When shopping the word “save” often captures your attention right? Especially when those savings are high. Think about savings accounts the same way.
The first step in opening a savings account is to shop around and look for the best rates, an account with minimal to no fees, and not at any big banks (BOA, Chase, Wells Fargo) because your money WILL NOT grow in any savings accounts, they offer. If you have any extra money, put it towards a savings account. Do not be discouraged by what the start amount is, $2 or $200, just save. Remember that it’s important to have a checking account, to pay for all your bills AND a savings account for an emergency fund as well as for all the other things you want to save for.
1. Difference between Checking Accounts vs. Savings Accounts
Checking accounts are great! Typically you open a checking account to deposit your first check, have it linked to money transaction apps like (Venmo, Zelle, PayPal), and set up to automatically pay your bills. When opening a checking account, you also get a debit or ATM card to access your money on the go. Checking accounts are a necessity for everyday life, but they offer lower interest rates compared to savings accounts. Leave as little money that you need in a checking account.
Savings accounts hold your money and let it grow over a period of time. The rate of which it grows depends on the interest rate the account has. Savings accounts work great for short-term and long-term goals. Having several savings accounts for your different goals is a great way to visualize how far off you need for the total, think dream car, vacation, concert, house, or just a big expense.
2. Where to Open a Savings Account
When you open a checking account at your traditional bank (Chase and Wells Fargo), they usually offer to open a savings account, girl you better say BOY BYE [DECLINE]. The interest rates at traditional banks are significantly lower than your other options of online banking and credit unions, so I’m sure you’re like, pero que importa? Well, let me tell you this is one of the hardest lessons I had to learn, si importa. Because money doesn’t do s*** in a big bank and what a waste!
Online banking is done strictly on the internet, there is no physical place to go to. A favorite online bank service for Ms. Informed Latina is Ally. Ally offers a variety of banking needs such as checking accounts, savings account, Certificates of Deposit (CDs), and IRAs. A savings account with Ally has a 1.5% APY. For online banking the interest rate can be seen as high as 1.8%……. girrrrrrrl what? Yes 1.8% return on your investment and THEREFORE you should put your money here.
Credit unions are nonprofit bank institutions that serve members who have a common affiliation (where you work, your community, or interest). Because credit unions use common affiliations to be a member their services and products will align with your needs. Credit unions will also have high interest rates on par with online banks.
Whether you decide to go with an online bank or a credit union make sure they are insured! The Federal Deposit Insurance Corp (FDIC) ensures your money is protected if the bank essentially flunks, this goes for online banking. Credit unions are insured by the National Credit Union Administration (NCUA). Both the FDIC and the NCUA insure deposits up to $250,000.
3. Saving Long Term
Be proactive and start to think about saving for long-term investments. Those investments can be a trip 2-years from now, a house, or especially for retirement, because girl let me tell you ain’t nobody tryin’ to work until they are 80. The smarter you are about your savings accounts early on the more likely you can be able to enjoy it earlier, even potentially in your 40’s!
For retirement try for a Roth IRA. A Roth IRA is a retirement plan that enables those who are under a specific income limit to invest up to $6,000 a year. The income limit is based off of the modified adjusted gross income (MAGI).If you are single and your 2020 MAGI is $124,000 or less, then you can contribute the maximum amount to your Roth IRA plan. Advantages to Roth IRA plans is that your money grows tax-free and there is no tax on your withdrawals in retirement either.
Certificate of Deposits (CDs) have higher interest rates than savings accounts. CDs are good for long-term goals as they have penalties associated with early withdrawal, which makes you rethink about withdrawing before maturity. High interest rates are possible because CDs account lock your balance between 1 to 5 years.
Ally (online banking) offers a No-Penalty Certificate of Deposit. The product offers three tiers of APY (Annual Percentage Yield) which is the real rate of return earned on a savings deposit or investment depending on how much you open the CD account with. You are able to withdraw money from the account 6-days after opening the account without penalties. Withdrawal of money from this account includes the interest accumulated from the date the account got opened.
When deciding to open a savings account specifically for an emergency fund make sure it is fully liquid. For an account to be fully liquid means you can withdraw money from your savings account without any penalties, fees, or having to wait for funds to get transferred. The Ally CD account mentioned above is great for emergencies because of its liquidity. Emergencies are called emergencies because they happen so quickly and unexpectedly, so be sure that you can access the funds just as quickly with no problems.