7 Tips to Make the Most of Your Savings Account

best savings account

Take a look at your “high-yield” savings account. Today you’re lucky to see 1% annual percentage yield (APY) on a savings account. While that could change in coming months – the Federal Reserve is expected to raise its benchmark rate in 2017 – you’re probably not going to see big changes in savings accounts.

That doesn’t mean your savings account is useless. The best savings account is the one you work into your financial situation so you’re more likely to reach your goals. Before you decide that putting your money in savings isn’t worth it, here are some ideas for how to make the most of your cash savings.

Looking for yield

Even the highest interest savings account isn’t going to offer you much in terms of yield. If you want the best chance at getting a little extra, you may need to make some concessions.

Higher account minimum

If you are willing to overlook the $0 account minimum, it’s possible to squeeze a little extra yield out of many savings accounts. Some banks, like EverBank, offer higher yields – as long as you are willing to put a lot more into the account.

There are plenty of banks that offer tiered systems. Technically, you enjoy a $0 account minimum. However, you might not get the best rate unless you keep more money in the account.

Certificates of deposit (CDs)

Sometimes the best savings account is a CD. With a CD, you have the chance to lock in yields that are higher than what you can get with a regular savings account.

The downside to this type of high-yield savings account is that you are penalized if you withdraw the money before the CD matures. You have to be willing to let the bank have your money for a longer period of time if you want the higher yield.

Money market accounts

Another type of account with higher interest is the money market account. You usually end up with a rate that is linked to current money market rates. The safest money market accounts are still FDIC-insured.

Money market accounts offer higher yields because they are linked to low-risk bonds and other relatively liquid instruments. Usually, there are account minimums and you might be subject to fees. Double-check to see if this type of account makes sense for you. If you’re not careful, the fees can offset any advantage from a higher yield.

Credit union

If you can’t find what you want at a bank, consider heading to a credit union. In general, you’re going to find the highest interest savings account at a credit union. The National Credit Union Administration (NCUA) tracks comparisons between credit unions and banks. On average, credit unions offer higher yields on their deposit products.

Is looking for yield worth it?

In the long run, it might not be worth it to look for yield from savings accounts. Most major banks have similar rates, so jumping around might not make sense.

After all, is there such a big difference between receiving 0.95% APY and 1.00% APY? Say you put $10,000 in a savings account. At the end of one year, you have earned $95 in interest with a 0.95% APY. With 1.00% APY, your one-year interest payment adds up to $100. That’s a difference of $5. How much time did you spend doing the research to chase that yield? If you spent more than half an hour, you “made” less than minimum wage.

It’s probably not worth the trouble. Instead, you’re better off focusing on the why behind your savings account.

Access and liquidity for emergencies

The best savings account is one that offers access and liquidity. You keep money in cash because it’s easy to get to. You don’t have to wait for a stock trade to settle. It’s not tied to your home.

Your savings account is about being able to access your money when you need it. And because it’s cash, it’s instantly negotiable.

This is why a high-yield savings account is great for your emergency fund. If you run into a problem, you can immediately get the cash for a car repair or to replace a major appliance. For short-term emergencies, a savings account makes a lot of sense. Your short-term emergency fund is where a savings account can really shine.

Short-term savings: safety

Your savings account can also be useful for short-term goals, like saving up for a large purchase or a vacation. You don’t want to risk losing a chunk of capital that you know you want to use in the next couple of months.

If you are saving up for a family vacation, you don’t want to risk a market event happening just before you liquidate your shares to pay for your trip. Most short-term savings goals, from an expensive new computer to a down payment on a car, are accomplished in a few months – and you want to know your money is safe.

Choose a savings account that is insured by the FDIC or NCUA, and you won’t have to worry too much about losing the capital. Plus, you know you don’t have to worry about losing your principal to the vagaries of the stock market.

Don’t use a savings account for long-term wealth building

While a savings account can be great for short-term goals and emergencies, it’s not a good idea to rely on them for long-term wealth building.

Even the best savings account comes with inflation risk. The yields you receive just can’t compete with rising prices over time. Plus, 1.00% APY just isn’t enough of a return to help you reach your retirement nest egg goals. You’d never live long enough for dollar cost averaging to be effective at those low yields.

A savings account has its place and can be a great tool as you build financial freedom and manage your money. However, it’s important to understand the limitations of savings accounts so you can better integrate them into a holistic financial plan.

