Growing up, my family always gifted my siblings and me money for our birthdays. I always felt so special receiving money, because I didn’t have a lot as a kid. One year, as an assignment at my school, my math teacher told us to open a bank account with the help of our parents. I remember putting my first $100 into that account and receiving bank statements each month showing me how much interest money I received. I felt like I had so much money!!
As time went on, I continued learning more about savings accounts. I personally remember the day when my friend mentioned high yield savings accounts and certificate of deposits to me. I didn’t even know these types of accounts existed! But, to this day, I still keep my emergency savings in a high-yield saving account!
Since we’ve been talking a lot about saving money on this blog, I felt it would be appropriate to talk about what to do with all this money we’re saving! Whether you’re saving for a vacation, building your emergency funds, or saving for a house, these essential savings account tips will help you find exactly the right place to store your money until you are ready to use it.
Savings Account Tips
1. Choose the Purpose of the Savings account
Take a moment to think about why you’re saving your money. Is it for an emergency? A vacation? A new home? There are many reasons that people save money, but it’s important to define why you’re saving. If you’re simply saving money for the sake of saving (say, you already have a home, a car, or an emergency fund), you may be losing out by not investing that money instead. Be sure that you’re saving for a purpose! If you don’t have a purpose, consider investing your money!
2. Define the Characteristics You Are Looking for in Your Bank
Look at reviews of the different bank accounts available to you. What matters most? Do you want the bank to provide apps? 24-hour customer service? Brick and mortar buildings? Low fees? Make sure to research banks thoroughly before you open an account.
If you are interested in finding banks with great apps, check out this article by The Balance. They have looked at many reviews and compiled a list of banks with really great features that will keep you updated on what’s happening with your money.
Nerdwallet also has a list of the best online banks that may also pique your interest! Personally, I’ve had a really great experience with Markus by Goldman Sachs for my savings account needs. Look for something that suits you best!
3. Make Your Savings Account Inconvenient to Access
I specifically chose an online bank to make accessing my money more difficult. This is your savings account, and in the United States, federal regulation only allows you to withdraw from your savings account 6 times per month. Keeping your bank account somewhat inaccessible allows you to reduce the number of times that you withdraw funds. Also, keep in mind that the purpose of using these accounts is to maintain liquid funds. So, the money should be inconvenient to access, but not impossible.
It takes about 1-3 business days to transfer funds from an online bank account to my personal checking account. This delay makes moving money back and forth between your checking and savings account more annoying. When I do need money, I transfer funds from my savings account a few days before I need to make a large purchase.
Additionally, if you use an online bank, there will be fewer ATMs available to access the money. This is a really good thing when you are trying to save!
4. Consider Interest Rates
Currently, banks are offering relatively low interest rates due to the pandemic. However, you will definitely benefit from storing your money in an account with a 0.5% interest rate instead of a 0.01% interest rate.
Nerdwallet lists some standout savings accounts here. This list can help you get a sense of what different banks are offering. My fingers are crossed that rates will increase once the pandemic ends!
5. Consider Fees
Fees can hinder how quickly you are able to save your money. For example, many brick and mortar banks charge a monthly maintenance fee of around $4-$5. Fortunately, this fee can be waived if you maintain a minimum balance in your account. Usually, they request at least a balance of $300, but this number varies.
Many online banks don’t have a monthly maintenance fee. However, they often have a withdrawal fee, which is typically ~$25. So, when you decide to withdraw money, make sure you minimize the number of times you withdraw and budget for the withdrawal fee.
When I first started saving, I didn’t understand the different fees associated with my bank account! I remember being so sad when the bank took a $20 withdrawal fee or a $1 maintenance fee!
Don’t let that happen to you! Make sure you understand fees before you sign up! If you need some help, Value Penguin has a really great list of savings account fees.
6. Consider Liquidity
Liquidity refers to having sufficient cash to pay expenses immediately. For example, if you have a pile of gold under your bed, sure this has value, but you can’t readily use it to pay your electric bill. The purpose of your savings account is to cover unexpected expenses. Make sure that you can easily access the money. Don’t depend on the equity of your home or other assets to be sufficient or easily accessible.
The money in your savings account should be inconvenient to access, but there is no need to make it overtly difficult to cash in when needed.
7. Federal Deposit Insurance
FDIC stands for the Federal Deposit Insurance Commission. This is a third-party institution run by the US Congress to protect your cash if a bank loses your money. The FDIC covers money in checkings, savings, money markets, and certificates of deposits. They also cover cashier’s checks and money orders.
Whenever you put your money in a bank account, make sure that the bank is an FDIC-insured institution.
8. Set Up Direct Deposit
Once you’ve selected the bank you wish to use and you open a bank account, set up a direct deposit. Sending a portion of your paycheck directly to the bank will help ensure that you are saving at least x% every month.
For example, before I set up direct deposit, I manually moved money from my checking account to my savings account. The 2 accounts were also at the same bank so transfers were way too easy. Once I opened my high yield savings account, started depositing money directly from my paycheck. Since the account is inconvenient to access, once it goes into my savings, I rarely take it out. Each month my savings has grown steadily! This is the most efficient way I have ever saved money!
9. Grow Your Savings by Using a Budget
You can continue to grow your savings by sticking to a budget and slowly increasing your direct deposit into your savings account over time. Budgeting is extremely useful when you are trying to save money. It gives you an exact idea of how much money you should be spending on different necessities every month. This allows you to comfortably deposit money into your savings.
If you need help creating a budget, I have some tips for you on my post about budgeting methods.
10. Set Savings Goals
Saving money is really important, but it’s equally important to know when to stop saving and when to start investing. Creating savings goals are helpful ways to let you know when you’ve saved enough for your vacation, emergency fund, or house. Once you’ve reached your goal, look for another financial goal to keep you on track for achieving financial independence.
Okay! We just gone over some great savings account tips! It’s time to open up a savings account and start depositing your money! No one ever told me these savings account tips when I opened my own accounts. I really wish I had known about fees, direct deposits, and interest rates early in my savings journey. This will help you reach your savings goals very efficiently. Let me know if you need any help, or if these savings account tips work for you!