurring monthly bill of the same amount, such as Netflix or Spotify. Log in to your account and set up an automatic payment each month using your credit card. Make a note of how much your monthly bill costs.

Next, log in to your bank account. Set up a second automatic payment to go to your credit card each month for the same amount as the bill. If your bank doesn’t offer the option to set up automatic payments, you may also be able to set up your credit card to automatically withdraw the amount of the bill from your bank.

Because you know this bill will be for the same amount each month (barring any price increases), you can literally just leave this running in the background each month on autopilot. You don’t even have to carry your credit card in your wallet if you don’t want to. Then, when you graduate, you’ll automatically have an improved credit score!

What happens to my student credit card when I graduate?

Congratulations! You’ve made it to the finish line. But what about your student credit card? You will have a few options once you graduate.

First, you can simply keep it. You will want to keep the credit card open, because it helps you build a long credit history. However, you might want to call your credit card company and ask if you can migrate to a standard (non-student) credit card.

But if you have been using your credit card properly, you will have an excellent credit score when you graduate – and you will be able to get any credit card that you want.

Here is a summary of our favorite cards:

Credit cards
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Lindsay VanSomeren is a writer at MagnifyMoney. You can email Lindsay here

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Credit Cards

What’s the Difference Between a Charge Card and a Credit Card?

The editorial content on this page is not provided by any financial institution and has not been reviewed, approved or otherwise endorsed by any of these entities.

Source: iStock

If you’re shopping around for your next credit card, chances are you might come across a charge card. It can sometimes be difficult to know the difference unless you know the telltale signs. And if you choose the wrong kind and don’t use it correctly, you could end up in a world of financial trouble.

Charge cards aren’t too much different from credit cards, but there are a few key things you need to know.

What is a charge card?

As with a credit card, you use a charge card to make purchases and pay the balance off later. Here’s the biggest difference: Unlike credit cards, which let you keep a revolving balance from month to month, a charge card requires you to pay off the balance in full by your bill’s due date. You cannot make a big purchase and pay it off over time.

Charge cards also have no preset spending limit. This doesn’t mean that it has no spending limit. Rather, your actual spending limit can change quite often depending on how much you’re using the card, if you have any late payments on your record, etc.

At MagnifyMoney, we recommend you always pay off your credit card statement balance in full each month. If that’s something you already do, you’d find using a charge card is pretty much the same as using a credit card. However, there are a few differences that might make you want to choose one type of card over the other.

Pros and cons of using a charge card

Pro: You’re required to pay off the balance in full

One of the biggest advantages of a charge card is that you are required to pay it off in full each month. If you’re the type of person who has a hard time maintaining the discipline to do this normally, using a charge card might force you to develop this good habit. And because you will pay off the balance in full each month, you’ll never pay any interest charges and you won’t rack up any debt.

Con: You’re required to pay off the balance in full

Paying off your bill in full each month is a huge advantage, but it can also be a disadvantage. Yes, it’ll keep you out of debt, and you won’t have to pay interest charges, but if you’re relying on the card as a source of emergency funds, you’ll be better served with a credit card that’ll let you carry a balance from month to month if a very expensive emergency pops up.

Pro: Many charge cards come with a smokin’ hot rewards program

For example, as of this writing, the Platinum Card® from American Express gives you $15 in Uber credits each month (plus a $20 bonus in December), a $200 airline credit each calendar year, and a 60,000-point sign-up bonus if you spend $5,000 within the first three months, among numerous other perks. There are, of course, credit cards that offer similarly attractive rewards.

Con: Charge cards often carry high fees

Again, we’ll use the Platinum Card® from American Express as an example: It carries a $550 annual fee. The cheapest card from Amex is the American Express® Green Card that has a $95 annual fee, though Amex waives it the first year. And if you make a late payment or fail to pay your bill in full? You could be slapped with a late fee of (up to $38 on the aforementioned Platinum Card), and it’ll go down as a negative mark on your credit report.

Con: There aren’t a lot of charge-card options

You may be sensing a trend — American Express is among the last major credit card issuers to offer charge cards. That means your choices of charge cards are already limited — you can choose from just three cards: American Express® Green Card, the Premier Rewards Gold Card from American Express, and the Platinum Card® from American Express. American Express isn’t as widely accepted as Visa or Mastercard, so you’ll want to make sure you have a backup when you’re out shopping, just in case it isn’t accepted.

Pro: A charge card helps you build credit

Charge cards can also help you build credit, and you don’t need to go into debt to do it. As long as you pay on time, the account will be listed on your credit report as an example of your positive payment history — the most important aspect of your credit score. And for newer scoring models, charge cards won’t affect your credit utilization ratio — the second most important factor in determining your credit score. That’s because American Express reports its charge cards as “open” lines of credit, as opposed to a revolving line of credit, and FICO does not factor open lines of credit into its credit utilization calculation.

But that’s not always the case. Rod Griffin, the director of public education at Experian (one of the major credit reporting agencies), said some credit scores treat open credit lines like revolving accounts. “Newer scoring systems are more likely to differentiate between the two than older credit scoring systems,” he said. “Your credit report almost certainly will not show a zero balance for the charge card if you use it and could affect your utilization rate.”

