What is the best savings account for you?
Arguably, it’s the one from which you make the most money. But there are other factors to consider when making this choice as well.
The Best Savings Accounts Have Higher Interest
Most consumers are aware that the interest for savings accounts is historically low, hovering at around 0.05. Some older consumers remember that less than 20 years ago, a 4 percent interest rate was common.
It’s like the banks don’t want Americans to save money!
But the traditional savings account at your local bank isn’t the only way to save money. In fact, it’s probably not the best way. You may have to pay a fee for using a teller or the ATM, for making too many transactions or for not making enough. The banks want to use your money, and then charge you for it.
How do you get around this roadblock?
Consider other types of savings accounts.
Some of the Best Savings Accounts are Retirement Accounts
IRAs and 401(k)s are not always the types of accounts that come to mind when people are contemplating the best savings account for them. Many workers — especially younger ones — think of these accounts as holding funds they will need way down the road.
For this reason, they often don’t bother putting money in them, thinking that they have time later, and they can’t afford it now anyway because they have to pay their student loans. But as any financial advisor will tell you, you can’t afford NOT to put money into a retirement account.
Every year you get older, it seems time moves more quickly, and by the time you think you should start putting money aside for retirement, it might be too late.
Besides, the money you put into an IRA or 401(k) is tax-free. So for every dollar that you keep for yourself and forego putting into retirement, you give about 15 cents to the government. (The amount depends on your tax bracket; 15 percent is the one more Americans fall into.)
If that’s not enough to convince you, consider that many employers make contributions to your 401(k). This is in lieu of the pensions they used to pay years ago. Many believe that you are better off with 401(k) contributions because even though you could technically lose money depending on the stock market and the economy, it likely wouldn’t be as much as you would lose if your former company went belly-up and you didn’t get your pension. It’s true that pensions are insured nowadays, but there are still instances of companies having financial problems and negotiating lower pension payments.
So if the money you put into retirement is tax-free, why not put it all in there? You have living expenses, of course, but maybe your spouse’s salary is enough to pay them. The answer is the government won’t let you. They need your tax money. So the maximum contribution you can make in 2019 is $19,500, Forbes reports. Those over age 50 are allowed to kick in another $6K, tax-free.
This doesn’t count your employer’s contribution, either. Some employers don’t contribute anything, but when they do, it is usually a percentage — say, 50 percent up to 5 percent of your salary. But there’s a cap here too — $55,000 for 2019.
The Best Savings Accounts for Right Now
The drawback to hoarding your money in a retirement account is you can’t get to it until you’re 59½ — without paying a penalty. You may think you don’t want to wait until you are that old to enjoy your money. Experts advise putting some money into a retirement account, but saving other funds in a more accessible place.
Since we have dismissed savings accounts at banks as a poor investment, what are your other choices?
Well, although the truth is that traditional brick-and-mortar banks pay low interest, the best online savings accounts generally pay higher interest — more than 1.5 percent in some cases. While this isn’t a windfall, it’s much better than 0.05, and worth considering for liquid funds.
CDs for Saving
Certificates of deposit are a kind of middle-ground investment vehicle. The pros: Your interest rate is much higher than for a regular savings account — between 2 and 3 percent, and it’s guaranteed, so there is no risk and your money isn’t tied up until you’re old and gray.
The cons: While higher, the interest rate isn’t phenomenally high, and your money is usually inaccessible (without penalty) for at least a year.
Still, if you have the extra money and you can’t keep it tied up for decades, putting it in a CD versus leaving it in a bank will net you more cash down the road. This interest, however, like the interest on any account, is taxable.
The best savings accounts are the ones that yield the best returns without forcing you to compromise too much on liquidity. Figure out what is safe for you based on your expenses and income, do your research and choose the best savings account that will make your money work for you.