Saving money, in some capacity, is important for a number of reasons. The average American, however, is saving just 7.9% of their disposable income, according to Statistica. It’s now being recommended by financial experts to save at least 15% of your earnings, whether it’s going towards an emergency savings account or a retirement fund.
While the percentage any given person should save is not set in stone, it’s important to establish a savings rate to determine how much of your disposable income is being tucked away. A savings rate is calculated by dividing an individual’s total savings by their disposable income (net earnings after taxes). This is helpful when it comes to monthly budgeting, as it allows you to set aside an amount for savings before addressing all of life’s other expenses.
Fiona matches you with savings accounts based on the amount you want to deposit.
Where Should Savings Go?
While retirement accounts, like a 401(k) or Roth IRA, are essential in saving money, they are best viewed as long-term investments. People participating in either are advised not to withdraw the funds until they are eligible to retire, as it comes with steep penalties and tax implications.
Another option, for more intermediate-term or emergency funds, is a high-yield savings account. Most consumers sign up for a savings account with their bank when they open a checking account. The issue with most traditional (or brick-and-mortar) bank savings accounts is that they offer a very small interest rate, as low as 0.01%.
The Benefit of Online Savings Accounts
The best options for saving accounts offering the highest annual percentage yield (APY, i.e., annual interest rate) are often found online. That’s because online providers don’t have to deal with the overhead costs of running physical banks, and can typically offer interest rates 20 to 25 times higher. The APY offered by an online savings bank can reach the range of 1.9%, which means legit interest being accrued on a year-to-year basis.
Circling back to a consumer’s individual savings rate, the higher percentage they are willing to save and deposit into their high-yield savings account, the more they will ultimately earn in interest.
It’s important for everyone interested in saving money to know what their savings rate is, which will help determine how much of those funds are going into their online savings account. It’s also vital to know all the terms and conditions of different online savings accounts, as some have a minimum balance amount to earn APY, as well as an amount to avoid fees.
With Fiona, consumers can find the perfect online savings account for their needs, based on the amount they want to deposit.