Honey…What is this? What’s going on? What’s happening here? Why is your savings account a mess? Everyone has a checking account. Checking accounts are easy. The hard part is taking money from your checking account and moving it to a savings account. Unfortunately, this needs to be a part of your long term savings strategy, unless you plan on marrying a millionaire. That ship has already sailed for us. In other words, sorry. We can't help you live like Karen Walker overnight.
Savings is not something you can just run away from like a hotel bill…or a crying baby. You need to make a plan and stick with it. Savings accounts are a staple of long term financial freedom. You won't see aggressive growth that you might with a more risky investment like stocks, but your money won't stagnate without growth, like it would in a checking account either. It's also a good idea to have 3-6 months of cash in savings to cover any major life event, like a home purchase, car breakdown, or loss of a job. We estimate that for the average person that amounts to about $6,000. That seems daunting. Saving money is not a waste of time like exercise or reading to your kids (we're joking of course - lighten up).
Our general advice? Marry a millionaire. Don't make our mistake! But, if you want to establish good financial plans, start with a savings account. Any savings account will do, really. The #1 thing to keep in mind is set a goal that makes sense for your budget. I'm going to start saving needs to be a commitment and not just a saying, like ‘Ooh. That sounds like fun’… or ‘I love you’. Here's a post we did on how to get started.
But Really? What should you look for?
1) How easy is it for you to access your money? Many savings accounts will limit your withdraws. Savings accounts aren't meant to be treated like they are checking accounts. You'll want to consider how many times you may need to access money from your savings. The answer should be zero, so this shouldn't be a problem. Another thing to consider - can you access ATMs for free in the event of an emergency or will you need to transfer your money from a digital account to your primary checking account? If your savings account is with an online bank that process could take days.
2) What are your expected returns? APY, or annual percentage yield, is important. It's the amount your account would grow over a year if your interest rate stays constant and you do not withdraw your interest earnings. APY takes compounding interest into consideration. Many major banks offer APY's as low as 0.01%. The national average is 0.24%, and it's not difficult to find offers up-to 1.30%. If you open an account with $100 and save $50 a paycheck over a year, the difference adds up to be just shy of $10. It doesn't sound like a huge deal, but when you're building wealth every penny matters. Compounding interest is your Jack McFarland, only it will help pay rent. You may also want to look at opening a Mango account, which can earn up to 6.00% APY on the first $5,000.
3) How stable are your finances? If you have a sizable amount of savings built up, it's probably time to start looking at options to diversify your accounts. Start to look at some investing tools to get started. There are a handful of mobile applications that will allow you to start investing in stocks today with account balances under $100.
4) Remember that savings accounts are FDIC insured up to certain amounts. More about those amount can be found here. You don't run the risk of losing account value on insured amounts, like you may when investing in stocks. With that being said, after you have establishing healthy savings patterns, stocks and other investments are a healthy part of any savings plan.
You can check out our top 3 savings accounts here for easy comparison.
That's it. We're done with being broke. We're into being rich now. Get back to Will & Grace, so we can enjoy all the memes you make after the show.