So you’ve opened a savings account. Now it’s time to start saving. While it’s always a good idea to put as much money as you can into that account, there are other smart ways to make sure your savings are growing as much as possible. Here are a few tips to make that happen.
Understand Your Savings Account
In order to get the most out of your savings account, you should understand what it is exactly. A savings account is not just a separate account at a bank where you put your money. It’s an actual investment with a bank or other financial institution that provides principal security and a very modest interest rate. Saving accounts are one of the most liquid types of investments, which means you can easily get your money back in a short amount of time if you need it. However, they are less liquid than a checking account. Some withdrawals or transfers may take more than a few days to complete. In addition, depending on the type of account, you may not be able to write checks from the account or make an unlimited amount of transfers or transactions without incurring fees. This is generally not a major problem, since money you keep in savings accounts should be money that you don’t intend to use for day-to-day expenses. Make sure you understand the terms and conditions of your savings account and avoid incurring any types of fees.
Get a Higher Interest Rate
While the return you’ll get on savings accounts are very low, you could still try to make sure you’re getting the most you can. Most financial institutions offer rates below 1 percent, but you could try to increase the growth of your savings account by looking for a bank that offers the highest interest rate. You should try calling at least three to five banks in order to find the best option. Be sure to ask about the fees and service charges on the account, as well as minimum balance requirements before making your decision.
Create a Budget
After you pick a financial institution and open an account, you’ll need to decide how much money you can comfortably contribute to your savings account each month. In order to do this, you need to know exactly how much money you have every month and where it all goes. Determine how much money you need for necessary expenditures, how much you have left after, and how much you can allocate toward savings. This way you can budget a specific amount that you can easily part with each month.
Make It Automatic
If you have a specific amount that you know you can contribute to your savings account each month, you can set up an automatic deposit from your checking account. Check with your bank or financial institution to see if they offer this service. With an automatic deposit you won’t have to remember each month to make the deposit, and you also won’t be tempted to skip a payment and put that money towards something else.
Save Your Cents
One very easy way to save money without even trying is to round each purchase you make up to the next dollar, and contribute the change to your savings account. For example, if you buy a cup of coffee for $1.50, you would part with a total of $2.00, but the additional 50 cents would go toward your savings account, or to a money jar that you could later deposit into your savings account. Many banks offer automatic programs that can do this for you. For example, Bank of America has a “Keep the Change” program that does this automatically for you with any purchase you make using your debit card with the bank. Check to see if your bank offers this kind of program.
Deposit a Lump Sum
The hardest part about growing your savings account is in the beginning, when you’re just getting started. It’s not very encouraging when you’re trying to save $500 by the end of the year, but you’ve only got $50 in your account now. What helps get your savings account going is a big boost from a large deposit. Next time you receive an unexpected large amount of money, like a wage bonus or a tax refund, deposit all of it into your savings account. Since it’s unexpected, you can add it directly to your account without affecting your budget. This will give your savings the momentum it needs to grow.
Once you get a large amount of money into your savings account, you might be tempted every once in a while to dip into it. Whether it’s for a vacation, new pair of shoes, or some other big purchase, fight the urge. Dipping into your savings account is a sure way to keep it from growing. Doing it “just once” is also dangerous, because that one time can lead to three, then five times and before you know it, your savings are shrinking, not growing. Unless you find yourself in a dire financial situation and have exhausted all other options, avoid making withdrawals from your savings account.
It’s hard to save your money, especially when spending it is so easy. It will take hard work and self-discipline to get your savings account to continue growing. But if you keep making the effort, you can make saving money part of your daily routine and you’ll see your account grow in no time.