How smart a saver are you?
Do you count every penny or have a set amount that you put aside, no matter your situation? Or have you decided that saving your money is something that you’ll start doing in the future (instead of today)?
In the post-coronavirus economy, US consumers are saving at their best levels in a decade. In fact, if you comb through the data from the start of the pandemic, the personal savings rate hit an all-time high of about 34 percent. Will it ever reach that point again? Probably not. But that still should not discourage consumers from maintaining the savings momentum from earlier this year.
But as the finance industry grows and offers a diverse array of investing and savings options, where should you park your money?
Here are six great saving accounts for building your money over time:
1. Regular savings account
We’ll start with the basics. Chances are if you have a bank account, you also have a regular savings account.
It is nothing exciting or groundbreaking, but it’s an important first step in your money management journey. You deposit money into your savings, receive monthly interest, and enjoy quick access to your capital. It is convenient and a great way to develop an emergency fund or begin saving for your retirement.
No matter what type of saver or investor you are, it is always a good idea to routinely transfer money from your checking account into a savings account, even if you only receive 0.05 percent on your money per year.
2. Certificate of Deposit (CD)
Certificates of deposits, or CDs, will typically provide you with a higher rate of interest than a generic savings account. The problem? You will not have access to these funds for a specified period.
CDs range from 30 days to five years. The longer the term, the better the interest rate. The difficulty is that you agree not to withdraw the money until the CD’s term has matured. If you must access this money, you will pay an early withdrawal fee.
Because interest rates are too low and you may not feel comfortable locking in your cash for one, three, or five years, you can always employ the CD laddering tool.
This is what you do:
- Divide your savings into five separate GICs.
- Allow your GICs to mature and reinvest the money (principal plus interest) into a five-year term.
If you choose to sit on the sidelines in the financial markets, you can always accumulate interest when you are employing this strategy.
3. Money market account (MMA)
Money market accounts (MMAs) combine the benefits of checking and savings accounts. You will receive interest, and you will also receive a debit card and a checkbook. MMA holders get better interest rates, but some caveats include a minimum balance requirement and a minimum deposit requirement. This is needed because, otherwise, you will pay a monthly fee.
4. Investment checking account
A checking account is critical to have in today’s world. Without one, it isn’t easy to conduct your day-to-day affairs. At the same time, having too much cash in your checking account has its disadvantages. The biggest drawback is that these funds lie dormant and get eaten away by inflation.
If only there were some way of making a checking account function like a savings account and an investment vehicle. Behold the investment checking account!
The checking and investing account has two distinct advantages: it pays a monthly variable interest rate and allows you to invest directly from the account.
Put simply, this type of accounts combines all the benefits of checking, savings, and investing accounts.
5. Cash management account (CMA)
Cash management accounts are not as prevalent as you would think, but CMAs are still an option for yield-hungry consumers. CMAs are a financial product available through online robo-advisors and investment firms, typically offering account holders higher interest rates that exceed those of high-yield savings accounts.
However, the problem is that CMAs are not technically bank accounts; although they do offer some of the features of checking and savings accounts, it is not as easy to withdraw or deposit cash.
6. Direct investing
A direct investing account allows you to participate in the stock market, buying and selling companies at your discretion. As long as you have funds in this account, you can trade like a pro, putting 1,000 shares into Walmart or 100 shares into Tesla Motors. You will not earn interest, but you will also not face a monthly fee. The main point of this account is just to invest.
The finance industry has hundreds of accounts, products, and services that encourage you to save and invest. Sure, interest rates might be at historic lows right now, but there are still great ways to make your money work for you, thanks to the earning power of savings or investment accounts.
Your future self will thank you!