Savings is the money left after paying all your expenses from your income. It’s the extra cash that isn’t spent on bills, groceries, or other needs. This money is often set aside for future use or emergencies.
Why Are Savings Important?
Savings help you prepare for the future. They can be used for emergencies, big purchases like a house or car, and long-term goals like retirement or a child’s education.
Types of Savings Accounts
Banks offer various options for storing your savings. Each type has its own benefits and limitations.
1. Savings Account
Pays interest on your money. Safe and easy to use for emergencies. Typically offers low interest rates, with online banks providing better returns. Apps to use: Ally Bank, Capital One 360, Chime.
2. Checking Account
Ideal for daily transactions using checks or debit cards. Pays little to no interest. Funds are highly accessible, making it a convenient option. Apps to use: Wells Fargo, Chase Mobile, Bank of America.
3. Money Market Account
Offers higher interest rates than standard savings accounts. Includes debit card and check-writing privileges. May have withdrawal limits or higher balance requirements. Apps to use: Discover Bank, CIT Bank, Synchrony Bank.
4. Certificates of Deposit (CDs)
Locks your money for a fixed term (e.g., 6 months to 5 years). Offers higher interest rates than other accounts. Charges penalties for early withdrawals. Apps to use: Marcus by Goldman Sachs, Barclays, Axos Bank.
Savings vs Investing
What’s the Difference?
Savings are safe and easy to access but grow slowly. Investments can grow faster but involve risks.
Example
Keeping $1,000 in a high-yield savings account might earn 5% interest ($50 in a year). Investing the same amount in stocks could earn more, but it also carries the risk of losing money. Apps to use for investments: Robinhood, Acorns, Betterment.
How to Save More Money
Track Spending and Budget
Record your income and expenses. Create a budget to identify areas where you can save. Apps to use: Mint, YNAB (You Need A Budget), PocketGuard.
Cut Unnecessary Costs
Switch from expensive items to affordable options. For instance, replacing a $6 daily coffee with a $1 alternative can save $1,000 a year.
Set Savings Goals
Plan for specific goals, like building an emergency fund or saving for a vacation. Apps to use: Qapital, Simple, Digit.
Example of Savings in Action
Sasha earns $5,000 a month. Here’s how her expenses look: Expenses: $3,050 (rent, car payments, groceries, etc.). Savings: $1,950 left after expenses. Sasha can save this amount monthly for emergencies or future plans.
How to Calculate Your Savings Rate
Your savings rate is the percentage of income saved. Subtract expenses from your income. Divide savings by income and multiply by 100.
Example Income: $25,000/year Expenses: $24,000/year Savings Rate: (1,000 ÷ 25,000) × 100 = 4%
Conclusion
Savings is the money left over after paying your bills and other expenses. It’s essential for handling emergencies, meeting goals, and preparing for the future. While savings accounts are safe, investing may help grow your money faster.
Choose the right approach to balance safety and growth. Apps to consider for overall savings and investments: Personal Capital, Stash, Empower.
How to Save More Money
Create a Budget: Track your income and expenses to identify where you can cut costs.
Cut Unnecessary Spending: Reduce spending on non-essentials like eating out or subscription services.
Automate Savings: Set up automatic transfers to your savings account every payday.
Set Specific Goals: Save for a purpose, like a vacation or emergency fund, to stay motivated.
Use Cash-Back and Discount Apps: Apps like Rakuten or Honey can save money on purchases.
Best Apps for Savings
Digit: Automatically saves small amounts daily based on your spending habits.
Qapital: Helps you save by setting rules, like rounding up every purchase to the nearest dollar.
Chime: Offers automatic savings by rounding up transactions and transferring to a savings account.
Mint: Tracks your spending and offers tips to save more money.
Acorns: Rounds up purchases and invests the spare change.
Savings Accounts for Emergencies
High-Yield Savings Accounts: Banks like Ally Bank, Marcus by Goldman Sachs, or Discover offer higher interest rates, helping your money grow while staying accessible.
Money Market Accounts: Combines savings with check-writing and debit card options. Good for slightly higher returns and quick access.
Certificates of Deposit (CDs): Ideal for saving a portion of your emergency fund if you won’t need immediate access.
Chime Savings Account: A convenient app-based savings account with no fees and automatic saving features.
Difference Between Savings and Investing
Savings:
Money kept for short-term needs or emergencies.
Stored in safe accounts like savings accounts or CDs.
Accessible anytime with little or no risk.
Low returns (interest rates are usually small).
Investing:
Money put into stocks, bonds, or mutual funds to grow wealth.
Involves risks, as the value can go up or down.
Suitable for long-term goals like retirement or building wealth.
Potential for higher returns over time.
Key Takeaway: Savings are for safety and liquidity, while investments are for growth and long-term gains.
