5 Proven Ways to Protect Your Money in 2023

For American households, the past year has been challenging. As a result, their budgets were strained, their spending power was reduced, and their 401(k) balances were wiped out. Despite recent positive news about gas prices and inflation slowing, many believe the economy will be worse off in 2023 than today.

No matter what the next 12 months bring, there are some simple steps you can take now to prepare your finances.

Consider moving your cash to a bank account that offers a higher interest rate and charges fewer fees. Get rid of unused memberships and negotiate charges on those you keep. Take a look at your 401(k) contributions and allocations.

If you act quickly, it might pay off. There are some financial benefits that expire on New Year's Eve that could make a difference. Before popping the cork, here are six money moves to consider:

Tip 1: Save more and earn more

Currently, keeping your money in a savings account is only marginally better than stuffing it under a mattress. According to TradeAlgo research, the average annual interest rate on savings accounts across all banks is 0.268%, or barely enough to buy a slice of pizza with $1,000 in savings.

In the biggest institutions, rates are among the lowest. One estimate estimates that customers could have earned $42 billion more by moving their cash to higher yielding accounts at other banks in the third quarter. Online-only accounts, for example, pay rates around 4% and can be linked to existing accounts for easy transfers.

Economic expert Ken Tumin says moving your money away from banks today has greater rewards than ever before.

Customers of MaxMyInterest can reallocate their money by monitoring which banks offer the highest interest rates in exchange for a 0.08% annual fee on their holdings.

Inflation-adjusted I Bonds, which pay out 6.89% and must be held for at least a year, offer one of the best risk-free returns right now. According to Mr. Tumin, Americans can purchase up to $10,000 of these government-backed savings bonds every calendar year. This year, as inflation soared, these bonds became popular since their interest rates are based on the consumer-price index.

As an alternative to I Bonds, Tumin suggests certificates of deposit or Treasury securities, some of which offer higher interest rates than top online savings accounts. For instance, a six-month T-bill purchased on Thursday would yield about 4.66% on an annualized basis.

If the Federal Reserve continues to raise rates, temporarily tying up your money could mean losing out on better yields.

If you invest your cash in a place that pays higher yields, you won't become rich, but you can protect yourself from inflation, says Gary Zimmerman. Inflation has outpaced even some of the best options recently. “The real return on cash may be negative, but it would be even more negative if you’re complacent about where you keep your cash,” he says.

Tip 2: Your bank account needs to be switched

Although banking has changed dramatically over the last two decades, your bank probably hasn't. According to a TradeAlgo survey, Americans keep the same primary checking and savings accounts for about 17 years. Compared to the average marriage, that's a long time.

Greg McBride, chief financial analyst at Bank Rate, recommends regularly shopping around to make sure you are still getting the best deal. The advantages of switching banks could outweigh the inconvenience of finding a bank that offers those services for free, he said.

Customers who carry a low balance in their checking accounts may benefit from accounts with extended overdraft grace periods. Citizens Financial Group, for instance, added a feature to some of its checking accounts that gives customers who overdraft until 10 p.m. to cover the negative balance.

Customers with deposits greater than $250,000 may benefit from switching to a brokerage that offers more insurance coverage by partnering with multiple FDIC-regulated banks. Through partnerships with 26 banks, Fidelity Investments allows customers to hold up to $3 million in insured deposits.

There are many new financial-technology companies that offer checking accounts with even more specialized features. LiliApp Inc. provides a tax-write-off tracker with its checking account for gig-economy workers and entrepreneurs. With its monthly subscription fee, Majority, a digital bank for migrants, offers unlimited international transfers.

Tip 3: Audit your memberships

As part of their resolutions to lose a few pounds, many Americans join gyms this time of year. To save a few dollars, you may also want to cancel unused memberships.

TradeAlgo Research found that the average American spends more than $200 a month on subscription fees and underestimates the cost by roughly $130. About three quarters of consumers admit that it is easy to forget about recurring charges, and 42% admit they are still paying for subscriptions they forgot about.

In the past year, streaming services, subscription boxes, gym memberships, and mobile apps have all increased in cost, according to Rocket Money, a personal finance app that tracks spending. Members of Rocket Money increased their subscription spending by 8.5% this year compared to last year.

The company you authorize to take recurring payments can change the price without asking for your permission, making it easy to lose track of your spending.

It's a good time to take stock of the recurring payments you may have forgotten, said Yahya Mokhtarzad, chief revenue officer at Rocket Money. This year, more than ever, it is important not only to take stock of your finances, but also to cut unnecessary expenses and prepare for a challenging 2023.

