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<div type="image" title="Are Indians depositing less money in banks, or more in mutual funds? Turns out, it&amp;#39;s neither of those." msid="113663806" hostid="261" sizebytes="1121785"></div> Over the past few months, there’s been a lot of brouhaha about the lagging pace of <keyword id="20202062" type="General" weightage="20" keywordseo="bank-deposits" source="keywords">bank deposits</keyword> in India. Simply put, the rate at which Indians are depositing their hard-earned money in banks has been falling constantly, and some blame the increasing financialisation of <keyword id="20751315" type="General" weightage="20" keywordseo="household-savings" source="keywords">household savings</keyword> in the country or the rising preference of Indians towards <keyword id="19929240" type="General" weightage="20" keywordseo="mutual-funds" source="keywords">mutual funds</keyword> and shares. So, the hypothesis is that people are choosing to invest more in mutual funds and the Indian <keyword id="19949641" type="General" weightage="20" keywordseo="equity-markets" source="keywords">equity markets</keyword> through direct investments, IPOs, or NFOs, the money flowing into Indian banks in the form of deposits is slowing down. But is that really the case? <h2>A crisis or a phase?</h2><keyword id="19899808" type="General" weightage="20" keywordseo="RBI" source="keywords" meta.keywordsubtype="org" meta.entityname="RBI" meta.hostid="261" meta.entityid="RBI">RBI</keyword> data suggested that for the quarter ended June 2024, bank deposits grew at 11.7%. On the other hand, credit growth has outpaced this at 15%. This means that the outflow from banks as loans is far greater than the inflow into them in the form of deposits in Q1 of FY 2024-25. The situation largely saw cut-copy-paste in the first week of September as well, with loans registering a 13.3% YoY growth during the period, while deposits rose only 11.1%. This gap has only been widening for the last 3 years. Since deposits are how banks gather assets to further lend and earn interest income as a consequence, even a slight dip could set the alarm bells ringing for banks, and rightfully so. And truth be told, mutual funds are indeed taking on bank deposits in a big way. Per a report by Franklin Templeton, in August 2024, the AUM (assets under management) of Indian mutual funds, or the total funds managed by them, stood at 31.3% of total bank deposits in the country, up from 24.20% during the year-ago period. As of August 2024, the AUM of mutual funds stood at Rs 66.17 lakh crore, an all-time high. But all said and done, is this really the reason why the rate of bank deposits is falling behind? SBI has dismissed this to be a “statistical myth”, and experts point out that since equity and fund houses also keep the cash in their respective bank accounts, there’s no cause for concern. So, is financialization really to be blamed for the trailing tempo of deposits? Or is something else happening behind the scenes? We take a closer look: <h2>First, are household deposits really slowing down? And is that a cause of concern?</h2>Data from Motilal Oswal suggests the contrary. Deposits grew by around 10.4% between March 2020 and August 2024. Data from RBI also highlights that as of August 9, 2024, bank deposits witnessed a YoY growth of 10.8%. The loan-to-deposit ratio for the retail segment, which indicates what percentage of its total deposits the banks lend out as loans, has stayed at 77.5%, above the 77% mark for the tenth straight month. <div type="image" title="Yes, household deposits (as % of total deposits) have dipped, but the drop is far from significant" msid="113663882" hostid="261" sizebytes="306706"></div> Also, we can’t forego the fact that the share of Indian households in bank deposits has indeed slowed down. However, data from Axis AMC shows that the dip is marginal—from 63% in 2022 to 62% in 2023 and 61% in 2024. What has slowed down even more considerably is the share of government deposits in the aggregate bank deposits, which has dipped from 14% in 2018 to 9% in 2024. So, it's not just household deposits, you see. Moreover, as of March 2024, the collective CASA ratio (current and <keyword id="114757" type="General" weightage="20" keywordseo="savings-account" source="Orion">savings account</keyword> deposits) of all commercial banks in India stood at 41.00%, down from 43.1% in March 2023 and 45.2% in March 2022, marking a nearly 5% point decline over the past year, while still staying over the 10-year average of 39.2%. This implies that Indian banks are relying more on higher-cost funds (savings accounts), which can limit their profitability. <h2>What is this financialisation of savings we are talking about?</h2>Then again, there is no doubt about the growing affinity of Indians towards mutual funds and stock markets. Recent data from CBDT (Central Board of Direct Taxes) highlights that India’s net direct tax collection surged by around 22%, driven exclusively by the significant uptick in the collection of Securities Transaction Tax (STT), which doubled to Rs 26,154 crore, from Rs 13,352 crore in the year-ago period. Why does this matter? STT is levied when you buy or sell equity shares on stock exchanges, sell <keyword id="6361918" type="General" weightage="20" keywordseo="equity-mutual-funds" source="Orion">equity mutual funds</keyword>, and trade in futures and options in the equity segment. Such taxes, including the multiple other taxes in equity market investments, are considered as leakages as the money moves out of the economy into government coffers. Data from a ValueQuest report explains that over the last 20 years, the markets have handsomely rewarded the investors, generating over $900 billion in incremental value for them. This is the major driver behind the dramatic rise in investment flowing towards the equity markets. There’s further proof of this budding romance, if you check the demat pudding. The number of demat accounts, which are a primary requisite for participating in the stock markets, also burgeoned by 42.3 lakh in August 2024, taking India’s total tally of demat accounts beyond 17 crore. To put this in perspective, this is almost equivalent to the population of just 8 nations in the world, including China, the US, Brazil and more. Vivek Iyer, Partner, Grant Thornton Bharat thinks it's rather important, as well. “Financialisation of household savings in India is an indication of deepening capital markets in the market, especially from a retail investor standpoint. Bank deposits with a modest rate of return are no longer the only option for savings for investors. Investors today have more avenues for wealth creation in the form of public capital markets, which have democratized wealth creation and provided equality of opportunity to retail investors”, he says. Yes, Indians are investing more and more in the markets, and in mutual funds. But is it a sin to look out for inflation-beating returns, which the stock markets offer, and vanilla bank deposits don't? After all, the allure of 12-13% annual returns offered by <keyword id="45369" type="General" weightage="20" keywordseo="equities" source="Orion">equities</keyword> can certainly pale the stability offered by good old deposits, which generally do not go beyond 9% when it comes to annual returns. But all of this is not what is behind the slowdown. India is still a toddler in the school of savings financialization, with less than 10% of the population holding a demat account, and less than 5% of us saving in equities. That's a drop in the ocean of deposits, far inadequate to trigger a tsunami. <h2>Tell me why lagging deposits have nothing to do with Indians investing more in mutual funds!</h2>Says Shweta Rajani, Head - Mutual Funds, Anand Rathi Wealth Limited, “Households' equity holdings composition grew from 11.1% in FY 23 to 14.7% in FY 24. This trend reflects a growing awareness of investment options, empowering individuals to take control of their financial futures. Despite this transition towards equities, banks still hold a significant share of household financial savings—33.5% in FY24 compared to 34.9% in FY23”. Also, household savings and their subsequent financialization do not have much to do with deposit creation, which is entirely made by banks. What actually drives increased deposits is credit growth or increased lending. When interest rates are eased, people tend to borrow more and spend more, which circulates more money in the economy. For the past 4 years, RBI has been tightening the screws on interest rates, which raises the cost of borrowings, and makes it more expensive to take loans, putting a dampener on credit growth, but effectively curbing inflationary pressures. The last time RBI cut the repo rate by 40 basis points was back in May 2020, 4 years ago. The lag in <keyword id="19998084" type="General" weightage="100" keywordseo="deposit-growth" source="keywords">deposit growth</keyword> we’re witnessing is almost 3 years old. Coincidence much, or just good old economics at work? But with the Fed recently setting a rate cut precedent by slashing 50 bps off its interest rate, RBI is expected to follow suit in the next MPC (Monetary Policy Committee) meeting, scheduled for November 2024. A rate cut would ease the aforementioned high cost of borrowing, and increase loan-taking for corporates and institutional investors, thereby stoking consumption in the economy. And then, deposit creation in banks is likely to return to its former glory. If not, then that would be a curious case to unravel! But that worry is for another day. Do you have insights or personal experience to share on your personal finances or money? Contact us at <a target="_blank" class="c-link" href="mailto:businessinsider@timesinternet.in">businessinsider@timesinternet.in</a>.

Simply Put: A Deposit Dilemma — What's the fuss about a crisis in Indian bank deposits? Are mutual fund investments to blame?

