by Kimble Schiller
Ways to Save
Whether for a specific goal or just as security against life’s unpredictability, it always pays to save.
If you have extra money sitting around in your checking account, it is probably not doing any work for you. Plus, you risk it losing value to inflation. Today’s money can grow through interest over time.
This list can help you find savings assets that suit your lifestyle and savings goals.
Remember, it can pay to shop around at banks and credit unions to compare product options. Consider factors like minimum balance requirements, annual percentage yield, compounding frequency, fees, and insurance protections from the FDIC or NCUA. Some institutions also offer student account discounts.
High-Yield Savings Account (HYSA)
These accounts typically offer a higher yield (APY) than a simple savings account while still keeping your money easily accessible.
It might be a good idea to set up a direct deposit into this account. By setting aside a fraction of your paycheck for this account, you are not only paying yourself, but might even qualify for a higher APY. What’s great about HYSAs are that the money in the bank is FDIC insured.
Since the interest earned may not be that high, it is generally a good idea to diversify your savings so you have a better chance at beating inflation.
Money Market Account
On average, these tend to pay interest at a somewhat higher rate than a basic savings account. Both are very liquid, which is great for something like an emergency fund. Another plus is that the money is usually insured.
However, remember that money market accounts have limits on withdrawals as well as higher balance minimums than simple or high-yield savings accounts. A fee may also be charged if the balance falls below a certain amount.
Most money market accounts have a variable interest rate that changes with market conditions over time.
Certificates of Deposit (CDs)
CDs are term deposits with maturities from six months to five years. You agree to lock in your money for a specific period, and in return, you get a guaranteed interest rate that is often higher than what you’d earn in a savings or money market account. The longer you lock in your money, the better the interest rate.
Remember, though: a minimum deposit is required, and there are penalties for early withdrawal.
Great for medium-term to long-term goals where you don’t need immediate access to the funds.
U.S. Treasury Bills (T-bills)
For those looking for a safe, government-backed option, T-bills offer a fixed rate of interest over a set period. You can these buy online with an easy-to-open TreasuryDirect account (www.treasurydirect.gov).
Available with terms to maturity of 4,13, 26, or 52 weeks. Best for short- to medium-term savings with very low risk.
U.S. Savings Bond
Similar to T-bills in that these are also issued by the U.S. Treasury. U.S. savings bonds offer a fixed rate up to 30 years, making them a very long-term option. Savings bonds are more restrictive than liquid, but if you’re willing to wait, it may still be a good choice for you.
Also good to note that assets issued by the U.S. Treasury are exempt from state and local taxes.
High-Yield Mutual Fund
We are getting a bit into the investment side of things here, but if you are alright tolerating a little more risk, these are great to consider for your savings portfolio. These funds invest in a diversified portfolio of assets, which could lead to higher returns than traditional savings products. It is a great strategy for passively playing the stock market.
A note on diversification:
Don’t put all your eggs in one basket. No matter your goals, it’s essential to diversify your assets. By spreading your savings across various products, you reduce the risk of losing money in case one underperforms. Diversification helps balance risk and return over time, allowing you to feel more comfortable while your savings grow.
Remember, everyone’s savings goals are going to look different. Your best option depends a lot on when you will need your money. If you are curious about anything here or have questions about how to apply it to your unique financial situation, drop by our office hours!