Pod Insights The Clark Howard Podcast 03.18.26 Where NOT To Invest - NEVER EVER / The Grandparent Trap About this episode Today - Clark takes aim at the "monster mega banks" and explains why they are often the worst place for your investment dollars. Major banks are rebranding branches to capture more consumer assets, yet these institutions often lack a fiduciary duty to their clients. You’ve got lower-cost alternatives to help you get ahead. Also, Clark shares an important message for grandparents or anyone who loves and cares about a grandparent - a heartfelt reminder to protect those who have spent a lifetime building their savings, from going broke in their later years. Where NOT To Invest: Segment 1 Ask Clark: Segment 2 For Grandparents: Segment 3 Ask Clark: Segment 4 Mentioned on the show: 3 Places You Should Never Invest Your Money - Clark Howard How To Find and Choose a Financial Advisor / Best Financial Advisors What You Need To Know About the Vanguard Cash Plus Account What You Need To Know About the Fidelity Cash Management Account Best Cash Management Account: Comparing Vanguard, Fidelity, and Schwab How To Open a Roth IRA Zillow - Prepare for your first home with confidence How Much Does It Cost to Be a Grandparent? Why Clark Howard Refuses To Rent a Car From Hertz How Long Should I Save Pictures of My Car Rental? - Clark Howard Why You Should Never Prepay for a Rental Car - Clark Howard 5 Things You Should Re-Shop To Save Money - Clark Howard Clark.com resources: Episode transcripts Community. Clark.com / Ask Clark Clark.com daily money newsletter Consumer Action Center Free Helpline: 636-492-5275 Learn more about your ad choices. Visit megaphone.fm/adchoices
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0:44 Speaker 03 Great to have you here on the Clark Howard Show. You know, our mission is to serve you with advice and information that empowers you so you make better financial decisions in your life. Today, why I say so stridently that you should never, never, never, not ever invest with the giant monster mega banks. Also, I have an important message for you if you are a grandparent or if you are someone who loves and cares about a grandparent.
1:26 Speaker 03 So, all right, I am biased. I am prejudiced. I have flaws like any other human being, and I'm just going to lay it out. I despise the market power of the giant monster mega banks. They wake up every day trying to figure out how to pick your pocket. I don't like it. If you think about the mean spiritedness of paying people through thick and thin, high interest rates and low, paying people 1 one hundredth of 1% on their savings? How disrespectful is that? How much are the banks playing us like a fool?
2:10 Speaker 03 I don't like it because you know, market interest rates are way beyond what savers can earn if you go somewhere else, but the giant monster megas eat you up.
2:24 Speaker 03 And they've got, I think it's in the trillions, sitting in these 1/100 of 1% savings accounts at the giant monster Megas. The other thing, the giant monster Megas are doing everything they can to capture more of your money, because you may have heard me say in the past, banks have done such an irresponsible job at looking at us as people to take advantage of, that the amount of people's assets that banks now control is down teensy tiny, you don't see it in a microscope to see it, because people have migrated so heavily, particularly to discount brokers and fee-only fiduciary
3:09 Speaker 03 financial advisors. Their big money is no longer in the traditional banking system. So the banks now are building, at a time that branches have been closing all over America, they're building these new multipurpose branches, and it's setting you up, because you'll go into the branch to do some kind of transaction, and in there will be some kind of wealth team, or some term like that, and they have these investment operations that may or may not, usually are not fiduciaries, so they are legally not required to do what
3:54 Speaker 03 a fiduciary would do, which is what's better for you than for them. They have to meet some mealy standard that is awful, and a lot of them do two hats, where there are some things they do as a fiduciary, and then trick you, and other things they do where they, family show, they take terrible advantage of you, keeping it clean. And then, there's the fees.
4:24 Speaker 03 The banks through their investment operations, and they could be very friendly, chatty people, charge you fees that are so violating your wallet, that are so much more than you pay at a discount broker, that it would blow your mind. So you may think, well, what difference does it make if Vanguard or Fidelity or Schwab are charging three one hundredths of a percent for an investment, but the bank is charging 2% for an investment? So it's just 2% difference and they're my guys, or women, no chauvinism intended.
