Apache is functioning normally
- The Federal Reserve’s recent interest-rate hikes may be affecting your wallet more than you think.
- The Fed funds rate influences mortgage, credit-card, and auto-loan rates.
- This means when the bank hikes rates, it becomes pricier to get a car loan or pay off credit cards.
Apache is functioning normally
Most people want to save for the future, whether that means a short-term goal like a vacation in Bali next year or a longer-term aspiration, such as retiring by age 50. To fund these dreams, many experts recommend putting aside at least 20% of your paycheck.
However, each person’s financial situation is of course different. One person might have student loans they are paying off on a lower income while another might be earning a lofty salary with minimal debt. And yet a third might have a moderate income, some student loans, and they just closed on a home and are spending on major renovations.
So exactly how much you should save will depend on a variety of factors, such as your goals, your current income and debt, and your cost of living. Here, some guidelines to help you know exactly how much of your paycheck to save.
What Percentage of My Paycheck Should I Save?
Most of us know that saving money is important, but how much should you regularly whisk out of your checking account and into a savings vehicle? When it comes to what percentage of income to save for future expenses, financial advice can vary depending on where you look. Some experts suggest saving as little as 10% of each paycheck, while others might suggest 30% or more. A figure of 20% often seems a comfortable compromise.
The 50 20 30 Rule
According to the 50/30/20 rule of budgeting, 50% of your take-home income should go to essentials, 30% to nonessentials, and 20% to saving for future goals (including debt repayment beyond the minimum).
The right amount for you to save from each paycheck will depend on your income, your fixed expenses, as well as your short- and long-term financial goals.
For example, if the cost of living is high in your area, you may need to spend more than half of your take-home pay on living expenses, making it hard to put 20% of each paycheck into savings.
On the other hand, If your goal is to buy a home in two years, you may need to put more than 20% percent of your paycheck into savings in order to have your down payment in that timeline. If you want to retire early, you may need to put more of your income towards retirement every month than the average worker.
💡 Quick Tip: An online bank account with SoFi can help your money earn more — up to 4.50% APY, with no minimum balance required.
The Pros and Cons of Saving More or Less
While 20% is a good guideline, how much of each paycheck to save is a personal decision.
If you are trying to decide just how much of your paycheck to save, consider these points. Being aggressive with savings can have its benefits. You might also consider these the advantages that you miss out on if you save less.
• By saving more, you reach your goal faster.
• By maximizing the money you put away, you may rein in your spending and manage your money better in general.
• If your company offers a match for retirement savings, you can basically get free money by saving at the stipulated rate.
• Some savings vehicles offer tax advantages.
However, there are also downsides to saving as much as possible. You could avoid these by saving less. In other words, these are the benefits of saving less.
• By saving less, you might avoid living paycheck to paycheck, which is stressful.
• You can put more money towards paying down high-interest debt which can enhance your financial situation.
• You have more money for discretionary spending and enjoying your life.
Here’s how this stacks up in chart form:
Pros of Saving More/Cons of Saving Less | Cons of Saving More/Pros of Saving Less |
---|---|
Saving more means reaching financial goals faster | Saving aggressively can lead to money stress |
Saving more can rein in spending and lead to better money management | Saving more can mean less money free to pay down debt |
Saving more can potentially reap a company match via employee savings plan | The more you save, the less you may have for discretionary or “fun” spending |
Saving more can mean tax advantages |
Recommended: Cost of Living Index by State
4 Potential Savings Goals to Work Toward
Socking away money can be a good idea, but it is undoubtedly difficult to save. It can be helpful to really think about what it is you are saving for. Having a few specific goals in mind can help you determine how much you need to save each month and also help keep you motivated to maintain the discipline it takes to save.
Here are some common savings goals that can help you build financial wellness.
1. An Emergency Fund
Do you have a healthy reserve of cash you could tap to get through a difficult time or cover a large, unexpected expense?
If not, you may want to start saving up for an emergency fund that could help you handle a financial curveball, such as a job loss, medical emergency, or big ticket car or home repair.
Having this back-up fund in place can help ensure that you never have to rely on high-interest credit cards to make ends meet.
Ideally, an emergency fund will contain enough money to cover your living expenses for three to six months, but how much you’ll want to put aside will depend on your situation.
If you are married with no children, for example, you may only need to cover three months of expenses. If you have kids or you’re single, you may want to have an emergency fund that could cover at least six months’ worth of expenses.
It can help to keep the money in an account that earns more interest than a standard savings account, but allows you to easily access your money.
Some good options include: a high-yield savings account (online banks tend to offer good rates) or money market account.
2. Paying Off High-Interest Debt
Another important thing you could consider doing with your savings is paying off any “bad” or high-interest debt you may have. Some ideas for a debt management plan:
• A debt payoff strategy you may want to consider is the debt snowball method. With this approach, you start by paying off the debt with the smallest balance and put all your extra payments towards that until it’s paid off (while continuing to pay the minimum on your other debts).
You then put extra payments toward the debt with the next highest balance, and so on. This can give you a sense of accomplishment which can help motivate you to continue your aggressive repayment.
• Another approach is the debt avalanche method. This Involves putting all your extra payments towards the debt with the highest interest rate, while paying the minimum on the others.
When that debt is paid off, you then focus on the debt with the next-highest interest rate. Since you are concentrating on the debt with the highest interest rate, this strategy can end up being the most cost-effective.
3. Saving for Retirement
One of the key things to save for each month is your future. Exactly how much of your paycheck should go to retirement savings will depend on your age and when you want to retire.
If your company offers a 401(k) with matching contributions, it can make sense to put aside at least as much of your paycheck as your company will match (since this is essentially free money).
If you don’t have access to a 401(k) or want to contribute beyond that fund, you may want to open a Roth or Traditional IRA. Both types of IRAs have different tax benefits.
When you invest in a Roth IRA the money is taxed at the time of contribution but then in retirement, you can withdraw it tax free. Contributions made to a traditional IRA might not be taxed at the time they are made but are taxed when they are withdrawn in retirement.
When choosing how much of your paycheck to put into retirement savings, you may want to keep in mind that the IRS sets restrictions on how much you can contribute to your retirement funds each year.
4. Saving for Other Goals
After establishing plans for debt repayment, an emergency fund, and retirement savings, you may also want to consider working toward your other financial goals, like buying a house, saving for your kids’ future education, or going on a great vacation.
How much of your paycheck you should save for these goals will depend on what you want to accomplish and when you want to accomplish it.
When you’re saving for a big purchase, for example, you may want to start by determining how much money you’ll need and when you want to have the money.
You can then break that dollar amount down into the amount you need to save each year and month. This can help you determine how much of each paycheck you may want to put aside to help you achieve that goal.
• For savings goals you want to accomplish in the next three to five years, you may want to consider putting the money in a safe account that earns higher-than-average interest (such as a high-yield savings account or a CD).
• Longer-term savings goals, such as your children’s college education, can be invested more aggressively, since you’ll have more time to ride out the ups and downs of the securities markets. For college savings, you may want to consider opening a 529 savings plan.
💡 Quick Tip: Fees can be a real drag when you’re trying to save money. SoFi’s high-yield checking account has no account fees, including overdraft coverage up to $50.
Saving a Percentage vs. an Amount
There are different ways to look at saving: Some people follow the percentage method, while others prefer to think in terms of a dollar amount that gets socked away.
For many people, a percentage is a good way to go.
• That percentage can be “set it and forget it.” It can help guide you if, say, you get a raise. The amount you are saving will automatically rise with your salary.
• Similarly, if you are a seasonal worker, the amount you are saving will go down during your slow season. Say you earn $15,000 a month during the busy season and save 20%. That would be $3,000 a month. If your pay dips to $5,000 during the quiet season, only $1,000 per month would go into savings.
However, other people may find that putting aside a set amount, perhaps $1,000 a month, is a good way to save.
• That might make it easier for them to calculate and track their savings. It can be a way that people feel they are in control of their money.
• When their income rises or falls, they would have the opportunity to be hands-on with their money and determine whether to adjust the amount or not.
Here’s a look in chart form:
Saving a Percentage | Saving an Amount |
---|---|
“Set it and forget it” convenience | Can be simpler to remember and track |
Automatically adjusts savings when your income changes | Can get you to check in with your money and adjust your savings amount regularly |
💡 Quick Tip: When you feel the urge to buy something that isn’t in your budget, try the 30-day rule. Make a note of the item in your calendar for 30 days into the future. When the date rolls around, there’s a good chance the “gotta have it” feeling will have subsided.
