A surprising 69% of adults say they have less than $1,000 in their savings accounts, and another 34% have no savings whatsoever, according to CNN Money. Part of the reason for this is that people often leave all of their money in a single checking account, chipping away at potential savings with every debit card swipe.
The checking-only approach can make it difficult to set aside any money as savings, as it can be easy to spend whatever is in your checking account. The primary purpose of a separate account is to ensure you do not spend the money, either intentionally or accidentally. The money in a savings account will slowly start to grow through regular deposits, and you’ll also earn interest on the money in the account.
In the event of a financial emergency, a savings account ensures that you will not have to worry as much about how you will be able to keep paying bills and cover other necessary expenses. Plus, you do not have to max out your credit cards to get you through your personal finance crisis.
How to Start Saving
It can be difficult to get into the habit of setting money aside, but it quickly becomes second nature with practice. The best place to start is to look at your usual expenses and find opportunities for small changes.
For example:
- If you spend $6 a day at your favorite coffee shop, cut down to 1-2 days a week and put the rest of the money into savings instead.
- If you dine out daily for lunch, consider packing your own lunch and putting the amount you would have spent into savings each week.
- Have a small percentage of your paycheck automatically deposited into a savings account. Most people can still cover their monthly obligations while setting aside around three to five percent of their take-home earnings.
Watch Your Money Grow
To give you an idea of how savings can start to become significant, let’s look at an example:
- You open an online savings account with a $100 deposit. This is a high-yield savings account with a 0.75% annual interest rate. This means that at the end of each year, you will earn 0.75% of the amount currently in the account.
- Every month for the next ten years, you deposit another $100 into the account. Each time you make a deposit, the amount of money earning interest increases. Assuming you don’t make any withdrawals, you’ll have $1,200 at the end of your first year. At a 0.75% annual savings rate, $9.00 will be added to your balance (1200 x 0.0075 = 9).
- This interest compounds on itself, building your savings faster as it grows. At the end of ten years, your savings will have grown to roughly $12,500. If you continue saving like this for thirty years, you will have around $40,400 in that account. You can grow your overall savings even faster with other types of accounts.
NOTE: Please keep in mind the example depicts simple compounded interest to illustrate the benefits gained by saving and does not construe the actual amount of interest you could earn.
How to Use Your Savings to Your Advantage
As your savings start to grow, you can do other things with the money to earn more money.
Some common options include:
- Opening a high-yield, short-term CD (Certificate of Deposit) account. These tend to offer a higher interest rate than other types of savings accounts, which means you can earn more in a shorter amount of time. Bigger deposits take the greatest advantage of the interest rate, so that unexpected $1,500 windfall is a perfect candidate for growth!
- Investing some of your savings into U.S. Treasury Bonds. These bonds pay interest every six months, up to the life of the bond. Interest rates and bond lifespans vary.
- Diverting part of your savings into an IRA (Individual Retirement Account) to prepare for retirement. IRAs normally have a much higher yield than other savings accounts, so it is easy to grow your IRA savings to $1 million or more with the right investments!
Get the Best Saving Rates in Texas at Our Credit Union
Finding the right savings account and CD rates is a key part of maximizing your personal finance. Different banks offer different rates and benefits, and there’s also a difference between typical banks and credit unions. Before you open an account, take the time to find the right fit.
Banks and credit unions offer many of the same things, but banks are typical private businesses looking to make a profit. A credit union is a non-profit, member-owned financial institution that provides services solely for the members’ benefit.
At The People’s Federal Credit Union (TPFCU), we offer competitive interest rates for savings accounts, CDs, IRAs and more, without any of the monthly fees or hoop-jumping of other banks. We also offer convenient online and mobile banking services, making it easy to manage your money your way.
For more information about our services or how to open an account, feel free to stop by your nearest TPFCU branch today or call us at 806-359-8571.
