The average American has an inadequate amount of savings. According to the Federal Reserve’s last Survey of Consumer Finances, people 65 to 74 possessed the largest savings at an average of $60,410. Those between 35 and 44 years have approximately $27,910. And the safety net for growing families under 35 years old hovers around $11,250.
As hard-working families aim to build their emergency savings fund to cover a full six months of expenses, or if they receive a holiday bonus or come into additional savings, they are often unsure what to do with extra money. Keeping the return on investment and term length of various solutions in mind, determining where the extra money should be stored can prove overwhelming. Here are some savings options to consider.
Here’s What to Do With Extra Money to Keep It Working For You
Whether you came into unexpected money or are determined to put more into savings each week, there are important money-saving tips to consider. The most important tip is to position your funds to ensure they are generating passive income while staying ahead of inflation. The good news is that the following savings products can help you do just that while successfully growing your money.
1: Money Market Account
Money market accounts offer unique features not always found in other savings solutions. They typically offer higher rates for higher balances which is much more interest-earning potential than if your money were held in a passbook or traditional savings account.
Money market accounts also may include check-writing and debit card opportunities. Money market accounts offer a maximum of six withdrawals or transfers per month and feature minimum deposit requirements. Money market accounts are designed to help people save money. If there were no withdrawal limitations, the money would be used similarly to a checking account and monthly bills would pass through while savings goals would be defeated. Another great feature of Money market accounts is that they are federally insured by the NCUA. It offers peace of mind as your savings continue to grow.
2: Certificate of Deposit (CD)
Certificates of deposit (CDs) are a great savings tool to receive guaranteed interest. This solution locks your money into a set term typically ranging between 6 months to 5 years. Based on the term, you are guaranteed to receive a set amount of interest for that time period. Dividends (also known as interest) will be calculated on a day-to-day balance, paid monthly and at maturity. When the term ends, your certificate of deposit will be automatically renewed or transferred into your savings account.
Unlike money market accounts, no withdrawals are allowed. When considering a CD, be sure to review your term options and ask what rate you will receive once your CD is renewed. Certificates of Deposit are also federally insured by the NCUA.
3: Checking Account
A checking account that offers top-tier interest can provide some money-saving value. Although these are not necessarily the best products to grow savings, the right checking account can offer complete access to your funds while boosting your balance by offering a premium rate on your balances.
In order to ensure you find the best high yield checking account available, start by researching your options. Always start with your local trusted financial institution. Conduct some due diligence to compare interest rates, minimum balance requirements, fee schedules, and additional requirements such as account minimums or direct deposit. Explore what additional benefits you may receive such as surcharge-free ATM’s or access to CO-OP Shared Branches. A checking account is not necessarily the first choice to grow savings. However, the right checking account can deliver high interest rates without restricting access to your money.
4: High Yield Savings Account
A high-yield savings account differs from traditional savings accounts by rewarding consumers with higher interest rates than one would typically receive with a traditional or passbook savings account. When looking for the best high yield savings account, be sure to consider not only the Annual Percentage Yield (APY) you will be receiving, but also if any minimum balance requirements or monthly service fees exist.
While most high yield savings accounts have a variable or changing rate of return, if consumers prefer the certainty of guaranteed interest, certificates of deposit are a possible alternative. Both of these options come with the peace of mind of being federally insured by NCUA.
5: Treasury Bills
A U.S. Treasury Bill is backed by the government, making it the safest place to save money, bar none. Sometimes called T-Bills, these saving options are usually sold in increments of $1,000. Considered a short-term opportunity, T-Bills generally mature within one year.
Although Treasury Bills time out in one year or less, interest rates are higher at the 52-week mark than at one or two months. Buyers may also enjoy opportunities to purchase at a discount. For example, you may be able to purchase a $1,000 T-Bill for $950. Another key benefit of buying this government-backed product is they remain exempt from state and federal taxes.
6: Relationship Accounts
Relationship accounts are a special offering most often found at community-based financial institutions. These relationship-based accounts aren’t specifically an account for savings, but they do reward members for the deep relationship they have developed over the years with the lender by offering additional earnings and higher interest rates on money deposited at the institution as well as lower loan rates.
As an example, if a member meets certain criteria such as a minimum balance requirement, direct deposit, debit card usage, has a loan or mortgage with the lender, and receives eStatements, they may be substantially rewarded with additional interest on certain accounts and loan discounts. Be sure to contact your local lender to see if you qualify for any relationship-based account discounts or perks.
Not Sure What to Do With Your Extra Money? Finex Can Help
If you are interested in placing money in a secure solution such as a high yield checking account, money market account, certificate of deposit, or a relationship-based premier account with a robust interest rate, Finex can help you decide the best solution for your individual needs. Contact us today to get started.