Starting to Save With SoFi
Interested in opening an online bank account? When you sign up for a SoFi Checking and Savings account with direct deposit, you’ll get a competitive annual percentage yield (APY), pay zero account fees, and enjoy an array of rewards, such as access to the Allpoint Network of 55,000+ fee-free ATMs globally. Qualifying accounts can even access their paycheck up to two days early.
Better banking is here with up to 4.50% APY on SoFi Checking and Savings.
FAQ
Is it good to save 50% of your salary?
If you can afford to save 50% of your salary, that can be a habit that can help you reach financial stability quickly. However, many people will save less than that, with 20% of one’s take-home pay being a solid figure to aim for.
Is saving 10% of your paycheck enough?
Saving 10% of your paycheck is a good start and is certainly better than not saving at all. If you are just starting out, have a high cost of living, or have considerable debt, it can be a good move to start with 10% as your savings goal. However, many financial experts encourage people to save at least 20% of their take-home pay.
What is the 50 20 30 rule?
The 50/30/20 budget rule is a formula to help people manage their finances. It says that, of your take-home pay, 50% should go towards basic living expenses (the needs in your life); 30% should go to spending (the wants in life); and 20% should go towards saving for the future (including debt repayment beyond the bare minimum).
SoFi® Checking and Savings is offered through SoFi Bank, N.A. ©2023 SoFi Bank, N.A. All rights reserved. Member FDIC. Equal Housing Lender.
The SoFi Bank Debit Mastercard® is issued by SoFi Bank, N.A., pursuant to license by Mastercard International Incorporated and can be used everywhere Mastercard is accepted. Mastercard is a registered trademark, and the circles design is a trademark of Mastercard International Incorporated.
SoFi members with direct deposit can earn up to 4.50% annual percentage yield (APY) on savings balances (including Vaults) and 0.50% APY on checking balances. There is no minimum direct deposit amount required to qualify for the 4.50% APY for savings. Members without direct deposit will earn up to 1.20% annual percentage yield (APY) on savings balances (including Vaults) and 0.50% APY on checking balances. Interest rates are variable and subject to change at any time. These rates are current as of 8/2/2023. There is no minimum balance requirement. Additional information can be found at http://www.sofi.com/legal/banking-rate-sheet.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
SoFi Invest®
The information provided is not meant to provide investment or financial advice. Also, past performance is no guarantee of future results.
Investment decisions should be based on an individual’s specific financial needs, goals, and risk profile. SoFi can’t guarantee future financial performance. Advisory services offered through SoFi Wealth, LLC. SoFi Securities, LLC, member FINRA / SIPC . SoFi Invest refers to the three investment and trading platforms operated by Social Finance, Inc. and its affiliates (described below). Individual customer accounts may be subject to the terms applicable to one or more of the platforms below.
1) Automated Investing—The Automated Investing platform is owned by SoFi Wealth LLC, an SEC registered investment advisor (“Sofi Wealth“). Brokerage services are provided to SoFi Wealth LLC by SoFi Securities LLC, an affiliated SEC registered broker dealer and member FINRA/SIPC, (“Sofi Securities).
2) Active Investing—The Active Investing platform is owned by SoFi Securities LLC. Clearing and custody of all securities are provided by APEX Clearing Corporation.
3) Cryptocurrency is offered by SoFi Digital Assets, LLC, a FinCEN registered Money Service Business.
For additional disclosures related to the SoFi Invest platforms described above, including state licensure of Sofi Digital Assets, LLC, please visit www.sofi.com/legal.
Neither the Investment Advisor Representatives of SoFi Wealth, nor the Registered Representatives of SoFi Securities are compensated for the sale of any product or service sold through any SoFi Invest platform. Information related to lending products contained herein should not be construed as an offer or prequalification for any loan product offered by SoFi Bank, N.A.
Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.
SOBK0523019
Source: sofi.com
Apache is functioning normally
After a respite in June, the Federal Reserve raised interest rates again in July, moving the benchmark rate to a range between 5.25% and 5.50%. That’s the highest level in 22 years. While that may be beneficial for those with high-yield savings and certificates of deposit (CD) accounts, higher interest rates generally hurt a wide swath of borrowers.
This is arguably felt the most by homeowners looking to refinance and buyers looking to purchase a home. As of August 7, 2023, the average 30-year mortgage interest rate is 7.09%, while a 15-year mortgage is 6.54%. Compared to the very low rates buyers and owners could have secured during the height of the pandemic, now doesn’t seem like a great time to buy or refinance.
But everyone’s personal financial situation is different and even if rates don’t fall, it doesn’t necessarily mean that now isn’t a good time to move. In fact, depending on where you live and your financial goals, there may still be advantages to buying a home now.
Start by exploring your mortgage rate options here to see exactly what rate you’d qualify for.
3 advantages to homebuying now
While no one wants to pay more than they should, there may still be some advantages to buying a home now. Here are three to consider:
Buy high, sell high
Interest rate hikes have had mixed results on the larger real estate market. In some portions of the country, home values have dipped, but in others, they’ve remained the same or have actually increased. If you have a home in one of the latter regions, it may make sense to still buy a new home now because you’ll have a chance to make more money on your existing property than at any time previously.
So while you may pay more for a property you like than you would have previously, you’ll also likely earn a greater profit on your current home sale than if you had put it on the market earlier. That greater profit will put you in a position to bid on more expensive homes than you may have anticipated.
It’s not an exact science, and it’s particular to where you currently live — and where you want to move to — but if you can sell your home for a higher price, it may still be worth buying now, even at the elevated interest rates.
Learn more about your mortgage options here now.
Tax benefits
If you don’t own a home yet, then you’re not benefiting from a significant tax advantage that many homeowners enjoy. The mortgage interest tax deduction specifically puts a lot of money back into the pockets of homeowners every tax filing season. This allows you to deduct a significant amount of money from your tax bill — resulting in thousands of dollars back to you on your annual return. But you need to own a home and pay a mortgage to file for the deduction.
While this may not be a strong enough incentive to buy a home, it could help alleviate some of the burden of paying that elevated interest rate. Crunch the numbers and see if it’s worth it for you. When comparing the cost of the higher rate to what you could get back at the end of the year, you may be pleasantly surprised.
Investment value
Yes, rates are high now. And yes, that may affect how much you can borrow and what you can ultimately purchase. But a real estate purchase, over the long-term, is still generally the better option, particularly when compared to renting. That’s because real estate values, accounting for some inevitable hiccups, will continue to rise. Even adjusted for inflation, home values today are still significantly higher than what they were in decades past, making real estate one of the best long-term financial investments Americans can pursue.
And remember
Interest rates are always changing. Most experts expect rates to stay flat or even drop later this year and into 2024. As the fight to tame inflation improves interest, rate improvements will likely follow. And, as many have already said, buyers should simply consider “dating the rate and marrying the home.” In other words: rates are temporary and can and will change. But if you find your dream home now, you may not get a second chance to buy it in a more favorable rate environment.
Learn more about today’s mortgage interest rates here now.
More
More
Source: cbsnews.com
Apache is functioning normally
What is a secured loan?
A secured loan is a type of debt backed by collateral, which is something you own, such as a house, car or savings account. There are different types of secured loans, but they all have one thing in common: If you fail to repay the loan, you can lose your asset.
How much you can borrow: Loan amounts vary with secured loans and are often determined by the value of the collateral. For example, a secured home loan, or mortgage, typically covers the value of the house minus your down payment. The same goes for an auto loan. A pawn lender puts a price on your property and loans that amount.
Rates and terms: Rates and repayment terms vary on secured loans, but larger loans generally have lower rates and longer repayment terms. A pawn loan may have a triple-digit interest rate and be due in a month, while a mortgage may have a single-digit interest rate and be repaid over decades.
Secured loans also tend to have lower rates than unsecured loans because pledging collateral gives the lender something to take and sell if you fail to repay, lowering the lender’s risk of losing money.
How do secured loans work?
Banks, credit unions and online lenders offer secured loans. The lender typically reviews your collateral, credit and finances to determine your eligibility. The process often includes a hard credit inquiry, but some secured loans don’t require it.
