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Start by saving just a little.
If you have a savings account and you regularly pay money into it, then you are doing a very good job of preparing for the future. You are putting some money aside to save for a big purchase or an event (i.e. a car, a house or a wedding) or you are saving some money just in case.
Whatever your reason for saving money, you need to ensure that you are getting the best possible return on your savings. Many people simply open a savings account and stick with the same one for years, even when there are better interest rates available elsewhere.
You need to assess the effectiveness of your current savings account. If it isn’t working for you anymore, it’s time to switch to another type of account, one which has a better interest rate and will make your money go further.
Here’s what you need to do:
- Find out the interest rate on your current savings account.
- Use your bank statements or a savings calculator to work out how much interest a year your money is accruing.
- Compare savings accounts from other providers, looking at the interest rates and other terms.
- Find an account that suits you and make the switch.
- You should also take a look a fixed rate savings accounts, such as CD’s and ISA’s (UK only). These usually offer better interest rates than traditional savings accounts, and can put your money to work for you.
iHB Thoughts: Saving is a very important topic here at iHeartBudgets. It’s simple, really. First, you need to make a goal to save some money and ACTUALLY DO IT, otherwise you don’t even get the luxury of finding the best interest rate, BECAUSE YOU HAVEN’T SAVED ANY MONEY! Once you get in the habit of tucking away a little cash every paycheck, you want to make sure you pick the best savings account for your money. Just follow the steps above to ensure you aren’t earning .000001% interest while the bank is laughing all the way to the….uhhh…bank. I say you should put your money to work, not just let it lounge around in a low-interest account, drinking martini’s and asking you to foot the bill.
Comments: Do you have a savings plan in your budget? Wait, do you even have a budget? Have you assessed how effective your savings account is and maximized your interest rate of return to make sure your money isn’t being lazy?
Good post. We have saving as a part of our budget and have it automated so we won’t “feel” it. The one thing I am guilty of is not comparing what’s available out there in terms of rates. What we have is fairly good in relation to the current climate, but I am sure we could find better rates out there.
John S @ Frugal Rules recently posted..Why We All Should Care About High Frequency Trading
It’s worth the 10 minutes of your time to ensure you are getting the best rate. Sure, it may only be a few bucks a month, but it could add up
iheartbudgets recently posted..How To Assess The Effectiveness Of Your Savings Account
I have an emergency fundof 6-8 months worth of expenses so I don’t really add a lot of money to my savings account any more. I put extra money into investment portfolios.
Sean @ One Smart Dollar recently posted..The Importance of Saving Small Amounts + Cash Giveaway
I hope to get there soon. We do have an emergency fund, but no extra funds to put into investments.
I have way too much just sitting in cash savings and this is on my to do list!!! Thanks for the reminder.
Holly@ClubThrifty recently posted..Saving Money, It All Adds Up…and a Giveaway!!!
It doesn’t take long, and might save you a few bucks. The larger pile of cash, the larger the amount you culd earn (obviously). It’s worth the 10 minutes of research, in my opinion
Sorry to be the bearer of bad news, but in the current global markets with interest rates where they are, NO savings account, CD, GIC, ISA, or most bonds will NOT keep pace with inflation.
You will not be losing any money, but the money you are saving will have less and less buying power.
Not only that, generally in most jurisdictions the tax on the interest from your CD, GIC, ISA, or bond, is taxed at the worst possible rate.
The only way to beat inflation? It takes a little more risk, but you have to start investing.
thestarvingartistcanada recently posted..Inflation vs. paying down the mortgage
It definitely all comes down to risk. I agree, good rates are tough to come by, but there are definitely places to find them. For example, my credit union gives me 6% interest on the first $500 in both my savings and checking account. That rate is unheard of elsewhere.
Though, my goal for some of my money isn’t to beat inflation, but to keep my cash. My emergency fund is in a money market account that earns a bit more interest than a traditional savings account. I could invest it, but I don’t want any part of it at risk.
I really have to agree with you here. While a “savings” account will get eroded by inflation, that in general is not the point. It is so you have a ready stockpile of cash when you need it.
I’m very much a risk taker and have a lot of money (well in my opinion a lot) invest, I still keep several thousand dollars in a savings account so I can pay for emergencies.
that’s where I stand. Not to say your retirement money shouldn’t be invested, but your emergency fund and short-term savings (read: 3 years or less) accounts should be at less risk, hence the use of a money market account.