<ul class="summary-list"><li>My bank has lowered the APY on my high-yield savings account by almost half a percent recently.</li><li>I'm not happy that my cash is generating less returns now, and I don't know what to do.</li></ul>It's never pleasant to receive an email from your bank informing you that the interest rate on your <a target="_blank" class="" href="https://www.businessinsider.com/personal-finance/banking/best-high-yield-savings-accounts-rates-right-now">high-yield savings account</a> is decreasing.Unfortunately, like many Americans happy to collect a robust yield on their savings, I've gotten three of these notifications in the last three months as the Federal Reserve has begun to lower interest rates. From August until the end of October, the annual percentage yield (APY) on my high-yield savings account has fallen from 4.6% to 4.2%.I opened this bank account almost two years ago, right after graduating from college. Back in 2023, with inflation still elevated, interest rates were at their highest levels since the Great Financial Crisis, and it seemed like most banks were offering near-5% yields on savings. After paying off my bills every month, I would put the remainder of my paycheck into my high-yield savings account and watch the number creep up.Now, it looks like the days of a 5% APY are in the past. In September, the Federal Reserve dished out a 50 basis-point rate cut, signifying the beginning of the end for high rates. Continuing this trend, the central bank's chair, Jerome Powell, announced a <a target="_blank" href="https://www.businessinsider.com/federal-reserve-cuts-interest-rates-quarter-point-powell-inflation-election-2024-11">25 basis-point cut</a> last week, and is expected to slash rates further in the months ahead.Is there anything I can do about the state of my savings account, or do I have to watch my yield erode away slowly? Curious, I asked three financial experts for their advice on this topic.As a famous politician once said, we didn't just fall out of a coconut tree. Context is important. Patti Black, a financial advisor at Savant Wealth Management, reminded me that the recent high interest rate environment is a marked departure from the last decade, where interest rates were near zero and there was no yield on cash to be found. So, while yields dropping from nearly 5% might seem like a tough pill to swallow for someone like me who just opened an account in the last couple of years, it's still a pretty good deal when you consider where rates have been in the past.I didn't have a bank account during the post-2008 zero-interest rate policy era, so this was helpful context to have. Perhaps my generation is indeed coddled — first by our parents and now by Jerome Powell's post-pandemic rate hikes.Black also suggested that I switch up my perspective. While a rate-cutting cycle means less return on my cash, it also means lower borrowing costs for a car loan or a mortgage, which is good news for the housing market.But there are other options for where I can have my money sit, Black said. Of course, one alternative is a <a target="_blank" href="https://www.businessinsider.com/cd-rates-certificate-deposit-high-interest-where-to-invest-now-2024-10">certificate of deposit</a> (CD), which is essentially a savings account that holds money at a fixed interest rate for a fixed period of time. CDs generally pay higher interest rates than savings and money market accounts in exchange for locking up your money for anywhere between three months to many years. However, my hands are a little tied. A well-known rule of thumb is to keep three to six months of living expenses available in your bank account as an emergency fund (read: liquid and highly accessible), so it's not a good idea to lock up money in my high-yield savings account for a prolonged period time. I could withdraw my money from the CD if needed, but I'd have to pay back some or all of the interest I'd generated up until that point as a penalty.With this in mind, Black said that sometimes it doesn't matter what the rate on the high-yield savings account is — it's the best place to park cash for easy access.Armed with this context, I still wanted to see if there were more ways to put my cash to work for me.Daniel Milan, financial advisor at Cornerstone Financial Services, had some more thoughts on CDs. A three-month CD could be a good option if I were comfortable locking up my money for that period of time, according to Milan.My bank didn't offer CDs, so I would need to open up a new bank account, which isn't necessarily a bad thing. Some financial experts recommend having <a target="_blank" class="" href="https://www.businessinsider.com/personal-finance/banking/how-many-savings-accounts-can-you-have">multiple bank accounts</a> for different savings goals. Searching online, I saw <a target="_blank" href="https://www.businessinsider.com/personal-finance/banking/best-3-month-cd-rates">multiple options</a> yielding over 4.6%.However, Milan didn't recommend locking up my money for longer. Usually, the longer the term of the CD, the higher the rate. But that's not always the case in today's market."In this current environment, it makes no sense to go further out than three months on a CD because the three-month CD is paying you more than a one-year or two-year right now," Milan said.Looking at CD offerings from a variety of banks, I discovered that this was indeed true — generally, the longer the CD duration, the lower the rate, especially after a 1-year duration. Rates on 6-month and 9-month CDs were also attractive depending on the bank, but again, my liquidity needs take those off the table.Many of the banks I looked at didn't offer short-term CDs, either. For example, one option offered a 4.5% APY on an 11-month CD, 3.7% on a 2-year, and 3.5% on a 5-year.It wouldn't make sense to move my money out of my savings account without high enough compensation for the lower liquidity."You're not getting paid for that illiquidity," Milan told me.Short-term <a target="_blank" href="https://markets.businessinsider.com/bonds">Treasury bills</a> are another investment option for higher yield, and they offer more liquidity than CDs, according to Richard McHorter, a private wealth advisor at SRM Private Wealth. A three-month Treasury bill currently yields 4.43%.There's also the added benefit of tax savings, which is especially appealing for McHorter, who lives in California: "If you're a resident of a high-income tax state, I would be looking at Treasury bills."As a resident of New York City, the idea of lower taxes certainly appeals to me. If I were to buy Treasury bills, I would only need to pay federal taxes, bypassing state and local income taxes.McHorter also said that there's a lot of uncertainty about interest rates right now, and they could actually start going back up again. Trump's proposed <a target="_blank" class="" href="https://www.businessinsider.com/trump-tariffs-hit-company-stock-profits-hardest-china-investing-manufacturing-2024-11">tariff policies</a> could increase inflation, in which case the Fed would probably increase rates to combat an overheating economy, he said.If I buy a three-month Treasury bill, I can reassess the inflation situation when I get my money back in three months and reinvest it accordingly, McHorter said.When it comes to interest rates and inflation, pay attention to the data and don't try to predict the market with your money, Milan advised. <a target="_blank" href="https://www.businessinsider.com/federal-reserve-cuts-interest-rates-quarter-point-powell-inflation-election-2024-11">Jerome Powell</a> himself has said that it's too soon to say how the election results could reshape markets and interest rates."My advice to anybody would be: just be diligent in reading and interpreting the data as it comes out," Milan said. Watch inflation data and Fed commentary, and base your investing decisions on the information you have at hand.It feels like the market is a bit in limbo as everyone waits for the effects of the election to ripple through, but as Black mentioned, not taking any action right now isn't the worst decision.What's next? For starters, I'm going to sit down and crunch some numbers for what three to six months of living expenses look like for me and keep that in my high-yield savings account. With the money I have left over, I have some good options.Are you a Gen-Zer who has recently been faced with an investing predicament? Feel free to reach out to Christine at <a target="_blank" href="mailto:cji@businessinsider.com">cji@businessinsider.com</a> to share your story.

The interest rate on my high-yield savings account keeps dropping. I asked 3 experts how to earn more on my cash.

High-Yield Savings Accounts

<div type="image" title="For the unversed, trading in futures and options can be akin to setting their hard-earned money on fire" height="900" width="1200" msid="114064202" hostid="261" caption="&amp;lt;p&amp;gt;For the unversed, trading in futures and options can be akin to setting their hard-earned money on fire&amp;lt;/p&amp;gt;"></div> Once upon a time, there thrived a wild, wild land. Here, it was all about super high monetary stakes, lightning-fast trade deals, and bucketloads of money shifting hands every single second. This wilderness lured millions of individuals with the promise of super duper high returns. But, at what cost? Welcome to the unforgiving, ultra-risky wild west of <keyword id="19991165" type="General" weightage="20" keywordseo="Indian-equity-markets" source="keywords">Indian equity markets</keyword> called the <keyword id="145718" type="General" weightage="100" keywordseo="Futures-and-Options" source="Orion">futures and options</keyword>. Here, everyone seems to just fly right through the bright red-flagged warnings of financial risks to earn even a fraction of these promised returns. Most burn themselves in the process, but carry on nevertheless, as if nothing ever happened. <h2>Chasing the cloudy profits</h2>The data conclusively proves that every 9 out of 10 individuals only lost their hard-earned money in this land. But hey, what do the numbers know? Some hide their losses out of shame, some out of fear. The proponents, meanwhile, proudly boast unusually high returns on their investments, some open social media channels while others encourage their friends and family to take the plunge. Naturally, news of this unstoppable and humongous en-masse migration to the F&amp;O (futures and options) town has reached sheriff <keyword id="19901201" type="General" weightage="20" keywordseo="SEBI" source="keywords" meta.keywordsubtype="org" meta.entityname="SEBI" meta.hostid="261" meta.entityid="SEBI">SEBI</keyword>, galvanising them into action. After all, it was time to put a leash on this madness and save the common man. The inhabitants of this town doubled in the last 2 years, from 51 lakh in FY22 to 96 lakh in FY24—99.8% of whom were small and mid-income traders. But profits? Well, that's a different, rather completely absent story. <h2>Que Sera Sera, much?</h2>A recent report by SEBI (Securities and Exchange Board of India) that studied profits and losses made by traders in the equity derivatives segment between FY22-24 exposed the mad mania of futures and options trading in India, especially since the pandemic. Per the report, 91.1% of individual traders, or about 73 lakh traders had only lost money trading in futures and options in FY24. Between FY 22-24, over 1 crore traders, or about 92.8% of individual traders, had lost Rs 2 lakh each. But once bitten, twice shy? Well, not in this case. More than 75% of individuals, who had only made losses trading in F&amp;O in FY22 and FY23, continued to trade vigorously in FY24 as well, without any changes in the bottom line, which remained deep in red and negative. So, then all these traders must be uber-rich, with tons of cash and not much care to spare? Nope. 76% of traders in the F&amp;O space in FY24 had an annual income of less than Rs 5 lakh. 2 years ago, their share stood at 71%. And their choice of poison? Options! In FY24, 60% of traders made losses trading in futures, but a whopping 91.5% burnt their funds trading in options. Mind you, futures are riskier than options. With futures, which require significant capital investment, the buyer and seller both are contractually bound to adhere to the pre-determined strike price of the futures or options contract, irrespective of whether the prevailing prices are higher or lower (and thus, resulting in losses for either the buyer or seller). With options, since this adherence ain't necessary, individuals end up taking debt to take highly leveraged positions while trading here. <h2>Scale of the explosion</h2>Anyone who trades even infrequently will tell you that a demat account is the mitochondria or powerhouse of the trading cell. As of August 2024, India had over 17.1 crore <keyword id="20957284" type="General" weightage="20" keywordseo="demat-accounts" source="keywords">demat accounts</keyword>, which are a prerequisite for trading in the markets. India is the 9th biggest country in the world, in terms of total demat accounts. Did you know that our demat accounts are at par with the entire population of Bangladesh? Talk about scale! Just 4 years ago, in March 2020, this number was a mere 4 crore. Naturally, the total F&amp;O turnover on both <keyword id="20004725" type="General" weightage="20" keywordseo="NSE" source="keywords" meta.keywordsubtype="org" meta.entityname="NSE" meta.hostid="261" meta.entityid="NSE">NSE</keyword> and BSE has hit the roof, and also broken it. As of October 4, 2024, the total futures and options turnover on NSE stood at a massive Rs 4,78,27,27,750.30 crore. Good luck counting the thousands! <table style="border-width: initial; border-style: none;" class="redcator-table-advance"></colgroup><tbody><tr><td style="border-left:solid #000000 1pt;border-right:solid #000000 1pt;border-bottom:solid #000000 1pt;border-top:solid #000000 1pt;vertical-align:top;padding:5pt 5pt 5pt 5pt;overflow:hidden;overflow-wrap:break-word;">Year </td><td style="border-left:solid #000000 1pt;border-right:solid #000000 1pt;border-bottom:solid #000000 1pt;border-top:solid #000000 1pt;vertical-align:top;padding:5pt 5pt 5pt 5pt;overflow:hidden;overflow-wrap:break-word;">Total Turnover (Both Futures and Options) (In Rs Crore) </td></tr><tr><td style="border-left:solid #000000 1pt;border-right:solid #000000 1pt;border-bottom:solid #000000 1pt;border-top:solid #000000 1pt;vertical-align:top;padding:5pt 5pt 5pt 5pt;overflow:hidden;overflow-wrap:break-word;">2020-21 </td><td style="border-left:solid #000000 1pt;border-right:solid #000000 1pt;border-bottom:solid #000000 1pt;border-top:solid #000000 1pt;vertical-align:top;padding:5pt 5pt 5pt 5pt;overflow:hidden;overflow-wrap:break-word;">64,36,03,951.51 </td></tr><tr><td style="border-left:solid #000000 1pt;border-right:solid #000000 1pt;border-bottom:solid #000000 1pt;border-top:solid #000000 1pt;vertical-align:top;padding:5pt 5pt 5pt 5pt;overflow:hidden;overflow-wrap:break-word;">2021-22 </td><td style="border-left:solid #000000 1pt;border-right:solid #000000 1pt;border-bottom:solid #000000 1pt;border-top:solid #000000 1pt;vertical-align:top;padding:5pt 5pt 5pt 5pt;overflow:hidden;overflow-wrap:break-word;">1,69,52,33,134.47 </td></tr><tr><td style="border-left:solid #000000 1pt;border-right:solid #000000 1pt;border-bottom:solid #000000 1pt;border-top:solid #000000 1pt;vertical-align:top;padding:5pt 5pt 5pt 5pt;overflow:hidden;overflow-wrap:break-word;">2022-23 </td><td style="border-left:solid #000000 1pt;border-right:solid #000000 1pt;border-bottom:solid #000000 1pt;border-top:solid #000000 1pt;vertical-align:top;padding:5pt 5pt 5pt 5pt;overflow:hidden;overflow-wrap:break-word;">3,82,23,26,468.06 </td></tr><tr><td style="border-left:solid #000000 1pt;border-right:solid #000000 1pt;border-bottom:solid #000000 1pt;border-top:solid #000000 1pt;vertical-align:top;padding:5pt 5pt 5pt 5pt;overflow:hidden;overflow-wrap:break-word;">2023-24 </td><td style="border-left:solid #000000 1pt;border-right:solid #000000 1pt;border-bottom:solid #000000 1pt;border-top:solid #000000 1pt;vertical-align:top;padding:5pt 5pt 5pt 5pt;overflow:hidden;overflow-wrap:break-word;">7,99,27,67,152.43 </td></tr></tbody><tbody></tbody><tbody></tbody><tbody></tbody></table>Source : NSE Another metric that underlines the meteoric growth of trading in India is the collection of STT or <keyword id="20930760" type="General" weightage="20" keywordseo="Securities-Transaction-Tax" source="keywords">Securities Transaction Tax</keyword>. As of September 2024, India's STT mop-up had gone past Rs 26,000 crore. Traders have to pay STT whenever they buy or sell any security in the market. So, more trading brings in more STT, and hence, more revenue for the government, so they're not really complaining. After all, this is certainly what they'd call enviable growth. As of August 2023, our STT collection stood at about Rs 21,599 crores. And in FY20-21, India's STT collection had been Rs 16,000 crore. If only our salaries also managed to grow at this rate! <h2>So, what's happening?</h2>Two things. One, it's the big bulls who are raking in all the moolah. And it's the younger lot (those aged under 30) who are propping them up for this. In FY24, 43% of individual traders in the market were less than 30 years of age. In just one year, this number has swelled by 12 percentage points from just 31% of individual traders. But who says ageing is bad? Wrinkles and silver hair seemingly have a propensity of incurring lesser losses in the market. In FY24, only 79% of traders aged above 60 years made losses, as compared to 93% of those aged below 30. Small and mid-income traders, which make up 98% of the total trader base, witnessed average losses per person of Rs 65,000 and Rs 1.5 lakh in FY24 in futures and options, respectively. The winner here? Clearly, the big bulls, who declared an annual income of over Rs 1 crore, ended up with average profits of Rs 96,000 per person this year. <h2>What’s the sheriff up to?</h2>The government has finally swung into action, hiking the STT rate for F&amp;O during this year’s budget. Effective October 1, 2024, the STT on futures stands at 0.02%, up from 0.0125%. For options, it was upped to 0.1% versus 0.0625% previously. Small margins, but huge impact oncoming. Says Puneet Sharma- CEO and Fund Manager at Whitespace Alpha, “SEBI aims to enhance market stability while safeguarding investor interests, reflecting the regulator's intent to balance risk management with market participation”. But this might come with its own share of challenges, too. “Stricter norms around leverage, transparency, and capital adequacy could limit the ability of investors to determine their own risk appetite, thereby stifling innovation in trading strategies. Over-regulation in an environment that thrives on strategic flexibility and creativity could dampen the market’s dynamism, affecting India's competitiveness in the global derivatives landscape”, he observes. SEBI recently came out with a set of guidelines that aim to thwart <keyword id="19972907" type="General" weightage="20" keywordseo="retail-investors" source="keywords">retail investors</keyword>' participation in futures and options and hinder them from taking undue risks. Here's a quick recap of what's to come for the residents of the F&amp;O town Margin Requirements: To battle the high volatility and chaos which is generally seen on expiry days(i.e the last mandated date, post which an option becomes invalid), SEBI will put in place an extreme loss margin (ELM) of 2% for all open short options on the day of expiry. Translation? Traders will need to pony up more cash upfront, leaving them with fewer funds to take on risky bets. It ain't a choice: No more of one expiry every single day! Going ahead, an exchange like BSE or NSE will just be able to offer weekly expiries, that too, only on one benchmark index, as opposed to an entire buffet it currently offers. At present, NSE offers weekly options contracts for its financial index, bank and midcap indices. But say goodbye to this, and hello to derivatives on only 1 index per exchange. Raising the bar: Effective November 30, 2024, the minimum contract value for index derivatives will be upped to Rs 15 lakh, from the present Rs 5-10 lakh. The hope is that by making it ultra-expensive to enter these trades, investors will be dissuaded from taking on risky trades. Pay upfront: Starting February 2025, those trading in options will have to pay the entire options premium upfront, even before their trades are executed. This is because options generally carry very high leverage, and paying a significant sum upfront can force traders to think twice. Invigilation Pro Max: Starting April 1 2025, to make sure that the number of positions for equity index derivatives does not slyly slip over the mandated limit, especially on expiry days when trade volumes are huge, the exchanges will have to take a minimum of 4 position snapshots randomly. The question is, will these injections of sobriety be enough to calm down the steroid-fed bull of the futures and options market in India? Well, only time and market turnover will tell! For more insights into the financial markets and business news, stay tuned to our site and social media handles. And don’t forget to subscribe to Business Insider India’s newsletters for your weekly dose of Simply Put! Disclaimer: The content on this website is for informational purposes only and should not be construed as investment advice. We recommend readers consult certified, qualified and registered advisors for professional and personalised financial advice.