With newer scoring models that don’t factor open credit lines into your credit utilization ratio, that means making a big purchase (and paying it off at the end of the month) won’t have any effect on your credit score, nor will it lower your credit utilization ratio if you have other credit card debt. (A credit card also helps you build credit, but you may find yourself tempted to carry a balance.) Checking your credit score regularly will help you understand how your charge card use affects your credit standing.

Con: A changing spending limit can be bothersome

If you want to make a big purchase or it’s getting toward the end of the month, the only way to know for sure if you have any credit left is to log in to your account and check. Still, you shouldn’t be using your charge card willy-nilly to buy Learjets and mansions anyway, so as long as you keep your spending under control, it’s unlikely you’ll go over your limit.

The bottom line

Charge cards do have their quirks. But as long as you keep your spending within a reasonable range for your lifestyle and pay off your bill in full each month (as you should do with a normal credit card anyway), a charge card can be a useful tool in your financial arsenal.

Lindsay VanSomeren
Lindsay VanSomeren |

Lindsay VanSomeren is a writer at MagnifyMoney. You can email Lindsay here

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Strategies to Save

7 Ways to Save Money That Could End Up Backfiring

The editorial content on this page is not provided by any financial institution and has not been reviewed, approved or otherwise endorsed by any of these entities.

Saving money is a noble goal. It can even become addictive, like a game. But if you’re not careful, your savings strategies might lead you to spend more money in the long run.

These seven stories will help remind you to always keep your long-term savings goal in mind. That way you aren’t blindsided by short-term “savings.”

Couponing

Source: iStock

Who hasn’t been enamored with the “Extreme Couponing” TV show, where people get carloads of groceries for free? They make coupons seem like the equivalent of cash dollars — but the only way you can use those dollars is to spend money first. This sets up a snag where overzealous consumers can easily be tricked into spending more money than they otherwise would have in the quest of using the Holy Coupon and their “savings.”

Kendal Perez, a savings expert with Coupon Sherpa, has some tips: “Coupons, Groupons, and vouchers of any kind that save you money on products, services, or experiences you wouldn’t otherwise be interested in are ones you should stay away from. Instead of clipping ‘interesting’ coupons from the Sunday circular or browsing Groupon when you’re bored, look for coupons on items you already intend to buy.”

Trying to save too much money

Source: iStock

Joseph Hogue, a chartered financial analyst and personal finance blogger, was in a familiar trap in his first professional job: He hated it and wanted to leave. So he tried saving up all of his cash so he could retire early.

“I fell into the financial equivalent of yo-yo dieting,” he says. He would take on as much work as possible before becoming burned out and blowing all of his hard-earned money in a spending spree.

He learned the hard way that it’s not enough just to make and save a ton of money. You also need to pace yourself, set realistic goals, and reward yourself along the way. Hogue’s advice? “Find something outside of work you enjoy doing to make all the effort and saving worthwhile.”

Growing your own vegetables

Source: iStock

Growing your own vegetables doesn’t seem like it would cost much money. Just throw some seeds in the ground and add water, right? Wrong.

Once you factor in everything you need to grow a garden — tools, soil amendments, fences, plants, hoses, etc. — costs can quickly spiral out of control. Still, you have to be careful about cutting corners. Joshua Crum, a personal finance blogger, found this out firsthand when he forgot to include wild-animal-proof fencing in his calculations. “I spent around $100 and tons of work on a garden. Wild animals came and ate everything I planted.”

If gardening is your thing, see if you can reduce your expenses by buying used equipment instead of new. Also consider planting cost-effective vegetables for the maximum return for your buck.

Not reading the fine print on a purchase

Source: iStock

There are a ton of ways to save money if you keep your eyes open. Receipt-scanning apps, rebates, sales, coupons, store loyalty cards — it’s a long list. The catch is that you have to carefully read the fine print so you can meet the requirements. Before you make a purchase with the intent of getting a rebate or some other discount, make sure you understand the terms and will actually benefit from the deal.

Mindy Jensen, community manager at BiggerPockets, recently found this out. She bought a ream of paper, expecting to use a rebate to have another free ream of paper shipped to her house. “I didn’t read the fine print, and the return was in the form of a store credit. I almost never shop there, so it was kind of a waste.”

In another incident she bought a bottle of alcohol specifically for a $5 rebate. “I have gotten in the habit of saying ‘No, thank you’ to receipts at the store, to save paper and the environment.” When she got home, she was stunned: “Guess what you need in order to get the rebate? A receipt. Of course, I felt like an idiot for not getting the receipt; having a proof that you purchased the product is a basic tenet to getting a rebate.”

Skimping on insurance

Source: iStock

No one likes paying their monthly insurance premium — until it comes time to make a claim.

According to Neil Richardson from the auto insurance comparison site The Zebra, getting just the minimum liability protection for your state “is simply too little financial protection to cover a number of common car insurance claims scenarios. People end up with huge bills because they wanted to save a few dollars off their premium.”

MagnifyMoney recommends checking what insurance options are available with your insurance broker. Ask yourself: Would you be able to fully cover the cost of any unfortunate events outside of the minimum coverage? If not, you might need to reconsider your insurance coverage.

Skipping doctor visits

Source: iStock

Going to the doctor is about as fun as stubbing your toe, not to mention being expensive. It’s pretty tempting to save some money by diagnosing yourself over the internet. Sometimes this works out, but it can have costly consequences if it doesn’t.