Most secured loans have fixed interest rates, meaning you’ll repay the loan in equal monthly installments. If the lender reports payments to the three major credit bureaus, on-time payments will build your credit, but missed payments will damage it. After multiple missed payments, the lender can take your collateral.
🤓Nerdy Tip
Car title and pawn loans are examples of no-credit-check secured loans. To make up for the risk of not checking how you’ve previously managed credit and assessing your ability to repay the loan, these lenders charge triple-digit rates that make the loan difficult to repay.
Types of secured loans
Secured loan type |
Collateral |
When to use |
---|---|---|
Your 401(k). |
|
|
The vehicle you’re purchasing. |
|
|
Your vehicle. |
|
|
Your certificate of deposit. |
|
|
Your crypto. |
|
|
Your home. |
|
|
The home or property you’re purchasing. |
|
|
A personal item. |
|
|
Typically a vehicle, savings or investment account. |
|
Is a payday loan secured or unsecured?
Payday loans are unsecured because you don’t need to provide collateral to get one. Instead, a payday lender may ask for access to your bank account and withdraw the loan amount, plus a fee, on your next payday.
Is a small business loan secured or unsecured?
Small business loans can be secured or unsecured. Lenders typically accept property or equipment as collateral. A lender may require a UCC lien on either loan type, which allows the lender to claim your business assets if you default.
Is a personal loan secured or unsecured?
Most personal loans are unsecured, but some lenders offer secured personal loans. Lenders typically accept a vehicle, savings or investment account as collateral on a secured loan.
Are student loans secured or unsecured?
Private and federal student loans are unsecured, meaning you can’t add collateral to the application. Student loan borrowers who need help qualifying may add a co-signer with a strong credit profile.
🤓Nerdy Tip
Collateral is the key to knowing whether a loan is secured or unsecured. If you’re pledging something the lender can take upon failure to repay, it’s a secured loan.
Pros and cons of secured loans
Pros
-
Rates can be lower than unsecured alternatives.
-
Credit requirements may be softer.
-
Fixed rates keep monthly payments predictable.
Cons
-
You risk losing your collateral if you fail to repay the loan.
-
Funding time may be slower while the lender assesses collateral.
How to get a secured loan
-
Check your finances. Review your budget before getting any loan to understand how much you can put toward monthly repayments. Use a loan calculator to see how the interest rate and repayment terms affect the monthly payment. Check your credit reports for any errors or past-due accounts you can resolve before applying. You can get your reports for free at AnnualCreditReport.com or on NerdWallet.
-
Review the collateral. If you’re using collateral to lower your rate or get a larger loan, check its value before you apply. You can use an online pricing guide to check a car’s value for an auto-secured loan, review your savings and investment accounts for an account-secured loan or take a personal item to multiple pawn shops to see which gives the highest valuation.
-
Compare lenders. Look for a secured loan with a low rate and affordable monthly payments. Lenders may weigh collateral, credit and income differently, so it pays to compare. If your bank or credit union offers secured loans, start there to see if they’ll include customer perks or discounts.
-
Apply. The application process is different for all types of secured loans. You may be able to get a secured loan online, while some banks and credit unions require an in-person visit. Applications for a secured loan may take longer than an unsecured loan because the lender must evaluate your collateral.
What if you don’t repay a secured loan?
If you default on a secured loan, the lender can repossess your asset, sometimes without notice. If your home goes into foreclosure, you may end up in court.
In addition to losing your collateral, your credit and finances could suffer for years. Here are some potential consequences:
-
Repossession or foreclosure on your credit report for up to seven years.
-
Difficulty accessing credit in the future.
-
Still owing money on repossessed assets.
-
Filing for bankruptcy to keep your property.
Tips to avoid defaulting on a secured loan
-
Communicate with your lender. There are no consequences to your credit or finances for telling your lender you’re concerned about missing a payment as long as you call before you miss it. The lender may even be able to help: Some companies have hardship programs that include payment deferrals or lower monthly payments.
-
Request a new payment date. If you’ve got a new job or added bills that make the loan’s payment date challenging to honor, request a different payment date. You may also be able to change the payment frequency.
-
Seek credit counseling. A nonprofit credit counseling agency can provide budgeting help, debt management plans and housing counseling. Some assistance may be free.
-
Ask for help. If a trusted friend or family member can provide financial assistance, ask for it. Though it may be a difficult request, it could keep you from losing your property or savings.
Source: nerdwallet.com
Apache is functioning normally
A checking account can be the foundation of your financial life, allowing you to receive money, spend it, and manage other day-to-day transactions. A high-yield checking account can offer you all that, plus an enhanced interest rate vs. other similar accounts. Typically, money in a checking account doesn’t earn any interest — or maybe a nominal fraction of a percent.
The idea of earning interest may be enticing: A high-yield checking account can turn your regular deposit account into a passive income machine. While it’s unlikely to make you rich, a high-yield checking account can help pad your pockets with a few extra interest dollars, which can add up over time.
However, these accounts can come with certain conditions that may or may not make them the right choice for you.
Here’s what you need to know.
High-Yield Checking Accounts Explained
High-yield checking accounts, as their name implies, are checking accounts that offer a high “yield,” or interest rate, on the balance held in the account.
Whereas the national average for an interest-bearing checking account is about 0.07% APY (annual percentage yield) per the FDIC, a high-yield account might offer 1% to 4% APY or even higher — which still might not make you a fortune, but is a significant upgrade and on a par with some savings accounts.
High-yield checking accounts make it possible to create a passive income stream, albeit a small one, just by holding money in your checking account (which you likely already do). In this way, a high-yield checking account can augment interest earnings — be they from investments like high-yield bonds or other types of banking products, like a high-interest savings account.
But if you’re wondering if there’s a catch, the answer may be yes.
💡 Quick Tip: Tired of paying pointless bank fees? When you open a bank account online you often avoid excess charges.
Does a High-Yield Checking Account Come With Fees?
You’ve probably heard there’s no such thing as a free lunch, and when it comes to high-yield checking accounts, that adage holds true — although it might not necessarily cost you cash out of your pocket.
Although some high-yield checking accounts come with monthly maintenance fees that could easily eclipse whatever interest you stand to earn, these fees can commonly be waived so long as you maintain a certain minimum monthly balance or meet other requirements. These may include making a certain number of debit card transactions or receiving a certain threshold in direct-deposit income each month.
These days, there are even some free high-yield checking accounts — usually offered through online banks — but the level of interest you’ll earn depends on your ability to meet the same kind of transaction minimums we just mentioned. (If you don’t meet the requirements, you might not earn any interest at all.)
So, in short, while you might not have to pay for your high-yield checking account, you’ll likely need to perform the basic minimum monthly transaction requirements in order to glean the full benefits of the account.
Ready for a Better Banking Experience?
Open a SoFi Checking and Savings Account and start earning up to 4.50% APY on your cash!
Top 3 Pros of a High-Yield Checking Account
High-yield checking accounts can be very beneficial — here’s how.
1. More Earnings
These accounts offer an opportunity for interest earnings simply by holding a checking account. In some cases, the interest rate may rival that of certain kinds of savings accounts.
2. Motivation to Keep More in Your Account
These high-yield checking accounts can incentivize account holders to keep a higher minimum balance due to interest-earning requirements — which can help you generate a cash cushion.
3. Availability
These accounts are becoming increasingly available, especially thanks to the proliferation of online-only banks.
💡 Quick Tip: Want a new checking account that offers more access to your money? With 55,000+ ATMs in the Allpoint network, you can get cash when and where you choose.
Cons of a High-Yield Checking Account
On the other side of the coin (pun totally intended), high-yield checking accounts can have their drawbacks.
Transaction Requirements
These high-yield accounts may come with transaction requirements to secure interest earnings. If the account holder doesn’t meet them, little or no interest will be earned. These obligations might suit your money style, or they might prove to be a major hassle.
Modest Interest (If We’re Honest)
Many interest-bearing accounts generate just a fraction of a percentage in interest. Even the highest-yield checking accounts only offer about 4.00% APY. Yes, every little bit helps but this certainly isn’t enough money to grow wealthy on.
Additional Fees
In some cases, high-yield checking accounts may come with fees. Waiving them may require holding a significant minimum monthly balance — which can be challenging for individuals and families living paycheck to paycheck.