SIMPLY PUT: SEBI is on a mission to take on the wild, wild west of futures and options in India. Here’s why, what, and how

<ul class="summary-list"><li>This post originally appeared in the Insider Today newsletter.</li></ul>Welcome back to our Sunday edition, a roundup of some of our top stories. Before we get into it, some weekend inspiration: This guy was a CEO with $1 million in his bank account before turning 40. Then he packed it all in to run <a target="_blank" href="https://www.businessinsider.com/left-ceo-job-pursue-passion-career-change-2024-9">a medieval Renaissance fair</a>.On the agenda today:<ul><li>We've been doing promotions in <a target="_blank" href="https://www.businessinsider.com/truth-promotions-companies-picking-managers-wrong-new-study-2024-9">the worst possible way</a>.</li><li>The biggest mistakes people make <a target="_blank" href="https://www.businessinsider.com/retirement-saving-why-half-retirees-could-run-out-of-money-2024-9">when preparing for retirement</a>.</li><li>Inside the island fortress of <a target="_blank" href="https://www.businessinsider.com/billionaire-bunker-miami-bezos-tom-brady-ivanka-trump-security-2024-9">America's mega-billionaires</a>.</li><li>Meta is winning <a target="_blank" href="https://www.businessinsider.com/meta-new-ray-ban-smart-glasses-apple-vision-pro-2024-9">the glasses wars</a>.</li></ul>But first: IsMrBeast the ultimate "founder mode" leader?If this was forwarded to you, <a target="_blank" href="https://www.businessinsider.com/subscription/newsletter/insider-today-sunday-edition">sign up here</a>. Download Insider's app <a target="_blank" href="https://www.insider.com/app">here.</a><h3 id="58506b3b-b008-4ead-9e90-71439c9e98dd">This week's dispatch</h3><div type="image" title="MrBeast" height="975" width="1300" msid="113787189" hostid="261" sizebytes="35876"></div><h2 id="2a7b4701-4b9e-48dd-b7c6-5bd656268197">MrBeast mode</h2>MrBeast is YouTube's biggest star, a <a target="_blank" href="https://www.businessinsider.com/new-mrbeast-trademark-filing-philanthropy-charity-project-team-water-2024-9">philanthropist</a>, and a <a target="_blank" href="https://www.businessinsider.com/youtube-star-mrbeast-expects-700-million-revenue-this-year-2024-6">snack entrepreneur</a>. You can now add Silicon Valley thought leader to the list.The social media star, real name Jimmy Donaldson, put together a handbook breaking down his <a target="_blank" href="https://www.businessinsider.com/leaked-mrbeast-guide-reveals-youtube-secret-weapons-for-success-2024-9">secrets to success</a>. The 36-page guide, intended for staffers at MrBeast Production, says Donaldson wants a team of obsessives who are coachable, don't make excuses, and "are the best in the goddamn world at their job."The guide includes lines such as "take ownership and don't give your project a chance to fail," and "own shit so we can address how to fix it and then move on."When the document leaked, fans and wannabe employees poured through the pages. But so did Silicon Valley, where techies likened Donaldson's approach to the hardcore "<a target="_blank" href="https://www.businessinsider.com/founder-mode-manager-dividing-silicon-valley-2024-9">founder mode</a>" style of leadership."I think this is resonating because it's so counter to the current trends in work culture today, which seem soft by comparison," one marketing advisor <a target="_blank" href="http://businessinsider.com/tech-world-captivated-with-mrbeast-training-document-founder-mode-2024-9">told Business Insider</a>.<div type="image" title="An employee in a spotlight that also acts as a megaphone" height="1500" width="2000" msid="113787188" hostid="261" sizebytes="39338"></div><h2 id="3fd3d286-9128-4fdf-98a7-cb928cbf9001">The truth about promotions</h2>We might be doing promotions all wrong. In a new study, researchers found that in some cases, the practices businesses use to hire managers are so bad that they'd actually be better off picking names out of a hat.Those practices, like hiring top performers or people who really want to be promoted, don't translate to effective managers. Instead, researchers found, selecting managers based on intelligence and decision-making skills can result in stronger leaders.<a target="_blank" href="https://www.businessinsider.com/truth-promotions-companies-picking-managers-wrong-new-study-2024-9">How to hire a manager</a>.<h2 id="fa1eb3c8-10a8-42fd-b4f7-5b00f5a61a5b">Retirement savings no-no's</h2>About 45% of Americans will run out of money in retirement — even those who invested and diversified. In particular, single women face a 55% chance of depleting funds, even higher than single men and couples.If you're aiming to retire at the standard age of 65, avoid these mistakes so you can keep your golden years golden.<a target="_blank" href="https://www.businessinsider.com/retirement-saving-why-half-retirees-could-run-out-of-money-2024-9?utm_source=Iterable&amp;utm_medium=email&amp;utm_campaign=campaign_Insider%20Today%20-%20Thu,%20Sep%2026,%202024&amp;Utm_content=LimitedPromo">The four biggest retirement mistakes</a>.<div type="image" title="Cameras and boats surrounding a residential island" height="1000" width="2000" msid="113787194" hostid="261" sizebytes="176844"></div><h2 id="2a39b74f-b08c-4bc8-9a21-ed6c87a6f9e0">Welcome to Billionaire Bunker</h2>Indian Creek Village is more than just a private island city in Florida. It's home to the elite of elites: Tom Brady and Jeff Bezos both have mansions there.But approach at your own peril. A large chunk of Indian Creek's budget goes to its police department, which patrols the island's sole entrance and perimeter 24/7. Through federal funding, the town has amassed an abundance of other security measures, making it the most gated community in a country of gates.<a target="_blank" href="https://www.businessinsider.com/billionaire-bunker-miami-bezos-tom-brady-ivanka-trump-security-2024-9">Inside America's wealthiest town</a>.<div type="image" title="a brain wearing Meta's smart glasses" height="1500" width="2000" msid="113787192" hostid="261" sizebytes="288714"></div><h2 id="83973c79-472c-4429-97bb-4d74e0dda2ff">Glasses rule, phones drool</h2>Meta CEO Mark Zuckerberg announced Orion, a prototype pair of augmented-reality glasses this week. The specs reportedly cost about $10,000 a pair to make, but aren't currently for sale.The glasses mark the latest attempt by a Big Tech company to break into a hard-to-crack industry: AR and VR wearables. And with Meta's smart Ray-Ban glasses doing better than expected, the company appears to be winning the glasses wars.<a target="_blank" href="https://www.businessinsider.com/meta-new-ray-ban-smart-glasses-apple-vision-pro-2024-9">What Meta got right</a>.Also read:<ul><li><a target="_blank" href="https://www.businessinsider.com/orion-meta-ar-smart-glasses-review-2024-9">I tried out Meta's Orion AR glasses. I'd buy them in a heartbeat — if they were actually for sale</a>.</li></ul>This week's quote:"We are not a normal company."— Sam Altman in a note to OpenAI staff <a target="_blank" href="https://www.businessinsider.com/sam-altman-openai-note-more-staff-exits-barret-bob-2024-9">announcing executive exits</a>.More of this week's top reads:<ul><li>The turmoil at OpenAI is a bad look <a target="_blank" href="https://www.businessinsider.com/openai-implosion-investors-vcs-2024-9">for its huge funding round, VCs say</a>.</li><li>Jamie Dimon isn't a fan of junior bankers with <a target="_blank" href="https://www.businessinsider.com/jpmorgan-jamie-dimon-junior-bankers-private-equity-jobs-unethical-2024-9">hush-hush private-equity jobs</a>.</li><li>Nvidia's days of absolute dominance in <a target="_blank" href="https://www.businessinsider.com/nvidia-competition-sambanova-groq-cerebras-show-faster-inference-speed-2024-9">AI could be numbered</a>.</li><li>Salesforce is going to <a target="_blank" href="https://www.businessinsider.com/salesforce-closing-hillsboro-oregon-office-amid-rto-push-2024-9">close its Portland office</a>.</li><li>South Korea is going big on American manufacturing. <a target="_blank" href="https://businessinsider.com/south-korea-companies-jobs-manufacturing-evs-chips-batteries-2024-9?sd">The Battery Belt could benefit the most</a>.</li><li>America's business giants are <a target="_blank" href="https://www.businessinsider.com/china-xi-jinping-recession-economy-american-companies-profits-trade-war-2024-9">starting to lose faith in China</a>.</li><li>Leaked email shows Twitch is <a target="_blank" href="https://www.businessinsider.com/twitch-not-following-amazon-rto-policy-2024-9">not following Amazon's new RTO policy</a>.</li><li>The Olivia Nuzzi-RFK Jr. story is still spinning out. <a target="_blank" href="https://www.businessinsider.com/olivia-nuzzi-rfk-jr-reaction-vox-media-new-york-magazine-2024-9">New York magazine staffers still have questions</a>.</li><li>Microsoft just punted on a big AI decision. <a target="_blank" href="https://www.businessinsider.com/microsoft-punts-365-ai-bundle-pilot-tests-copilot-2024-9">It could be a bad sign</a>.The Insider Today team: <a target="_blank" href="https://www.businessinsider.com/author/dan-defrancesco">Dan DeFrancesco</a>, deputy editor and anchor, in New York. <a target="_blank" class="" href="https://www.businessinsider.com/author/jordan-parker-erb">Jordan Parker Erb</a>, editor, in New York. Grace Lett, editor, in Chicago. <a target="_blank" class="" href="https://www.businessinsider.com/author/amanda-yen">Amanda Yen</a>, fellow, in New York.</li></ul>

