Saving might not seem as fun as spending, but it comes with a host of rewards. Growing your savings account can help reach your goals, cover unexpected expenses without relying on credit cards, and feel less stressed about your finances and your future. Plus, the more you save, the easier it is to grow your savings. This is thanks to compounding interest — when you earn interest on the money you’ve saved, plus the interest you’ve earned along the way.
If you’re sold on saving more, read on. What follows are six (relatively painless) ways to build your savings account and make your money work harder for you.
Key Points
• Set clear savings goals with specific dollar amounts and time frames to effectively grow your savings account.
• Automate savings contributions to ensure consistent growth without the temptation to spend.
• Choose the right savings account type, considering interest rates, fees, and accessibility.
• Cut expenses by rethinking housing, food, and subscriptions to free up more funds for savings.
• Use budgeting techniques like the 50/30/20 rule to balance needs, wants, and savings effectively.
Setting Clear Savings Goals
The first step toward growing your savings account is to set clear goals. Simply saying “I need to save more” probably won’t do the trick. In fact, it might even be counterproductive because it feels overwhelming and amorphous. Instead, try to be specific about your financial goals. Some examples of goals that can help you stay focused include:
• Paying down debt
• Saving for the down payment on a house
• Buying a new (or used) car
• Funding your retirement
• Getting together enough money for a wedding or vacation
• Building an emergency fund
• Saving for a child’s college education
Once you’ve honed in on a few specific goals, you can then put a dollar amount and a time frame on each. For instance, if you want to have $24,000 in your emergency fund two years from now, that would mean you need to funnel $1,000 a month into your bank account (though compounding interest can help you reach your goal sooner).
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Creating a Realistic Budget for Saving
Next, you’ll want to build a basic budget that can help you grow your savings account and ultimately achieve your goals. While that might sound like a painful exercise, a budget is really nothing more than a plan for spending your money. It helps ensure that your spending aligns with your priorities and helps you do more with the money you have.
There are many different types of budgets — the best one is the one you’ll stick with. One popular approach is the 50/30/20 budget. This involves putting 50% of your take-home earnings toward needs, 30% towards wants, and 20% towards savings and debt payments beyond the minimum. If you live in an area with a high cost of living, you may need to juggle the percentages — and that’s okay. The idea is that you build savings into your monthly spending plan.
You can set up a budget using plain old pencil and paper or an Excel budget spreadsheet. Or, you might take advantage of one of the many budgeting apps available. These tools can do the math for you and share visual renderings of where your money (including your savings) stands. You might start with your financial institution and see what they offer to help you track and manage your income, spending, and saving. Or you could use a third-party app for this process.
Finding the right fit may take a bit of experimentation. Don’t be concerned if one method doesn’t work well for you and you need to pivot. You may also find that a budget that worked when you were a single recent grad doesn’t suit you when you’re a 30-year-old expecting your first child.
Automating Your Savings Contributions
It’s one thing to decide how much you want to save each month; it’s another to actually do it. Many of us are well-intentioned about socking away cash, but when real life intervenes — the temptation of a cheap flight to the Caribbean, a special gift for your parents’ big anniversary — it can be hard to actually build your funds.
That’s where automating savings comes in. By setting up recurring transfers from your checking account (perhaps right after payday) into your savings, you can make the process seamless. No need to remember to move the money. Plus, you won’t see the money sitting in your checking account, where it can entice you to go shopping.
Another idea: If you get paid by direct deposit, you may be able to set it up so that most of the money goes into your checking account and a certain percentage gets deposited right into your savings account, where you’ll be less tempted to touch it.
Choosing the Right Type of Savings Account
The type of savings account you choose can also play a role in growing your savings. Here are some factors to consider:
• Accessibility: With a traditional savings account at a brick-and-mortar bank, you have the option of in-person services. If you never plan on visiting a branch, however, you might consider a savings account at an online bank.
• Interest rate and fees: Interest allows your money to grow just by sitting in the bank. A high-yield or growth savings account typically offers a higher interest rate than a traditional savings account. Bank fees, on the other hand, can eat into your savings. It’s worth shopping around to compare annual percentage yield (APYs), as well as fee structures, to find the best deal.
• Minimum requirements: A savings account may have a minimum opening deposit and a minimum required balance to avoid fees. Depending on your particular situation, this may or may not work well for you.
• Transaction limits: At some institutions, the way a savings account works is that you are restricted to a certain number of transactions (such as six or nine) per month. If you exceed the stated limit, the bank may charge you a fee. If you exceed the limit multiple times, they may convert the account into checking or even close it.