Abigail Perry, a personal finance blogger, once felt a urinary tract infection coming on but decided to treat it herself. It quickly turned into lower back pain, which was her signal that it was becoming more serious. She eventually ended up spending $75 to go to the emergency room, when a visit to her regular doctor would have had a $0 copay.

Perry’s advice is to “just go to the doctor. And if you can’t get an appointment there, find an urgent care clinic [rather than going to the emergency room, if possible]. Just be sure to bring a good book and a charge cord.”

Buying in bulk

Source: iStock

Smart shoppers know that the best way to save money is by looking at the per-unit price of each food item. This often means buying food in bulk. Even smarter shoppers know to take into account an item’s shelf life, so they can plan to use it before it goes bad.

But there’s more to it than that, like making sure you actually need what you’re buying. For example, Lisa Torres, a retired high school teacher, buys several boxes of Popsicles at a time when they go on sale during the hot New Hampshire summers. Buying Popsicles in bulk seems like a logical choice, because she’s going through a lot of them and they’ll keep for months. But Torres also likes buying fresh fruit in the summer, when some of her favorites are in season. When her family has both options as a snack, they tend to choose the Popsicles.

“The healthy fruit in the fridge goes bad because we are eating Popsicles instead of fruit,” she says. “And next week I have to buy more Popsicles.” Torres says she’s still working on making better buying decisions so she doesn’t waste food or money.

When buying in bulk, it’s always best to stop and think about whether you’ll be able to use all of the product, as well as if you have any alternatives at home. By keeping tabs on what you have at home and taking a minute to think before every purchase, you can successfully navigate these common savings pitfalls.

Lindsay VanSomeren
Lindsay VanSomeren |

Lindsay VanSomeren is a writer at MagnifyMoney. You can email Lindsay here

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College Students and Recent Grads, Reviews

Review: Citi ThankYou Preferred Card for College Students

The editorial content on this page is not provided by any financial institution and has not been reviewed, approved or otherwise endorsed by any of these entities.

Citi ThankYou Preferred Card for College Students is a decent credit card that can help you build your credit history and earn rewards without having to pay an annual fee. It has a nice bonus offer (2,500 points after spending $500 in the first three months) and has a decent ongoing rewards proposition (2 points on restaurant and entertainment purchases, with 1 point on everything else). Unfortunately, ThankYou points don’t have great redemption value, and Citi charges a 3% foreign transaction fee when you use the card overseas. And with a high APR range of 15.49%-25.49%, you would want to avoid borrowing on this card. The Citi ThankYou Preferred Card for College Students is featured as one of our recommendations for best student credit cards of 2017.

Citi ThankYou® Preferred Card for College Students

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Citi ThankYou® Preferred Card for College Students

Annual fee
$0 For First Year
$0 Ongoing
Cashback Rate
2 points per dollar
APR
15.49%-25.49%

Variable

Credit required
good-credit
Good Credit

How the Card Works

This credit card charges no annual fee and reports to all three credit reporting agencies. If you handle the card responsibly, you should be able to build your credit history while in school and have a good credit score by the time you graduate. We recommend using the credit card every month, but never spending more than 10%-20% of the credit limit. Make sure you pay your statement balance in full and on time every month — and you will see your score improve over time.

The card comes with an intro offer. You will be charged 0% interest on purchases for the first seven months, and there is no retroactive interest penalty (this is not deferred interest). If you were already planning on making a big purchase, the 0% interest rate can help you minimize or reduce the cost of borrowing. However, you should be careful. Sometimes a 0% purchase rate can encourage people to spend more than they should — and you don’t want this to be a temptation to go into debt. After the intro offer, the interest rate increases dramatically, to a high double-digit rate. Student cards are great ways to build your credit, but they are terrible ways to borrow money.

With this card, you have the chance to earn ThankYou points from Citibank. With ThankYou, you can turn your points into gift cards or cash, or even use the points to book travel. ThankYou points are not particularly valuable. Here are a few examples of how ThankYou points can be redeemed:

  • For cash back: 100 points = $0.50, minimum redemption is 10,000 ($50) or 20,000 ($100).
  • For a statement credit: 100 points = $0.50, minimum redemption is 2,000 points ($10).
  • For gift cards: you can get up to 100 points = $1 (although it can vary by gift card), minimum redemption is 2,500 points ($25).
  • You can transfer your points to airline and hotel partners. However, as a college student, you might not have a lot of frequent flier miles, making this option a waste.

You can earn 2,500 ThankYou points if you spend $500 within the first three months of opening the card. In addition, you will earn 2 points on purchases for dining at restaurants and 1 ThankYou point on all other purchases. If you use those points for cash, you are only getting 0.5% on your everyday purchases — a pretty lousy deal. You can do much better elsewhere.

How to Qualify for the Card

Citi is targeting students with this card, which means they do not expect you to have excellent (or any) credit. However, they do expect that you will have a job and income. You need to be able to prove that you can afford to make your monthly payment on time, and a parental allowance is not sufficient.

Citi will likely approve people with a thin or no credit history. However, if you already have negative items on your credit report — like missed payments or unpaid medical or mobile phone bills — it could be harder to get approved. If that is the case, you might need to start your credit-building journey with a secured credit card.

What We Like About the Card

No annual fee.

