Where Should You Put Your Savings Every Month?

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Today’s post is a guest post from Patty at Working Mother Life. Personal finance and budgeting are hugely exciting topics for me and I’m hoping to write more posts about that soon, but until then, read up on some factoids about savings accounts below! Happy Friday!

We all know that we should be saving more money.

While different financial experts offer various formulas for exactly how much you should set aside each month, many agree that you should be saving at least 20% of your monthly income.

Reaching or exceeding that goal is admirable — but where should you put your money?

With a variety of choices on the market, it can be difficult to know which option is the best for your situation.

Read on to learn more about the different types of accounts and savings alternatives that are available to American consumers, and then decide for yourself where your money will work the hardest.

Traditional Bank Accounts

A traditional bank account is not flashy, but it can be an important part of your overall financial planning. The primary advantage of a traditional bank account is that the money in these accounts is highly accessible. This means that if you need access to your funds, you can easily get it.

These bank accounts also tend to have low minimum deposit requirements and are relatively simple in their terms. Traditional bank accounts are incredibly safe, as they are insured up to $250,000 by the Federal Deposit Insurance Corporation (FDIC).

However, with this safety and simplicity comes a trade-off: you won’t make any huge financial gains by stashing your money in a traditional bank account. Checking accounts do not typically offer interest on deposits, and most savings accounts offer low-interest rates of 1% or less.

High-Interest Bank Accounts

High-interest bank accounts are an alternative to traditional bank accounts for savvy consumers, offering better deals on interest rates for both checking and savings accounts.

For savings accounts, the interest rates are as high as 1.15%, which is substantially higher than the interest rates offered by traditional banks.

For checking accounts, interest rates are as high as 1.50%. These bank accounts are typically only available online only, which may be a drawback for consumers who want to visit a brick and mortar bank branch.

They may also require a minimum balance, and often cap the total amount that can be deposited in this type of account.

Certificates of Deposit

A certificate of deposit (CD) is a smart way of investing your money with a bank that allows you to get a higher return on your investment based on the length of time that you allow the bank to borrow money from you.

As with traditional bank accounts, CDs are insured by the FDIC up to $250,000. They offer higher interest rates than many other types of savings vehicles. However, they tie up your money for the length of the deposit; if you need access to your money, you will pay a penalty to withdraw it.

The safety of CDs as an investment also means that they will make you a lot of money, as the interest rate paid on CDs will not keep up with inflation.

Savings Bonds

Savings bonds are a way of lending money to the government. They are a safe form of investment, backed by the U.S. government. They can be purchased for as little as $25, and interest on these bonds is generally exempt from state income taxes.

If the bonds are used to pay for higher-education expenses, some or all of the interest earned on savings bonds can be excluded from federal income taxes.

There are significant drawbacks to savings bonds, such as penalties for early redemption of bonds. The interest rates on savings bonds are often not competitive, and the bonds must be redeemed in order to have value.

Money Market Accounts

A money market account is a form of savings account that earns a higher interest account than a traditional savings account.

Insured by the FDIC, money market accounts are safe, and permit you easy access to your money. However, money market accounts generally require you to have a large initial deposit and to maintain a minimum balance.

Otherwise, you will likely be charged transaction fees that will eat into your interest earnings. There are also typically limits on the number of transactions that can be performed each month.

Retirement Accounts

Retirement accounts are any type of savings fund, such as a 401(k), a Roth IRA or other retirement plan, where you can put aside money for retirement. These plans each have significant tax advantages and will allow your contributions to grow over time. However, deposits in your retirement accounts will not be accessible to you. Any withdrawals before retirement will result in penalties and taxes.

Patty runs Working Mother Life – a blog about balancing motherhood and work. You can follow her on Twitter to stay updated with her latest posts, tips, and tricks.