Savings Accounts: They’re Not Just For Rainy Days
Savings accounts are a great place to park your emergency fund, but they’re not just for rainy days. They can be used to help you actively plan and prepare for the future too.
Using a savings account to plan
You know all those irregular expenses that seem to pop up when you least expect them? Setting up a system of regular transfers to savings for things like car repairs, taxes, homeowner’s insurance, travel, etc. can prevent that. (It makes budgeting easier too.)
All you need to do is note down the amount of the irregular expense you want to save for, and how often it occurs. For example, if your property taxes are due twice a year, and they cost you $600 each time, you’d need to save $1200 per year. Divide that total by the number of times you get paid in a year, and you’ll have the amount you need to send to savings each payday. For example, if you got paid every two weeks, you’d divide $1200 by 26 to get $46.15 per check.
Getting the money there
Most banks allow you to set up these transfers to happen automatically. If you prefer direct deposit, your employer can usually direct deposit to both your savings and checking accounts with no problem. These methods are great because you never see the money until you’re ready to use it.
Of course, you can always do manual transfers too. (Just make sure you actually do them.) If you find yourself short of money when it comes time to make a transfer, don’t be tempted to just assume you can make it up the following paycheck. Instead, take that as a sign that means you need to take a closer look at your spending. (Tracking your spending is always a good idea anyway.)
Selecting a savings account
A savings account’s key feature is that the money you put in stays there until you need it. Or at least that’s how it should be.
It’s important that you choose an account that is insured (usually by the FDIC or NCUA) so that your money will be safe. You should also choose one without any fees at all – monthly or otherwise. There are plenty of banks and credit unions who offer free accounts and transfers — especially the online ones — so you shouldn’t have to pay a fee to put your money into savings.
Interest rates are a relatively small factor right now, because they’re all super low, but some banks do offer better rates than others. You may as well get higher rates if you can so try and view the best savings accounts online.
After that, it’s a matter of preference. I use ING Direct because they allow you to easily create what most people call “sub accounts”. Basically these are separate accounts that you can label however you want, but you interact with them using a single customer number. You may prefer something different from your savings account and bank, but chances are you’ll be able to find what you need. There are plenty of options out there.
This post is a part of Women’s Money Week 2012. For more posts about saving and investing, see the Saving and Investing Roundup.