While ING doesn’t have the best interest rates anymore I do love their sub accounts feature and use it a ton! Saving is a great thing to do and I actually like it more than spending sometimes!
Lance@MoneyLife&More recently posted..October 2012 Monthly Goals Update
You got it! It’s funny, I know that spending can actually release endorphins and people can become addicted to it, but I wonder if we can train ourselves to do that with savings…?
I get that rush when I do a stock market move that does exactly what I expected it to do.
thestarvingartistcanada recently posted..RESP confusion
Hah! I hope to be there someday! As for now, i just get to watch the rollercoaster that is my 401k!
I use ING for the same reasons. House savings, car savings, and our 6-month emergency fund.
We don’t specifically have a line in our budget targeted for savings, rather it’s something we do at the end of the month with the disposable income. That could sound dangerous for most people, but it’s really not with how well we’ve become disciplined over the years. If our discipline started to dwindle then I’d probably automate the savings and carve out a spot in the budget for it.
Jason @ WSL recently posted..When Is the Right Time to Have a Baby, Financially?
Hey man, at least you gave those “leftovers” a name. The worst you could do is spend it all.
When we were aggressively paying off debt, we would scrimp and save everywhere to have the largest balance we could at the end of the month, and then threw that cash at our debt.
I am not saving any money right now because I’m putting all my extra money to paying off my van loan. Once that is eliminated I will start saving money again.
Andy Hough recently posted..The Importance of Saving Small Amounts of Money – Giveaway
But I would consider that savings, just with a specific purpose. you are saving to pay off the loan
I just posted an article on ditching my savings not too long ago. It was performing horribly and I wanted to maximize my money. I took higher risk wtih P2P lending and put the rest in a higher yield money market account.
Adam Hathaway recently posted..Calculating Your House as Part of Your Net Wealth, You’re Probably Doing it Wrong
So, I haven’t done much reading, but is P2P lending anything similar to payday loans? I could be totally off-base, but just wondering…
You don’t make much on a savings account for sure, but that really isn’t the point. We’re trying to build up after our rental purchase and when we have enough for several months of expenses, we’ll switch back to investing in other areas.
Kim@Eyesonthedollar recently posted..Can You Avoid Spending Money on School Fundraisers?
I think the point of savings account is short-term savings, not long-term investing. I always advise anything you are saving to purchase in 3 years or less should be in a savings account, any more, you should look at investing (case by case, but that’s my rule of thumb).
Savings accounts in Canada are rubbish at the moment. We currently get 2% on a high interest acct with a promo where a few years back it was 3%. If you make more than $50 you get a T5 in the mail and have to declare it as income. When I Called CIBC on the weekend about accounts they told me their savings account is 1.2% but you have to have 5k in the account.. you can’t win lol… Cheers Mr.CBB
Canadianbudgetbinder recently posted..Welfare Food Challenge- $26 A Week for 1 In The Grocery Budget
Rates are pretty terrible, but it doesn’t mean you shouldn’t still find the best rate right now. But it is pretty depressing earning 1% on your savings
These low interest rates are only going to be temporary. It won’t be long before you start seeing 3 to 5% savings rates, and then everyone will be running back to ING and Ally all over again. I think having a saving account will always have a place in my budget.
My Money Design recently posted..My Money Design – October 2012 Update
100% Agreed!
Saving account can be good for starting saving with small money but putting big unused amount in it can be useless. If your saving account is giving you some interest then it can also be useful for keeping your emergency fund.
Ravi Ahuja recently posted..Do You Have A Piggy Bank?
I agree. If you have a large amount of money, and already have an EF in place, then that money could be put to work elsewhere.
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Good article.
I’m guilty of setting up a savings account and never checking to see if I can get a better rate elsewhere.
What kind of rate do you think a savings account should earn?
Terry recently posted..Can You Become a Millionaire Bestselling Author in 3 Days?
Well, mine earns 6% on the first $500, but almost nil after that. Nowadays, if you can find 2% in the U.S., you’re lucky!
When we have our family meeting we review not just the savings account rate but also the rates on our mortage and investments. It’s time well spent!
AverageJoe recently posted..Did You Miss the October Tax Filing Deadline?
Thanks an awesome family meeting! I would love to get into amoritization schedules in my budget meeting with my wife, but she would fall asleep faster than I did watching Star Wars Episode 1.