Students should not have to pay a fee to build their credit score. Fortunately, with Citi there is no annual fee. And so long as you pay your statement balance in full and on time every month, you will never pay any interest either.

A nice ThankYou bonus offer.

You can earn 2,500 bonus points when you spend $500 within the first three months of opening the card. If you turn that into cash, it would be worth $12.50. With some gift cards, you could get up to $25 of value. That is not terribly exciting — but it is still free money.

What We Don’t Like About the Card

The ongoing rewards proposition is weak.

For most college students, cash is king — and earning cash back is a nice benefit of a credit card. Cards from competitors can earn from 1.25% up to 5% cash back (in some categories). If you use your ThankYou points for cash, you will only get 50 cents for every 100 points earned. Plus, cash back can only be redeemed in increments of $50.

There is a foreign exchange fee.

If you plan on studying abroad, a credit card is very useful. Unfortunately Citi will charge you 3% every time you use your card abroad — making this the wrong card for international travel.

The interest rate is high.

After the intro period is over, you will be stuck with a high, double-digit rate. Unfortunately that is the case with most student credit cards — so you would be very wise to avoid credit card debt completely.

Alternatives to the Card

We like that the Citi card has no annual fee. However, if you want rewards or a card for overseas travel, there are much better options out there. Here are two of our favorites.

If You Want to Earn More Rewards

If you want to earn more cash back, Discover is the best option. The Discover it® for Students does not charge an annual fee and also provides free access to your FICO score. But it does something we really like: It offers a $20 cash back bonus every year (for up to five years) for good grades. If you get a 3.0 GPA or higher, you will get a $20 bonus. That is on top of a cash back rewards program where you can earn 5% cash back in rotating categories each quarter like Amazon.com, restaurants, ground transportation and more, up to the quarterly maximum each time you activate. Plus, unlimited 1% cash back on all other purchases. And you can get a dollar-for-dollar match of all the cash back you’ve earned at the end of your first year, automatically.

If You Want to Travel Abroad

If you want to travel abroad, you should find a Visa or MasterCard option that does not charge a foreign transaction fee or annual fee. Capital One does just that with its Journey Student credit card. In addition to no annual fee and no foreign transaction fees, you can earn up to 1.25% cash back. You earn 1% when you spend, and another 0.25% if you make your payment on time.

Bottom Line: Who Benefits Most from the Card

If all you care about is building credit, and all of your spending is in the U.S., this is a good card. With no annual fee, Citi reports to all three credit bureaus — which should help you build your score quickly. However, if you want to earn rewards or travel overseas, you can find better deals elsewhere.

Student Credit Cards: FAQs

A student card is a credit card specially designed by a lender to get college students started with credit. The major difference between a student credit card and a regular credit card is that the student card will likely have a higher interest rate. Regular cards tend to average about 15% annual interest. In a recent MagnifyMoney study, we found the average student credit card carries an interest rate of 21.4%.

Your goal with your student credit card is to build your credit so that by the time you graduate, you have a healthy credit score in the high 600s to mid 700s. That way, when you graduate, you’ll be in a great position to make larger purchases like a new car or your first home. At that point you may actually want to earn rewards, and you’ll qualify for the best cards because you have a great score.

You should really only get a credit card if you want to build your credit score, not because you need extra money to make ends meet. If you can’t afford your monthly expenses as it is, a credit card might only make things worse.

The easiest strategy is this: Set up one recurring bill (like your Netflix or Spotify account) on your card. And pay it off in full each month. Follow that advice while you’re in school and you will absolutely graduate with a great credit score.

You can still build up your credit without having to open a card on your own. Ask you parents if you can become an authorized user on their account. All of their good credit behavior will be reported on your credit report as well. Also, consider opening a secured credit card. It’s a tool that’s meant precisely to help build credit but doesn’t have the same risks as a regular credit card. Read more about secured cards here.

Lindsay VanSomeren
Lindsay VanSomeren |

Lindsay VanSomeren is a writer at MagnifyMoney. You can email Lindsay here

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College Students and Recent Grads, Reviews

Discover it for Students Review: Earn Cash Back and Build Credit

The editorial content on this page is not provided by any financial institution and has not been reviewed, approved or otherwise endorsed by any of these entities.

If you are a student, a credit card can be a great way to build your credit score. It can also be a useful tool when shopping online or renting a car. But credit cards also come with a temptation — to spend too much. We recommend getting a student credit card as long as: (a) there is no annual fee, and (b) you have the self-discipline to pay your statement balance in full every month and use the card wisely.

Discover it is one of our favorite credit cards for students — largely because it charges no annual fee, offers generous cash back and rewards the right behavior. There are some other nice perks — like a free FICO score. The Discover it® for Students card is featured as one of our recommendations for best student credit cards of 2017.

Discover it® for Students

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Discover it® for Students

Annual fee
$0 For First Year
$0 Ongoing
Cashback Rate
up to 5%
APR
13.99%-22.99%

Variable

Credit required
fair-credit
Fair

What We Like About the Discover it® for Students Card

You can easily build your credit history and score.

This credit card reports to all three credit bureaus, which will help you establish credit and improve your score with wise use over time. Our tip: never use more than 10%-20% of the available credit, so you keep your utilization low. Pay your bill on time every month (ideally, automate the payment). By the time you graduate, you should have an excellent score.

No annual fee.

