Money Saving Tips: Navigating a Sea of Savings Options
Reading time: 4 Minutes
May 14th, 2021
Learning how to save money doesn't have to be hard. After you've reviewed how to create your own budget, you'll know how much you have leftover each month to stash into savings.
Once you have an emergency fund squared away, you can begin to explore the different types of savings accounts that can help your savings grow. While there are plenty of places you can invest your savings, the guide below will help you understand your options and choose the account type that aligns with your savings habits and financial goals.
One of the easiest and best ways to save money each month is with a savings account. Most of us already have a checking account, but not all of us have a savings account. Having a savings account at the same bank as your checking account allows you to easily set up automatic transfers between accounts. This gives you the ability to create automated deposits into your savings account, which will help build your savings over time.
A savings account also offers interest on the sum of money you keep in this account. Interest is the amount of money the bank will pay you for keeping your funds on deposit and is expressed as an annual percentage rate (APR). For example, if you have $100 on deposit at a bank paying 0.10% APR for your savings account, the bank would pay you $0.10 per year in interest. Checking accounts do not offer the ability to earn interest.
One point to consider, however, is that a savings account limits the number of withdrawals you can make to six per month. This limit on savings account withdrawals comes from the Federal Reserve Board Regulation D, which says you can't make more than six withdrawals or transfers per month out of your savings account to ensure banks have enough money in their reserves. If you go over this limit, your bank could charge you fees or choose to close your account.
The interest earned in savings accounts is usually pretty low, but you'll trade off earning a higher interest rate for easy access to your money. This makes savings accounts ideal places to keep your emergency fund or other money you're saving for near-term expenses. Need help finding the best savings account? Use these tips to guide you.
Money Market Accounts
If you're looking for an account that offers the opportunity to earn interest, like a savings account, but also has the flexibility to withdraw money, like a checking account, a money market account could be a great option.
Money market accounts function like regular savings accounts where you'll earn interest on your deposits. However, money market funds usually reward savers with higher interest rates and additional account features, such as debit cards. Keep in mind, these accounts usually have a higher minimum balance requirement both for opening the account and avoiding fees each month.
Certificates of Deposit (CDs)
If you don't need the easy access to your cash like a savings or money market account offers, a certificate of deposit (CD) could boost your savings even more.
With CDs, you'll generally earn a higher interest rate than with a savings or money market account, but you'll need to lock up your funds for a pre-determined period of time. You won't be able to withdraw funds before that “lock" period is up without paying an early withdrawal penalty.
CDs are often overlooked among money-saving tips because of this “lock" feature, but if you're saving for a goal in the future, you can easily invest in a CD with a term that matches your goals and avoid any penalties. Common CD terms range from one month to five years.
Now you know how to save money in several different types of savings account and when you might consider using each type. The most important thing to remember is that no matter your saving goals, there's an account that will align with your needs.
For more savings strategies to help tackle the high cost of living in Hawaii, read Tackling the Prices of Paradise: Savings Strategies for Better Money Management.
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