5 ways to get the most out of your savings account – Forbes Advisor
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Americans are saving more money than ever. In April 2020, the personal savings rate in the United States reached a record high of 33.7% of disposable income, according to data from the Federal Reserve. And, since April, the monthly savings rate has fluctuated between 17.8% and 24.6% of disposable income. In reality, 33% of Americans save their CARES Act stimulus checks.
In a country full of people struggling to save, this new frugality could be a healthy development. But increasing cash savings requires strategic thinking about how to get the most out of your savings account.
There are several ways to make sure that you are getting a good deal on your banking relationship. Various tools and apps can help you save more money, manage your savings, and achieve the best returns.
Here are five ways to get the most out of your savings account.
1. Decide why you want to save
Start by defining your savings goals. Your savings goals may include:
- An emergency savings fund. Most experts recommend building a emergency savings fund three to six months of after-tax spending and keep it in a safe place such as an insured savings account the FDIC (Federal Deposit Insurance Corporation). Having an emergency fund will give you peace of mind and help you recover from unforeseen expenses like car repairs, damage to your home, medical bills, or more serious financial shocks and setbacks. Along with your other financial goals, like saving for retirement and paying off debt, building an emergency fund should be one of your top priorities.
- A down payment on a house. If you know you want to buy a house in the near future, you should create a dedicated FDIC insured savings account to save for a down payment on a house. This money needs to be safe, which means you may want to avoid riskier investments like stocks. It should also be liquid – easy to withdraw without penalty at any time – in case you find your dream home sooner than you expect.
- A new car. You may want to have a dedicated savings account to put money aside for your car repairs and a down payment on your next car purchase.
- Child care expenses. Maybe you are expecting a new baby, or have some upcoming babysitting expenses, such as braces, special sports teams, summer camp, or other experiences. A savings account can help you prepare for these costs ahead of time.
- A vacation fund. If you’re already dreaming of your next big trip, start saving today. Every time you deposit money into your savings account, it’s like a down payment on your future happy travel times.
A savings account is ideal for all of these purposes. Your savings account is not the place for long-term financial goals like saving for retirement or for college. Building up cash savings is ideal for short-term goals and for specific purposes. Having money in savings can help protect you from life’s financial vagaries and help you prepare for expensive purchases.
2. Choose a high yield savings account
If you already have a checking account, your current bank or credit union may also offer to open a savings account. Sometimes you can get a better deal on all of your banking services by opening multiple accounts with the same institution. For example, a bank or credit union may waive the monthly charge on your checking account if you also have a savings account.
However, you have more options than your current bank. It’s good to have a savings account at the same bank where you do your day-to-day banking, but your regular bank savings account may not offer very high returns. Many physical banks currently offer near zero APYs. This means that if you leave your money in this FDIC insured savings bank account, your money will be safe and liquid (you can withdraw your money anytime), but your money will not earn much interest.
If you want a higher return on your savings, consider setting up an online savings account, separate from your checking account. The best online savings accounts pay interest up to 0.90% APY. If you deposit $ 10,000 into a savings account that earns 0.90% APY, over a year you will earn $ 90.37 (assuming you don’t pay additional contributions and compound interest monthly). It may not seem like much, but your money will be safe and earn you some interest to add to your savings.
There are other options to invest your savings, such as certificates of deposit (CDs), which sometimes pay slightly higher APYs than savings accounts. However, CDs often require you to leave your money deposited for a specific length of time, and if you withdraw your money before that period is over, you have to pay an early withdrawal penalty.
Yields on savings accounts can be low, but if you want a safe and flexible place to keep your cash savings without the commitment or risks of other investments, an FDIC insured savings account is a good one. solution.
3. Automate your savings
Money does not run away. If you want to save money, consider making recording a priority. There are many tools and techniques to help you automate your savings. Here are some actions you can take:
- Pay yourself first. Set a goal for each paycheck. Decide what percentage of your pay, or what total amount of money from each paycheck, you want to put into savings. Setting a goal can help keep you disciplined and motivated. For example, if you got paid every two weeks (26 paychecks per year) and you could save $ 200 on each paycheck, you would have saved $ 5,200 by the end of the year.
- Set up transfers. Most banks allow you to set up automatic transfers from checking accounts to savings accounts. You can set up your transfers to occur on each payday or on specific days throughout the month. You can even set up several small transfers for special occasions or windfall gains.
- Find opportunities to reallocate money. Anytime you’re paying off a loan or running out of money on a bill, consider putting the previously allocated money into savings. For example, if you recently paid off your auto loan of $ 300 per month, start paying yourself that extra $ 300 per month by putting it into savings. Consider doing the same if you’ve recently canceled a gym membership or received a refund from your utility company. Keep looking for opportunities to save more on your monthly expenses and transfer that money into savings as soon as you can.
The more you can automate savings, the more likely you are to stick with your plan and meet your savings goals. If the money isn’t available to spend, you might not even notice it’s already in your savings account.
4. Maximize technology and savings tools
Besides simple tools like automatic transfers between checking and savings accounts offered by most banks, several fintech startups have created apps and technologies to help you save more money.
- Figure. It’s a solution for those struggling with overdrafts and automating savings. Digit is an app that helps you save automatically at the right times of the month, based on your income and spending habits. The app analyzes your spending and automatically saves money for you every day, in the right amounts, so you can save more without risking overdraft.
- Capital city. This app helps you save for specific goals, automate your savings deposits with rules on how your money moves, quickly view your paycheck, decide how to spend or save, and get the most out of it of your money without all the hassle. Qapital accounts are insured by the FDIC and members save on average between $ 1,500 and $ 5,000 per year, depending on their membership level.
- Goalkeeper. Radius Bank, an online bank that offers its customers access to a range of fintech apps, recently launched its own savings app called Goalkeeper. The app is included with Radius Bank accounts and is available free of charge for Radius Bank customers. It lets you automatically save money for specific goals, with photos for each lens to visualize why you’re saving. Radius customers can set up their own savings amounts, or let the app do it for them, automatically calculating how much money to switch from checks to savings based on their usual spending habits.
Savings tools like these, as well as roundup applications that help people save money by “rounding up” dollar amounts on daily purchases, make saving more manageable and more interactive than ever.
5. Change your mindset about saving
Perhaps the most important way people get the most from their savings accounts is to change the way they think about saving. Saving money doesn’t have to be boring, and that doesn’t necessarily mean you’re denying yourself fun or failing to live in the moment.
To position yourself for success, work on your mindset and make a habit of saving. If you’ve ever put on a serious diet, you know that viewing it as restrictive rarely helps. The same goes for developing your savings habits: focus on what you are doing to improve your financial health.
Saving money is about making smart choices and preparing for future success. And it’s about taking care of the people you love and protecting yourself from the vagaries, shocks and setbacks of life.
With a substantial emergency fund and an automatic savings plan to transfer money into savings every month or day, you can enjoy greater peace of mind and financial stability for years to come. future.