Tip 4: Get your bills renegotiated

If you cannot cancel recurring bills, give the company a call and negotiate.

Ted Rossman, a consumer-spending analyst at Bank Rate, said cable companies and wireless providers may be willing to lower your bill since acquiring new customers costs more than keeping existing ones.

If a competitor's price is cheaper, don't be afraid to ask the company for your old rate back. To keep customers from canceling, retention discounts are often unadvertised. Even if you have been a subscriber for a long time, you can request any deals and discounts being offered to new customers.

If you're asking for a lower rate with a service provider such as your wireless company, be aware that you may be offered a promotional rate that increases significantly once an initial period expires, said Sophie Raseman, head of financial solutions at Brightside, a company that provides financial guidance to workers. She suggested setting a reminder to cancel or downgrade then.

Requesting that certain fees be removed from your statement is another way to reduce costs. You may see these charges as "other fees" on your phone, internet, or cable bill.

You may have greater success negotiating with a different customer-service representative if your first attempt fails, says Bruce McClary, senior vice president at the National Foundation for Credit Counseling.

Tip 5: Don't forget to check your 401(k)

When markets are down, it is recommended that you let your retirement plan run on autopilot and resist the temptation to make changes.

But at least once a year, you should review your savings rate, investment mix, and tax-advantaged accounts. Through Friday, the S&P 500 stock index was down 19.3% and U.S. intermediate-term bond funds were down 12.4%; investorsshould rebalance if their asset allocation has shifted from their long-term goals.

Benefits provider Milliman reports that the Internal Revenue Service recently raised the annual 401(k) contribution limit by $2,000 to $22,500 for 2023. The limit rises to $30,000 for those over 50 in 2023.

Fidelity Investments vice president Mike Shamrell says you shouldn't check too often, based on what the market does each day, but you should check in periodically to make sure your choices still align with your long-term goals.

401(k) savings have been temporarily reduced by some Americans due to inflation straining their budgets. If you have a plan to catch up later, the impact of doing so-even for a few years-isn't as big as you might think.

Ed Slott, a certified public accountant and IRA specialist in Rockville Centre, N.Y., says the higher contribution limits create an "unprecedented opportunity" for those able to save more.

401(k) investors now have the option of choosing between a traditional 401(k), in which contributions are deducted and withdrawals are taxed, and a Roth 401(k), in which contributions are taxed but distributions are tax-free. 401(k) contributions can also be divided between the two.

In the long run, it may be beneficial to use some of each. When retirees dip into a Roth 401(k), they can withdraw money tax-free when dipping into a regular 401(k) would push them into a higher bracket.

Make sure you don't wait until it's too late

Procrastination doesn't pay. On New Year's Eve, several important financial benefits that could benefit your household in 2023 will expire.

Families can give gifts of up to $16,000 to an unlimited number of people without triggering estate or gift taxes. In 2023, the annual exclusion will increase to $17,000.

529 college savings plans allow parents, grandparents, and others to invest money for a beneficiary's qualified education expenses through a special rule that allows donors to use five years' worth of annual exclusion gifts at once. For 2022, that amounts to $80,000 per beneficiary account.

Education is a really efficient way to transfer wealth, says Elisa Shevlin Rizzo, chief fiduciary officer at Northern Trust Wealth Management.

Individuals can pay qualified education expenses and medical bills without estate or gift tax consequences if they pay directly to the school or physician.

Form 709 must be filed by donors who give away more than $16,000 to anyone. The excess amount counts toward the amount you can give during your lifetime or at death to avoid federal estate and gift taxes. In 2022, that exemption will be $12.06 million per person, and in 2023, it will be $12.9 million per person.

Because of special Covid-related FSA carry-over rules, many workers have larger balances than usual in their healthcare flexible-spending accounts, which allow workers to set aside pretax funds from their paychecks for medical expenses. They now have until Dec. 31 to use their money or forfeit it. Now is the time to check your FSA balance and your plan's spend down rules.

Investors can harvest losses in their brokerage accounts after this year's painful selloff. Those who sell investments at a loss through Dec. 31 can offset gains on winners and up to $3,000 of ordinary income on their 2022 tax return. Future years can carry over unused losses.

Withdraw your required minimum distributions: Taxpayers 72 and older must take required minimum distributions, or RMDs, from traditional individual retirement accounts and 401(k)s by Dec. 31 or face a 50% penalty. For those who turned 72 this year, they can wait until April 1, 2023 to take their first RMD. RMDs apply to inherited IRAs, both traditional and Roth, with special rules for those inherited after 2020. Congress passed a bill Friday that raises the RMD age to 73 in 2023 and 75 in 2033.