Insider Today: Retirement savings mistakes

George Wilson learned the hard way that there's no such thing as a free lunch — or, in his case, a free dinner that cost him a chunk of his retirement savings.As a retiree, he regularly received postcards in the mail, offering to teach him about finance and how to make money in retirement. They usually involved a presentation at a nice restaurant, and he would go without acting on any of the investment advice.But on one occasion, Wilson did take the bait after a brochure he received in 2010 inviting him to an evening at Ruth's Chris Steak House ended up costing him $158,000."It was a very good restaurant. And so, of course, it caught my attention," Wilson said in an interview.At that fateful dinner, he enjoyed his favorite top sirloin steak, asparagus tips, and a "fabulous" chocolate cake. He also met David Escarcega, one of the hosts and a broker who would eventually advise him to invest in so-called non-correlated, fixed-income alternative products from the <a target="_blank" class="" href="https://www.investmentnews.com/alternatives/gwg-holdings-files-for-bankruptcy/220355">now-bankrupt firm GWG</a>.Years later, Wilson is still fighting to regain what he lost from that investment. An arbitration decision recently awarded him $267,252 in compensation, including emotional distress damages from the last broker who facilitated the transaction. But the respondent only paid approximately $103,363.40 toward sanctions and the award. After costs, Mr. Wilson will end up with almost no payout, according to his attorney.Fancy restaurants with presentations are a common practice in the industry, says financial planner Michael Murray, adding that there are services that provide mailing lists of people with a certain net worth, and retirees are often on them because it's where wealth tends to be concentrated.But those meals aren't really free, Murray said. They're predominantly set up to sell high-commission products. In GWG's case, brokers earned up to 8% in commissions. What advisors can earn from one of these events pays for the meals and more. Picture a scenario where an advisor signs up $500,000 worth of investments with an 8% commission rate; that's a $40,000 payout. The math is very favorable for those who do this regularly, he added.Meanwhile, invitees feel like the hosts have done something nice for them and there's an implication that they should do something back, Murray noted. "So I think certain people will go to these dinner seminars and almost feel an obligation to work with someone."They're referred to as "free lunch seminars," said Adam Gana, a securities attorney who worked on Wilson's case. They're common in the industry. But Gana says that when brokerage firms offer them, he tells clients to run the other way."We see them all the time," Gana said. "I've represented 3,000 investors over the last 15 years, and in so many of those instances when we're dealing with a horrific product, a non-traded product, a product that's just terrible for investors, it usually starts with a free lunch."<h2 id="74285f86-a363-43ff-b132-9ec411f82f14">Risky business</h2>After the dinner, Wilson and his ex-wife Jean followed up with Escarcega at his office to discuss alternative investment options."We sat down with him, and he went through various opportunities that he could present to us, and we asked for several," Wilson said. "And the one that seemed the most attractive and that he extolled the virtues of the most was GWG. And so we thought about it for several weeks and went back and forth and then ultimately decided to do it."The products were non-publicly traded so-called LifeNotes, high-yield debt securities that paid a 9% monthly interest rate by GWG Holdings, according to documents viewed by Insider. They were based on life insurance policies purchased on the secondary market, with the expectation that death benefits would be paid to GWG's bondholders when the insured died. One brochure, viewed by Insider, advertised them as a "secured investment backed by a large portfolio of high-quality life insurance policies""Escarcega had pitched them as a safer alternative to the volatile stock market that could provide steady dividend payouts while preserving the principal investments, Wilson said."Of course, we want to leave our equity to our children but have some kind of income coming from it while we're still here," Wilson said. "And so that was very attractive to us, that we preserve our equity."Wilson initially purchased $180,000 worth of the notes using funds from his IRA, according to documents viewed by Insider. He later reduced his investment to $158,000 and flipped it to GWG preferred stock. For the next few years, things were looking good. Wilson received payouts monthly. In 2017, he decided to renew his investment, according to documents viewed by Insider.What he didn't know was that by then, Escarcega had been barred from selling securities after misrepresenting investment risks, according to FINRA. So Escarcega used his brother Adrian's license to submit the transactions through AGES Financial Services, according to arbitration documents from Wilson's attorneys. The Escarcegas could not be reached for comment.It was one of many details Wilson wasn't aware of. Thus far, the payouts had always been timely, he said. So, there was no reason to suspect there were problems. But there were. GWG's balance sheet wasn't adding up. FINRA had determined that it hadn't been profitable in over a decade. The firm had been selling new bonds to pay dividends to existing bondholders. The underlying collateral wasn't generating an income and multiple accounting firms refused to audit it, according to the amended statement of claim.The doom loop would eventually come to a screeching halt due to GWG's accounting issues, an SEC investigation, and failure to file its annual SEC report. By 2021, it could no longer sell bonds which led to its bankruptcy by 2022 and the halting of dividend payments, according to the amended statement of claim.Craig McCann, a consultant providing expert testimony in investment cases, including this one, said that GWG's insurance contracts were being overvalued on its balance sheet and the firm was assuming that people would die earlier. As a result, they estimated receiving the death benefits sooner. Simply put, there were not enough benefits being paid on the insurance contracts to cover the interest and principal due."There were lots of signals," McCann said. "There were lots of problems with their SEC filings and lots of reasons to believe that it was imminently going to happen, but most investors were very unsophisticated investors."In 2019, <a target="_blank" class="" href="https://www.investmentnews.com/alternatives/clients-win-another-gwg-bond-claim-this-time-against-b-d/245442">AGES had ended its relationship with GWG</a> due to a change in the company's business model, according to the firm. But Wilson says he was not informed by the firm, <a target="_blank" class="" href="https://www.investmentnews.com/fixed-income/investors-claiming-emotional-distress-damages-win-lawsuit-involving-gwg-bonds/257068">preventing him from selling his shares in time</a> (AGES disputes this). An arbitration panel found that the investment scheme was so egregious that they awarded him $267,252.00 in compensation that included emotional distress damages, according to the order. AGES paid $103,000 for all claimants.<h2 id="9e594bc3-8860-404f-8b63-aeb5d0906705">Risk reward</h2>Wilson's situation is a cautionary tale. He used his IRA to make the investment, so he's also faced with a required minimum distribution, which includes the amount invested in GWG even though it's nominal. He told Insider he must withdraw from other investments to meet the minimum.His case isn't an isolated one. There may have been thousands of brokers selling GWG bonds, based on data pulled from ADV filings as reported by McCann. Wilson says he lives with the guilt of advising his ex-wife and a friend who also invested in the bonds and lost their principal.Truth be told, it's difficult for the average retiree who is not financially savvy to understand the mechanics of many of these alternative investments, even when there are red flags, Murray said. Non-publicly traded investments take time to build capital before generating free cash flow. For those with lower cash reserves, they don't make much sense because they lack liquidity, he added.But Murray also emphasized that not all alternative investments are bad. He just thinks that if you're considering them, you must be financially savvy and have the ability to dig into offering statements, look at fee structures, and related party transactions. Even then, investors should resort to a second opinion from a fiduciary advisor, a CPA, or an attorney.Finally, understand that risk and reward are always tied together. Outsized promises of yields that are much higher than, say, the 10-Year Treasury is a red flag and means there's elevated risk, Murray said.

