Are you completing my Savings Challenges in 2020 Course? One of the challenges for February is straightforward, but it can be huge: Save $25 a week. What does it look like for you to save $25 a week? Skip a couple trips to the drive-through and drink water instead of that afternoon Coke? Decide not to eat out?
With this particular challenge, where the money will come from is one factor, but another is where will it go? Where you decide to park your money is important. So, let’s look at:
- What is the difference between a checking and savings account?
- Where should you put money to save?
- Where can you save money and earn interest?
- What is the best way of saving money?
- Are you saving money the easy way?
- Are online banks the best accounts for your money
- What should you do now?
The Savings Challenges are designed to lead you on a path to financial freedom. Each challenge will also show you that having clearly articulated goals — no matter how seemingly small — can make a big difference.
Once you start a regular savings plan, your life will change. You will demonstrate discipline as you tell yourself, “No, I cannot buy that right now; I have bigger plans.”
What is the difference between a checking and savings account?
I am so happy that every week we pick up new readers and subscribers to The Budget Mom, so thank you! With so many new people, each of us will have different levels of experience (and comfort) with budgeting, saving, investing, meal planning and, of course, organizing. So, I want to take just a minute to talk about the difference between a checking and savings account.
A checking account is where we deposit money that we will use for regular and routine transactions. A lot of us like using the Cash Envelope System, but we still need a checking account to deposit our paychecks. Think of a checking account as a turnstyle: Money is coming in and going out constantly. Some checking accounts will pay interest, but they will usually offer free-checking or no fees instead.
With a savings account, the money is meant to stay there longer. It is not cash you need for everyday purchases. Instead, the money is designated to be used in an emergency, for a downpayment or for a big ticket item. Because banks have access to your money for longer periods of time, they will pay you a higher interest rate than your checking account. Usually, you can only make six withdrawals in a month’s time (the federal government wants savings accounts to be used for savings). If you go over the limit, you could be charged a fee, or your bank might convert your savings into a checking account.
So, think of a checking account as a spending account, and a savings account as a place to keep your money for a later date.
Where should you put money to save?
Banks come in a variety of shapes and sizes. They tend to focus on doing one thing really well and offer the other banking services, too. One might be good for personal checking, while another focuses on business checking. One might have branches in several communities in your area, while another might deliver services digitally via the internet or mobile app.
In recent years, online banks have been on the rise. Because they do not have to maintain and staff brick-and-mortar, physical locations, these online banks usually offer higher interest rates and even cash-back rewards. They use high-tech encryption to secure and protect our deposits, as well as our information. They are also FDIC insured.
If you are concerned about banking online, consider this: Most businesses require employees to have their pay directly deposited into a bank account. Nearly all of us are involved in online banking already. If you ever deposited your paycheck by snapping a pic of it on your mobile phone, guess what? Welcome to the world of digital banking.
Where can you save money and earn interest?
If you are successful with my challenge to save $100 a month, and you can do it again and again, then consider depositing your money in a high-yielding savings account. You want to earn interest because the bank is paying you to use your money. When your savings earn interest, your money is working for you.
CIT Bank Savings Builder
You can earn the same amount of interest as wealthy people for as little as $100 a month when you open a CIT Bank Savings Builder account. The bank was recently offering customers higher-than-average interest rate. When you consider the average account pays less than 0.1% and the average of the Top 50 accounts is 0.34%, this is a great deal.
There are two ways to earn this interest. The first is to be a high saver and deposit $25,000 in the CIT Bank Savings Builder account. Don’t have to have an extra $25k sitting around? Don’t worry, there is still a way to participate in the high-yielding account.
For the majority of us who don’t have $25,000 stashed under our mattresses, there is an easier way: Directly deposit $100 into the account each month. This is a perfect fit for those of you who are successful with the challenge of saving $100 a month.
What is the best way of saving money?
One of the best ways to save money is having your money automatically deposited each month. It’s sort of like the saying, “Out of sight, out of mind.” We always seem to be able to scrimp and find money when we are in an emergency, but why is it so difficult for us to do it to save money?
The CIT Bank Savings Builder will help you automate your savings because you need to have $100 directly deposited each month. Once it becomes a habit, you are on your way to building an emergency fund, if you don’t have one.
Are you saving money the easy way?
One of the keys to saving is spending less than you make. If you are struggling from paycheck-to-paycheck and relying on credit cards, then it will be impossible. So, look for ways to cut back on your spending so you can start to build up your savings account. While the focus here is on banks, there is a relatively easy way to save more: Take advantage of cash back apps. It will result in more money in your account.
Do online banks have the best accounts for your money?
As you consider what to do with your money, you should consider how an online bank might help you achieve your financial goals. As I already stated, there are no physical locations to maintain and staff. Because of lower costs, they can offer you benefits like higher interest rates, no-fee checking or no overdraft fees (which can be expensive, about $35 a pop).
If you want the benefits of an online bank and prefer to have both your checking and savings accounts at the same institution, then you will want to consider Chime’s banking features.
Chime calls your checking account a Spending Account. It will give you access to your direct deposit a couple days early (if you qualify); they have no hidden fees; and you can grow your savings automatically. You can use your Chime Visa Debit Card at 38,000 fee-free MoneyPass and Visa Plus Alliance ATMs. Also, you can get cash back for no fee when you make purchases at 30,000 locations (like grocery stores and pharmacies).
If you open a savings account with Chime, you can choose to Round Up your purchases. If you spend $10.25, then the purchase will be rounded up to $11, and 75 cents will go into your Automatic Savings Account. You can also have money deposited automatically from your paycheck.
What should you do now?
I hope you will consider my Savings Challenges, and I hope you will be successful and improve your savings. Remember, to be disciplined and set up an automated savings account to keep you on track. Give it a few months, and see how nice it is to have a decent balance in your savings account.
p.s. If you are new to The Budget Mom, welcome. I am so glad you are here. To get the most out of the site, check out my Start Here page to give you some insights into who I am and why I started this blog. Plus, you can dive into topics to learn about budgeting, saving, frugal living, and more. Also, please help yourself to some gifts in our Free Resource Library.