5:06 Speaker 03 So, over time, the difference in those fees has massive impact on what you have left at the end of the day in investments or for retirement. But the worst thing, the worst thing, so a lot of these banks charge upfront fees and then ongoing fees. And, again, they're not operating in many of the circumstances as a fiduciary. You want to have a bank account with a giant monster mega bank? Fine. You want to have a credit card with a giant monster mega bank? Fine. You want to have a car loan with a bank?
5:48 Speaker 03 Not fine. Car loans should be done with a credit union, period. Right. That's easy. Sorry, go ahead. What you don't do with one of these banks, in my humble opinion, is you do not invest through their high cost, and in many cases, not fiduciary investment processes.
6:15 Speaker 03 Period.
6:16 Speaker 04 All right.
6:17 Speaker 03 I have no opinion on this, Krista.
6:19 Speaker 04 Sorry, I started to interrupt there before you were finished with your thought.
6:22 Speaker 03 Well, because I mean, if you let me, I would harangue the banks from now till next week.
6:29 Speaker 04 All right, we're going to go to your questions. Nalani in the District of Columbia says, I have a high-yield savings account with over $100,000. I recently opened a Vanguard Cash Plus account. I also have a Roth with Vanguard that I maxed out each year for the past five years. Every month, I currently put funds aside in a high-yield savings account, but I'm wondering if it's better to put those funds in the Vanguard Cash Plus account now, given the amount in my high-yield savings. I'm not saving for anything in particular at this moment in time. Thanks for all your guidance over the years. It is because of this podcast that I've been able to save, save, save, and to live a great life on less than I make. Also, Fred in Nevada sent this in. What are your thoughts about cash management accounts such as Fidelity and Vanguard instead of traditional bank accounts?
7:13 Speaker 03 So also Schwab.
7:17 Speaker 03 All three have accounts. I have a legacy product. I don't think they push anymore, a Schwab One account that allows me to have an investment account, checking account, all the stuff, all in this one umbrella. Fidelity has the Fidelity Cash Management account that goes back to the 1970s. And it's a all-in-one account, very well thought out, very popular through the years. Vanguard is Johnny come lately to this with the new Vanguard Cash Plus account.
7:54 Speaker 03 It is not as thorough and as flexible as the Fidelity product or the Schwab product. Vanguard did not include the ability for you to use it as a complete substitute for having an account at a bank or a credit union. So if you do the Vanguard Cash Plus account, which generally will likely over time pay higher interest than what the equivalent will pay at Schwab or Fidelity, but it's a more limited purpose kind of account. Than the ones available from the other two. So it all depends on what you want the account to do.
8:35 Speaker 04 And we have reviews of both the Fidelity and Vanguard accounts on Clark.com and we'll put the links to those reviews in the podcast episode descriptions.
8:44 Speaker 03 And I should mention, I don't have and have not had a traditional bank account in, I don't know, 20 something years or further, and I've been just fine not doing business with them.
8:57 Speaker 04 Anthony in Georgia says, Clark, I'm 25 and just getting started with investing. I currently have about $18,000 sitting in a high-yield savings account earning 3.3% annually. Would it be smarter for me to prioritize opening a Roth IRA or a brokerage account at this stage? And how much of my savings should I move into the investments versus keeping cash? I want to grow this money more efficiently while still staying financially safe.
9:20 Speaker 03 Okay, so Anthony, 25, first of all, that makes you my hero. At 25, you're asking these questions. And your priority now is Roth IRA. You can put huge amounts into it, and that money grows tax-free, ultimately spent tax-free for retirement. It is the best deal for retirement savings that exists. So you've got 18 grand. It's fantastic. Let's say you keep 90 days expenses in the savings. You go with that as an initial target, and
10:00 Speaker 03 your big push needs to be getting money every month into a Roth IRA. I love them.
10:08 Speaker 04 Jesse in New York says, My wife and I have been saving money in a high-yield savings account for a while in the hopes of becoming homeowners. My wife came across a program by Zillow where you can earn up to a 6% savings match on the first $10,000 deposited annually and a 3.33% APY. I'm including the link to the website in hopes you or your team can have a look and see if there are any gotchas or if there's something we should consider. Thanks for all you and your team do. I learn and continue learning so much.