We believe that you should be able to build your credit score without paying an annual fee. Fortunately, Discover does not charge an annual fee on its student cards. Discover does not charge an annual fee on any of its cards.

You will be able to see your FICO score for free.

It is getting much easier to get your credit score for free — you do not need to take out a credit card to have access. However, we do like that you will be able to see your FICO score on your statement and online. This will help you keep tabs on your credit as you learn about it and (hopefully) see it increase over time. Having a good credit score when you graduate can be very helpful – especially if you want an auto loan, mortgage or apartment.

Monitor Your Social Security Number for free.

Discover will monitor your Social Security Number and alert you if they find your Social Security Number on any of thousands of risky websites when you sing up. This is a great feature that will help alert you of possible fraud and add an extra layer of protection to your account.

Interesting feature: rewards for good grades.

This credit card also has a sweet bonus: you can get $20 cash back each school year your GPA is 3.0 or higher for up to the next 5 years. This is a nice feature to reward what really matters in college — getting good grades and graduating.

And, yes — there is cash back.

Discover invented the concept of cash back in the 1980s, and they are regularly generous with the rewards that they offer. On this card, you can earn 5% cash back in rotating categories each quarter like Amazon.com, restaurants, ground transportation and more, up to the quarterly maximum each time you activate. Plus, unlimited 1% cash back on all other purchases.

There is another bonus.

At the end of your first year as a cardholder, you will get a dollar-for-dollar match of all the cash back you’ve earned – automatically. That will be a really nice one year anniversary gift.

Watch Out for These Pitfalls

Interest rates are not low.

This is not unique to Discover — but most student cards charge higher interest rates because students are higher risk. Your goal with a student card is to build your credit history — not to go deeper into debt. So long as you pay your statement balance in full and on time every month, you should not have to worry about the interest rate.

Limited acceptance overseas — especially in Europe.

If you plan on studying abroad or backpacking across Europe, you might find it difficult to use your Discover card. In Asia, you get better coverage with JCB (Japan) and China UnionPay. However, in Europe you will be relying upon the Diners Club International network, which is limited.

Who the Card is Best For

If you are a responsible student looking to build your credit while earning rewards along this way, this card could be appropriate for you. With no annual fee and up to 5% cash back, this is a great first card.

Alternatives

While the Discover it for Students card is a great choice, there may be better options depending on your situation.

Spend a lot at Gas Stations and Restaurants?

If you’re a commuter student, the Discover it® chrome for Students card may make more sense. This card offers many of the same perks as the Discover it for Students card, like the Good Grades Rewards program, no annual fee, and a cash back match at the end of your first year. But the Discover it Chrome offers a higher 2% cash back rewards rate on gas and restaurant purchases, up to $1,000 in combined purchases per quarter. After that, you’ll earn 1% cash back — and you don’t need to activate these rewards categories like with the Discover it for Students card.

If You Want to Travel Abroad

If you plan on traveling abroad, consider the Capital One Journey Student Credit Card. Because the card is a Visa, it will have more acceptance overseas. And Capital One does not charge foreign transaction fees – making this a great travel companion. In addition, you can earn 1% cash back on all purchases, plus an extra 0.25% cash back when you pay your bill on time.

Student Credit Cards: FAQs

A student card is a credit card specially designed by a lender to get college students started with credit. It helps them build a relationship with customers early on and helps you build your credit score.

The major difference between a student credit card and a regular credit card is that the student card will likely have a higher interest rate. That’s because the bank has no way to prove you are a reliable borrower yet since you have little to no credit history. Regular cards tend to average about 15% annual interest. In a recent MagnifyMoney study, we found the average student credit card carries an interest rate of 21.4%.

Your goal with your student credit card is to build your credit so that by the time you graduate, you have a healthy credit score in the high 600s to mid 700s. That way, when you graduate, you’ll be in a great position to make larger purchases like a new car or your first home. At that point you may actually want to earn rewards, and you’ll qualify for the best cards because you have a great score.

You should really only get a credit card if you want to build your credit score, not because you need extra money to make ends meet. If you can’t afford your monthly expenses as it is, a credit card might only make things worse.

Let’s say you charged $300 to your student card for books at the start of the semester. If you made a minimum monthly payment of $9, it would take four years and four months to pay off a card with a 21.4% annual percentage rate (APR). At that point you would have paid a total of $460, assuming your books were your first and only charge on the card.

The easiest strategy is this: set up one recurring bill (like your Netflix or Spotify account) on your card. And pay it off in full each month. Follow that advice while you’re in school and you will absolutely graduate with a great credit score.

You can still build up your credit without having to open a card on your own. Ask your parents if you can become an authorized user on their account. All of their good credit behavior will be reported on your credit report as well. Also, consider opening a secured credit card. It’s a tool that’s meant precisely to help build credit but doesn’t have the same risks as a regular credit card. Read more about secured cards here.

Lindsay VanSomeren
Lindsay VanSomeren |

Lindsay VanSomeren is a writer at MagnifyMoney. You can email Lindsay here

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College Students and Recent Grads, Reviews

Discover it chrome for Students Review: Build Credit and Earn Cash Back

The editorial content on this page is not provided by any financial institution and has not been reviewed, approved or otherwise endorsed by any of these entities.

