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The national average interest rate on savings accounts is only 0.06%, according to Bankrate data from November. Ouch. The good news? You don’t have to go with such a low rate. First, look at online banks, as many offer higher rates – sometimes four or five times the average – than traditional banks, experts say. LendingClub offers 0.60% APY for accounts of $ 2,500 or more, and Marcus by Goldman Sachs offers 0.50% APY with no minimum, as do Chime, SallieMae, Synchrony and a handful of others, as you can see below.
Of course, these rates will not make you rich. And if you are willing to overcome more obstacles, you can earn more. “Varo is one of the banks offering 3%, but be sure to check their requirements to qualify as certain conditions have to be met. The same goes for Aspiration, which is not a bank but pays 3-5% depending on the type of account you get, ”explains CFP board ambassador Luis F. Rosa. With Varo, for example, you start by earning 0.50%, but then you can get an APY of 3% if you receive total direct deposits of $ 1,000 or more in each referral period, keep a savings balance. daily of $ 5,000 or less for the entire calendar month. , and keep your bank and savings balances greater than or equal to $ 0.00 for the entire calendar month.
Seeing these rates, some people may wonder: is it even worth saving now? Yes, under certain circumstances, experts say. “Emergency savings or funds that you will need in the short term should be placed in an easily accessible account without penalties or tax consequences. Since the main goal is accessibility and security of capital, it’s normal to swap a low interest rate for that, ”says Rosa, who adds that short term means around a year or less. Johnson + Sterling Financial Planner Scott Ward adds: “Since unforeseen events such as car repairs and medical bills can arise, the first step in a strong financial plan is to set up an emergency fund. . While it would be nice to get an attractive return from your bank on emergency savings, the main goal is to have the funds on hand when the uh-oh happens. A reasonable goal, says Ward, is to have between three and six months of fixed expenses set aside in an emergency fund.
If your savings goals are longer term, in a year or more, you might want to think outside the box. Robert Conzo, CEO and Managing Director of The Wealth Alliance, calls the U.S. Government Series I Savings Bonds, which currently pay 7.12% for bonds purchased through April 2022 and have a minimum term of ownership of a year. You may also want to consider a CD as part of your savings strategy if you think you won’t need all of your money at once, or if you only need to access it after the maturity dates. CD. “Depending on the goals of your financial plan, it may be a good idea to review some investment and DC strategies for spending that will likely occur beyond the next two years,” says Ward. If you’ve saved up some money for a house down payment but don’t plan to buy the house for 1-2 years, Rosa says, “You might want to consider a short-term CD, like 9 months. at one year. , provided that the interest rate is higher than the rate offered on a high yield savings account.
CDs are also a good option if you can’t afford to be risky with your investment. Cory Phillips, Financial Advisor at Fort Pitt Capital Group says, “Within 2 years you can compare CD rates to money market funds or other safer short term investments which are all viable options with a short time frame until you your funds are needed. If you have a period of time greater than about 3 years, your options keep growing.
However, as the time increases for you to keep your money invested, making a case for a CD being a good investment may decrease. If your goal is far away, investing is probably the smartest game. “While the money in your bank account is safe with FDIC insurance, it loses purchasing power over time due to inflation,” says Rosa. This means that if you leave money in the bank with a low interest rate for years, you will be able to buy less with that money in the future, and the little interest you earn is taxable as well. “It’s a good idea to start investing in something that over time is likely to provide a higher rate of return in order to combat the effects of inflation and taxation on income,” Rosa declares.
Ultimately, Conzo says successful savings mostly depend on being able to save and how diligently they are about it. “For long-term goals, such as saving for retirement, we recommend that you set up an automatic savings plan on a 401 (k), IRA or investment account, in which you invest a monthly amount. fixed to take advantage of the average cost. As my grandfather used to say, “If you save $ 0.50 on every dollar you earn, you’ll be fine,” says Conzo.