10:37 Speaker 03 All right, Jesse, thanks for this question. And I don't think I've ever addressed this on the podcast and YouTube show. I've addressed it elsewhere. Okay, so there are fees with this account, and the fees erode some of the benefit.
10:53 Speaker 03 But the big gotcha is if the money is not used per the terms and conditions towards the purchase of a house, you paid the fees and you lose the 6% savings match. So I want you to go through it and understand it is a big carrot. If you don't do everything like they want, there's a big stick involved. And you need to put in enough money into this to make it enough that you're going to blow past the fees you have to pay for the account. So yes, for the right person, this is a good savings tool towards a down payment, but you've got to be the right person for it.
11:38 Speaker 03 Coming up ahead, grandparents. More and more people with how lifespans have extended have grandparents around that can dote on your kids. And we need to talk about what grandparents are doing. It is a wonderful thing for the grandkids, but could be a real problem for the grandparents.
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14:48 Speaker 03 Okay, got to tell you, something I read in Kiplinger Magazine just blew my mind. What percent of grandparents give money to their grandchildren? According to the Kiplinger story, 99% of grandparents give money to their grandkids. How much do they give? The average amount per grandparent giving to grandchildren, just under $4,000 a year. It's a lot of money. And I heard years ago from someone who was an administrator at a private school that
15:31 Speaker 03 at that private school overwhelmingly tuition was paid at least in part by the grandparents, not the parents. That is true, that wealth skews heavily older, in our society and every other society, for those who have been able over a working lifetime to put money aside and have time for it to grow. But, as I talk about, and I did talk about this months ago, parents giving to adult children at times to great harm to themselves.
16:12 Speaker 03 As an adult child though, seeing this generosity from your parents to your kids, if you know in your heart of heart that your parent or parents cannot really afford the money that they're using to dote on their grandkids, you know, it's always hard for adult children to talk to their parents, but... You've got to make sure that your parents are not harming themselves financially by what they give to grandkids. And maybe it's just fine. Maybe there's plenty of money
16:51 Speaker 03 there and they want to have the pleasure of helping out their grandkids. And in that case, A-OK. But if it's going to cause lifestyle harm, or it's going to cause problems with them skipping on meds, or going to a doctor's appointment they should go to because they've been taking their money and transferring it two generations down to the grandkids, as an adult child, you've got to, whatever way you can, you've got to get them not to do that anymore. And then if they can afford it, though, and they want to do it, particularly
17:33 Speaker 03 if they want to pay that school tuition, or pay some of the college costs, you don't got a problem with that, do you?
17:40 Speaker 04 All right, you ready for questions?
17:43 Speaker 03 I am, Krista.
17:43 Speaker 04 This is from Steve in Pennsylvania. "I'm choosing to contribute to a traditional 401Ks and IRAs in an attempt to keep my income low ahead of my son's enrollment in college. I'll return to Roth contributions once college is behind us. Is this strategy sound? Is an exception to Clark's simplified guidance to use Roth unless you make gobs of money. Additional background, my income's around the $200,000 mark, below which some big-name schools offer free or significantly reduced tuition. I max out all tax-advantage accounts, so it's only a matter of Roth or traditional. And I understand that FAFSA is prior year, prior, prior year, so I'm doing this while my son is in the middle of high school and will continue through the middle of college."
18:26 Speaker 03 So Steve, this is, if I remember right... The third situation recently that people presented to us about why my Roth obsession in situations is not the right answer, and you're a perfect example of when that would be true. We had another one recently about qualifying for healthcare exchange subsidies that if you're doing a Roth instead of traditional, the income would have gone up enough that you wouldn't have been in a position to get the subsidy on the purchase of individual health insurance.
19:07 Speaker 03 So yes, in your situation, just as the one recently about health insurance, completely right, that what a traditional 401k or a traditional IRA or both, what they do is they bring down your income enough in many cases below thresholds where other benefits accrue to you that you would lose if you were listening to the man from Roth, which is who I am, and just doing that automatically, there can be exceptions.