High-Yield Savings Options
One of the benefits of savings accounts is that they typically pay more interest on your deposits than you can get in a checking account (which typically offer little to no interest). As noted above, some savings accounts pay a higher rate of interest than others. To maximize growth, you might consider the following options:
• High-yield savings account: Typically offered by online banks, high-yield savings accounts can offer interest rates that are several times that of traditional banks.
• Money market account: A money market account, or MMA, is a hybrid checking and savings account that can offer features of both, such as check-writing privileges and a debit card, as well as a competitive interest rate. They may, however, require a larger initial deposit and a higher ongoing balance.
• Certificate of deposit: Certificate of deposits (CDs) typically require you to leave your funds untouched for a set period of time, or term, which could be a few months to several years. When you open the CD, you typically lock in a certain APY — it won’t go up or down during the term of the CD. If you withdraw the money early, however, you’ll usually pay a penalty which could undercut the interest you’ve earned.
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Strategies for Cutting Expenses to Save More
Another important way to build your savings account is to cut your expenses, freeing up additional funds to stash away toward your goals. Of course, the best way to do this will depend on your particular situation, but here are some ideas:
• Cut back on food spending. According to the USDA, Americans spend around 11% of their disposable incomes on food. Some ways to trim back include: planning your meals to save on groceries and avoid impulse buys; shopping less expensively at warehouse stores (split the bounty with a friend if you have a small household); and curbing your takeout or fancy coffee habit.
• Knock down credit card debt. Credit card debt is typically high-interest debt, and you can save a bundle by paying it down. You might investigate the avalanche and snowball pay-off methods for starters, or consider a personal loan to consolidate the debt at what is likely a more affordable interest rate.
• Bundle your insurance. You could get a nice discount by having, say, your home/renters insurance and car insurance with the same provider. It can also be worth shopping around to see if you can get a better deal from a different insurer.
• Reduce your subscriptions. Whether that means lowering the number of streaming platforms, “of the month” clubs, or other accounts/services that you don’t really use, slashing these costs can reap real rewards. Review your credit card bill carefully to see just what you’re paying for.
• Find cheaper fun. No criticism if you splashed out on Taylor Swift tickets, but there are plenty of free concerts, gallery/museum nights, movie screenings, and readings in many communities. Plus hiking and biking can be a good alternative to big-ticket Pilates and yoga classes. This doesn’t have to be a forever move. Even making some swaps for three or six months can help pad your savings.
• Make the most of windfalls. A work bonus, tax refund, or inheritance may make you think it’s time for a shopping spree or last-minute travel, but why not save some or all of it instead? One of the best things to do with a windfall can be to use it to pump up a savings account.
• Rethink your housing. To supercharge your savings, you might reconsider your housing situation. If you live alone, you might get a roommate to dramatically reduce your costs. Or if you live in a pricey neighborhood, you might decide to move to one nearby where the costs are lower and you can save a bundle for a year or two. For instance, you might move 20 minutes further outside a city and reap major savings.
The Takeaway
Having a robust savings plan can help you reach your financial goals and reduce money stress. Moves like pinpointing your savings needs and goals, developing a budget, automating the process, boosting the interest you earn on your savings, and cutting your expenses can all contribute to growing your wealth.
If you’re looking for a bank account with a competitive interest rate, see what SoFi offers.
Interested in opening an online bank account? When you sign up for a SoFi Checking and Savings account with direct deposit, you’ll get a competitive annual percentage yield (APY), pay zero account fees, and enjoy an array of rewards, such as access to the Allpoint Network of 55,000+ fee-free ATMs globally. Qualifying accounts can even access their paycheck up to two days early.
FAQ
How much should I aim to save each month?
According to the popular 50/30/20 budget rule, you should aim to put 20% of your take-home pay towards savings and/or additional debt payments. If that figure seems too lofty, it is fine to save less. What tends to be most important is to save regularly, even if it’s only, say, $25 per paycheck or per month.
Are there apps that can help me save money?
Yes, there are a variety of apps that can help you save money. Whether offered by your financial institution or a third party, these tools can help you track, automate, and grow your savings. Some apps offer handy tools like “round-ups,” which rounds purchase prices up to the next dollar and puts the difference in savings. There are also coupon apps that help find discounts on purchases (or free shipping) to help you cut back on spending.
Should I prioritize saving or paying off debt?
It depends on your situation. If you’re carrying high-interest credit card debt, you’re generally better off paying down debt over saving, since the interest you can earn in the bank is likely lower than what you’re paying on your credit card debt. For other types of debts, however, the best approach is often a combination of the two — putting some money toward saving each month while also chipping away at your debt. If, however, you don’t have an emergency fund, financial experts typically recommend you prioritize saving for that over paying down debt.
