icon_marketing_blogFinance_20x20.svgPersonal Finance  |  June 25, 2020  |  Rob Zodda

3 Signs It’s Time to Break Up With Your Savings Account

What you’ll learn
  • How you can earn more interest
  • Ways to stay motivated to save
  • How to save for specific goals

Are you in a one-way relationship with your regular old savings account? Do you give, and give—and not get what you need in return? We’ve all been there.

Here are 3 signs that it’s time to find a new way to save (plus, some eligible alternatives):

1. You deserve more (in interest).

Sure, your regular old savings account may have done the trick back in the day. But things have changed.

The Federal Deposit Insurance Corporation (FDIC) recently listed the average interest rate for a traditional savings account at just 0.07% annual percentage yield (APY). That means if your primary method of saving is with a traditional savings account, you might be earning just pennies in interest every month. You. Deserve. More.

Here’s the good news. There are ways to earn more interest that hardly require any effort on your part, like switching from a traditional savings account to a high yield savings account or money market account. With a high yield savings account or money market account you could be earning up to 1.10% APY. Will making the switch help you get rich? No. But it’s a super simple way you can sit back and earn more interest on the saving you’re doing anyway. So why not?

High yield savings accounts and money markets generally have some restrictions on the number of transfers or the number of checks you can write each month—so they’re best for funds you plan to mostly set aside and not touch too often. Choose a bank that doesn’t require a minimum balance (so you can start small, if you’re just starting to save) and doesn’t charge monthly maintenance fees.

Pro tip:
While their exact recommendations vary, financial experts agree that we should all have an emergency fund. That’s money saved to cover 3-6 months’ worth of essential expenses in the event of a layoff or medical emergency. A high yield savings account or money market would work well for an emergency fund.

2. You miss the fun in your banking relationship.

It can be hard to get into the mood to save when you feel stuck with your status-quo savings account.

To help you get energized and stay motivated, consider opening a savings account with a specific goal in mind. With SmartyPig, a free online savings account, you can set multiple goals for things like a vacation, a new car, your dream kitchen, or anything your heart desires.

Goal-based savings accounts are also great because they help create save-then-spend habits, where you save and pay for a specific purchase, rather than putting it on credit card you’ll need to pay off later, with interest.

SmartyPig even rewards savers with tiered rates. That means, the more you save, the higher interest rate you’ll earn. Plus, you can earn referral rewards for sharing the love—$10 for every friend who opens an account and contributes to their goal.

3. You have big goals—and you want help achieving them.

If you’re using a regular savings account to save specifically for higher education (yours or someone else’s), you could do so much better.

According to Higher Ambitions: How America plans for post-secondary education, a 2020 study by Sallie Mae and Ipsos, 42% of families use general savings accounts to save for college, saving an average of $13,270. Meanwhile 30% of families save for college with a 529 college savings plan, but those who do use a 529 plan save almost double —an average of $25,038.

Here’s my disclaimer: A 529 college savings plan is not a typical savings account—it’s a tax-advantaged investment account designed for saving for higher education costs. If you withdraw the funds for non-qualified expenses, you’ll owe taxes on your investment gains.

Of course, you don’t need to just jump right in—research the pros and cons of a 529 plan. But who knows, it could be the right match for you.

Go get ‘em, you savvy saver, you.

See, there’s plenty of savings options out there! Just start by identifying your savings goals and what you want out of your banking relationship. Chances are, with a little research, you’ll find the type of savings account that’s right for you.

Sallie Mae does not provide, and these materials are not meant to convey, financial, tax, or legal advice. Sallie Mae makes no claims about the accuracy or adequacy of this information. These materials may not reflect Sallie Mae’s view or endorsement. Consult your own attorney or tax advisor about your specific circumstances. Reproduction without explicit permission is prohibited.
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