How a free meal cost an investor his retirement savings

New Delhi [India], July 19 (ANI): Households are choosing the <keyword id="20033427" type="General" weightage="20" keywordseo="capital-markets" source="keywords">capital markets</keyword> over the <keyword id="19934118" type="General" weightage="20" keywordseo="banks" source="keywords">banks</keyword> to park or invest their <keyword id="25450" type="General" weightage="20" keywordseo="savings" source="Orion">savings</keyword>, highlighted <keyword id="64190" type="General" weightage="20" keywordseo="RBI-Governor" source="Orion">RBI Governor</keyword> <keyword id="3083263" type="General" weightage="20" keywordseo="Shaktikant-Das" source="Orion">Shaktikant Das</keyword> during his address at FE Modern BFSI (Banking, Financial Services, and Insurance) Summit 2024 on Friday. Governor Das highlighted that traditionally, banks were the primary choice for households to invest their money. However, there has been a noticeable change in consumer behaviour, with a growing preference for capital markets and other <keyword id="5869841" type="General" weightage="20" keywordseo="financial-intermediaries" source="Orion">financial intermediaries</keyword>. He noted, "Households and consumers who traditionally leaned on banks for parking or investing their savings are increasingly turning to the capital markets and other financial intermediaries." This trend indicates a broader diversification of <keyword id="22469312" type="General" weightage="20" keywordseo="household-investments" source="Orion">household investments</keyword> into <keyword id="19929240" type="General" weightage="20" keywordseo="mutual-funds" source="keywords">mutual funds</keyword> and other savings tools, moving away from traditional investment tools. The Governor stated, "While bank deposits continue to remain dominant as a percentage of the financial assets owned by the households, their share has been declining, with households increasingly allocating their savings to Mutual Funds, Insurance Funds, and Pension Funds." Governor Das also pointed out that this shift in investment patterns has significant implications for the banking sector. Banks now need to explore alternative methods to bridge the gap between credit and deposits. He added, "On their part, banks have sought to fill the credit-deposit gap by increasing their reliance on other sources like short-term borrowings and certificates of deposit, etc. This increases their sensitivity to interest rate movements and poses challenges to liquidity management." The Governor further elaborated on the implications of the shift from CASA (Current Account Saving Account) deposits, stressing that banks must remain vigilant and adaptive. He stated that banks need to continuously focus on improving and refining their credit underwriting standards and the pricing of risks to maintain stability and profitability. Reflecting on recent global banking events, Governor Das drew attention to the banking crises in the US and Switzerland in 2023, which highlighted the risks and vulnerabilities inherent in certain business models. He emphasized the importance of learning from these crises to enhance the resilience of the banking sector. "The banking crisis in the US and Switzerland in 2023 has again brought into focus the risks to banking stability from certain business models and their inherent vulnerability," he added.

Household savings are choosing mutual funds over banks to invest savings: RBI Governor

Donald <keyword id="19906203" type="General" weightage="20" keywordseo="Trump" source="keywords">Trump</keyword> and <keyword id="19903807" type="General" weightage="100" keywordseo="Elon-Musk" source="keywords">Elon Musk</keyword> have apparently become great friends over recent months. Musk poured millions of dollars into Trump's successful election campaign and has been a vocal and visible supporter of the president-elect. In return, he's been given a new job, in joint charge of the new <keyword id="23593857" type="General" weightage="20" keywordseo="Department-of-Government-Efficiency" source="keywords">Department of Government Efficiency</keyword> (Doge), where he will be tasked with streamlining government operations and reducing bureaucracy. This "department"—actually an advisory group—will aim to cut unnecessary spending and make the general functioning of the US government more efficient. The idea is that within a federal budget of over US$6 trillion, there are opportunities to make some big savings. Musk's appointment—like many things he's involved with—has sparked controversy. The richest man in the world has already said he wants to cut spending by US$2 trillion (£1.6 trillion) and mentioned setting up a "leaderboard for most insanely dumb spending of your tax dollars.". Some are concerned about the impact he could have on public services. Others fear he will use his position to promote his own business interests. On the positive side, Musk has a very impressive CV when it comes to big organisations. He has created (or co-created) multi-billion-dollar businesses, including Paypal, <keyword id="19895433" type="General" weightage="20" keywordseo="Tesla" source="keywords" meta.keywordsubtype="org" meta.entityname="Tesla" meta.hostid="261" meta.entityid="Tesla">Tesla</keyword>, and <keyword id="19905255" type="General" weightage="20" keywordseo="SpaceX" source="keywords" meta.keywordsubtype="org" meta.entityname="SpaceX" meta.hostid="261" meta.entityid="SpaceX">SpaceX</keyword>. He has founded startups involved in AI (xAI), tunnelling (the Boring Company), and medicine (<keyword id="19985233" type="General" weightage="20" keywordseo="Neuralink" source="keywords" meta.keywordsubtype="org" meta.entityname="Neuralink" meta.hostid="261" meta.entityid="Neuralink">Neuralink</keyword>). And research suggests that much of Musk's success comes down to a relentless focus on efficiency. He has also been praised for the depth of his analytical thinking and innovative problem solving. Tesla's factory in California went from being the least productive car manufacturing plant in the US when it was owned by General Motors to the most productive under Musk's ownership. SpaceX has vastly reduced costs in the space cargo business. So he has form. And Musk is not the first American business leader to offer private sector expertise to the world of politics. Back in the 1960s, Robert McNamara, former president of the Ford Motor Company, served as secretary of defence under presidents John F. Kennedy and Lyndon B. Johnson. McNamara brought significant innovations to <keyword id="22668770" type="General" weightage="20" keywordseo="government-efficiency" source="keywords">government efficiency</keyword> that drew on his corporate experience. He championed cost-benefit analysis and a data-driven approach to decision-making and was keen on reducing bureaucracy and promoting accountability in complex governmental processes. To achieve this, McNamara recruited a team of experts from the worlds of academia and business. Known as the "Whizz Kids," they brought new perspectives to the White House. In the UK now, the Labour government's minister of state for investment is Poppy Gustafsson, a former venture capitalist and tech founder. Its minister for prisons is James Timpson, former CEO of the Timpson Group, a family firm renowned for hiring ex-offenders. These people—and there are many other examples around the world—were brought into the political sphere because of the knowledge and vision they have demonstrated in the private sector. The hope is their talent and leadership will improve policy and practice. <h2>Data-driven reform</h2>The same must be hoped for Musk: that with his co-leader, Vivek Ramaswamy—a biotech entrepreneur and former Republican leadership candidate—he will bring expertise in cost-cutting and innovative strategies. This will probably include comprehensive audits and data-driven approaches to reform. Critics refer to prior examples of Musk's approach, such as the mass layoffs and aggressive cost-cutting measures at Twitter (now X), with concerns that there could be similarly drastic reductions in the federal workforce and public services. But big job cuts were happening across the tech sector at that time. They came in the wake of reduced revenues and a need to reduce bloated workforces and ineffective functions—not unlike the challenges faced by the US government. Nevertheless, while proponents see Musk as an experienced leader capable of streamlining bureaucracy, sceptics fear the advent of harmful austerity measures that risk disruption to essential public programs. Concerns have also been raised about potential conflicts of interest, as Musk's business empire benefits from government contracts. However, since Doge will operate as an advisory body, concerns over him gaining advantage through any self-dealing seem overblown. Besides, two of Musk's companies (SpaceX and Tesla) have been awarded US$15.4 billion (£12.3bn) in federal contracts in the last decade. Perhaps then, success precedes influence rather than the reverse? Doge will also be governed by the Federal Advisory Committee Act, which maintains legal and ethical guardrails. And Congress will have the final say over any decisions. Fears of the worst possible outcome to Musk's appointment are a natural human response in the face of uncertainty. It is part of the reason that negative headlines get more clicks than positive ones. It is also true that Musk has aligned himself with a politician who divides opinion like few others. By leveraging his billions of dollars and 200 million followers on X to help Trump to victory, he made it clear which side he was on. And in a highly polarised US political landscape, the anguish about his governmental role may be little more than a knee-jerk reaction from the millions of people whose side he did not choose.

Love him or loathe him, Elon Musk is a champion of efficiency and could save the US government a fortune

<ul class="summary-list"><li>Using a 401(k) can boost investment portfolios by 23%, per Charles Schwab study.</li><li>The study compared 401(k) and taxable accounts over 20 years with an 8% annual return.</li></ul>Nothing is less exciting than thinking about <a target="_blank" class="" href="https://www.businessinsider.com/personal-finance/taxes">taxes</a>, especially when the bill is coming due.And once you cross into the first quarter of the year, little can be done to reduce your tax liability, especially if you're a W2 employee.That's why thinking about deferral strategies is a great way to reduce how much you pay in taxes and increase your net worth in the long term. But to maximize your outcome, you have to start with a <a target="_blank" class="" href="https://www.businessinsider.com/personal-finance/investing/what-is-401k">401(k)</a> or a <a target="_blank" class="" href="https://www.businessinsider.com/personal-finance/investing/what-is-ira">Traditional IRA</a>, according to a recent simulated study by Charles Schwab. The study showed how a 401(k) could increase an investment portfolio's value by 23%.The study, which was backtested over 20 years, compared two investors, one who used a taxable brokerage account versus one who used a 401(k). At an 8% annual return, it found that the latter finished with a value of $177,116 compared to the taxable account at $144,547. Based on this scenario, it assumed that someone allocating funds after tax in a 24% bracket would have a principal investment of $38,000 compared to $50,000. It also assumed taxable events on a turnover rate every five years and on 2% qualified income dividends and 6% long-term capital gains.<div type="image" title="Chart showing increased portfolio value with tax-deferred account." height="1064" width="1846" msid="114955475" hostid="261" sizebytes="34694"></div>In a scenario where an investor uses a taxable account but doesn't turnover or realize gains every five years, meaning taxable events are only placed on the 2% dividends, the outcome would lead to an ending value of $152,392.One caveat is that <a target="_blank" class="" href="https://www.businessinsider.com/tax-loopholes-to-reduce-or-avoid-capital-gains-taxes-2024-10">tax-deferred accounts</a> don't take into account every phase of where taxation can occur along the investment process, says Rob Williams, managing director of financial planning at Charles Schwab. The first point is when money is earned and before it's invested. The second is when income and dividend payments are earned along the way. The third point is once gains are realized. The first two taxation points are covered. The last phase isn't. For this process, other accounts, such as Roth IRAs for after-tax contributions allow gains to grow tax-free.Roth IRAs could come in handy in retirement during years when you have a higher withdrawal rate and, in turn, fund yourself in a higher tax bracket.<h2 id="bd273b03-5ffe-4b6d-8acc-d2373d85fc37">Other tax tips</h2>Another option people don't think about as much is a <a target="_blank" class="" href="https://www.businessinsider.com/how-to-use-health-savings-account-retirement-tool-investing-wealth-2024-10">health savings account</a>, which is unique, Williams noted. You have to qualify for those with an employer that provides it through a health insurance policy with a high deductible plan. But they are a nice additional tool that investors can use to contribute from their paycheck, he added.It's contributed pre-tax. And if the money isn't used for healthcare costs, it can be saved and invested in that health savings account and grow tax-free. It's tax deferral and tax avoidance, he noted."For a health savings account, that's powerful," Williams said. "We call that a triple tax exemption. You get no taxes when you put the money in and no taxes on any growth or capital gains in the fund. And then when you take it out, you don't have any taxes as well."Taxable brokerage or investment accounts are still useful because they allow you to withdraw money before retirement. This is especially great in the event you need to make a big purchase. But when using these accounts, investors should consider the assets they're buying. For example, exchange-traded funds have less tax drag than mutual funds that have higher turnover and, in turn, more taxable events, Williams noted."Any investment or mutual fund that generates a fair amount of investment income, whether it's interest or dividends, do not tend to be very tax efficient," Williams said.This also means considering how funds distribute gains, such as whether they are qualified or ordinary dividends. The latter is taxed at an investor's tax rate and depending on what margin that's in, it may not be as advantageous as a qualified dividend.