Let’s review the pros and cons again in a table:
Pros of High-Yield Checking Accounts | Cons of High-Yield Checking Accounts |
---|---|
Potential to earn interest on checking, which normally offers little or no earning potential | May have many monthly transaction minimums to meet in order to qualify for interest earnings |
Can incentivize account holders to keep more money in their accounts | May have fees that can only be waived by maintaining a significant minimum monthly balance or meeting minimum transaction requirements |
Are increasingly available — and increasingly fee-free — from online banks | Even the best high-yield checking accounts typically offer far less than the average return on stocks and bonds (though when FDIC-insured, these checking accounts can be a safer investment vehicle) |
Recommended: What Is a Certificate of Deposit (CD)?
High-Yield Checking Accounts vs High-Yield Savings Accounts
If you are comparing high-interest checking and high-yield savings accounts, you will likely want to consider the following points:
• A high-interest checking account does generate money on your deposit, but may come with minimum transaction or balance requirements. These could be difficult for some people to meet.
• A high-interest savings account can offer good earning power, but the number of transactions you are allowed could be limited. Although Regulation D, which limits savings accounts to six transactions a month, was largely suspended since the COVID-19 pandemic, some financial institutions may still apply this rule and charge fees if you conduct more transfers.
Depending on your needs, one of these may be a better option than the other. Also, it is likely to be easier to find a solid interest rate with a high-yield savings account than with the checking variety. In other words, many high-interest checking accounts don’t offer all that much earning power.
Factors to Look For in a High-Yield Checking Account
If you’re shopping for a high-yield checking account, consider these factors:
Interest Rate
Of course, you will likely want to shop around and see what are the highest rates available for a checking account. While some high-yield accounts are currently offering a few points of interest, many just pay a fraction of a percent.
Minimum Balance
With this kind of checking account, you may be required to make a specific size of deposit to open the account. You may also need to keep a certain balance in order to earn the high interest rate or to avoid fees. If that’s the case, make sure you can meet that number.
Fees
In addition, when opening a checking account, be sure you understand what fees might be charged. These can include maintenance, overdraft, ATM, and foreign transaction fees, among others. You’ll probably want to avoid being charged fees so that they don’t eat away at the interest you are earning. Online banks may be more likely to waive such fees.
How to Qualify for High-Yield Checking Accounts
In order to qualify for a high-yield checking account — and actually get the benefits — you’ll need to be able to fulfill whatever that account specifies as far as transaction requirements or minimum opening deposits.
In addition, if your banking history is marked by overdrafts and other negative factors, this may be reported by ChexSystems, which is kind of like a credit score for banking. If you have many negative factors, you may not be able to qualify for a high-yield checking account — or other types of deposit accounts, either. (If your ChexSystems report contains errors, you can always dispute false information with ChexSystems online.)
💡 Quick Tip: When you overdraft your checking account, you’ll likely pay a non-sufficient fund fee of, say, $35. Look into linking a savings account to your checking account as a backup to avoid that, or shop around for a bank that doesn’t charge you for overdrafting.
How to Open a High-Yield Checking Account
Now that you know what a high-yield checking account is, you may wonder how to open one. The process is similar to opening any other type of account. You’ll be asked to provide:
• Personal information, such as your name and address
• Proof of address (such as a utility bill)
• Government-issued photo ID
• Your Social Security number or other taxpayer identification number
In addition, your chosen bank may also require a certain minimum opening deposit, which you’ll need to provide to activate the account. The bank will offer specific details as far as what documentation is required and how to deliver it.
Opening a Checking and Savings Account With SoFi
A high-yield checking account is a great way to augment whatever passive income you might earn from savings accounts, investments, and other holdings. Although the interest rates are usually relatively low, they’re a lot better than 0% — every little bit of interest earned counts!
Interested in opening an online bank account? When you sign up for a SoFi Checking and Savings account with direct deposit, you’ll get a competitive annual percentage yield (APY), pay zero account fees, and enjoy an array of rewards, such as access to the Allpoint Network of 55,000+ fee-free ATMs globally. Qualifying accounts can even access their paycheck up to two days early.
Better banking is here with up to 4.50% APY on SoFi Checking and Savings.
3 Great Benefits of Direct Deposit
- It’s Faster
- It’s Like Clockwork
- It’s Secure
As opposed to a physical check that can take time to clear, you don’t have to wait days to access a direct deposit. Usually, you can use the money the day it is sent. What’s more, you don’t have to remember to go to the bank or use your app to deposit your check.
Whether your check comes the first Wednesday of the month or every other Friday, if you sign up for direct deposit, you know when the money will hit your account. This is especially helpful for scheduling the payment of regular bills. No more guessing when you’ll have sufficient funds.
While checks can get lost in the mail — or even stolen, there is no chance of that happening with a direct deposit. Also, if it’s your paycheck, you won’t have to worry about your or your employer’s info ending up in the wrong hands.
FAQ
Is a high-yield checking account worth it?
This all depends on whether or not you can meet the minimum monthly transaction requirements. If you can fairly easily do so, a high-yield checking account is an easy way to earn passive income just by keeping an active bank account. But if you can’t, you might not earn any interest at all — or even pay additional fees for the account.
Is there a risk with high-yield checking accounts?
You may risk paying a monthly maintenance fee and other charges if you can’t meet the minimum requirements needed to waive them.
How do I open a high-yield checking account?
Opening a high-yield checking account is much like opening any other type of bank account. You’ll be asked for various documentation (such as government-issued photo ID and your Social Security or Taxpayer ID number) in order to verify your identity and residence. In addition, you may also need to make a certain minimum opening deposit.
What is the difference between a high-yield checking and savings account?
A high-yield checking account is designed to be the hub of your financial life and typically doesn’t have any limits on the number of transactions you may make; savings accounts may restrict this. However, this kind of checking account likely pays less interest than a high-yield savings account, which may do a better job of helping you generate passive income.
Can you withdraw money from a high-yield savings account?
Yes, you can withdraw money from a high-yield savings account. However, there may be restrictions on how many transactions you can make per month. Going over that number could result in fees or the account being converted to a checking account.
Photo credit: iStock/MicroStockHub
SoFi® Checking and Savings is offered through SoFi Bank, N.A. ©2023 SoFi Bank, N.A. All rights reserved. Member FDIC. Equal Housing Lender.
The SoFi Bank Debit Mastercard® is issued by SoFi Bank, N.A., pursuant to license by Mastercard International Incorporated and can be used everywhere Mastercard is accepted. Mastercard is a registered trademark, and the circles design is a trademark of Mastercard International Incorporated.
SoFi members with direct deposit can earn up to 4.50% annual percentage yield (APY) on savings balances (including Vaults) and 0.50% APY on checking balances. There is no minimum direct deposit amount required to qualify for the 4.50% APY for savings. Members without direct deposit will earn up to 1.20% annual percentage yield (APY) on savings balances (including Vaults) and 0.50% APY on checking balances. Interest rates are variable and subject to change at any time. These rates are current as of 8/2/2023. There is no minimum balance requirement. Additional information can be found at http://www.sofi.com/legal/banking-rate-sheet.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.
SOBK0323037
Source: sofi.com
Apache is functioning normally
Christmas is over. You received some thoughtful presents, but also got some duds. That collection of cooking spices from your Aunt Madge? You hate to cook! Here’s some sage advice from Marie, a self-confessed re-gifting addict.
Regifting has a tarnished reputation in today’s consumer-driven society. Perhaps it’s driven by businesses hoping to convince us to spend more money, or by a misguided quest to shower our loved ones with extravagances we can’t really afford, or simply by a fear of seeming cheap. Regifting can not only be appropriate, but frugal and fun. Regifting is recycling elevated to an art form. Here are a couple points to keep in mind before you put away this year’s Christmas presents.
The number one rule of regifting is: Mark who gave it to you and when you received it. While regifting in itself is nothing to be ashamed of, shame on you if you give it back to the person who originally gave it to you! I usually try to avoid regifting within the same social circle. If I got scented potpourri from someone at work, I may regift it to someone in my book group, but not to another co-worker. Marking items is crucial because you probably won’t remember who gave you the gift six months later. Nothing kills a regifting possibility faster than forgetting the giver — that potpourri is going to sit there until I meet someone from another continent who couldn’t have possibly given it to me in the first place.
