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An estimated 49% of Americans consider themselves financially secure, while roughly the same amount have less than $5,000 in their savings account, according to a YouGov study. While economic conditions certainly play a role, better savings account management would likely improve these numbers.
For many people, a savings account is a set-it-and-forget-it account, which is beneficial if you're making automatic deposits and growing your wealth. Still, it's wise to keep an eye on your account and look for opportunities to make your savings work harder. Here are seven practical ways to manage your savings account more effectively to maximize your account growth and help you progress towards your savings goals.
1. Choose the Right Type of Savings Account
Getting the most out of your savings account starts with considering your financial goals and how soon you might need to access your savings. When choosing your savings account, you have a few options, including:
- High-yield savings account (HYSA): You can usually find these higher-earning savings accounts at online banks, though some traditional financial institutions also provide them. High-yield savings accounts can earn up to 10 times more than traditional savings accounts, but make sure your bank also offers checking accounts (not all do) if you want the flexibility to make quick transfers between accounts.
- Traditional savings account: These standard savings accounts are offered by conventional banks and credit unions and often come with checking accounts, so you can quickly transfer money between the two accounts. According to the Federal Deposit Insurance Corp. (FDIC), the average savings account interest is 0.40% as of May 2023.
- Money market account: These accounts combine the main features of savings and checking accounts with the ability to write checks and use a debit card, and rates typically exceed those of traditional savings accounts. Consider a money market account if you want greater access to your funds while still earning interest on your savings.
- Certificate of deposit (CD): Certificates of deposit (CDs) are a type of savings vehicle where you agree to leave your deposit untouched for a predetermined period in exchange for a high-earning, fixed-interest return. As a general rule, the longer the CD term, the higher the interest rate.
Find High-Yield Savings Accounts
2. Set Your Savings Goals
Setting financial goals can help you stay motivated to stick to your savings plan. When you have a clear goal you're saving for, like a home down payment, vacation or emergency fund, it's easier to resist the temptation to spend.
Once you've established your goals, you can draw out a time-specific plan for reaching them. For example, if you wish to save $3,000 for a dream vacation in one year, you can set up automatic deposits of $250 each month. After a year, you'll reach your $3,000 target, plus any additional interest your account accumulates.
3. Create Automatic Savings Deposits
Setting up automatic savings deposits is one way to simplify your savings efforts and grow your account. If your employer allows it, you can set up automatic transfers from your paycheck or create auto deposits from your checking account directly into your savings account. Ideally, schedule these deposits each payday or at regular intervals such as weekly, bi-weekly or monthly.
Paying yourself first with automatic savings deposits means you are prioritizing your savings. Instead of saving whatever amount is left over after you pay your bills, you allocate funds to your savings account before spending on anything else.
4. Consider Opening Multiple Accounts
Setting up multiple savings accounts, or sinking funds, can help you organize your money to help you achieve different financial goals. For example, you could use one savings account to build an emergency fund, another for a vacation and a third to purchase a car. By creating dedicated accounts for each of your goals, you can easily monitor your progress toward each goal.
Additionally, opening new accounts allows you to take advantage of new bank account bonuses and any higher interest rates that may be available. However, some banks charge monthly maintenance fees, which can add up quickly.
5. Follow a Budget Plan
Achieving your savings goals requires discipline to avoid overspending and dedication to make consistent deposits into your accounts. Following a budget strategy that prioritizes savings can help to ensure your savings account grows even as you meet your monthly bills and other expenses.
As mentioned, the pay-yourself-first budget is a simple way to deposit money you set aside for specific financial goals and use your remaining funds to cover your other expenses. The appeal of this budget plan is that you don't have to track every dollar. You simply need to ensure you have enough money to pay your mortgage, rent, utilities and other obligations.
The 50/30/20 budget is another simple plan, but it may clarify your finances by dividing your money into three categories: necessities (50%), wants (30%) and savings (20%). Of course, you can change the percentages to better align with your goals as needed. By ensuring you save at least 20% of your income, this plan helps you develop a consistent habit of saving to ensure steady savings growth over time.
6. Link Your Accounts to a Budgeting App
Your bank likely has an app to help you manage your account. But if you have multiple accounts, tracking your savings could be more complicated and time-consuming. Connecting your savings accounts to a budgeting app can simplify the process of tracking your spending, savings and net worth across multiple accounts.
Budgeting apps such as PocketGuard allow you to set savings goals and monitor your progress toward your goal with a motivating visual. These apps can also import balances and transactions from any linked account to give you a quick snapshot of where your money is going and how much you have available. Most budgeting apps provide spending reports, which can help you identify spending you can cut and redirect toward your savings.
7. Consider Your Savings Untouchable
Only dip into your savings as a last resort and aim to use your accounts for their intended purpose. For example, tap into your emergency fund only for a genuine emergency. It can also be wise to avoid using savings to pay off debt, especially if you don't have a fully funded emergency account or are behind on your long-term savings goals, such as retirement.
Instead, trim expenses or take on a side hustle to create extra funds to pay down debt. Debt repayment strategies such as the debt avalanche and debt snowball methods can also help you reach the goal of being debt-free.
The Bottom Line
Developing the habit of saving money is essential to progress toward your financial goals. Managing your savings account more effectively can help you save more money. Use all the tools available to you, including automatic deposits, multiple savings accounts and budgeting apps. Taking steps to manage your savings better will help you achieve your savings goals and grow your wealth over time.
While saving money is a core element of your financial health, your credit also plays a significant role. Good credit can help you snag lower interest rates on loans and credit products like home and car loans, and credit cards. These lower rates can translate into tens, even hundreds of thousands of dollars in savings over your lifetime. Regularly check your credit report and credit score for free with Experian and make changes as needed to improve your credit.