You’ve heard it before – a penny saved is a penny earned. You’ve let this phrase govern how you’ve handled your money throughout your adult years and yet, despite your best efforts, your savings are costing you money instead of making you more of it.
There are many reasons why your savings account is costing you money on a daily, monthly or even yearly basis. The good news is that there are just as many ways to combat the things that are draining your savings.
Move Your Savings Into a Checking Account
While it may seem counterintuitive, moving your money out of a savings account and into a checking account may make you more money. According to a report released by WalletHub in 2014, checking accounts established at traditional banks yield 111 percent more interest compared to savings accounts opened at the same institutions.
If you have the discipline to avoid using a checking account that you’re using to accumulate money, depositing your savings in a checking account may increase the amount of interest you collect.
Shop for Higher Interest Rates
With the Federal Reserve continuing to keep interest rates only a bit above zero percent, banks can no longer afford to pay high interest rates on deposit accounts like savings accounts. While big commercial banks pay as little as 0.10 percent on savings accounts, smaller institutions such as credit unions generally offer marginally higher rates of return to their members.
If you want to keep your money in a savings account, call the financial institutions in your area to see which one has the highest interest rate. You can then compare that rate with the interest rates offered by online banks and see which one will give you the best return.
Switch to Internet Banking
Online savings accounts also yield greater returns than online checking accounts by 75 percent. With online banks paying higher interest rates on deposit accounts in general, you will typically make more money from an online savings account than you would if you keep your savings at a brick-and-mortar financial institution.
Some banks will charge certain fees, such as your savings account falling below a particular minimum balance. While many banks don’t charge a regular monthly fee for savings accounts, some banks will assess a maintenance fee if your account falls below the required minimum balance. If your savings account is at a bank that charges you if your balance drops too low, avoid losing money by keeping the requisite amount in your account.
The federal government allows you to make six “convenient” transactions using your savings account per month without penalty, but that doesn’t mean your bank does. Some banks limit the number of transactions you can make to three. If you bank at an institution that restricts how often you can use your savings account each month, you can avoid losing money by not going over the number of transactions you can make.
Don’t Lose Interest
The majority of banks will not credit your savings account with any interest if your balance drops too far. If you want to make the most interest possible on your savings, don’t let your balance fall below the minimum necessary to continue earning interest.
Think About Your Taxes
While earning interest on your savings is great, it comes with the burden of paying taxes on the interest you receive in the tax year that you collect the interest. If you want the money you make on your savings to stop costing you money every April, consider moving your money into an alternative investment vehicle such as a Roth IRA or 529 Plan.
If you put your money into a Roth or 529 Plan, your savings will grow without you having to pay taxes on that growth each year. If you satisfy the criteria affiliated with whichever type of account you choose to open, the money you withdraw in the future — including the interest your account accumulates — will be tax-free.
Stop Losing Money From Your Bank Account
When it comes to saving money, it may seem like you have limited options when it comes to keeping the interest your savings account accrues. However, with a little research, you can find the interest rate and account that are right for you and stop your savings account from costing you money.