Once an item is accurately labeled, it may be regifted as:
- The Gag Gift. Do you do a group white elephant or yankee swap for Christmas? Know someone that has everything (including a sense of humor)? Sometimes the gift you got is so bad it’s hilarious. Instead of tossing it, save it as a gag gift. After all, laughter is one of the best presents around. My gag gift drawer seems to be a popular destination for gifts from one particular relative of mine. They are purchased in earnest, but boy are they bad. So, give them a second life. If you find yourself with an inordinate amount of bad gifts, perhaps it’s time to suggest to your family/friends that the gift exchange stops, or to name a charity to which they could donate in your name instead.
- The ‘Thank You’ Gift. Many gifts around the holidays are non-descript gifts meant to show a little appreciation or affection. It’s not the money; it’s the thought. You probably got some this year: mugs, generic stationary, candles, holiday ornaments, humorous little books, knick-knacks. And you probably will give some next year. Do you really need another mug, or can you repurpose it? I always give something to our wonderful mail carrier (who makes sure the packages are under the porch roof where they won’t get rained on), to the support staff where I work (these type of employees are chronically under-appreciated), to our fabulous neighbors, and to other people who help me during the year. Often these gifts are cookies or candies that I make myself, but I like to tuck them into a regifted mug, or to adorn with a regifted ornament. This costs me nothing extra, but makes the gift more complete. (Reminder: For some services, an actual cash bonus is more appropriate and welcome. Housekeepers or live-in nurses, for example, deserve more than a plate of cookies at the end of the year.)
- The Specialty Item. You hate it, but someone you know will love it. There’s nothing wrong with saying as much — nicely. Snowman cookie jar? Give it to the snowman collector. Or cookie jar collector. Or the person who is famous for their holiday baking.
Regifting can also be applied for free/bonus items, such as those you receive when placing an online order. For example, if you order often from an online cosmetics retailer such as AVON or Garden Botanika, you can accumulate a nice assortment of free samples: lipstick, lotion, perfume, etc. Tuck a few of these into a pretty basket or a cosmetics pouch for a quick gift for a teenage girl or for somebody going on a romantic getaway weekend.
Here are some other tips:
- Regift someone else’s gift. Think garage sales/tag sales. Just because it’s used doesn’t mean someone on your list won’t love it. Vintage dishware? Antique tools? Decorative bottles? But be selective; don’t just buy it because it’s a bargain — have a giftee in mind and be confident that they will like the gift. You may score great gifts with “online garage sales” like eBay or craigslist, too, if you’re willing to budget for postage or do a bit of driving. Be a savvy shopper and read descriptions well so you won’t be disappointed.
- Regift those containers. Save those baskets, giftbags, wine wrappers, etc. They’re too nice to throw away after just one use! Encourage others to reuse by labeling them in such a way that they aren’t destroyed. (I know someone who writes the recipient’s name in permanent marker across the entire side of a beautiful giftbag; a better choice would be to dangle a small giftcard from the handle with ribbon. The card can easily be removed so the bag can be reused.) Americans spend a lot of cash on wrappings that are admired once and then trashed.
- Regifting don’ts.
- Food. No one wants stale chocolates, flavorless coffeebeans or expired canned goods next December. Either pass it on quickly or dispose of it.
- Crap. Try to avoid regifting things that you yourself think are tacky, poorly made, etc. Put these in the garage sale pile, or donate them to charity. Someone may buy them, but at least they don’t have to write you a thank you note.
- Know when to stop. Don’t regift just to have something to give. Your gift should still be well-chosen for the recipient and show that you put some thought into it. Otherwise, don’t be surprised if that gift is regifted once again! If nothing is appropriate, make or purchase a gift. Or, if you need to be especially thrifty, a sincere and warmly written letter expressing your love/appreciation/gratitude can be the best present.
- Keep track of your gifting. I use a spreadsheet to organize the year’s gifts. I can see at a glance for whom I still need a gift (or recipient). All the gifts are stored in a central location, out of the way. My spreadsheet also allows me to take advantage of sales. If I see something in January that’s perfect for my sister-in-law, I know if I already have her covered for her August birthday and next year’s Christmas. This is also handy if a last-minute gift-giving situation arises — I know what I have on hand and if anything fits the occasion.
You can combine this spreadsheet with your budget for the next year, or start now and keep notes on what you spend in 2007. Gifts can be a huge expenditure, often unplanned for. Knowing what you spend in a year will help you make adjustments if your gifting line item is more than you’d like. And, if you save each year’s gift list, you won’t accidentally give Uncle Bob the same CD twice.
Beware — one downfall of purchasing gifts year-round is the inevitable urge to buy more in December. The carols are playing, the stores are beckoning, the tree could certainly use just one more present beneath it… Resist, resist! A gift is a message from you to the recipient. Keep in mind that the message should be about thoughtfulness rather than about how much you charged to your credit cards.
Look for more frugal tips from guest authors later today.
Source: getrichslowly.org
Apache is functioning normally
Key takeaways:
-
A “share certificate” is the credit union equivalent of a bank certificate of deposit (CD).
-
Share certificates have a fixed annual percentage yield (APY) for a fixed period.
-
Share certificates can offer better rates than “share accounts,” which correspond with bank savings accounts.
-
A share certificate can be a good option for earning interest on cash you’ll want to use in the future.
Share certificates: Credit union version of CDs
A share certificate is a type of savings account with a fixed APY for a fixed period. Credit unions offer share certificates. They’re equivalent to certificates of deposit (CDs), which you can get at banks. Think of a share certificate as a credit union CD.
Share certificates vs. share accounts
While share certificates are equivalent to CDs, share accounts at a credit union are similar to savings accounts at a bank. Here are some critical differences between share certificates and share accounts:
-
Higher APYs. Share certificates usually offer a higher APY than share accounts, but a share certificate requires that you keep your money in the account for the entire period you selected.
-
Fixed APYs. For that period, your share certificate will earn a fixed APY. On the other hand, the APY of a share account can change from time to time, so the rate of earnings (called “dividends”) you get can change.
-
No access to funds. If you withdraw your money from a share certificate before the end of its fixed term, you may have to pay a penalty fee. With a share account, you can add or withdraw funds when you need.
Why do credit unions call it a share certificate?
Credit unions use the term “share” because members (that is, depositors) at a credit union are part owners of the institution. Just as stockholders have a share of stock in a company, credit union members have share accounts or share certificates in a credit union. Your earnings from a share certificate are called “dividends,” equivalent to “interest” earned from a bank.
In the context of investing, a share certificate is a legal document that proves you own some stock (that is, a share of ownership) of a company. The company issues it to the shareholder; a “share certificate” is synonymous with a “stock certificate” in investing terms.
How do share certificates work?
A share certificate works this way: You choose a term (length of time) to open and deposit money into the account. Sometimes a minimum opening deposit is required.
Once you’ve deposited funds and the term begins, you cannot add or withdraw any funds until the term has ended (or “matured”). You may have to pay a penalty if you withdraw your money before the certificate term ends.
While your money is kept with the credit union, the credit union will pay you dividends. Dividends may be compounded daily or monthly (learn more about compound earnings).
When your share certificate matures at the end of the term, you can either roll your certificate funds into another share certificate (using the CD ladder strategy), transfer your money to a checking or share account, or withdraw your money.
More credit union topics
Source: nerdwallet.com
Apache is functioning normally
Take a closer look at some different types of savings accounts and how you can use them to reach your goals
July 31, 2023
Savings accounts allow you to safely store your money while earning interest on it over time. They’re an important component of your overall financial plan, specifically designed to help you safely and steadily achieve your financial goals.
Saving money regularly in a savings account can help you make progress toward a number of goals, such as a down payment on a home or a secure retirement. A savings account can also serve as your emergency fund when unexpected expenses like home repairs or medical bills pop up. Different types of savings accounts can help you meet different goals, however, and you can even use multiple savings accounts to keep them all on track.
But how do you know which types of savings accounts make the most sense for your life and your goals? The first step to figuring that out is to learn more about the seven options and how each one can fit into your financial plans.
Online savings account
As the name implies, online savings accounts offer a digital account that can be accessed through your computer, phone, or tablet. Without the overhead costs associated with brick-and-mortar banks, these accounts can provide customers higher interest rates and other benefits. Simply put, online savings accounts provide a safe and easily accessible way to build up your emergency fund and put money toward other goals.