How tax-deferred investing can increase a portfolio's value by 23% and the account that provides a triple benefit

<ul class="summary-list"><li>Business Insider spoke to over 40 baby boomers in recent months, many of whom are struggling to retire.</li><li>They're disappointed that Social Security isn't helping them stay out of poverty in their post-work years.</li></ul><a target="_blank" href="https://www.businessinsider.com/boomer-living-on-social-security-retirement-savings-401k-bus-driver-2024-7">Emma Echols</a> has worked since she was 12 as a babysitter, chef, and convenience store manager.The 68-year-old should be preparing for retirement, but she believes she'll have to <a target="_blank" class="" href="https://www.businessinsider.com/retirement-crisis-social-security-pensions-student-loan-debt-2024-3">work for the rest of her life</a>.Echols lives in Alabama. She said she never made much money and has always lived frugally, but her rent and transportation alone cost her $1,000 monthly. She started <a target="_blank" class="" href="https://www.businessinsider.com/social-security-no-savings-snap-benefits-debt-boomers-experiences-2024-6">taking Social Security early</a> and receives $1,056 monthly — 25% less than she would have gotten had she waited until the federal retirement age of 67.But she's still working part-time as a bus driver making $26 per hour to pay the rest of her bills."I don't see myself being able to retire, but I'm grateful and healthy," she said.<a target="_blank" class="" href="https://www.businessinsider.com/boomer-lives-social-security-struggles-afford-grocery-bills-rent-retirement-2024-8">She's not alone:</a> According to a <a target="_blank" class="" href="https://www.nerdwallet.com/article/insurance/medicare/2024-medicare-and-retirement-report">NerdWallet study</a> published last week of 2,100 adults, just 30% of respondents said they believe Social Security alone will allow them to live comfortably in retirement.Over the past few months, Business Insider has spoken with over 40 baby boomers and some Gen Xers, all of whom are struggling in retirement or <a target="_blank" href="https://www.businessinsider.com/boomer-social-security-cant-afford-groceries-feels-lonely-retirement-2024-7">fear they can't retire</a> because debt, low-paying jobs, and unexpected life circumstances have kept them from saving enough over the years. Though many say they are thankful to have Social Security payments at all, they aren't enough to fill the gap.Social Security is supposed to be American retirees' safety net, but as it continually <a target="_blank" href="https://www.businessinsider.com/when-will-social-security-benefits-run-out-retirement-crisis-boomers-2024-5">lands in political crosshairs,</a> it might seem like a less safe bet than ever before. Full benefits are set to <a target="_blank" href="https://www.businessinsider.com/when-will-social-security-benefits-run-out-retirement-crisis-boomers-2024-5">run out in 11 years</a> unless Congress steps in with an infusion of funding."There's just a lot of people who expect Social Security to be a really important piece to their post-work life," Tracey Gronniger, managing director of economic security for the advocacy organization Justice in Aging, said.Even with the current full benefits, some baby boomers are forced to continue working into their 70s and 80s, while retirees worry they may have to return to a part-time gig. Others said they're considering moving out of the country for a lower cost of living or moving in with their children."At this point in my life, my expectations are very low," said <a target="_blank" href="https://www.businessinsider.com/peak-boomer-retirement-affordable-housing-rent-california-alice-food-stamps-2024-5">Cheryl Simmons</a>, 62, who lives in her car in San Diego and makes $42,000 a year as a parking lot attendant — slightly too much to qualify for affordable housing. "I'll have to work until I drop."<h2 id="42ec9f61-b6ed-4191-abf8-5155a510a607">Social Security varies by age and income, but the average monthly check is $1,907</h2>Social Security, created in 1935, was implemented during the Great Depression to assist the <a target="_blank" class="" href="https://www.ssa.gov/history/briefhistory3.html">more than half</a> of Americans in poverty, including older workers looking to retire."There is no tragedy in growing old, but there is tragedy in growing old without means of support," President Franklin D. Roosevelt said in a <a target="_blank" class="" href="https://www.ssa.gov/history/locations.html#:~:text=Old%20age%20is%20at%20once,without%20means%20of%20support.%20.%20.">1934 address</a>.Social Security benefits are <a target="_blank" href="https://www.ssa.gov/OACT/COLA/Benefits.html">based on a worker's average monthly income</a> during their 35 highest-earning years, adjusted for inflation.For example, an American earning an average income of about $66,000 who retires at 65 will have 39% of that annual income replaced by Social Security, according to <a target="_blank" href="https://www.ssa.gov/OACT/NOTES/ran9/an2024-9.pdf">SSA estimates</a>. This compares to an average <a target="_blank" class="" href="https://www.oecd-ilibrary.org/docserver/5df7712d-en.pdf?expires=1724266845&amp;id=id&amp;accname=guest&amp;checksum=2527F54D46AE1A4C399BE99BBB46A640#:~:text=Full%2Dcareer%20male%20workers%20will,slightly%20lower%2C%20at%2050.1%25.">income replacement rate</a> of slightly over 50% in OECD countries — and nearly 80% in Spain and Greece.Americans can begin claiming Social Security at age 62 — but their monthly amount is often higher if they wait longer to collect benefits. In 2024, the <a target="_blank" href="https://www.businessinsider.com/personal-finance/investing/what-is-social-security">maximum monthly benefit</a> is $3,822 for those claiming the benefit before turning 70; for those claiming the benefit at age 70, the maximum benefit is $4,873. However, the average monthly check is much lower: $1,907.An annual income of just under $23,000 doesn't go far in the US today. While Social Security was never meant to promise a life of luxury — and is ideally combined with savings and other investments — the baby boomers BI spoke to have struggled to save much at all because life events and low wages got in the way.Some are part of the one in five older Americans who have <a target="_blank" class="" href="https://www.businessinsider.com/gen-x-baby-boomers-savings-cant-afford-retirement-2024-4">no retirement savings</a> at all. Experts say you can partially blame the US' <a target="_blank" class="" href="https://www.businessinsider.com/retirement-social-security-gen-z-millennials-uncertainty-fears-pensions-2024-4">switch to 401(k) accounts from pensions</a> in the 1980s, which largely replaced guaranteed retirement payouts funded by employers with investment plans that require employees to opt in and provide the bulk of their savings.While many employers do offer 401(k) matches to their employees, the amount can vary greatly between companies. And, because participation and employer matches are voluntary — and income-based — this opt-in system can cut down on employees' retirement savings and lead to even <a target="_blank" class="" href="https://mitsloan.mit.edu/ideas-made-to-matter/how-retirement-saving-incentives-amplify-wealth-gaps-u-s">greater income inequality</a>.To help pay the bills, nearly 80% of retirees receive some Social Security income, per BI's calculations, and the Social Security Administration estimates that 97% of older adults will ultimately receive benefits.Social Security indeed helps older Americans <a target="_blank" class="" href="https://www.cbpp.org/research/social-security/social-security-lifts-more-people-above-the-poverty-line-than-any-other">escape the technical definition of poverty</a>. However, the official poverty line is based on a formula from the 1960s, a measurement that <a target="_blank" href="https://www.businessinsider.com/poverty-line-leaves-behind-low-income-americans-snap-medicare-wic-2024-6">experts previously told BI</a> is outdated and leaves many to fall through the cracks between needing help and making too much to qualify for assistance.The baby boomers BI spoke with are not part of the group who have myriad investments, high-paying careers, or strong 401(k) employer matches. They are retired teachers, rideshare drivers, food service and retail workers; some live in a car or can't afford groceries — and they certainly feel like they are living in poverty.Others, however, have minimal expenses and <a target="_blank" href="https://www.businessinsider.com/boomer-lives-on-social-security-works-walmart-retirement-savings-2024-7">live in low-cost-of-living areas</a>, allowing them to live comfortably on Social Security alone.Those who are already living check to check said they've been forced to drain savings accounts because their income isn't enough to cover medical bills and unexpected expenses. And, with limited Social Security money, some boomers are forced to enroll in other government assistance <a target="_blank" href="https://www.businessinsider.com/buying-groceries-snap-food-stamps-cant-afford-essentials-credit-card-2024-6">programs like SNAP</a> to put food on the table or return to work after retirement.<a target="_blank" class="" href="https://www.businessinsider.com/boomer-couple-lives-social-security-snap-no-retirement-savings-2024-6">Mary Dacus</a>, 62, and her husband Stephen, 67, live in Robinson, Illinois, on their combined $2,140 monthly Social Security income and $23 a month in SNAP. They've racked up thousands of dollars in credit card debt to pay for groceries, utilities, and healthcare. They feel like it's their only way to survive."A lot of people think that, with Social Security, you get this big check, and you can move to Florida, and you could buy a boat and go fishing," she said. "That's not what it is."<a target="_blank" href="https://www.businessinsider.com/retirement-social-security-peak-boomer-alaska-medical-expenses-financial-insecurity-2024-8">Becky Davenport</a>, 61, works at a nonprofit outside Anchorage, a high-cost-of-living area. She told BI that her expected $2,000 monthly Social Security payments may not be enough. The single mom fears she may need to move in with her sons or find a roommate. Medical costs, housing expenses, and transportation have all chipped away at her savings."I usually had more money going out than coming in," Davenport said. "I was kind of a master at juggling bills. I had some credit cards that I used for emergencies and ended up defaulting on all of those. I just managed to scratch out a living and keep a roof over my kids' heads."<h2 id="65730406-dd92-418b-963e-a6e4f447db7f">Social Security solutions could include raising earnings caps and improving funding</h2>With a presidential election coming up, Social Security is likely to be in the hot seat once again.While Social Security is costly — <a target="_blank" href="https://www.cbpp.org/research/federal-budget/where-do-our-federal-tax-dollars-go#:~:text=Social%20Security:%20In%202023%2C%2021,to%2049.1%20million%20retired%20workers.">it amounted to 21% of the federal budget in 2023</a> — it's widely popular. Polling has consistently shown bipartisan support for the program; a <a target="_blank" href="https://www.pewresearch.org/politics/2024/06/24/americans-views-of-government-aid-to-poor-role-in-health-care-and-social-security/">Pew Research Center poll</a> of 8,709 adults in April 2024 found that almost every group thinks Social Security benefits should not be reduced. That includes 77% of Republicans and 83% of Democrats.Already, former president and current Republican nominee Donald Trump has proposed cutting taxes on benefits — a measure that an economist said could <a target="_blank" href="https://www.businessinsider.com/trumps-tax-plan-social-security-retirement-medicare-2024-8">actually drain the program's coffers faster</a>.Senators Bernie Sanders and Elizabeth Warren, along with fellow Democrats, have <a target="_blank" href="https://www.businessinsider.com/sanders-warren-bigger-social-security-checks-medicare-retirement-biden-2023-2">proposed raising the earnings cap for Social Security taxes</a> to offset hiking benefits by $2,400 a year. Currently, only <a target="_blank" class="" href="https://www.ssa.gov/benefits/retirement/planner/maxtax.html">income up to $168,600</a> is subject to Social Security tax, with income beyond that untaxed. On the other hand, some House Republicans <a target="_blank" href="https://www.businessinsider.com/social-security-benefits-republicans-raise-age-retirement-cuts-2024-3">have proposed</a> hiking the eligibility age for the program.Those proposals come against the backdrop of already-dwindling funding."We really want to see a more robust Social Security system," Gronniger said. Already, she said, the program is lifting millions of adults out of poverty — but, with a very low poverty line in the US, that's "not saying a ton.""We could do a lot more because I think what we want is for people to actually have real economic security and so feel as though they can afford the things not only that they need, but that people should have," Gronniger said. "You shouldn't be worrying about whether or not you can pay for all of your food and all of your medicine and all of your housing."But the dire straits older Americans have found themselves in, even with Social Security, point at a larger issue that might only get exacerbated: Retirement is becoming a luxury. As pensions dissipate and only higher-earning retirees have savings, Social Security might only become more pivotal for retirees. And that's already not working so well."I don't want to be rich, I just need to be comfortable," 62-year-old Angela Babin — who lives on her <a target="_blank" href="https://www.businessinsider.com/boomer-social-security-checks-snap-food-stamps-cant-afford-food-2024-6">$1,100 monthly Social Security check</a> — told BI. "I just want to know that I can have food when I need it and a nice roof over my head."Are you living check to check on Social Security? Have you experienced loneliness because of your finances? If so, reach out to these reporters at <a target="_blank" class="" href="mailto:allisonkelly@businessinsider.com">allisonkelly@businessinsider.com</a>, <a target="_blank" href="mailto:nsheidlower@insider.com">nsheidlower@businessinsider.com</a>, and <a target="_blank" href="mailto:jkaplan@insider.com">jkaplan@businessinsider.com</a>.

