As the coronavirus pandemic continues, many adults are realizing the value of saving money in a rainy-day fund to prepare for future financial emergencies or job loss. Though every situation is unique, experts suggest an average emergency fund should contain between three and six months of living expenses.
If you’ve achieved this financial goal, you should consider investing extra money into another type of savings account. Credible can help you explore the savings account that’s right for you. Develop a financial plan and extend your savings goals through steps like:
- Open a high-yield savings account
- Take advantage of a 401(k) matching program
- Consider a Roth IRA
- Open a certificate of deposit
- Open a money market account
5 ways to keep saving money after building an emergency fund
1. Open a high-yield savings account
Similar to a traditional savings account, a high-yield savings account applies a significantly higher interest rate to your earnings. These types of savings accounts are typically insured up to $250,000 by the FDIC and many financial institutions allow you to operate a high-yield savings account without paying monthly fees. Visit Credible today to explore high-yield savings options that could be making more money for your savings account.
One potential downside to opening a high-yield savings account is also its largest potential upside: variable interest rates. If rates rise, you can earn more money at a faster rate; if market rates fall, your maximum interest potential will also be limited. This money savings option may be a wise choice for someone setting aside a lump sum amount as some accounts may require a minimum balance.
Check out how you can earn extra money no matter how much you have to deposit with high-yield savings options via Credible.
2. Take advantage of a 401(k) matching program
If your workplace offers an employer matching program for your contributions to a 401(k) account, then you have the potential to instantly increase your retirement savings. Most companies that offer this employer matching benefit usually have a maximum contribution rate, which is on average 3.5% of the employee’s wages. For an individual making $48,000 per year, that’s a $1,680 annual contribution from your employer.
Although a 401(k) matching program can be a wise strategy to increase your retirement savings, you should know that you will have to pay taxes on the amounts you withdraw when you retire. This expense could be inconvenient if you aren’t anticipating it.
3. Consider a Roth IRA
While many working professionals save for retirement through a 401(k), there are some who choose to invest in a Roth IRA. The most significant difference between a traditional IRA and a Roth IRA is the taxing structure. Traditional IRAs require you to pay taxes upon withdrawal; Roth IRAs tax your contributions which means you’ll enjoy tax-free withdrawals.
Roth IRAs do not require minimum distributions until the owner passes away. If you have an existing IRA, you can convert your traditional account to a Roth IRA, though this cannot be reversed. As you’re setting your financial goals, keep in mind there’s also a maximum contribution amount per year, which limits the amount you’re permitted to invest annually.
4. Open a certificate of deposit
A certificate of deposit, or CD, is a savings account that offers a high, fixed interest rate. Unlike a traditional or high-yield savings account, you only make a one-time, lump sum deposit into your CD. You also agree to keep the lump sum in the CD until it matures, gaining interest based on a fixed rate determined at the time of deposit.
For those who need a savings account that they can withdraw from immediately, a CD is not a good option. The amount in the CD must remain until the end of the term or penalties will be assessed.
If this limitation doesn’t work with your financial goals, consider a high-yield savings account that offers flexibility for withdrawals. Applying for a high-yield savings account online is a simple process with sites like Credible, where you can explore your savings options and compare APY rates in minutes.
5. Open a money market account
If you’re searching for competitive interest rates and the freedom to occasionally access your balance, you may consider a money market account as a great option. These accounts often require a minimum deposit to open and must maintain a minimum balance. However, many money market accounts also offer limited withdrawals per year, a debit card, and checkbook.
Money market accounts may have higher interest rates than traditional savings accounts, but they will likely be lower than high-yield savings accounts. These accounts are best for individuals who desire a savings account with limited access.
An emergency fund can be a lifeline, but it doesn’t need to act as your only savings account. By strategically placing your extra money in other savings accounts, you can maximize your safety net, better position yourself to reach all of your financial goals and give yourself peace of mind.
It’s never too late to contribute more to your savings account. If you’re interested in quick and easy ways to save money, you can visit Credible to learn more about savings options that best fit your goals.