Benefits of online savings accounts
- They typically offer higher interest rates than traditional savings accounts. For example, the Discover® Online Savings Account features rates more than five times the national average.1
- They often have lower fees and smaller minimum balance requirements than traditional savings accounts. (For example, the Discover Online Savings Account has no monthly fees and no minimum opening deposit.)
- Features can include robust mobile banking capabilities and 24/7 access to your accounts.
Other considerations
- Some online banks don’t have dedicated ATMs, which may result in ATM fees. However, online banks like Discover partner with nationwide networks for convenient, no-fee ATM access.
Traditional savings account
Traditional savings accounts typically offer brick-and-mortar bank branch locations where you can speak in person with a representative during bank hours. However, interest rates offered for traditional savings accounts can be less competitive than the typical interest rate for online savings accounts.
Benefits of traditional savings accounts
- You can walk into a bank branch for face-to-face customer service.
- Dedicated ATMs may not charge ATM fees.
Other considerations
- Bank branches have limited operating hours, so they’re not always open when you need them.
- It takes more time to visit a branch than to bank online.
- They typically have higher fees and offer lower interest rates than online savings accounts.
High-yield savings account
High-yield savings accounts offer significantly higher interest rates than the national average, so your money can grow more quickly. What’s more, virtually all high-yield savings accounts are also online savings accounts, which means you can manage your money from your phone or other device at any time. These accounts work well for emergency savings, big-ticket purchases like a home theater, and longer-term savings goals like buying a car.
Benefits of high-yield savings accounts
- Higher interest rates allow you to accelerate earnings.
- Easy access to your money when you need it.
Other considerations
- Some banks have minimum deposit requirements for high-yield savings accounts.
- Make sure your high-yield savings account doesn’t include fees that can eat into your interest earnings.
Money market account
Money market accounts combine some of the benefits and functionality of checking and savings accounts. They pay interest like savings accounts and, in some cases, can offer debit cards and checks like checking accounts. Some, such as the Discover Money Market Account, offer higher interest rates when the account balance is over a certain amount. Money market accounts are great for stashing money so it can grow over time while still providing access to the funds.
Benefits of money market accounts
- They can be FDIC insured.
- You have easy access to your money when you need it.
- They can offer competitive interest rates, though often not as high as online savings accounts.
Other considerations
- They may require a higher minimum deposit to open the account, sometimes as much as $5,000 or $10,000. (Discover has a $2,500 minimum initial deposit.)
- The number of withdrawals and transfers allowed by your financial institution may be limited, so check for any account restrictions.
Certificate of deposit (CD)
Certificates of Deposit offer a guaranteed, steady interest rate on the money you agree to leave in the account for a specified term, usually ranging from three months to 10 years. If you don’t require access to your funds during the CD term and you’re looking for a secure way to increase your savings, these accounts are ideal. Be sure to understand how CDs work, so you can use them to enhance your savings over time.
Benefits of CDs
- You often earn a higher interest rate with a CD than with a savings account.
- Your rate is locked in and guaranteed for the full CD term, no matter what happens in the markets.
- CDs can be FDIC insured.
Other considerations
- CDs often have higher minimum deposit requirements than savings accounts. (Discover has a $2,500 minimum for CDs.)
- If you take the money out before the CD term ends, you may face early withdrawal penalties. For that reason, savings accounts are better options for emergency funds.
IRA CD
Choose your term, lock in your rate, and watch your CD grow
Discover Bank, Member FDIC
Owning a CD within your IRA gives you the best of two worlds: the high interest rate of a CD with the tax advantages of an IRA. That adds up to a bigger win for your long-term financial planning. IRA CDs can give you peace of mind knowing that your money will be there for you in the future, and they also offer a way to reduce risk while living in retirement.
Benefits of IRA CDs
- You receive guaranteed returns on your money.
- Taxes on earnings are deferred, so you can grow your savings faster. (Make sure you know the difference between Traditional IRAs vs. Roth IRAs: Traditional IRAs allow you to deduct your contributions from your taxable income now, but you have to pay taxes on distributions in retirement. Roth IRAs allow you to contribute after-tax funds to your account now, and you don’t have to pay taxes on distributions in retirement.)
- They can be FDIC insured.
Other considerations
- If you take the money out before the CD term ends, you will usually face early withdrawal penalties.
- Taking withdrawals from retirement accounts before age 59½ can result in a tax bill and IRS penalties.
IRA savings account
An IRA savings account combines the security and steady earnings of a savings account with the tax benefits of an IRA. Whether you have a Traditional IRA or a Roth IRA, your earnings in an IRA savings account grow as your money compounds, allowing you to build a larger nest egg without risking it in the stock market. As a result, it can be a convenient spot to park rollovers, like a 401(k) from an old job, or to safely grow your money while in retirement.
Benefits of IRA savings accounts
- A market crash won’t affect your retirement savings.
- You can move money in and out of it—just be sure to check with your bank about any withdrawal limits.
- They offer dependable, tax-deferred growth.
Other considerations
- Taking early withdrawals from retirement accounts can result in a tax bill and IRS penalties.
- Some banks may charge monthly maintenance fees.
Choose the right savings accounts for you
Now that you know all about the different types of savings accounts, you can figure out which savings accounts best suit your goals and where to open a savings account for yourself.
Once you’ve made those decisions, you’ll set up your savings accounts. Though there may be slight differences, most banks have similar steps for how to set up a savings account:
- Complete an application that includes personal information such as your address, phone number, and Social Security number.
- Select the type of account you want to open.
- Deposit money into the account.
There’s no limit on the number of savings accounts you can have, so you can even use different types of savings accounts to customize your personal financial plan.
If you’re ready to take the next step toward a more secure financial future, check out the benefits of a Discover Online Savings Account today.
Articles may contain information from third parties. The inclusion of such information does not imply an affiliation with the bank or bank sponsorship, endorsement, or verification regarding the third-party or information.
1 The Annual Percentage Yield (APY) for the Online Savings Account as of 07/01/2023 is more than five times the national average APY for interest bearing savings accounts with a balance of $500 as reported by Curinos as of 07/01/2023. National average is based on information regarding the top 50 banks (by deposit size) and may not include information from variations in regional pricing at such banks or information from products that may not be widely available to their customers. Rates were obtained from Curinos, who relies on the data from the banks it tracks and such information cannot be guaranteed. APYs are subject to change at any time.
Source: discover.com
Apache is functioning normally
How many times have you heard the financial advice, “Start an emergency fund”?
Probably dozens of times. But much as most people would like to have an emergency fund, it can be hard to prioritize saving for a rainy day when the sun is out and you want to plan a beach getaway…or just pay your current bills.
But what would happen if your car conked out en route to the beach and you needed a $800 repair? Or if you were unfortunately laid off and couldn’t pay the pile of bills without reaching for your credit card?
Those are examples of why emergency savings are so vital. It can be especially hard to save, though, when you don’t know how to build up that financial safety net. This article will change that. It shares step-by-step advice about how to ensure that you can handle the unexpected expenses that can be part of life.
[embedded content]
How to Start an Emergency Fund in 6 Steps
If you are convinced of the value of having this sort of savings and are wondering how to start an emergency fund, follow these steps. They’ll help you know how to save for an emergency fund even if you feel your budget is already quite tight.
1. Setting a Specific Savings Goal
As mentioned above, most financial pros will recommend that you save three to six months’ worth of living expenses. You might come up with that sum and then divide it by 12 to see how much you’d have to save monthly if you wanted to accrue the whole amount.
Too steep? Try dividing by 24, and see what the two-year horizon looks like.
2. Starting Small and Stockpiling When You’re Able
Most young professionals don’t happen to have three to six months’ worth of income just sitting in their checking accounts, waiting to be moved to an emergency fund. If the method above of dividing your goal by 12 or 24 still yields a monthly number that’s too intimidating, start with whatever you can afford. If it’s $25 per month, great: The point is to pick a number and start stashing some cash.
You can also look for ways to fund your account from other sources. For instance, you could deposit any minor windfall — a tax refund, bonus, or even a birthday check from Grandma.
3. Making Consistent Transfers
If you use the method above of putting a windfall into your account, don’t forget about the emergency fund after that. It’s important to keep adding to it, especially in periods of high inflation. The amount of money you’d need to, say, pay the heating bill or plunk down for a car repair is likely to go up over time.
