There are hundreds of savings accounts on the market now, catering to all sorts of savers.
Saving options are becoming more varied and accessible with the introduction of new financial technology companies. These solutions can start small by rounding up purchases to the next dollar and depositing that loose change into a more structured savings account like an automatic investment scenario.
Before opening up a savings account, you need to know why you want to or need to save money. Is it to put the amount aside- whether it’s for a holiday, further studies, marriage, emergencies, or simply for a rainy day.
Once you’ve decided what your plans are, your next job is to decide how much access you need to your money. Are you saving for a long-term project, such as a dream holiday in a year or two, or are you trying to build up an emergency fund?
TIP: A strategy that involves both an emergency fund and a future goal can be best served by using two different accounts so you can clearly see where you stand on each goal as time moves on.
In addition to looking at the interest rates on savings accounts, you also need to look at other factors such as minimum and maximum deposits, penalties for making withdrawals, and any notice periods that may be required to make a withdrawal.
If you might need to dip into your saved money at short notice, go for an instant access account. Still, if you can tie your money up for a while, you may be able to get a higher rate by going for a fixed-term account or something like a mutual fund where the best time to withdraw money isn’t always NOW!
While you want to get the best interest rate possible, there is no point tying yourself into an inflexible savings scheme and being forced to borrow at a higher rate to do essential repairs or pay unexpected bills.
At present, there are many banks, credit unions, and online FinTech companies where you can park your funds, but they will all not bring you good returns. Some of them do pay a bonus if you don’t make a withdrawal for a certain period, but if you do so, your interest rate is affected. Others specify a minimum amount that you need to keep in the account for it to remain alive.
The fine print matters.
If you already have a savings account that does not pay a very competitive interest rate, then you should consider making a switch to a different savings account where your savings can earn more in the way of interest. The difference in the amount that you earn in interest can be staggering in some cases with accounts that have larger deposits.
Savings are very precious and should be nurtured accordingly. Whether you are looking to invest a lump sum or saving regularly, there are options for everyone.