It’s New Year’s resolution time again... unless you’ve retired from making those like I have! Regardless, you were probably taught at some point in life that it is financially responsible to maintain a savings account. This advice was contrived and likely given at a time when interest paid more than fractions of a penny on the dollar. If you own a basic bank savings account, you are sure to find a pathetically low interest rate associated with it, like mine, which was .05%, or five-hundredths of a penny per dollar. A new year means new opportunities, so why not kick that excess savings off of the couch and put it to work? Here are a few ideas:
1) Bank small and local: Consider moving funds to a local credit union or savings bank that typically offer higher interest rates and more favorable banking terms. The truth is that the large, multi-national banks have little concern or need for your business. Local banks and credit unions are very invested in their community, which usually means more money for you.
2) Money market: All financial institutions should have at least one personal money market account option that pays a higher interest rate than a savings account in exchange for a few operating restrictions, like monthly transfer limits. If your savings account has little to no activity each year, why not switch to a money market and snatch that higher rate?
3) Certificates of Deposit (CD): If you have funds sitting in savings that you don’t plan to use for a while, consider moving a portion of those funds into a short-term CD account. CDs pay even higher interest rates than money market accounts, however the money invested cannot be withdrawn or transferred for a specified time period. That period can range from one month to several years. Generally, the longer the time period, the higher the interest rate.
4) Low-cost investments: Consider moving excess savings into a low-cost investment account, such as ones offered by Vanguard or Fidelity. This type of account can be invested in managed funds that pay dividends and/or interest. You will have to pay expenses to maintain the account, but in low-cost accounts, your earnings will be much higher.
Upgrading your basic savings account won’t win you the lottery, but every little bit helps. Give it a try!