That’s why it’s important to keep funneling some money into your savings. If you have a side hustle going, you might want to make a rule to always deposit 10% or 20% of your earnings into the emergency fund to keep that account growing. Sure, you could spend all that pay and feel rich in the moment, or you can save it and increase your wealth over time.
4. Managing Your Expenses and Spending
If you’re feeling as if you just don’t have wiggle room to fund emergency savings, there’s a simple solution: Manage your money better and cut your budget a bit.
Take a look, and see where you can make budget cuts. Do you need to eat dinner out three nights a week, or can you cut it down to one? Do you need all of those streaming services you pay for? See where you can eliminate some costs in your budget, and put that extra money towards your emergency fund.
5. Turning on Automatic Saving
Automating your savings is a great, relatively painless way to continue saving money for your emergency fund. Set up regular payments from your checking account into your savings account so that money automatically gets transferred on a weekly or monthly basis. You won’t see the cash in your checking and be tempted to spend it.
6. Not Increasing Your Monthly Spending
Are you familiar with the phrase “lifestyle creep”? This means that, as you earn more, you start spending more. This means that even as your income grows, you’re not building wealth. If you get a raise and then use it on a more expensive car lease or frequent vacations, your savings will struggle to increase.
If you keep your spending in check, you can apply at least some of your salary increases to building up that emergency savings account.
Ready for a Better Banking Experience?
Open a SoFi Checking and Savings Account and start earning up to 4.40% APY on your cash!
Where to Keep Your Emergency Fund
Now that you know how to start an emergency fund, consider where to keep it. The whole point of an emergency fund is that it is easily accessible money, so when and if the unexpected happens (like a big dental bill), you will be able to dip into your account. That means it needs to be liquid. You will likely want to avoid accounts that require your money to be kept on deposit for a certain amount of time, like a certificate of deposit (or CD) account. These typically penalize you if you withdraw the funds early.
Interest rates are often fairly low for savings accounts, but if you shop around, you’ll find some out there that pay almost 2%. These high-yield savings accounts are typically offered by online banks. Because they don’t have bricks-and-mortar branches and the related expenses, they can pass the savings along to their clients.
Another point to note as you build your emergency savings: Look for an account that is FDIC-insured . Putting this kind of money into the market, which means there’s risk of loss, is probably not a wise idea. You don’t want to have the value of the fund drop.
Adding to Your Emergency Fund
As noted above, it’s fine to take your time building up your fund, but if you don’t take the first step and start, you’ll never get ahead. If you are struggling (as many people do), to find the cash for this goal, consider these hints:
• Start a side hustle. You could get a weekend gig walking dogs. Or do you love ceramics? Try selling your pieces on Etsy. There is no limit to what you can try, plus a key benefit of a side hustle is making some extra cash, which you can put towards your emergency fund.
• Gamify your savings. One month, go without fancy coffee-bar drinks and put the money saved into your emergency fund. The next month, skip takeout and cook at home. Put the extra cash into your rainy day account. You are likely to see the amount climb.
💡 Recommended: 39 Passive Income Ideas to Help You Make Money
Tips for Staying Motivated to Build Your Emergency Fund
One of the biggest challenges some people face in saving for an emergency fund is motivation. If you find yourself tempted to spend your yearly bonus on a new car or status wristwatch, try this instead: For one week, live on the money you’d get if you filed for unemployment in your state.
This is no easy task, and it will give you an idea of exactly what you’re saving up to avoid. If you make it a week, consider if that’s really what you want to go through if you lose your job with no backup in place. Once you commit to focusing on your emergency fund, use the money you didn’t spend that week to start your account.
While saving an emergency fund is one of many competing financial priorities, having a cushion to catch you when you fall can prevent a minor calamity from spiraling into lasting debt. The toughest part may be getting started and staying motivated. Just remember, you walk 10 miles by walking 10 feet at a time.
Banking with SoFi
Starting and keeping an emergency fund isn’t the most exciting place to put your money, but it is one of the most important. By keeping at least three to six months’ worth of expenses in a liquid account that earns a bit interest, you will be rewarded with peace of mind and an important cushion if you should hit one of life’s unexpected speedbumps.
If you’re looking for a place to begin and grow an emergency fund, see what SoFi Checking and Savings offers. When you open a SoFi bank account with direct deposit, you’ll earn a competitive APY, and you won’t pay any account fees, so your money can grow faster.
Better banking is here with up to 4.40% APY on SoFi Checking and Savings.
FAQ
Should I put my windfall towards my emergency fund?
Putting a windfall, like a tax refund or a bonus, towards an emergency fund can be a great idea. Instead of spending the money on a purchase, which is likely to be a passing pleasure, you can put the cash aside and enjoy peace of mind. If an unexpected, urgent bill comes up, you will likely be better prepared to pay it.
How much of my paycheck should go to my emergency fund?
It can be a good idea to calculate what your monthly living expenses are and then multiply that by at least three or six to determine your goal for your emergency fund; then see how much you need to save to reach that in a year or two. If you do like a specific guideline, some experts say to save 20% of your take-home pay for emergencies and retirement.
Does the 50/30/20 rule apply to emergency funds?
The 50/30/20 rule is, in part, designed to help people have funds on hand for an emergency (as well as save money for retirement). The idea is that you spend 50% of your after-tax income on needs, 30% on wants, and 20% on savings. How much of that 20% you allocate to an emergency fund will depend on your own personal situation and your other savings goals.
SoFi® Checking and Savings is offered through SoFi Bank, N.A. ©2023 SoFi Bank, N.A. All rights reserved. Member FDIC. Equal Housing Lender.
The SoFi Bank Debit Mastercard® is issued by SoFi Bank, N.A., pursuant to license by Mastercard International Incorporated and can be used everywhere Mastercard is accepted. Mastercard is a registered trademark, and the circles design is a trademark of Mastercard International Incorporated.
SoFi members with direct deposit can earn up to 4.40% annual percentage yield (APY) on savings balances (including Vaults) and 0.50% APY on checking balances. There is no minimum direct deposit amount required to qualify for the 4.40% APY for savings. Members without direct deposit will earn up to 1.20% annual percentage yield (APY) on savings balances (including Vaults) and 0.50% APY on checking balances. Interest rates are variable and subject to change at any time. These rates are current as of 7/11/2023. There is no minimum balance requirement. Additional information can be found at http://www.sofi.com/legal/banking-rate-sheet.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.
External Websites: The information and analysis provided through hyperlinks to third-party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.
SOBK0822014
Source: sofi.com
Apache is functioning normally
On January 1st, I could have never imagined what 2020 would bring. I started the year, as always, hopeful that this year would be the year I achieved all my goals. Then a pandemic changed everything.
But the pandemic is a stark reminder of just how quickly life can change. It’s important to have at least a little money set aside, as well as learning to budget and reduce expenses. Even if you plan to do that moving forward, though, you may need to first get through the financial issues this pandemic has brought with it.
Don’t worry. You don’t have to start this journey alone. Here are a few tips to help you beat the effects of COVID-19 on your bank account.
What’s Ahead:
Negotiate your bills
You may not realize it, but your bills aren’t set in stone. You can negotiate your balance, monthly payments, and other aspects of your debts. Think about it. Your creditors would much rather you pay something each month than nothing at all.
Pandemics, fortunately, are rare. That means your creditors are well aware that many people are going through financially tough times right now. Yours won’t be the only call they’re getting from consumers eager to negotiate.
Here are a few tips to help your call go smoothly:
- Before you start calling around, gather your most recent bill and have everything in front of you.
- If you have a history of paying on time, point this out.
- When negotiating with a creditor that has competitors, stating that you’ve found a better deal and you’re thinking about canceling can sometimes be effective.
- If the person on the line can’t help you, ask to speak to a manager or supervisor who can.
- Pay close attention to the offer the representative gives. Many are trained to make it seem like you’re getting a good deal when they’re actually increasing your bill long term.
You don’t have to go it alone when it comes to negotiating your bills. There are now apps that will handle the process for you. One of those solutions is Trim, which automates bill negotiation. Simply link to your various accounts and Trim will look for savings, starting by suggesting subscriptions you can cancel to save money.
But the bill negotiation feature is where Trim really comes in handy. Trim will interact with the customer support team at your various service providers and negotiate on your behalf. They work with many of the top cable companies, as well as phone and medical providers.