Discover has created one of our favorite credit cards for students, the Discover it® chrome for Students. You can build your credit without worrying about an annual fee. You can get a $20 cash back bonus every year if your GPA is above 3.0. And you can earn some serious cash back. Discover pays 2% on spending at gas stations and restaurants, up to $1,000 in combined purchases each quarter. Plus you can earn 1% cash back on all other purchases. There is also a generous bonus for new customers: At the end of your first year, all of the cash back that you earned will be matched. The Discover it® Chrome for Students card is featured as one of our recommendations for best student credit cards of 2017.

Discover it® chrome for Students

APPLY NOW Secured

on Discover’s secure website

Discover it® chrome for Students

Annual fee
$0 For First Year
$0 Ongoing
Cashback Rate
up to 2%
APR
13.99%-22.99%

Variable

Credit required
fair-credit
Fair Credit, New to Credit

How the Card Works

Discover is famous for cash back. In the 1980s, when all credit cards charged an annual fee and offered no rewards, Discover changed everything by offering a credit card with no annual fee that actually paid its customers cash back. Discover has continued to innovate and has one of the better cards on the market for college students.

Discover it® chrome for Students charges no annual fee and reports to all three credit bureaus. As a college student, building your credit history is the primary reason to get a credit card. And you should never have to pay an annual fee to build your credit score. To get the best results, try to keep your balance low and make your payment in full and on time every month.

Discover has one of the most flexible cash back programs on the market. With most credit cards, you have to earn a minimum amount of cash back before you can redeem. Fortunately, that is not the case with Discover. Even if you only have $1 of cash back, you can redeem it. And with this card, there are multiple ways to earn.

If you spend a lot of money at gas stations and restaurants, this card is a great choice. You can earn 2% cash back at gas stations and restaurants on up to $1,000 in combined purchases each quarter. In addition, you get 1% cash back on all other purchases.

Our favorite feature is that Discover offers a bonus: cash back for good grades. For the next five years, every year your GPA is 3.0 or higher, you can get $20 cash back.

On top of all of this, Discover will match whatever cash back you earn during the first year. To do this, Discover will add up all the cash back you’ve earned on your student card and match every bit of it at the end of the first year.

All of this put together can make the card very lucrative. Imagine you spend $300 a month — with $200 of it at gas stations and restaurants. During the first year:

  • $200 a month of spending in gas stations and restaurants would earn $48 cash back during the first year.
  • $100 a month of spending in all other categories would earn $12 cash back.
  • Altogether, you will have earned $60 cash back. Discover would then match that cash back at the end of your first year, meaning you could earn another $60.
  • And, if you have a 3.0 or higher GPA, you could get the “Good Grade Reward” on top.

There are a few other nice perks that come with the card. You will get a 0% intro APR for the first six months on purchases. You will have access to your FICO score for free, so that you can watch your score evolve. And Discover has invested heavily in some nice features, including the ability to freeze your account with the push of the button if you don’t want it used (for example, while traveling) as well as free Social Security Number monitoring — where Discover will alert you if they find your Social Security Number on any of thousands of risky websites.

How to Qualify for the Card

Discover knows that you are a college student — so you do not need to have a long credit history or a high credit score. You will need to have a job with income, so that you can prove that you can afford the card.

Having a limited credit history is just fine. However, it will be much more difficult to get approved if you have missed payments or have collection items. Limited history is good, but bad history is difficult.

What We Like About the Card

At MagnifyMoney, this is one of our favorite student credit cards. Here is why.

No annual fee.

When reviewing student credit cards, the first (and most important) thing we consider is the annual fee. Fortunately, Discover does not charge an annual fee on this card. You can build your credit with all three credit bureaus without worrying about fees.

Generous cash back (that rewards the right behavior).

Discover has always been a leader in cash back, and this card is no exception. 2% cash back at gas stations and restaurants is the highest rate we have found for college students. No other card that we could find offers $20 for good grades — and we like that Discover rewards a 3.0 GPA with extra cash back.

No foreign transaction fee.

The good news is that Discover does not charge a foreign transaction fee. Unfortunately, it can be difficult to use Discover in some parts of the world.

What We Don’t Like About the Card

Interest rates are not low.

This is not unique to Discover — but most student cards charge higher interest rates because students are higher risk. Your goal with a student card is to build your credit history — not to go deeper into debt. So long as you pay your statement balance in full and on time every month, you should not have to worry about the interest rate.

Limited acceptance overseas — especially in Europe.

If you plan on studying abroad or backpacking across Europe, you might find it difficult to use your Discover card. In Asia, you get better coverage with JCB (Japan) and China UnionPay. However, in Europe you will be relying upon the Diners Club International network, which is limited.

Alternatives to the Card

Discover it® chrome for Students is one of our favorite cards — however, it is not for everyone. Here are some other options to consider:

If You Don’t Spend Money in Gas Stations or Restaurants

The 2% cash back sounds great — but if you don’t own a car and eat all of your meals in the dining hall, Chrome might not be your best bet. You actually might want to consider another card offered by Discover, the Discover it for Students. It has all of the benefits that we like in Chrome, including Good Grade Rewards, no annual fee, and a free FICO score. With this card, earn 5% cash back in rotating categories each quarter like Amazon.com, restaurants, ground transportation and more, up to the quarterly maximum each time you activate. Plus, unlimited 1% cash back on all other purchases. With rotating categories, there is a better chance that you can earn more cash back in a category where you spend money.

