Your Easiest New Year’s Resolution: Make Your Savings Grow Faster
Sticking to your new year’s resolution is often a time-consuming proposition. Want to get fit? Be ready to spend hours at the gym. Considering a side hustle? Goodbye, weekends.
But if your resolution is to save more, there’s one quick way to start: Open a high-yield online savings account. You can do this at many banks in less than 15 minutes, and you’ll earn at least 20 times more interest than you would in a traditional savings account.
Maggie Germano, a Washington, D.C.-based financial coach for women, recommends that her clients use high-yield accounts, and she practices what she preaches: “Since I feel most comfortable keeping some of my money liquid in case of emergencies, it’s important to me to still make sure the money is working for me,” she says.
So just how much can higher rates help you achieve your savings goals? And what else can online accounts do for you? Here’s why opening a high-yield account is a good use of a couple of commercial breaks.
You’ll save more money
If you’re trying to accumulate extra cash, lifestyle changes are the best way to make serious progress. That might include lowering your housing costs, negotiating a raise or trading in your ride for a less expensive vehicle.
But earning more for your money while it’s deposited definitely doesn’t hurt. “My emergency savings is growing even if I’m not adding more money to it,” Germano says.
Nationally, the average annual percentage yield, or APY, is 0.09%. At that rate, a $5,000 deposit would earn $4.50 in interest in a year. But it’s not unusual to find online savings rates around 2% these days. That would earn the same deposit $100 after 12 months. It’s not a huge sum, but it could cover a few surprise doctor’s appointment copays, a new tire, or simply pad your account.
“A hundred dollars here and there is nice to have, and you certainly don’t want to leave money on the table,” says Cheryl Ober, a Minnesota-based certified financial planner.
And rates have been on the rise, meaning your savings will grow even more in the coming years if you switch. “The interest rate has more than doubled in the years since I opened my account,” Germano says.
You’ll pay fewer fees
Earning more interest isn’t the only way online accounts can support your savings efforts. For some, low fees are a better selling point.
When it comes to lower account balances, “it’s typically easy to bank fee-free at online banks, and that has more of an impact than a high interest rate,” says Justin Pritchard, a certified financial planner based in Montrose, Colorado. “When you’re dodging fees of $90 or more per year, those accounts are helpful.”
If you use one of the country’s largest banks and typically pay a monthly fee on checking and savings, you could easily spend $200 per year just to park your money at that financial institution.
It’s about “knowing you’re not being completely being taken advantage of,” especially if you often owe your bank money, Ober says.
This was a big win for Germano when she switched: “Not only was I saving money by not paying fees, but I was making money on top of my money,” she says.
Every monthly fee you don’t pay is a little bit less you’ll have to save to meet your goals.
» Explore your options: NerdWallet’s top high-yield online savings accounts
They have helpful account features
It’s easy to open your first online savings account, and many institutions make it just as easy to open and use additional accounts — often for free. “That helps you manage your money and earmark funds for specific goals without paying fees for each account,” Pritchard says.
Online banks often let users open multiple savings accounts. Adding a nickname — such as “Bahamas fund” or “New car” — can help keep you focused on your goals.
If you don’t have an emergency fund that can cover at least a few months of living expenses, you should likely focus your savings there. But if you have enough to consider a few goals, setting up an account and automatic deposits to each from every paycheck can make saving seamless.
» Ready to move your money? Find out how to switch banks
High-yield accounts mean effortless saving
A high-yield account is no substitute for regular savings contributions. But it is the easiest, most efficient way to add a little extra to your nest egg. And over time, your balance can really add up, and a high interest rate will benefit you even more.
“As your account grows, the more it matters,” Pritchard says.
The article Your Easiest New Year’s Resolution: Make Your Savings Grow Faster originally appeared on NerdWallet.