Social Security won't save you

<ul class="summary-list"><li>Laurie and Rich Ramelow were scammed out of $63,000 while buying a home in Texas.</li><li>A fraudster impersonated their escrow officer near the end of the buying process.</li></ul>Earlier this year, Laurie and Rich Ramelow decided to leave California and move to Texas to be closer to their daughter. Laurie, a former real-estate agent, and Rich, a project manager for a telecommunications company, found a 1,901-square-foot, four-bedroom home in San Antonio that seemed perfect. After their offer was accepted, they were sent instructions on a Friday in April to wire the escrow money. The following Monday, they heard from the escrow officer asking them to send the money they'd already sent. "She called and said, 'Where's the money?" Laurie, 55, told Business Insider. "I said, 'What?'" The Ramelows were <a target="_blank" class="" href="https://www.businessinsider.com/millennials-lost-down-payment-to-real-estate-wire-fraud-scam-2024-7">victims of a scam</a>. <a target="_blank" class="" href="https://www.businessinsider.com/millennial-buying-home-got-scammed-by-real-estate-wire-fraud-2024-3">A fraudster had impersonated</a> the Ramelows' escrow officer and swindled about $63,000 from them. "The timing was right, and the fraudster knew the address and all the parties involved," Laurie said. The Ramelows still ended up closing on the house in San Antonio, but it cost them a chunk of their future. <h2>They felt rushed to finish the deal when they didn't have to</h2>Prior to being scammed, the Ramelows were living in a house in Simi Valley, California, a city near Los Angeles, and weren't in a serious rush to buy their new home. The California home — also four bedrooms and just over 1,900 square feet — was their primary residence for over 30 years after they purchased it from Rich's parents. That buying process was a lot different. "It wasn't escrow with all these parties and everything transpiring," Rich, 55, told BI. "It was a quick and easy process with escrow because it was among family." The San Antonio purchase was, essentially, the Ramelows' first time buying a house on their own. They received wiring instructions — <a target="_blank" class="" href="https://www.businessinsider.com/personal-finance/credit-score/wire-fraud">having never wired money before</a> — and noticed a certain urgency from the other side. But they kept going. <div type="image" title="San Antonio skyline" height="339" width="508" msid="112633835" hostid="261"></div>"There was an urgency to get escrow closed that day, which, for us, didn't really matter," Rich said. "We were buying it while we still had our house in California, so we shouldn't have fallen for being pressured into it. We should have just slowed down and taken our time." "We were just trying to go with the flow and we didn't want to be the ones holding up escrow," Rich added. Even Laurie, who was a real-estate agent until 2017, was unfamiliar with the escrow process. "I wasn't involved so much with escrow — escrow handled all that," she said. "I made sure they walked clients through and I never had that experience." Laurie had noticed a few grammatical errors in the email containing the fraudulent wiring instructions, but since she hadn't communicated much with the escrow officer beforehand, she chalked them up to harmless mistakes. <h2>The Ramelows' story follows a common pattern</h2>Lisa Plaggemier, the executive director at the National Cybersecurity Alliance, a nonprofit organization that advocates cybersecurity awareness and education, said the Ramelows' case followed <a target="_blank" class="" href="https://www.businessinsider.com/land-fraud-home-title-theft-prevention-tips-2023-9">a pattern she's seen before</a>. "The telltale signs of the language being a little bit off and that sense of urgency," Plaggemier told BI. "Those are two consistent things that we see very often." Small mistakes that can sometimes be telltale signs of a scam — like a missing letter in a word — went unnoticed. "I think that a lot of banks train their frontline staff to look for things like this," Plaggemier said. "It sounds like obviously there was a missed opportunity there," she added. <div type="image" title="A man and woman taking a selfie." height="1024" width="768" msid="112633837" hostid="261"></div><h2>The Ramelows had to liquidate retirement accounts to revive the deal</h2>The Ramelows still wanted to be closer to their daughter, so the sale continued, but they had to <a target="_blank" class="" href="https://www.businessinsider.com/real-estate-wire-fraud-scam-cost-homebuyer-life-savings-2024-3">sacrifice accumulated wealth</a>. "It was pretty devastating," Rich said. "We had to liquidate some funds from IRAs from retirement. It did have to cost penalties and that sort of thing, but we didn't want it to drastically fall through so we could still move on." Laurie and Rich weren't the only ones affected by the scam. Laurie's parents had contributed $20,000 to the $63,000 that was lost. They were able to retrieve that $20,000, save for a couple thousand dollars. The Ramelows, however, are still waiting to recover their money. They're working with <a target="_blank" class="" href="https://www.certifid.com/">wire-fraud-protection company CertifID</a> and the Secret Service to recover the funds, but their window is closing. "Usually the 90 to 120 days is when they would release funds back," Rich said. "We're still hoping, we're hopeful, but we understand, and we've learned our lesson." Correction: August 20, 2024 — An earlier version of this story included the name of a bank the wire-fraud scammer mentioned in their email to the Ramelows. It has been removed because Business Insider was unable to verify the bank’s involvement in the fraudulent wire transfer. A statement from a spokesperson for the bank was also removed.

A former real-estate agent and her husband had to dip into retirement savings to buy a house after being scammed out of $63,000