If You Want to Travel Abroad

If you want to travel abroad, you should find a Visa or MasterCard option that does not charge a foreign transaction fee or annual fee. Capital One does just that with its Journey Student credit card. In addition to no annual fee and no foreign transaction fees, you can earn up to 1.25% cash back. You earn 1% when you spend, and another 0.25% if you make your payment on time.

Bottom Line: Who Benefits Most from this Card

If you are a college student with good grades (3.0 GPA or higher) who wants to build your credit score and earn some cash back along the way, this is a good card. If you spend most of your money on gas and restaurants, this becomes a great card.

Student Credit Cards: FAQs

A student card is a credit card specially designed by a lender to get college students started with credit. The major difference between a student credit card and a regular credit card is that the student card will likely have a higher interest rate. Regular cards tend to average about 15% annual interest. In a recent MagnifyMoney study, we found the average student credit card carries an interest rate of 21.4%.

Your goal with your student credit card is to build your credit so that by the time you graduate, you have a healthy credit score in the high 600s to mid 700s. That way, when you graduate, you’ll be in a great position to make larger purchases like a new car or your first home. At that point you may actually want to earn rewards, and you’ll qualify for the best cards because you have a great score.

You should really only get a credit card if you want to build your credit score, not because you need extra money to make ends meet. If you can’t afford your monthly expenses as it is, a credit card might only make things worse.

The easiest strategy is this: Set up one recurring bill (like your Netflix or Spotify account) on your card. And pay it off in full each month. Follow that advice while you’re in school and you will absolutely graduate with a great credit score.

You can still build up your credit without having to open a card on your own. Ask your parents if you can become an authorized user on their account. All of their good credit behavior will be reported on your credit report as well. Also, consider opening a secured credit card. It’s a tool that’s meant precisely to help build credit but doesn’t have the same risks as a regular credit card. Read more about secured cards here.

Lindsay VanSomeren
Lindsay VanSomeren |

Lindsay VanSomeren is a writer at MagnifyMoney. You can email Lindsay here

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Strategies to Save

The Ultimate Guide to CD Ladders

The editorial content on this page is not provided by any financial institution and has not been reviewed, approved or otherwise endorsed by any of these entities.

The Ultimate Guide to CD Ladders

CDs are a very safe investment because they come with built-in insurance. Up to $250,000 of your money at each bank is covered under the Federal Deposit Insurance Corporation (FDIC). Deposits at credit unions are also covered for the same amount by the National Credit Union Administration (NCUA).

However, CDs do have some major downsides. They’re basically just reverse loans you make to a bank, and therefore you can’t withdraw your money before the term of your loan ends without paying stiff fees.

To get around this, some people buy short-term CDs so they can have more frequent access to their money in case they need it, but these short-term CDs offer far lower returns than longer-term CDs.

It’s a big quandary: The best CD rates are for longer-term CDs, but it’s a tough commitment to lock your money up for that long.

That’s where a little-known tool called a CD ladder comes in: It provides a neat solution that allows you to invest in long-term CDs while having frequent access to your money at the same time.

What is a CD ladder?

A CD ladder is basically a series of staggered investments. Rather than putting all your money in one CD and never seeing it again for five years or longer, you split your total investment among several smaller CDs. Each one of these smaller CDs has a different term so they mature (are paid back to you with interest) at different times.

The goal with CD laddering is to plan your smaller CDs out ahead of time so you’ll have one new CD maturing at regular intervals. When this happens, you have the option to take the money out, or you can reinvest it in the coveted long-term CD.

By the end of the cycle, all of your smaller CDs will be invested in long-term CDs. One new CD will mature after each time interval. Thus, your goal is achieved: All of your money is invested in the highest-earning CDs, yet you still have frequent access to a portion of your cash.

Are CD ladders right for you?

CD ladders are a great tool for people who have a hard time saving money because they’re always pulling cash out of their savings for unplanned expenses like a spur-of-the-moment vacation or a last-minute holiday gift. CDs are essentially forced savings accounts – you can get the money out if you need it, but not without paying a price.

Each financial institution charges fees for early withdrawal. Fees can be a set dollar amount, a set number of months’ worth of interest, a set percentage of the principal (the amount you invested), a set percentage of interest (the amount you’ve earned), or a set percentage of both principal and interest.

You could still come out ahead if you’re just charged a percentage of interest, or you could end up actually owing the financial institution money if they have steeper fines. Needless to say, it’s something you should avoid at all costs – even if there’s a tempting last-minute deal on a cruise vacation.

CD ladders are also great savings tools for when you need a specific amount of money in the short term – for example, if you’re looking to save a down payment for a house five years from now, or a car in three years.

Finally, CD ladders are also great tools for people who meet two conditions: They already have money saved in an emergency fund, and they’re also saving in high-yielding investments like stocks or index funds, if they’re working on saving up for retirement.

You don’t want to keep your emergency savings in a CD ladder because if an emergency does happen, you won’t be able to pull out your money without incurring the fees described above. CD ladders are also great investment vehicles, but they don’t earn enough to allow you to really ramp up your long-term savings for things like retirement (more on that further down, though).

What are some examples of CD ladders?

