Are Your Savings Costing You?
Avoid Traditional Accounts
Many people open traditional checking and savings accounts at the same bank.
However, these savings accounts often pay far less than 1% interest, which doesn't keep up with inflation. This means your money loses value over time, effectively costing you some of your savings!
Separate Your Accounts
Linking your savings to your checking account can also lead to unintentional spending.
If your checking account runs low, funds may automatically transfer from your savings, depleting it without you noticing!
Keep your savings at a different bank to prevent this. This separation makes it harder to access, helping you preserve your savings.
Isn’t That Inconvenient?!
Yes it is, but that’s the point!
The extra steps required to access your savings will make you think twice before spending.
This inconvenience also serves as a reminder to review your finances and ensure your regular income covers your expenses.
Choose the Right Savings Account
To protect against inflation, opt for a High Yield Savings Account.
These accounts currently offer around 4% interest, significantly higher than traditional savings accounts. This higher interest rate helps your savings grow and maintain their value over time even with the cost of inflation.
Pick a Safe Bank
When selecting a high yield savings account, make sure the bank is FDIC insured .
This means your money is protected up to $250,000 if the bank fails.
Additionally, be aware of any minimum balance requirements or hidden fees before selecting the bank claiming the highest interest rate.
Should You Invest It Instead?
Savings that you plan to spend in the next 1-3 years typically should be kept in a High Yield Savings Account and not placed in the stock market. This is because even safe index funds/mutual funds can be volatile in the short-term and you might be forced to sell at a loss if you need the cash.
However, investing your long term savings in an index fund is advisable. The index fund should provide higher returns over time than keeping your cash in a savings account.
