A pitiful savings account isn’t going to help you in a financial emergency. Like most people, you probably know the value of having a rainy day fund, and many experts recommend a fund with three to six months of income.
Of course, if you can only save a small percentage of your income each month, you’ll grow your savings at a slower pace.
There are, however, ways to get the most out of your savings. Utilize these tips and you might see a higher return on your money.
1. Certificate of deposits. Opening a regular savings account isn’t the only way to build your rainy day fund. There are several other options available to you, many offering rates higher than your regular savings account.
A high interest CD might be the answer to growing your savings faster. A CD is a time deposit where you basically agree to leave your money in the bank for a certain time period. Terms vary by bank, but they typically range from seven days to five years. CD rates are much higher than bank savings account rates, and the longer you leave your cash in the account, the better your rate.
2. Automatic savings. Developing a savings routine can be challenging, especially if you’re used to spending all your earnings. But there are ways to grow your savings if you don’t have the discipline to take 10% of your income off the top.
Talk with your bank and ask about automated savings options. Depending on your bank, there are different ways to approach this. Some banks will round up your debit card purchases and deposit the change into your savings account, or you can set up regular transfers, which essentially moves cash from your checking to your savings on certain days of the month.
3. Online savings account. Cash in a CD isn’t liquid, and there’s a fee for early withdrawal. If you want to keep your cash liquid, but don’t want to earn pennies with a regular savings account, there’s the option of an online high-yield savings account.
These accounts work like your traditional savings, but unlike a regular savings, high-yield accounts earn a higher interest rate. Use this account to build your rainy day fund and you’ll enjoy a higher return on your deposits.
Tips for Building Your Savings Account
It isn’t enough to deposit cash into your savings account each month, for the account to grow, you have to leave the money in the bank. Dipping into your account on a regular basis, even if you’re only taking out $10 or $20, can impact how fast your money grows. Plus, the more you take out, the less interest you earn.
Building your savings account is all about discipline. Not only discipline to keep up with regular deposits, but discipline to leave cash untouched.
What are your long-term savings goals? Are you saving for a down payment on a house? A vacation? Or are you simply preparing for a financial crisis? Regardless of your motive, whenever you feel the need to dip a little, remember the big picture.