You work hard for your money. So, your money should work hard for you. We are all busy people with busy lives and we need to make things easier, especially when it comes to finances. Being able to autopilot as much of your money will ensure that you are maximizing activities like paying off your debt and saving for the future.
If you've kept your money in the same accounts for years and years, it's time to look at it again. Things change over the years with interest rates rising, and you may not be getting the most bang for your buck anymore.
A lot of people put away money in their savings account. However, that's not always the best option. You could be losing out on opportunities to make more than double on your account.
So now that you're taking a second look, let's start out with the basics. Where are you currently keeping your money? Where should I be keeping it? Here are some potential options that may work for you:
Rewards checking account
Most of us keep a checking account to store our money, make everyday purchases, and pay our bills. Especially if your normal routine is to use your checking account and debit card, an account that offers rewards can be beneficial. A rewards account may pay you interest on your balance or pay cash back on purchases you make on your debit card. This will allow you to earn a little back just for habits you already have in place.
Make sure you review all the details of the rewards accounts you're interested in opening. Some accounts may have requirements in place in order to earn rewards such as a minimum balance that must be maintained. There could be a monthly fee charged as well that may not be worth the return on the rewards. Also, you may only earn rewards on certain types of transactions.
After you discover all the requirements, ask yourself if you could follow them with your normal routine. If you may find it difficult to do, keep on looking until you find one that works for you.
Use an online bank
The idea behind a savings account is to have a backup source of funds in case of an emergency. Most banks do not really offer you a great interest rate on your dormant money. Online savings can offer a higher rate than a traditional bank because of the lower costs from not maintaining a physical location.
An online savings account could also help you avoid the temptation of transferring money to your checking for non-emergencies. Afterall, we all can get tempted to splurge a bit every now and then on an impulse.
Open a Certificate of Deposit (CD)
With a certificate of deposit you are leaving your money with the bank for a set amount of time. In most cases you will earn a higher interest rate the longer you put it away.
You will have to pay an early withdrawal fee if you end up taking your money out before it matures. This could do two things: make you less likely to dip into those funds to avoid the fee or cost you valuable earning potential when you break your commitment. It may be best to start with an amount and time frame that you won't be likely to need to withdraw suddenly.
If you're finding it would be hard for you to commit to putting your money away for a set amount of time, a money market account may work for you. With these accounts, you will probably not be earning as much in interest, but you will have the flexibility to withdraw your money. Keep in mind there may be limits to how much you can withdraw. Some also allow you to write checks or receive debit card access on the account.
Use an Individual Retirement Account
If you work full time you likely have the benefit of an employer-sponsored retirement plan and may even get a matching contribution from your employer. These retirement plans are called 401(k)s and allow you to contribute a portion of your salary before taxes. Once you start to withdraw money, you will be taxed on those amounts.
A Roth IRA is a contribution that you make after you have already paid taxes on your salary. Therefore, when you begin to withdraw from a Roth IRA, you have taxes subtracted from it.
Something to keep in mind with a Roth IRA is you have a limit on the amount you can contribute on an annual basis. There are also rules about withdrawing money from your IRA, so be sure to know those. If you don't, it could cause you to have to pay a penalty.
Change things up
With time, things will change for you. Whether you just graduated college, been working for several years, or wanting to start a family, your financial goals will be different.
Consider what's important with where you keep your money. Do you need to have your money easy to access? Can you comfortably put it away? There are so many types of accounts out there it might seem daunting to sift through them all. Just know your hard work will pay off by accomplishing your financial goals.