Standard Savings Accounts 101
The first step in a crash course about this type of banking is to understand the savings account definition. According to Investopedia, a savings account is “a deposit account held at a bank or other financial institution that provides principal security and a modest interest rate.”
In other words, the simple definition of a savings account is this: it’s an account that makes you money.
While there are different types of savings accounts, we’re talking about the standard account that you can open up at any banking institution with a small minimum balance requirement. Though it typically doesn’t offer significant interest rates, depositing or transferring money into this account on a regular basis is vital to stable financial health.
Maintaining and growing the balance of your savings account will afford the opportunity to open other forms of savings accounts and make other investments. But it all begins with the simple steps toward growing your balance.
4 Steps to Grow Your Savings Account
Actually saving money is the hardest thing about starting a savings account. But with these three simple steps, you can see significant growth and ensure a more financially stable future.
MAKE A RECORD OF SPENDING
You need to know how much you spend in order to know how much you can save. Take the next month to record everything you purchase or pay (coffee, cupcake, newspaper … everything!). At the end of the 30 days, organize these numbers by category and add the total amount for each.
- Gas
- Groceries
- Mortgage
- Car Insurance
- Restaurants
- And so on
MAKE YOUR BUDGET
Now, it’s time to build that budget plan. Eliminate overspending. Set amounts for purchase based on that one-month’s history. Think about other potential costs like car maintenance, such as an oil change, that may on an as-needed basis instead of recurring basis.
SET SAVINGS GOALS
Your savings goal should be at least 10-15% of your net income. If your expenses don’t allow that, then you may want to consider cutting back on how much you spend. There are likely some non-essentials that you can limit or eliminate.
Now, set some short-term goals (1-3 years):
- Want to go on a vacation?
- Need a new car?
- Behind on taxes?
And make some long-term goals too:
- Saving for retirement?
- Saving for you kids’ college education?
- Need a down payment on a house?
SET YOUR PRIORITIES
Think about which goals are most important to you. Decide on how long you can take to save up toward a goal. Determine how much you want or can put away each month to help you reach that goal. Once you’ve set these into a list of priorities, start working toward each one from top to bottom.
Other Types of Savings Accounts
If you reach a point that you’re ready to begin investing in other forms of savings accounts, there are a few you should consider:
- High-yield savings account offers a higher interest rate than standard savings accounts (short-term goal account).
- Bank Money Market savings account with a variable interest rate that usually grows as your account does (short-term goal account).
- Certificate of Deposit locks your money in at a specific interest rate for a given period of time (short-term goal account).
- FDIC-Insured IRAs are built specifically for retirement savings (long-term goal account).
- Securities (stocks, mutual funds) are investment accounts available through a broker-dealer and are not insured by the FDIC (long-term goal account).
We hope this breakdown has helped you understand a best practice for optimizing your savings account. The entire purpose of this type of account is to help prepare for short-term and long-term goals, as well as for unexpected expenses. But if you are currently struggling to keep your head above water, you have other resources that can help in the meantime.
You can consider a payday loan or car title loan to give some temporary relief in a time of great need. If you need more assistance understanding this type of option for financial assistance, please do not hesitate to contact us.