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What you’ll learn
- What the average interest is for savings accounts
- How you can earn more interest
- Ways to stay motivated to save
- How to save for specific goals
Are you in a one-way relationship with your regular old savings account? Do you give, and give—and not get what you need in return? We’ve all been there.
Here are 3 signs that it’s time to find a newsavings account (plus, some eligible alternatives):
1. You deserve more (in interest)
Sure, yourtraditional savings account may have done the trick back in the day. But things have changed.
The Federal Deposit Insurance Corporation (FDIC) recently listed the average interest rate for a traditional savings account at just 0.42% annual percentage yield (APY). That means if your primary method of saving is with a traditional savings account, you might be earning just pennies in interest every month. You. Deserve. More.
Here’s the good news. There are ways to earn more interest that hardly require any effort on your part, like switching from a traditional savings account with an average interest rate to a high yield savings account or a money market account.With ahigh yield savings accountormoney market accountyou could be earning up to 4.5% APY. Will making the switch help you get rich? No. But it’s a super simple way you can sit back and earn more interest on the saving you’re doing anyway. So why not?
High yield savings accounts and money markets generally have some restrictions on the number of transfers or the number of checks you can write each month. Is money stuck in a savings account? While money in a savings account isn’t “stuck”, high yield savings accounts are best for funds you plan to mostly set aside and not touch too often. Choose a bank that doesn’t require a minimum balance (so you can start small, if you’re just starting to save) and doesn’t charge monthly maintenance fees.
Pro tip:
While their exact recommendations vary, financial experts agree that we should all have an emergency fund. That’s money saved to cover 3-6 months’ worth of essential expenses in the event of a layoff or medical emergency. A high yield savings account or money market would work well for an emergency fund.
2. You miss the fun in your banking relationship
It can be hard to get into the mood to save when you feel stuck with your status-quo savings account.
To help you get energized and stay motivated, consider opening a savings account with a specific goal in mind. WithSmartyPig, a free online savings account, you can set multiple goals for things like a vacation, a new car, your dream kitchen, or anything your heart desires.
Goal-based savings accounts are also great because they help create save-then-spend habits, where you save and pay for a specific purchase, rather than putting it on credit card you’ll need to pay off later, with interest.
SmartyPig even rewards savers with tiered rates. That means, the more money you save, the higher interest rate you’ll earn. Plus, you can earn referral rewards for sharing the love—$10 for every friend who opens a savings account and contributes to their goals.
3. You have big goals—and you want help achieving them
If you’re using a regular savings account to save specifically for higher education (yours or someone else’s), you could do so much better.
According toHigher Ambitions: How America plans for post-secondary education, a 2020 study by Sallie Mae and Ipsos, 42% of families use general savings accounts to save for college, saving an average of $13,270. Meanwhile 30% of families save for college with a 529 college savings plan, but those who do use a 529 plan save almost double —an average of $25,038.
Here’s my disclaimer: A529 college savings planis not a typical savings account—it’s a tax-advantaged investment account designed for saving for higher education costs. If you withdraw the funds for non-qualified expenses, you’ll owe taxes on your investment gains.
Of course, you don’t need to jump right in—research the pros and cons of a 529 plan, as well as how to use your 529 plan. But who knows, it could be a suitable alternative for you.
Go get ‘em, you savvy saver, you
See, there’s plenty of savings account options out there! Just start by identifying your savings goals and what you want out of your banking relationship. Chances are, with a little research, you’ll find the type of savings account that’s right for you.
