Getting into the habit of saving is an achievement in itself. But, what good is saving if you’re not making any money on the cash that you’ve stashed away? It pays to be smart with your choices, especially when it comes to choosing which bank to use to open a savings account as well as which type of savings account to use.
By making the right financial decisions, you can earn hundreds of dollars more per year. Here are 5 tips for maximizing your savings account.
1. Create a budget
Before you can ever begin to save money, you need to have a clear picture of how much money you’re bringing in and how much is going out. The first step in maximizing your savings account is to create a solid budget.
When creating a budget you’ll need to determine your monthly income and then subtract expenses such as rent/mortgage, utilities, groceries, insurance, and other miscellaneous costs. Once you’ve calculated how much money you have left over after bills and other expenses, you can figure out how much money you can comfortably put into a savings account.
Even if you’re only saving $20 a paycheck, $20 is better than $0. Getting into the habit of saving is important, and the earlier you save, the more money you’ll have as the time progresses.
As your income and expenses change, you’ll want to adjust your per-paycheck savings account accordingly. If you pay off a loan or get a raise at work, be sure to increase the amount of money that’s going into your savings account.
2. Open an Account with an online bank
Chances are years ago you walked into a bank and opened a checking and savings account. If you’re like most people, at the time of opening your account, you probably didn’t pay too much attention to the interest rates because you were just starting out and likely didn’t have any lofty financial goals.
But, now that you’re serious about maximizing your savings, you want to pay close attention to the interest rates for your savings account. Most large banks offer low-interest rates, especially on savings accounts. If you look back at your account history, you likely aren’t making a lot of interest on the money that you’ve saved so far.
To make more money on the cash that you’ve put away, consider switching to an online bank like CIT Bank. Online banks have lower fees, better loan rates, and higher interest earnings on both checking and savings accounts.
For example, with CIT Bank’s Savings Builder account, you can earn up to a 2.45% APY. Traditional banks offer much lower APYs, typically below 2%. In fact, the national savings average of a traditional bank is 0.10%.
3. Switch to a credit union
If you’re wary of switching to an online-only bank but want to find a high-yield savings account, you can find comparable rates at a local credit union. With a credit union, you’ll find rates that are slightly above average interest rates for deposit accounts when compared to the traditional bank. As of March 2018, credit unions were on average paying 1.81% on five-year CDs. This is much higher than the 1.47% national average at traditional banks.
By becoming a member of a credit union, not only can you earn more money on your savings account, but you can also benefit from lower loan rates. With more favorable rates less of your monthly payment will go towards interest, which means more money that you can save.
4. Consider a CD ladder
Do you have a lot of money saved away and want to maximize your earning potential? Consider setting up a CD ladder. With this saving method, you’ll divide your money into several CDs, each with a different term length.
Let’s assume you have $10,000 in savings. Instead of putting all of that money into a one-year CD that you can renew annual, it makes more sense to divide the $10,000 into smaller chunks. You can put $2,500 into a one-year CD, $2,500 into a two-year CD, $2,500 into a three-year CD, and so on.
When the first CD matures, you can slide the original $2,500 into a new five-year CD. Repeat the process and watch your money grow while also keeping it accessible.
5. Set up automated transfers
A dollar saved is a dollar earned, but saving is easier said than done. Once you’ve opened a high-yield savings account, the next step is to set up automatic payments that put money directly into your savings account. This way you don’t have to remember to move that money over and there’s no risk of you inadvertently spending that money.
What’s great about saving is that you don’t have to put away tons of money in order to make a difference. Assuming you get paid on a bi-weekly basis, putting away just $50 a pay period is $1,300 saved in a year. In five years you’ll have saved $6,500.
No matter how little or how much you’re putting away, what’s most important is that you’re saving. As your income increases, you can increase how much money you put into savings.
By taking the time to maximize your savings account, you can greatly increase the amount of interest that you make on your saved money. Happy earning!