A Cacophony Of Considerations
So many considerations come into play when you sit down and decide what kind of banking relationship you need to suit you and the protection and growth of your finances. As you surf the internet and visits sites such as this, it may seem like there are hundreds of considerations crying from all directions for your attention. Most everybody has a transaction account, often called a chequeing account. And they usually have it linked to a savings account.
While this sort of relationship certainly protects your money, there will come a point when it is not delivering the type of yield any smart money manager, or householder, looks to secure. When you start looking for better yields from cash you have laying around, you have to consider a number of things. Though this list is not comprehensive, it can help you get started with developing a savings strategy:
- Are you in debt? How much and to what kind of creditors?
- Do you have a mortgage? Rent or lease?
- Can you set aside money regularly? How much?
- Are you married or part of a couple? Do you have two incomes?
- What kind of access to your funds will you need?
- Do you need links from your savings account to other accounts?
- What are your short-term saving goals?
- Do you have long-term savings goals?
- How are you planning for your retirement?
Having Goals Can Make Your Savings Work For You
Of course, when you put your money into a savings account, you're aiming to make every cent that you can in interest. How you intend to use the money you stash away will have a considerable effect on the type of savings accounts you require. If you have the money or intend to accumulate it, you have to figure how you want to use it in the future.
Every household should have a rainy-day fund. That should be the sum of about three months of all your recurring expenses plus a little extra. But you will want to have access to it without too much difficulty, and without any penalties for withdrawals that you may need to take for emergencies.
If you are looking to save for a home down payment, a car, a wedding, or an education, you will want as high a return as possible, but you won't necessarily need instant access. Planning for retirement may take you beyond just savings into the realm of stocks and bonds, investments, or other high-yield financial products. You need to set some goals for tomorrow, next year, and on.
Get Yourself To Thinking
If you presently have a normal savings account linked to your transaction account, chances are that the money in that account is not earning the interest it could. As you start shopping around, you're going to want to consider other venues for your savings including:
- Best Regular Savings Accounts (often linked to a transaction account)
- High-Interest or High-Yield Savings Accounts
- Online Savings Accounts
- Term Deposits
As you examine each, you will want to particularly pay attention to:
- Banking fees or charges – maintenance and penalties.
- Minimum deposits and minimum balances required.
- Accessibility – instantly, monthly, quarterly, annually, etc.
- Interest rates and when they are figured – daily, at term, etc.
Easy To Get, But Look For The Best
If you have only recently been able to start saving and you are just building your first savings account, a regular savings account linked to your transaction account should suffice. Your first savings goal should be an emergency fund. Of course, choose the bank offering the best interest rates and try to find one with minimum (or none) fees for maintenance and withdrawals.
This is probably the best place to keep your rainy-day fund because of its ease of accessibility. Once you have your emergency fund built to a comfortable level, you will want to start looking for a place to stash the cash beyond those required for any emergency needs.
Making Good Money With High-Interest Or High-Yield Savings Accounts
High-interest (high yield) savings accounts generate bigger interest rates and high annual percentage yield. They also require a somewhat large deposit initial deposit, though this varies widely, so you will have to shop around to find the best fit for your financial situation. You may be required to maintain a minimum balance and time limits may be involved.
The institution may offer you a couple of bonus interest points for the first few months that you have the account, which can be a nice little pat on the back. If you stick to a few rules, you will be rewarded nicely, or more so than with your regular savings account. Use this kind of account for your real savings – money toward a boat, a down payment on a house, or another high-ticket purchase.
Online Savings Accounts Offer Large Rewards
Online savings account are much like high-interest savings accounts, but there is not a brick and mortar institution to visit. Everything is done online. Because of this streamlined facility, you will probably find lower fees, if any, and higher interest rates.
Look for bonus interest offers here, too. If you don't have a regular institution to which the account is linked, it may take you a day or two to actually get a hold of the funds when you want to use them. Consider this a boon because it may keep you from spending too freely.
Serious Savers Use Term Savings Accounts
These accounts are for very serious savers. Consider them low-risk investments. They provide particularly high interest rates, but the money is hard to get a hold of during the term of the investment and should you have to withdraw, you will face loss of interest and penalties.
These can be a step toward building a retirement fund or paying for a higher education for the kids. These accounts are for the long-term and for high earnings. Since the funds are not to be tapped lightly, these help individuals develop better money management skills – like saving.
Interest Rats And Fees Mean A Lot
When you're shopping for a savings account, remember that no matter how small differences might seem between two or more savings accounts, over time those small fees and interest payments can really add up.
For example, one account might have no monthly fee while another savings account charges a small monthly fee of $5. That doesn't sound like much, but think about it – that's really a $60 fee over the course of the year. Don't ignore subtle differences in interest rates either. Even a half of a percent can amount to a good bit of money depending on how much you put into savings.
Set an empty cup under a tap with what seems a measly drip. Come back a little while later and you'll be surprised how the cup is running over. Thus can savings accumulate if you watch your pennies, watch your interest rates, and watch your fees when figuring how to best earn the most money with your savings.