Buying a new home has always been stressful, but somewhere before the messy stuff — the loan applications, inspections, contracts, and wire transfers — there was joy in the house hunt.Maybe you'd start by poking around Zillow before a Realtor friend hears you're in the market for a change of scenery. She might offer to spend her Sunday driving you around to a few homes. No pressure, she'd say — her services are free. You float through living rooms and bedrooms, orchestrating home makeovers in your head. Maybe you find a house you like; maybe you don't. That evening, you and your agent chat about next steps over a glass of wine. The headaches come later; at this point, it's all about possibilities.As of Saturday, those carefree days are gone. Now, before a real-estate agent so much as opens a door for you, they'll probably ask you to sign what's known as a buyer-representation agreement. The contract will lay out the terms of their services and how much they expect to be paid. This kind of agreement used to be optional, at least so early in the game, and most agents decided it wasn't worth the hassle. They reasoned that because of the way agents' commissions were structured, buyers didn't really have to worry about those details, and they feared — maybe correctly — that the formality would scare off potential clients. Now they no longer have a choice.The new rule, which is part of a sweeping legal settlement, promises to <a target="_blank" class="" href="https://www.businessinsider.com/homebuyers-real-estate-revolution-nar-lawsuits-new-rules-realtors-agents-2024-4">fundamentally rewire the housing market</a>. It'll force buyers to think seriously about how their agents get paid, something they rarely had to consider in the past. Some buyers could find themselves <a target="_blank" class="" href="https://www.businessinsider.com/bad-real-estate-agents-realtors-homebuyers-sellers-housing-market-2023-7">legally bound to a clumsy agent</a> or on the hook for thousands of dollars. Real-estate agents, on the other hand, may struggle to get would-be clients to sign on the dotted line. Those who can't "communicate value" — a catchphrase among brokers that basically means "convince buyers that your services are worth a few months' pay" — <a target="_blank" class="" href="https://www.businessinsider.com/real-estate-agents-realtors-reckoning-housing-market-home-sales-slow-2023-4">risk flunking out of the business</a>. This may sound like a huge headache for both parties, but there are real upsides. Buyers may be more likely to vet their options before settling down with an agent, and many could actually spend less on commissions. Those who panic at the prospect of paying their agent out of pocket will almost certainly be able to find workarounds.One thing is clear: Casual home shopping is a thing of the past."It's a huge behavior change for Realtors," Laura Ellis, an executive at Baird &amp; Warner, a Chicago-area real-estate brokerage, told me recently. "It's the biggest change in over 100 years."Home sellers have always had to think, at least in passing, about agent commissions. The typical seller hires an agent who agrees to market the home in exchange for a cut of the sale price (usually between 5% and 6%). The seller's agent then lists the home on a multiple listing service, a local database where other agents can find details on homes for sale, and promises to split their commission with the buyer's agent. Let's say the seller brings in $500,000 from the deal. They'll hand 5%, or $25,000, to their agent, who then gives half, or $12,500, to the buyer's agent. A buyer might stress over a down payment and grumble over shelling out a few thousand dollars for title insurance, but they never had to sweat the money changing hands between agents.The power of the multiple listing service ensured the payments flowed this way. A seller's agent was required to offer some compensation to the buyer's agent when posting a home on the database, and while it could technically be as little as $1, most stuck with the status quo of 2.5% to 3% of the sale price. I've written a lot about <a target="_blank" href="https://www.businessinsider.com/real-estate-agents-lawsuits-buy-sell-homes-forever-housing-market-2023-6">why the system worked this way</a>, but the important thing to know is that it exposed the industry to all kinds of accusations. Critics complained that it made no sense for a seller, who hopes to collect the highest possible price, to funnel a percentage to the buyer's agent. They also feared that buyers' agents might <a target="_blank" href="https://www.businessinsider.com/real-estate-agent-commissions-steering-hiding-homes-housing-market-lawsuits-2024-3">"steer" clients away from homes</a> that dared to offer less than the going rate. They argued that MLS rules discouraged negotiations and forced buyers and sellers to pay too much in commissions.At the center of this system was the National Association of Realtors, the powerful industry group that effectively controls about 97% of local multiple listing services, oversees roughly 1.5 million agents who pay to be members, and pretty much sets the ground rules for buying and selling homes in America. A few years ago, a group of disgruntled sellers sued the NAR, claiming that they'd been strong-armed into paying the customary 5% to 6% of the sale price in commissions. Last October, the plaintiffs <a target="_blank" href="https://www.businessinsider.com/lawsuits-verdict-realtors-brokerages-real-estate-agents-home-buying-selling-2023-11">scored a surprise victory</a> in the first case to reach trial. As <a target="_blank" href="https://www.businessinsider.com/real-estate-antitrust-lawsuits-verdict-agent-commissions-nar-future-homebuying-2023-12">more suits piled up</a>, it became clear that the NAR would need to cut a deal. In March, the organization agreed to <a target="_blank" class="" href="https://www.businessinsider.com/national-association-realtors-lawsuit-settlement-housing-market-homebuying-agents-commissions-2024-3">pay $418 million to settle</a>. It also agreed to update the rules governing local multiple listing services and agents who use them.That brings us to Saturday, Aug. 17. As of that date, agents can no longer advertise commissions on the MLS, which means the databases can no longer be used as a cudgel to make sure agents get paid the typical commission. The catch is that listing agents can still technically offer commissions to buyers' agents pretty much anywhere else — on their websites, over the phone, on billboards if they want to. This could allow for business as usual: A listing agent might still offer to split a commission with the buyer's agent through any of these alternate avenues. But in order to keep using the MLS, buyers' agents will have to abide by another rule that will further upend the old way of doing things. Before they can even tour a home with a client, any agent who uses a Realtor-controlled MLS — which, again, is most of them — will have to get the client to sign an agreement that spells out a few things. First, the agent will have to say how much they expect to be paid. This could be a percentage of the purchase price, like 2.5%, but it could also be a flat fee or even an hourly rate. It just has to be a clear amount, not contingent on what the seller is offering. And unless both sides agree to amend the contract, the buyer's agent can't receive more than that amount down the line; if a seller offers 3% but the buyer's agent agrees to only 2.5%, the buyer's rep has to either turn down that extra money or pass it along to their client. The NAR has maintained that buyers were free to negotiate commissions even before the lawsuits. But now that's much more likely to happen.Again, a seller may still offer to pay the commission of the buyer's agent as long as that offer is not made through the MLS. But they may choose not to offer anything at all, an option that could work out well for both parties. That's because buyers, in their offers to sellers, can ask to get some money back so they can pay their agent directly. This is what's known as a seller credit, and the nonprofit Consumer Advocates in American Real Estate recommends that buyers ask for it if they don't want to pay their agent out of pocket. Sellers may agree to it in the interest of getting a deal done, especially since it could result in savings for both sides. In the old days, a seller might have unthinkingly offered a commission of 2% or even 3% to the buyer's agent. But if you, as a buyer, negotiate a fee for your agent of only 1%, you're basically saving the seller — and yourself — money.But these workarounds are by no means guaranteed, especially in <a target="_blank" class="" href="https://www.businessinsider.com/hottest-states-to-buy-property-in-right-now-housing-biggerpockets-2024-8">hot real-estate markets</a>, and some in the industry fear that the quick fix of advertising commissions outside the MLS could open them up to more legal trouble down the line. In the meantime, more buyers may <a target="_blank" class="" href="https://www.businessinsider.com/new-rule-of-home-buying-fire-your-real-estate-agent-2024-4">choose to forgo an agent</a>, work out an alternative payment structure, or accept that they may have to fork over money to cover the gap between what they agreed to pay their agent and whatever the seller is willing to contribute.Other terms of the agreement will also be up to the buyer and their agent. They can decide which services the agent will provide and for how long; whether they want to maintain an exclusive relationship or allow the buyer to work with other agents; what to do if the arrangement sours and one party wants to walk away.The basic terms of a buyer-representation agreement should, in theory, be fairly simple to spell out: How much is the buyer going to pay, and for which services? But as with all modern contracts, there are complications. The Consumer Federation of America has raised concerns about the standard forms promoted by some state Realtor associations, saying even lawyers might struggle to parse the tiny typeface and thick legalese. It has argued that buyers risk agreeing to unnecessary fees or finding themselves legally bound to an agent who turns out to be a dud. After the California Association of Realtors, which has more than 180,000 members, unveiled a draft of its standard form, the CFA released a report written by Tanya Monestier, a professor of contract law at the University at Buffalo, that lambasted the draft as "virtually unreadable."Take, for instance, this section, which is meant to explain what happens if the same agent represents both the buyer and the seller:"ACCOUNTING FOR PAYMENTS TO BROKER IF BROKER ALSO REPRESENTS SELLER: Notwithstanding paragraph 2D(2), if Broker has a listing agreement with the seller of the property to be purchased, no credit toward Buyer's compensation obligation shall be given for the amount due Broker by seller for the compensation Broker is owed as the seller's agent. Buyer will pay the amount in paragraph 2D(1), less any amount offered by Broker to buyer's agents."Imagine 4,000 words of that. A tiny section that basically says "The buyer and the seller will each have to pay the agent separately" turns into word vomit."No buyer will understand this provision's meaning," Monestier wrote.The California association did end up making substantive revisions, and said in a statement that "the complexity of the agreement reflects the complexity of California real estate transactions." But the form is "still very lengthy," Monestier told me recently. "It's still very hard to slog through."Consumers may, understandably, be wary of signing a complex contract so early in the process, but the new setup has benefits. Sellers often interview several agents before picking the one who seems like they'll reel in the most lucrative offers. Buyers should similarly vet agents with an eye toward the bottom line. After all, internet-savvy buyers don't need agents' help to find houses anymore, Ellis, the brokerage executive in Chicago, told me. But they probably still want someone to hold their hand through the rest of the process. And if you're a buyer who just wants someone to open doors for you to get a sense of what's out there, Monestier said, you can hold off on signing with an agent and deal directly with sellers' agents.Ultimately, this is about ensuring that both a buyer and their agent enter the relationship with a clear understanding of what they'll get out of it. A buyer, Ellis said, might want to ask a prospective agent: "If I work with you, how are you going to get me the house that I want, the terms I want? How are you going to get me through this transaction as smoothly as possible?"The idea that sellers pay both agents' commissions has always been a clever sleight of hand. Buyer-representation agreements may be thorny, but at least they'll make it impossible for buyers to ignore the costs of using an agent. Real-estate agents, like people in any other job, provide a service. And nobody works for free.<a target="_blank" rel="" href="https://www.businessinsider.com/author/james-rodriguez">James Rodriguez</a> is a senior reporter on Business Insider's Discourse team.

The new homebuying rule that could save you thousands 

<ul class="summary-list"><li><a target="_blank" href="https://www.businessinsider.com/personal-finance/chase-bank-review">Chase Bank's</a> boss warned that new federal fee caps could make everyday banking more expensive.</li><li>Marianne Lake said the bank is planning to pass the pain of their lost profits on to customers.</li></ul>Everyday banking might be about to get more expensive for consumers.Marianne Lake, the CEO of consumer and community banking at Chase Bank, said federal regulations to cap overdraft and late fees would take a bite out of the company's bottom line.And she warned that making up that loss would be passed on to consumers, <a target="_blank" href="https://www.wsj.com/finance/regulation/jpmorgan-financial-regulations-charge-customers-d86ca9e4">according to a report from The Wall Street Journal.</a>Lake said the changes would be "broad, sweeping, and significant," the report said.Some of those costs would be tacked onto services that have been free so far, like checking accounts and financial planning tools, the report said.Business Insider reviewed a Chase presentation that covered the expected impact of proposed regulations. The presentation estimated that two out of three consumers would have to pay a fee for checking accounts if the cap went through.Lake also said those impacted will be the ones "who can least afford to be" and credit access will also be more challenging.Some of the regulations include a proposed <a target="_blank" href="https://www.businessinsider.com/lower-credit-card-late-fees-limits-savings-us-economy-impact-2024-3">$8 cap on late credit card payment fees</a> and a $3 cap for overdrafting bank accounts. The limit is part of President Joe Biden's crackdown on hidden fees.<a target="_blank" href="https://www.businessinsider.com/big-banks-profit-overdraft-fees-surprise-biden-administration-wants-curb-2024-1">The Consumer Financial Protection Bureau estimated</a> that about 45 million people are charged credit card late fees annually, and the change could save those people up to $220 a year.Other changes include limiting debit-card fees and how much banks can charge apps like Venmo and CashApp for accessing customer data, the report said.New regulations would also make it more difficult for banks to lend money by <a target="_blank" href="https://www.businessinsider.com/commercial-real-estate-lending-basel-distress-refinancing-bank-regulation-2024-2">requiring banks to set aside more money as reserves</a>. That could make it more complicated for borrowers to qualify for loans in the future.Chase is the biggest bank in the US and it's also one of the largest issuers of credit cards in the country. But other banks are expected to follow the same path — and several have already issues warnings.According to the Merchants Payments Coalition, Mastercard announced in April it was <a target="_blank" rel=" nofollow" href="https://news.bloomberglaw.com/daily-labor-report/mastercard-still-raising-some-fees-on-retailers-after-settlement">planning to increase</a> certain credit-card fees.Citi's chief financial officer, Mark Mason, said in a January earnings call that the bank planned to make up lost revenue with "offsets and mitigants" that he didn't specify.Capital One CEO Rich Fairbank also said in January that the new regulation would impact its profits and it would implement "mitigating actions" to counteract it.<a target="_blank" href="https://www.businessinsider.com/credit-card-late-fees-cap-swipe-mastercard-visa-jpmorgan-rewards-2024-4">Analysts at UBS wrote in a note</a> to investors in April that capping credit-card late fees and swipe fees in addition to lowering debit-card swipe fees, would push companies like JPMorgan Chase and American Express looking to make up the revenue elsewhere.It's not the first time banks have threatened to take out the cost of new regulations on consumers.After the financial crisis in 2008, <a target="_blank" href="https://www.businessinsider.com/big-banks-threaten-debit-card-cap-2011-7">banks threatened to put caps on card charges</a> if Congress approved rules limiting swipe fees. However, the threats were a bluff; few institutions followed through after customers themselves said they'd just switch banks.But now, with Biden's crackdown on credit card companies, banks may keep to their word — especially if the banks all decide to add new costs for consumers, giving them no place to turn.

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