The really cool thing about CD ladders is that you can customize them to fit your needs. The only two things you need to pay attention to are how frequently you want access to your money and how much you have to invest to create your own CD ladder.

All CD ladders follow the same basic principles of splitting up your total investment among multiple staggered investments. Here are two examples of CD ladders that offer you access to your money at different intervals and require different initial investments:

CD Ladder One: Short-term, smaller investment

Let’s say you only have $1,000 to invest. You could split it up into some short-term investments like this:

Start: Buy four CDs. Put $250 each into a three-month, six-month, nine-month, and one-year CD.

Every three months: One CD matures, and you can either cash it out or roll it over into a new one-year CD.

After one year: Each CD is invested in a one-year CD. Because they have staggered start times, one new CD will mature every three months.

CD Ladder Two: Long-term, larger investment

If you have $5,000 to invest, you could split it up and form a CD ladder this way:

Start: Buy five CDs. Put $1,000 each into a one-year, two-year, three-year, four-year, and five-year CD.

Every year: One CD matures and you roll it over into a new five-year CD, or you can cash it out without facing penalties.

After five years: Each CD is invested in a five-year CD. Because they have staggered start times, one new CD will mature every year.

How do CD ladders hold up compared to other investments?

It’s important to know how CD ladders stack up against other potential investments if you’re using them to save money. So we decided to compare an initial $5,000 investment over 10 years to see how CD ladders compare to other options.

It’s also important to take inflation into account when looking at your returns over several years, because this has a real impact on how much your money will be worth. If you started out with $5,000 in 2006, you’d need exactly $6,071.02 today to have equal buying power today, thanks to inflation.

Let’s see how our investments pan out:

CD Ladder

Let’s consider the long-term, larger investment CD ladder structure from above and use the highest rates from MagnifyMoney’s CD comparison tool.

To start out, you’d put $1,000 each into a one-year, two-year, three-year, four-year, and five-year CD. For the next five years, one of these CDs will mature annually, and you will roll it over into a new five-year CD. By the time five years is up, all of your CDs will be in high-interest-earning CDs, with one maturing annually. Then we’ll continue rolling them over into five-year CDs for five more years, for a total of 10 years’ worth of rollovers.

Risk: Very safe because it’s backed by the FDIC or NCUA. You can also take advantage of higher interest rates if they go up.

Reward: $1,019.61. You’d need to make more than $1,071.02 to counter the effect of inflation, though, so your inflation-adjusted returns would be worth –$51.41 ($1,019.61 – $1,071.02).

Two Five-Year CDs

Let’s find out what happens if you take the initial $5,000 investment but put it into two back-to-back five-year CDs instead of laddering it.

Risk: Again, very safe because it’s backed by the FDIC or NCUA. However, you can’t take the money out as frequently if you need it, and you’ll only be eligible to take advantage of rising interest rates once when you roll it over into another CD.

Reward: $1,026. You’ll come out –$45.02 after taking inflation into account ($1,026 – $1,071.02).

Stock Market

The stock market is traditionally the best way to go for long-term gains. We wanted to know how much extra money you would have in 2016 if you invested $5,000 in the stock market way back in 2006. We looked at the average annual inflation-adjusted stock market return (7.92%), compounded annually over 10 years.

Risk: High; you could lose a significant portion of your money in the short term, and it can take a while to build it up again.

Reward: $10,715. This has already been adjusted for inflation, and so represents the real value of your money in 2016.

Savings Account

Most people like to save up money in a plain old savings account. We looked at what would happen to your money if you kept $5,000 in a savings account for 10 years. We used the rates from MagnifyMoney’s savings account comparison tool to find the highest-yielding A-rated bank (Ridgewood Savings Bank, 1.05% APY) and calculated returns using daily compounding.

Risk: Very safe because it’s backed by the FDIC or NCUA.

Reward: $554. You’ll come out –$517.02 after taking inflation into account ($554 – $1,071.02).

Under Your Mattress

Our grandparents might have squirreled away money under their mattress, but now that might not be the greatest idea. Here’s what would happen if you just kept $5,000 completely in cash for 10 years.

Risk: Very unsafe. It can easily be stolen or lost in a house fire.

Reward: $0. You’ll come out –$1,071.02 after taking inflation into account ($0 – $1,071.02).

CD ladder FAQs

  1. How can I find the best rates on CDs?
    You can use MagnifyMoney’s CD comparison tool to find the best rates across the country for CDs of various term lengths.
  2. What are the shortest and longest possible CD terms?
    Generally, three months is the shortest term offered while five or even 10-year CDs are the maximum terms.
  3. Will I owe taxes on my money?
    Yes. You are taxed on your interest earning just like a regular savings account. Your bank will issue you a 1099-INT form at the end of the year.
  4. What if interest rates change?
    You won’t be affected unless you possess either a callback or a bump-up CD. Callback CDs allow the bank to cancel your CD and return your principal and any yields to you if interest rates fall. Bump-up CDs give you the option to boost your interest rate once per term if interest rates rise.

Certificates of deposit (CDs) are a great way to diversify your portfolio. They’re easily available because just about every bank and credit union offers them, there are no tacked-on fees to buy them, and they’ll often earn much more interest than a regular savings account.

Lindsay VanSomeren
Lindsay VanSomeren |

Lindsay VanSomeren is a writer at MagnifyMoney. You can email Lindsay here

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