Savings

+ Where Can I Find The Best Savings Account?

There’s no single answer to this, and if there were, it could still change by the time you read this. If you’re looking for specific information on interest rates and financial institutions, check out the Wealthry blogs and some of our links to real-time information. We’ll point you to the best rates, best features, and best comparison points. In general, however, you have three basic options for setting up a savings account – traditional banks, credit unions, and direct banks (“virtual” or “online only” banks).

Traditional banks have been around forever. They tend to offer the widest range of financial services and have the most branches and ATMs and conveniences. Banks are for-profit institutions, however, meaning they’re in business to make money. There’s nothing wrong with that, but it’s worth keeping in mind as you compare bank interest rates looking for high interest savings options.

Credit unions are not-for profit institutions formed to serve a specific population – local educators, military families, employees of a specific company, etc. You can only do business with a credit union if you’re a member, which used to require belonging to the particular group it was formed to serve This may still be true in some cases, but these days joining a credit union isn’t usually much different than using a local bank. Credit unions may offer fewer services than traditional banks, but they generally offer the things most of us would expect, often on better terms because of their not-for-profit structure. You’re unlikely to find a particularly high yield savings account no matter where you go, but often the savings rates, CD rates, and other options available through credit unions offer better returns than traditional banks.

Finally, it’s quite easy these days to open savings account online. Direct banks (the “online only” sort) don’t have the overhead of your local bank or credit union and don’t have to maintain those nice lobbies or make popcorn while you wait. (To be fair, they don’t sponsor the local little league team, either.) Some offer a full range of financial services like a traditional bank while others specialize in specific services like personal loans for bad credit or refinancing your mortgage. This means that direct banks are often able to offer the best online savings rates and the top savings accounts options. They’re a large part of why your local bank or credit union is working so much harder these days to remain competitive. Thanks, healthy American competition!

Most brick-and-mortar banks have an online presence these days as well. Very often, you can do almost all of your banking online without ever going to a physical bank.

+ Other Saving Plans

Anything approaching high yield savings account rates won’t come from your basic savings accounts. Generally speaking, the lower the risk, the lower the reward. Think about gambling. When you pull that slot machine arm or buy that scratch off ticket, it’s almost certain that you’re going to lose your investment. You play because if you win, it could be huge! Usually, of course, you’re going to lose. That’s how the system is set up.

Investing in the stock market isn’t necessarily as risky as actual gambling, but the principle is the same – the higher the risk, the higher the potential payoffs and the potential losses. Anything you find that offers better returns than the highest savings account rates currently available probably comes with increased risk as well. That doesn’t make it a bad idea, but just like with gambling, don’t bet anything you can’t afford to lose.

Here are a few relatively low-risk ways to secure better returns on our savings…

• Certificates of Deposit (CDs)

If you’ve ever given or received savings bonds, you already know how CDs work. CDs are a form of low-risk savings in which you agree to deposit a specific amount of money for a preset amount of time (usually three to five years, although some are shorter or longer). When that time is up, you can redeem the CD for your original investment plus interest. Some investors will stagger their CD savings redemption dates so they don’t all mature at the same time. This is called “laddering” and it allows you to (a) access money when you need it without the penalties of early withdrawal, and (b) retain some flexibility regarding other savings or investment options with the funds.

CDs are issued by banks or credit unions, while bonds are issued by companies or the government. They’re otherwise very similar, although if you’re considering a substantial investment in one or the other, you should read up on the details in the Wealthry blogs first. CDs are considered “savings” in terms of FDIC coverage, and while cd rates aren’t always phenomenal, they tend to be higher than basic savings while making it less tempting to dip into them for impulse purchases.

• Money Market Accounts

These are essentially a hybrid between your typical checking account and a standard savings account. You deposit funds like you would with a savings account, but money market rates are historically higher than basic savings rates (although that hasn’t always been the case recently). You’re allowed a limited number of transactions of the sort you’d have with a basic checking account – withdrawals, writing checks, utilizing a debit card – but the goal is saving money, so these transactions are limited.

Recent money market rates aren’t noticeably higher than traditional savings account rates. If you’re considering this option, make sure to compare money market accounts from several different institutions as well as comparing money market rates to standard savings rates at the same institutions. If they’re the same, these may not be the best saving plan for your circumstances.

• Robo-Savings and Investing

This system is not nearly as bizarre as its name suggests. The idea behind robo-savings (sometimes called “micro-savings”) is to automate the process so you’re more likely to accumulate savings over time without feeling like you have less money to spend. It’s essentially an automatic change jar for your electronic transactions. The most common form of robo- or micro-savings looks like this:

Let’s say you decide to open savings account online as an emergency fund. You find the closest thing to a secure, high interest savings account you can, then link your credit card or debit card to the account through the micro-savings (“robo”) application using your laptop, phone, or other securely connected device. Each time you make a purchase, the application rounds up the amount to the nearest dollar and deposits the difference into your savings. You buy coffee for $1.29, it pulls 71 cents from checking or your credit card and drops it into your online emergency fund. You charge a vehicle repair for $345.62, it puts that extra 38 cents in your account.

Over time, you’ll discover you have several hundred dollars saved, then several thousand, all without every paying much attention to the dimes and quarters being set aside on your behalf. Now the micro-investing option kicks in.

Depending on what you’ve chosen ahead of time, once your account hits a certain level - $5, $50, $500, or whatever you choose – the app begins investing that money according to guidelines you’ve set. You can choose from stocks, bonds, real estate, or some combination of the three. Different apps offer different levels of control. The idea is that even relatively safe investments often offer stronger returns than even your top savings account rates. Because many of us feel like we have to have some lofty amount of disposable income before we can invest, micro-investing allows us to benefit from the markets without having to become experts in the process, all at relatively low risk to our savings.

+ Other Types of Savings

There are other, less well-known options for relatively low-risk savings for normal folks. You’ve probably noticed we keep reference the Wealthry blogs. That’s because they’re an excellent place to begin exploring your options in plain, simple English a little bit at a time. You don’t have to spend hours doing research; take 30 minutes a few days a week and you’d be surprised how much you can learn.

When we talk about other types of savings, though, some of what we mean are things any of us can do starting today to reduce how much we’re spending unnecessarily, over and over each month. It may not seem like a huge savings to lower your cable bill by $15 a month, or cut your utilities by a few hundred dollars a year, but these sorts of savings are recurring and cumulative. The best way to make them happen isn’t to plan a single miracle day where you stay on the phone for 39 hours and negotiate every place with which you’ve ever interacted into submission. It’s to be regularly attentive to the possibilities and set aside an hour or two a week to make those small, but recurring changes. We can help you do that.

Of course, sometimes the biggest savings come during the biggest transactions. Buying a home, financing a vehicle, taking out a consolidation loan to pay off credit card debt – we can help you know what to watch out for and where to tweak these transactions as well. It’s not about being overly focused on money. The money itself isn’t really the endgame. But the reality of modern life is that money impacts almost everything in our worlds which does matter to us – the opportunities we’re able to provide for our children, the level of medical care we’re able to afford for ourselves and our partner, the places we’re able to go, the careers we’re able to choose, and even the age at which we’re able to retire.

Money isn’t the Emerald City, but it’s often the Yellow Brick Road. The more efficiently and effectively we can travel it, the sooner we’ll be able to secure our individual goals.