Photo credit: iStock/Calvin Chan Wai Meng
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SoFi members with direct deposit activity can earn 4.00% annual percentage yield (APY) on savings balances (including Vaults) and 0.50% APY on checking balances. Direct Deposit means a recurring deposit of regular income to an account holder’s SoFi Checking or Savings account, including payroll, pension, or government benefit payments (e.g., Social Security), made by the account holder’s employer, payroll or benefits provider or government agency (“Direct Deposit”) via the Automated Clearing House (“ACH”) Network during a 30-day Evaluation Period (as defined below). Deposits that are not from an employer or government agency, including but not limited to check deposits, peer-to-peer transfers (e.g., transfers from PayPal, Venmo, etc.), merchant transactions (e.g., transactions from PayPal, Stripe, Square, etc.), and bank ACH funds transfers and wire transfers from external accounts, or are non-recurring in nature (e.g., IRS tax refunds), do not constitute Direct Deposit activity. There is no minimum Direct Deposit amount required to qualify for the stated interest rate. SoFi members with direct deposit are eligible for other SoFi Plus benefits.
As an alternative to direct deposit, SoFi members with Qualifying Deposits can earn 4.00% APY on savings balances (including Vaults) and 0.50% APY on checking balances. Qualifying Deposits means one or more deposits that, in the aggregate, are equal to or greater than $5,000 to an account holder’s SoFi Checking and Savings account (“Qualifying Deposits”) during a 30-day Evaluation Period (as defined below). Qualifying Deposits only include those deposits from the following eligible sources: (i) ACH transfers, (ii) inbound wire transfers, (iii) peer-to-peer transfers (i.e., external transfers from PayPal, Venmo, etc. and internal peer-to-peer transfers from a SoFi account belonging to another account holder), (iv) check deposits, (v) instant funding to your SoFi Bank Debit Card, (vi) push payments to your SoFi Bank Debit Card, and (vii) cash deposits. Qualifying Deposits do not include: (i) transfers between an account holder’s Checking account, Savings account, and/or Vaults; (ii) interest payments; (iii) bonuses issued by SoFi Bank or its affiliates; or (iv) credits, reversals, and refunds from SoFi Bank, N.A. (“SoFi Bank”) or from a merchant. SoFi members with Qualifying Deposits are not eligible for other SoFi Plus benefits.
SoFi Bank shall, in its sole discretion, assess each account holder’s Direct Deposit activity and Qualifying Deposits throughout each 30-Day Evaluation Period to determine the applicability of rates and may request additional documentation for verification of eligibility. The 30-Day Evaluation Period refers to the “Start Date” and “End Date” set forth on the APY Details page of your account, which comprises a period of 30 calendar days (the “30-Day Evaluation Period”). You can access the APY Details page at any time by logging into your SoFi account on the SoFi mobile app or SoFi website and selecting either (i) Banking > Savings > Current APY or (ii) Banking > Checking > Current APY. Upon receiving a Direct Deposit or $5,000 in Qualifying Deposits to your account, you will begin earning 4.00% APY on savings balances (including Vaults) and 0.50% on checking balances on or before the following calendar day. You will continue to earn these APYs for (i) the remainder of the current 30-Day Evaluation Period and through the end of the subsequent 30-Day Evaluation Period and (ii) any following 30-day Evaluation Periods during which SoFi Bank determines you to have Direct Deposit activity or $5,000 in Qualifying Deposits without interruption.
SoFi Bank reserves the right to grant a grace period to account holders following a change in Direct Deposit activity or Qualifying Deposits activity before adjusting rates. If SoFi Bank grants you a grace period, the dates for such grace period will be reflected on the APY Details page of your account. If SoFi Bank determines that you did not have Direct Deposit activity or $5,000 in Qualifying Deposits during the current 30-day Evaluation Period and, if applicable, the grace period, then you will begin earning the rates earned by account holders without either Direct Deposit or Qualifying Deposits until you have Direct Deposit activity or $5,000 in Qualifying Deposits in a subsequent 30-Day Evaluation Period. For the avoidance of doubt, an account holder with both Direct Deposit activity and Qualifying Deposits will earn the rates earned by account holders with Direct Deposit.
Members without either Direct Deposit activity or Qualifying Deposits, as determined by SoFi Bank, during a 30-Day Evaluation Period and, if applicable, the grace period, will earn 1.20% APY on savings balances (including Vaults) and 0.50% APY on checking balances.
Interest rates are variable and subject to change at any time. These rates are current as of 12/3/24. There is no minimum balance requirement. Additional information can be found at https://www.sofi.com/legal/banking-rate-sheet.
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