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1 Includes AutoPay discount. Important Disclosures for SoFi.

SoFi Disclosures

  1. Terms and Conditions Apply: SOFI RESERVES THE RIGHT TO MODIFY OR DISCONTINUE PRODUCTS AND BENEFITS AT ANY TIME WITHOUT NOTICE. To qualify, a borrower must be a U.S. citizen or permanent resident in an eligible state and meet SoFi’s underwriting requirements. Not all borrowers receive the lowest rate. To qualify for the lowest rate, you must have a responsible financial history and meet other conditions. If approved, your actual rate will be within the range of rates listed above and will depend on a variety of factors, including term of loan, a responsible financial history, years of experience, income and other factors. Rates and Terms are subject to change at anytime without notice and are subject to state restrictions. SoFi refinance loans are private loans and do not have the same repayment options that the federal loan program offers such as Income Based Repayment or Income Contingent Repayment or PAYE. Licensed by the Department of Business Oversight under the California Finance Lender Law License No. 6054612. SoFi loans are originated by SoFi Lending Corp., NMLS # 1121636. (www.nmlsconsumeraccess.org)
  2. Personal LoansFixed rates from 5.49% APR to 14.24% APR (with AutoPay). Variable rates from 4.98% APR to 11.44% APR (with AutoPay). SoFi rate ranges are current as of December 21, 2017 and are subject to change without notice. Not all rates and amounts available in all states. Not all applicants qualify for the lowest rate. If approved for a loan, to qualify for the lowest rate, you must have a responsible financial history and meet other conditions. Your actual rate will be within the range of rates listed above and will depend on a variety of factors, including evaluation of your credit worthiness, years of professional experience, income and other factors. Interest rates on variable rate loans are capped at 14.95%. Lowest variable rate of 4.98% APR assumes current 1-month LIBOR rate of 1.34% plus 3.89% margin minus 0.25% AutoPay discount. For the SoFi variable rate loan, the 1-month LIBOR index will adjust monthly and the loan payment will be re-amortized and may change monthly. APRs for variable rate loans may increase after origination if the LIBOR index increases. The SoFi 0.25% AutoPay interest rate reduction requires you to agree to make monthly principal and interest payments by an automatic monthly deduction from a savings or checking account. The benefit will discontinue and be lost for periods in which you do not pay by automatic deduction from a savings or checking account.

2 Important Disclosures for Citizens Bank.

Citizens Bank Disclosures

  1. Personal Loan Rate Disclosure: Fixed interest rates range from 5.99% – 16.24% (5.99% – 16.24% APR) based on applicable terms and presence of a co-applicant. Lowest rates shown are for eligible applicants, require a 3-year repayment term, and include our Loyalty and Automatic Payment discounts of 0.25 percentage points each, as outlined in the Loyalty Discount and Automatic Payment Discount disclosures. Subject to additional terms and conditions, and rates are subject to change at any time without notice. Such changes will only apply to applications taken after the effective date of change.
  2. Loyalty Discount: The borrower will be eligible for a 0.25 percentage point interest rate reduction on their loan if the borrower has a qualifying account in existence with us at the time the borrower has submitted a completed application authorizing us to review their credit request for the loan. The following are qualifying accounts: any checking account, savings account, money market account, certificate of deposit, automobile loan, home equity loan, home equity line of credit, mortgage, credit card account, student loans or other personal loans owned by Citizens Bank, N.A. Please note, our checking and savings account options are only available in the following states: CT, DE, MA, MI, NH, NJ, NY, OH, PA, RI and VT. This discount will be reflected in the interest rate and Annual Percentage Rate (APR) disclosed in the Truth-In-Lending Disclosure that will be provided to the borrower once the loan is approved. Limit of one Loyalty Discount per loan, and discount will not be applied to prior loans. The Loyalty Discount will remain in effect for the life of the loan.
  3. Automatic Payment Discount: Borrowers will be eligible to receive a 0.25 percentage point interest rate reduction on their Citizens Bank Personal Loan during such time as payments are required to be made and our loan servicer is authorized to automatically deduct payments each month from any bank account the borrower designates. If our loan servicer is unable to successfully withdraw the automatic deductions from the designated account two or more times within any 12-month period, the borrower will no longer be eligible for this discount.
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