Maximize Your Savings Using The Correct Account
We live in a low interest environment making it difficult to find a competitive yield on our deposits. Earning competitive returns on your cash investments should be part of your overall financial strategy. If you’re aiming to build wealth, the way you bank matters. You want your money to work for you in the most effective way possible.
Consider these savings tools as you create your financial plan to maximize your savings.
Checking VS. Savings Account:
A checking account is meant for transactions not savings. Both generally offer liquidity & convenience. You could easily access your money when you need it. Checking accounts typical do not pay any interest. You might find some that will pay interest if you keep a large amount in the account, but anything more than a couple months worth of expenses should be moved to a savings account.
A general rule of thumb is to keep at least 6 months worth of expenses in a savings account. This is often referred to as an emergency fund. A savings account is a good place to stash your cash for your short-term goals. Keeping your emergency fund separate form your short-term funds is a good strategy, but keep it simple, there’s no need to have an account for every single savings goal.
Match Your Goals with the Correct Account:
Money for short-term financial goals should be kept in a low risk interest bearing account. An online High Yield Savings Account earns a higher interest rate than your standard savings accounts with your local bank. These accounts are FDIC insured and are perfect for building an emergency fund, or saving for a vacation.
Your midterm goals, those goals you wish to achieve in three to five years, would also benefit in a high yield savings account. But, if you don’t need immediate access to your money consider a FDIC insured Certificate of Deposit or Mutual Funds with low risk ratings. Certificate Deposit accounts generally offer higher interest rates than a savings account. You leave your money untouched for a predetermined period of time in a CD while earning a percentage. If you require early access to your money a penalty fee will be assessed.
Long-term goals require a disciplined saving and investing strategy over a long period of time. You should consider riskier investments, which will potentially earn you more money. Having a ton of money sitting in a standard savings account will cause you to miss out on investment growth. If you need your money in 5 years or less it doesn't belong in stocks. The most common long-term goal people save for is retirement. Contributing to an employer’s 401(k) plan or an IRA or Roth IRA consistently puts you on the right track to accumulating wealth.
Choosing the best account, or combination of accounts, depends on how you use your cash. In order to make the most of our savings, you should pay attention to the features of the accounts. The way you intend to use your money should be taken into consideration while doing your research.