Refinance your loans
What’s your biggest expense? Chances are, it’s your housing. Whether you rent or own your place, that monthly payment can really hit hard when money’s tight.
For that reason, one of the best things you can do is cut that payment down a little. If you rent, have a talk with your landlord about a rent reduction or a brief break while you get back on your feet. But if you have a mortgage, that won’t be so easy. You can contact your lender and negotiate a temporary break in payments, but that just delays your debt a couple of months.
This could be a great time to refinance your loans to reduce your payments. That applies not only to your mortgage, but also personal and student loans. Approval will still depend on your credit score and income situation, but it’s worth shopping around to see if refinancing is an option.
Ready to refinance? Here are some options to consider.
Mortgage refinance
Refinancing a mortgage has traditionally been a time-intensive exercise that requires stacks of paperwork. Not anymore. With online lending, you can typically complete most of the process online.
If you need a little extra cash, a cash-out refinance may be an option. If you have substantial equity in your home, and interest rates have fallen, you may be able to reduce your monthly payment while also taking out some money that you can put toward other expenses.
You can see how much you qualify for with MU30’s Mortgage Cash-Our Refinance calculator below:
Student loan refinance
Student loans can be a big burden on your finances. In fact, the average monthly student loan payment is $393, and it can be tough to negotiate that down, especially if you have government loans.
You may not realize you can refinance your loans with a private lender, even if it’s a federal or ParentPLUS loan. Many private lenders are also more flexible in repayments, including letting you defer your payment for a month or two during tough times.
Credible shops multiple lenders to find the best deal on your student loan refinance. With one quick application, you’ll get rate quotes from up to ten lenders. Best of all, your quote will be turned around in just a couple of minutes. If you see one you like, you’ll complete the application process directly with the lender.
Credible Credit Disclosure – Requesting prequalified rates on Credible is free and doesn’t affect your credit score. However, applying for or closing a loan will involve a hard credit pull that impacts your credit score and closing a loan will result in costs to you.
Credit card debt refinance
Credit card debt can make it tough to get ahead financially. There are a couple of ways you can refinance what you owe on your cards. One is to take out a low-interest personal loan to pay it off. You’ll still owe the money, but you can reduce the interest you’ll have to pay on it.
Another option is to apply for a new credit card and transfer the balance from your existing cards. Some cards have an introductory period where you’ll pay no interest at all. Check the fine print about balance transfers before you choose a card.
Fiona can help you track down a low-interest credit card or personal loan. Answer a few simple questions and you’ll be matched with credit card offers that meet your needs. The process takes less than 60 seconds and if you don’t see an offer you like, simply exit out and shop elsewhere.
Personal loan refinance
If you’ve taken out a personal loan, you may not realize you can refinance it. Yes, even if your loan was to pay off previous debt, you can always go back in for a better deal. You may find out that you can lower your payment and improve your terms by doing that.
LendingTree takes a different approach to connecting you with a loan. You’ll answer some questions about your goals and get recommendations for lenders who can meet your needs. LendingTree provides competing offers from a variety of lenders and even lets you contact lenders directly to negotiate a lower rate.
If you’re struggling to find loan refinancing due to your credit, Self Credit Builder Loans can help. Not only will they work with you to get you the money you need, but your repayments are reported to the three credit bureaus. Simply pay on time each month and you’ll be on the road to a better credit score.
Insurance is a necessary part of keeping yourself and your belongings protected. But COVID has shifted priorities, especially when it comes to vehicle insurance. If, like many consumers, you’re driving far less than you did pre-pandemic, it could be time to adjust your coverage.
With insurance, it’s not about picking up the phone and making a call to negotiate. Instead, the best thing to do is shop around and see what other insurers can do for you. Sure, you can try adjusting your coverage to see if that helps your premium, but often another insurer will give you a better deal.
Use a budgeting app to cut expenses
Budgeting is always a great way to stay on top of your finances. When you’re pre-planning how each dollar will be spent, you’re in control. If you normally budget, your approach may need to be adjusted for COVID-19. If not, this is a great time to start.
When you budget, you’re making a plan, but the best plans are built using the most information possible. Before you start budgeting, go to your online banking site and pull a report listing your expenses. You may even want to pull multiple months to get the most accurate picture possible.
As you review the report, prioritize your expenses. What’s most important? Chances are, you’ll need to put the basics first: food and shelter. Are there areas you can trim back? You may want to find ways to reduce your grocery budget, for instance, even if you’re no longer spending money on expensive coffee and restaurant food.
Once you have a budget in place, your work still isn’t finished. You’ll need to track your spending to get the information you need to make next month’s budget. PocketSmith monitors your spending and provides insight into where your current habits will lead you in the future. You can project six months, a year, or longer and adjust today’s spending accordingly.
Take a look at your credit cards
Normally, you’d want to work on paying off your credit cards, but now may not be the time. If you do have to rely on your credit cards to get you through, try to use them as little as possible.
One small thing you can do to reduce expenses is to lower your interest rate. You can try negotiating with the card issuer, but it will help if you can cite other offers first. Shop around and find offers lower than what you’re paying. When you call, you’ll be able to cite those rates and boost your negotiating power.
If your economic situation is short-lived, you can alternatively try to get a card with a no- or low-interest introductory period to get you through. During those months, you’ll at least get a break from the interest you’d otherwise pay, which can help you catch up on your bills.
Take advantage of resources
One of the few good things about having a tough time now is that there’s extra help. Realizing that many consumers are suffering, the government has put some programs in place to help.
The top of those resources is the Economic Impact payment of a couple of months ago. You should also make sure you’ve filed your taxes in case the government decides to issue further stimulus payments.
Here are a few other resources available to those who have been financially affected by COVID-19:
- If you’re unemployed, make sure you sign up for expanded unemployment benefits.
- You can withdraw money from your 401(k) without penalty during COVID-19.
- In case you missed it, the government is allowing a temporary suspension of student loan payments through September 30, 2020.
- Some banks are waiving fees during the pandemic. Check to see if your lender is on the list.
- FEMA has offered relief due to COVID-19, including extending flood insurance renewal payments and offering funding to state, local, tribal and territorial partners.
Consider a financial advisor
The truth is, sometimes you can’t see what you need to do. You’re just too close to the issue. When that happens, it can help to have an outsider take a look at things. If that outsider is an expert, even better.
But when you’re trying to recover from a financial setback, you don’t exactly have an excess of funds to pay a professional. Any financial advisor you’re considering should offer a free, no-obligation consultation. During this consultation, you can ask about fees. Compare multiple advisors against each other to find the best expert you can get for your budget.
One great way to quickly find a financial advisor is through Paladin Registry. You can search a directory of experts in your area and set up an interview to discuss details like fees and credentials. Click on “View research report” on any advisor’s listing to take a look at details like education and licensure information. You can also see the minimum assets you’ll need to have for the advisor to work with you, as well as the compensation structure. Many advisors work on a fee that’s a percentage of your assets.
Summary
Global pandemics may be rare, but life is full of surprises. Soon enough, you’ll find your financial situation begins to improve, and that’s when it’s time to take action. Make sure you have an emergency fund in place and work hard to pay down your debt. That will give you the peace of mind of knowing that you can tackle whatever challenges life brings in the coming years.
Read more:
Self Disclosure:
Self Financial compensates us when you sign up for Self Financial using the links provided.
All Credit Builder Accounts made by Lead Bank, Member FDIC, Equal Housing Lender, Sunrise Banks, N.A. Member FDIC, Equal Housing Lender or Atlantic Capital Bank, N.A. Member FDIC, Equal Housing Lender. Subject to ID Verification. Individual borrowers must be a U.S. Citizen or permanent resident and at least 18 years old. Valid bank account and Social Security Number are required. All loans are subject to ID verification and consumer report review and approval. Results are not guaranteed. Improvement in your credit score is dependent on your specific situation and financial behavior. Failure to make monthly minimum payments by the payment due date each month may result in delinquent payment reporting to credit bureaus which may negatively impact your credit score. This product will not remove negative credit history from your credit report. All loans subject to approval. All Certificates of Deposit (CD) are deposited in Lead Banks, Member FDIC, Sunrise Banks, N.A., Member FDIC or Atlantic Capital Bank, N.A., Member FDIC.
Source: moneyunder30.com