19:40 Speaker 04 Chris in Wisconsin says, "My wife and I are debt-free and on track for retirement thanks to your advice. Two years ago, we helped our daughter start her credit journey by cosigning on a small $3,000 car loan on her car, which we'd actually paid for in cash. She's been great with the payments and the balance is down to $1,000. But Clark, I hate debt so much that it really bothers me to see it on our credit reports. I'm tempted to just pay it off for her today. My questions: First, will paying this off early hurt or help her credit score? And second, am I robbing her of the life lesson of making that final payment herself?"
20:14 Speaker 03 Chris, gosh, just let go of your obsession about not liking that $1,000 being on there, as I assume as a cosigner is what we mean here. I want this to be a very useful life lesson for her to continue making these payments. Let the string pay out and pay it in full, shows more credit history as part of the process, and shows that you were there backstopping her, but she completed the task, which is so worthwhile. I'm next going to hear from her on Clark State. Why did you tell Dad not to pay this off?
20:55 Speaker 04 Zach in Texas says, "I'd love your opinion on a situation where I feel like I'm breaking several of your rules, but doing it in the name of saving money. Does it still count as breaking the rules if the savings are real? My family and I are planning a road trip to the Smoky Mountains this summer, and I decided to rent a minivan instead of driving our own vehicles. When I started price shopping, the lowest rate came from Dollar, which I know is a Hertz subsidiary, so that's violation number one. I checked several places, Expedia, Dollar's direct website, and Auto Slash. Booking through Expedia saves me about $100, and Auto Slash could save another $50. The problem is that the last time I used Auto Slash, I showed up with a prepaid reservation and was told
21:37 Speaker 04 there were no cars available. That experience is still fresh in my mind. This time, I went ahead and booked through Expedia with a free cancellation option, but I'm honestly nervous about walking up to the counter the day before our trip and being told there's no vehicle for us. So now I'm wondering, in this situation, what would Clark do?"
21:55 Speaker 03 So, it's what they call walking in hotels and the equivalent with car rentals. They take more reservations than they have cars for. So it doesn't matter what brand you book, unless you have ultra-high status with the car rental company, they just say, "Yep, no cars." Happened to me, hasn't happened to me, I rent 20 to 30 cars a year. This year I'll hit 30, probably. And it's only happened to me once in the last two years where I got to the counter and they told me to get lost. But it does happen, and that's
22:36 Speaker 03 not Auto Slash's fault in this case. The thing you said about the problems with Hertz and them owning Dollar, Hertz has been an abomination in customer no-service, and more recently, the AI they're using to claim that people damaged Hertz cars with no
23:02 Speaker 03 Real process for proper appeal of that. That's why it's so important with any car rental agency, not just Hertz, that you thoroughly video the rental car when you get it. When you turn it in, I keep my videos three months to give plenty of time for a UFO phone call or mail to show up saying that I owe them all this money for whatever to a vehicle. By the way, I learned this so clearly many, many years ago when I took a rental car and it was the last one they had and it had a huge dent on the side.
23:42 Speaker 03 And that was actually when I started taking pictures and shooting video. And then sure enough, I returned the vehicle and I get contact and they want $6,500 from me for the damage. And I said, uh-uh, uh-uh. And the guy starts yelling at me and I said, I have proof. I sent the proof and then I was okay. The pictures are so important. So the most important thing also, you said, free cancellation option through Expedia. Remember my rule. You always reshop your rental cars before you go. About 90% of the time you book a rental car well in advance and you reshop it the week out,
24:26 Speaker 03 the rates will almost always be lower than when you're originally booked. But if they're not, you keep what you already had. No harm, no foul, no cost because you didn't book a non-refundable car rental. Well, thank you so much for being with us today. I hope that something today was helpful to you. Coming up on Friday, we've got our latest edition of Clark Stinks coming your way. And All around, every day, so many different ways, we are there to touch your life in whatever way works best for you.
25:08 Speaker 03 Whether it's following us on a social media, looking at our YouTube shorts, watching our YouTube show, watching me on local television where I'm on the evening news, or listening to me on radio where I'm usually on morning drive time, if I'm available in your market for either. Everything is devoted to empowering you with knowledge you can trust, that you can act on, so that you can save more, spend less, and avoid always, never, never, not ever, get ripped off again. See you Friday.
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