Ways to Get the Most Out of Your Savings Account
Americans are saving more money than ever before. According to the Federal Reserve, in April 2020, the U.S. personal savings rate reached a record high of 33.7% of disposable income. And since April, the monthly savings rate has ranged from 17.8% to 24.6% of disposable income. In fact, 33% of Americans invest their CARES incentive checks in savings.
In a country full of people struggling to be saved, this newfound frugality can be a healthy development. But increasing your cash savings requires strategic thinking about how to make the most of your savings account.
There are several ways to make sure you have a good relationship with the banks. Various tools and applications can help you save more money, manage your savings and get the most profit.
Here are ways to get more out of your savings account.
Decide why you want to save
Start by defining your savings goals. Your savings goals may include:
Emergency Savings Fund. Most experts recommend setting up an emergency savings fund of three to six months to cover after-tax expenses and keeping it in a safe place, such as an FDIC-insured savings account. Having a contingency fund will give you peace of mind and help you recover from unexpected expenses like car repairs, damage to your home, medical bills, or more serious financial turmoil and setbacks. Along with your other financial goals, such as saving for retirement and paying off debt, creating an emergency fund should be one of your top priorities.
Down payment at home. If you know you want to buy a home soon, you should set up a dedicated savings account, insured by the FDIC, to defer the down payment on the home. This money needs to be safe, which means that you can avoid riskier investments like stocks. It also needs to be liquid – it can be easily withdrawn without penalty at any time – in case you find your dream home sooner than expected.
New car. You may want to have a savings account where you can save money for car repairs and make a down payment on your next car purchase. Childcare costs. Perhaps you are expecting a baby, or have upcoming childcare expenses such as braces, special sports teams, summer camp, or other activities. A savings account can help you prepare in advance for these expenses. Vacation fund. If you are already dreaming about your next big trip, start saving for it today. Every time you deposit money into your savings account, it is like a down payment for the happy moments of the trip.
A savings account works well for all of these purposes. Your savings account is not a place for long-term financial goals, like retirement savings or college savings. Accumulating cash is ideal for short-term goals and specific goals. Having savings can help protect you from the financial ups and downs in life and help you prepare for high-value purchases.
Choose a high yield savings account
If you already have a checking account, your current bank or credit union may also suggest that you open a savings account. Sometimes you can get a better deal on a general banking package by opening multiple accounts with one institution. For example, a bank or credit union may waive your monthly checking account fee if you also have a savings account.
However, you have more options than an existing bank. It’s okay to open a savings account with the same bank where you do your day-to-day business, but your regular savings account may not provide very high returns. Many conventional banks now offer near-zero interest rates. This means that if you leave your money in an FDIC-insured bank savings account, your money will be safe and liquid (you can withdraw your cash at any time), but your money will not bear much interest.
If you want to get a higher return on your savings, consider opening an online savings account separate from your daily checking account. The best online savings accounts pay interest up to 0.90% per annum. If you deposit $ 10,000 into a savings account that yields 0.90% per annum, you will earn $ 90.37 over the course of the year (assuming you don’t make any additional contributions or monthly interest). It may not seem like much, but your money will be safe and it will bring some interest to add