When making banking decisions, it's important to keep your financial future in mind. Get into the habit of checking the return on your savings account periodically and comparing it to the rates currently offered by other banks. For more involved financial planning strategies, consider laddering your certificates of deposit or exploring money market accounts.
Here are a few other ways to save money when planning for your future.
Maximize savings with an online savings or money market account
An online savings account is one of the most flexible savings products you can get. Most of them require no minimum balance and you can withdraw your funds at any time.
Traditional checking accounts will typically provide the best access to your money, but online savings accounts usually pay a higher APY. So if you have money in a checking account, consider opening an online savings account.
A money market account is very similar to a savings account but with a few differences. While both products are free to open, a money market account often requires that you maintain a minimum balance. In return, money market accounts typically pay a higher APY than savings accounts.
Since money market accounts and savings accounts are FDIC-insured up to $250,000, they’re a good choice for individuals looking for a stable investment that’s easily accessible.
With a money market, you can still have a maximum of six transfers, withdrawals or checks written against the account.
Maximize savings with a bank certificate of deposit
Certificates of deposit (CDs) are FDIC-insured savings certificates that pay interest on your deposit and have term lengths that range from a few months to five years. You may be charged a penalty fee for any withdrawals you make from the bank CD before it matures, so it's important to decide on your financial strategy before investing so you choose the right term length.
Your financial planner may recommend a technique called CD laddering. The goal of CD laddering is to provide yearly access to at least some of your investment, while maximizing your return.
Say you have $15,000 to deposit into a bank CD. Rather than depositing all $15,000 into a single CD, you split it into five deposits of $3,000 each, with the following terms:
- CD 1 has a 1-year term
- CD 2 has a 2-year term
- CD 3 has a 3-year term
- CD 4 has a 4-year term
- CD 5 has a 5-year term
When CD 1 matures, you can decide whether to use the money toward a short-term goal or roll it into a new 5-year CD to keep the ladder going.
Since CDs pay a higher interest rate the longer you leave your money in them, each successive CD will return more than the previous CD. Plus, you have access to a portion of your money once a year, when the current CD matures.
CDs can serve a variety of practical purposes, including acting as a low-risk investment in a portfolio. A CD is also a great choice when you want to give a gift that will mature with the person you're gifting it to, such as a college fund for a newborn.