Savings are important for everyone to have and take seriously. Living paycheck to paycheck is extremely stressful and can lead you down a hard road when life happens. According to the Federal Reserve’s Survey of Consumer Finances (SCF) for 2022, the median savings account balance for Americans 64 years and younger ranged from $5,400 to $8,700. Savings needs to be a higher priority for all Americans.
Bank or Credit Union
Banks are typically for-profit entities owned by shareholders who expect to earn dividends. National banks have many more brick-and-mortar stores for you to go to. Being larger, they tend to roll out new technology faster. They are Federal Deposit Insurance Corp. (FDIC) insured up to $250,000.
Credit unions are not-for-profit, member-owned cooperatives that are committed to the financial success of the individuals, families, and communities they serve. Credit unions have membership requirements like being a federal worker or work in education. Credit Unions tend to prioritize their members’ needs and provide more personalized service. They often offer highly competitive interest rates on loans and savings accounts, along with more flexible lending criteria. They usually don’t have fees or other charges that some banks have because they are for-profit. The National Credit Union Administration (NCUA) insures up to $250,000.
Types of Savings Accounts
Your typical Savings or Checking account is a basic place to store money. This is a safe place to keep money that is readily available. This is most likely in a bank or credit union. Be mindful that the national average interest rate for checking accounts is 0.07%, which isn’t much.
Another account to keep money in would be a Money Market account. Your bank or credit union usually offers this and it can give a higher return on your money while also keeping it accessible. This interest rate is usually between 1%-3%.
The next savings account option is a High Yield Savings account. This is another great place to keep your money liquid while also getting a decent return. The usual interest rate for a high yield account is 3.5%-4.5%. That’s $3,500-$4,500 a year when you have $100,000 saved. The reason these companies can give a higher interest rate is because most are only online which cuts costs. Two High Yield savings accounts that I like are Marcus by Goldman Sachs and Aly Bank.
The last savings account, that is non-retirement, would simply be a taxable brokerage account. You can open one of these with T Rowe Price or Vanguard. You can choose similar mutual funds like you would for a retirement account, but you can access the funds without penalties. Depending on the mutual fund, you can make 8%-12% on your money. That’s roughly $10,000 a year on $100,000. Be mindful that your money is not as accessible, and you will have to pay capital gains taxes on this. The federal tax rate is 15% which could cost thousands. This account would be used for a long-term growth mindset.
Final Thoughts
When choosing a bank, I would lean toward a credit union because they are for the people and by the people. In my opinion, you get a better experience overall from customer service to rates.
When choosing a savings account, have a plan for your money. Maybe have a checking account with $5,000-$10,000 as your working capital that pays monthly bills. Then use a high yield savings account with Marcus or Aly to keep the rest of your money that you are saving for your next big purchase and your 6 month emergency fund. Maybe this is $25,000 which would be earning 4% instead of 0.07%. You will make $1,000 a year in a high yield savings instead of $17 in a standard checking. Small decisions on where you keep your money can make a big difference in how your money works for you.