We’ll start by stating the obvious: saving money is hard. The cost of living goes up all the time, and salaries don’t seem to rise in line with those costs. For many young people, rental prices are so high that the very idea of putting money away for a rainy day is laughable. We all know that we ought to be doing it though – especially as there may be no such thing as a guaranteed pension in the future.
Wanting to save money isn’t just about providing for retirement, though. Different people have different priorities. Some people reading this article will be trying to save up for their first home. Other people will be saving up because they want to cover their child’s college fees when they get older, and they’re right to – the cost is already in excess of $10,000 per year and rising. If you have something as important as a home, your retirement, or your child’s future to save for, you make sure you save something each month no matter how difficult it is.
Because making savings involve so much sacrifice, you need to have absolute clarity and certainty that you’re doing the right thing with where you choose to put your money – and there are several options available to you. We’re gonna give you a basic overview of each option now. This article isn’t professional financial advice, and nor should it be construed as such, but exists for the purpose of providing you with information.
You could, of course, simply keep your savings in your checking account – but as you’re unlikely to be earning any interest on that account, why would you want to? We’ll put that option aside, and look at some more serious contenders!
Transactional Savings Accounts
This is arguably the most common way to stash your savings away, and also the easiest to interact with. Broadly speaking, anybody should be able to open a transactional savings account without having to make a significant deposit in order to do so. You also shouldn’t be charged when you’re making deposits into it (if your bank charges for this, find another bank!). The big advantage of a transactional savings account is that it doesn’t place limitations on your money. If an emergency arose and you desperately needed to raid your savings in order to cover the costs, this account would allow you to do it.
There is a downside which comes with having such easy access to your money, though, and that’s the interest rate you get on your savings. With a transactional savings account, you’ll be lucky if you get an annual interest rate of more than 2%. Because of that, this is probably only a good option if you can’t bear the idea of not being able to access your savings at any time you choose.
Stocks & Shares
You could always choose to avoid having a standard savings account at all, and try the stock market for size instead. Everyone knows that there are thousands of pounds to be made if you invest your money in the right stock, and a good financial advisor will be able to help you identify that stock. Your savings could double or treble in value in a single year. Perhaps they could do even more!
If only it were that simple, though. The unfortunate reality is that stocks and shares can go up as well as down. Betting on the performance of stocks is effectively gambling; you’re not a million miles away from just betting your savings on a Vegas Slots game. There are even mobile slots games which use the stock market as a theme and inspiration, such as ‘Wall Street Fever.’ The knowledge of your financial adviser should mean your chances of success are better than the blind luck of landing a big mobile slots win, but you could still lose everything you’ve saved – so only go down this route if you’re comfortable with that idea!
Money Market Accounts
We’re back into the territory of traditional savings accounts here. Money market accounts are quite similar to transactional savings accounts, but with a few refinements. One of the most obvious is that you generally need quite a substantial deposit in order to open one (requirements vary from one bank to another, so shop around) You can still withdraw from a money market account – so you still have access to your funds should an emergency arise – but if the balance drops below the level of the original deposit, you usually get charged.
The big advantage of a money market account over a transactional savings account is that the interest rate applied to your savings is higher, and so your money works harder for you. This account is always a better option than a transactional savings account so long as you can afford the deposit, and you don’t ever reduce the balance below the level of that original deposit.
Certificates Of Deposit
Hello, high-interest rates. Goodbye, access to savings. If the only thing you want or need a savings account for is literally to store money and nothing else, then certificates of deposit win the argument hands-down. You just have to be very sure you’re not going to want or need your money during the term of the deposit. All certificates of deposit come with a term (sometimes referred to as a maturation period), and during that time, your money is gone. You can’t access it. That term is generally between six months and ten years.
Depending on how long you’re confident you can be without the money for, the higher the interest rate will be – a six-month term will attract less interest than a five-year term, for example. In some cases, you may be able to apply to withdraw your money if it’s desperately needed, but a large fee usually applies – often a fee so high that it would make the action pointless, because there would be no money left. If you take this route, maintain an awareness of when the term is due to end; if you don’t take action quickly enough, your money will automatically be reinvested into a new term of equal length, and you’ll be waiting until the next maturity date for a chance to access your cash.
As always, make an appointment with a qualified financial advisor before making any important decisions about savings or investments.