Smart Ways to Save Money Using Each of Your Accounts
Choosing the wrong accounts or using the accounts that you have incorrectly means added fees, higher interest charges and slower growth for your savings. That’s why it’s so important to find financial products that fit your needs, goals, spending habits and lifestyle. Here are some tips for ways to save money using the accounts that most people use every day.
Penny Wise shoppers know how to manage money to save money. When you’re Penny Wise, you have accounts that minimize fees. You use Direct Deposit to avoid deposit fees and get instant access to your funds. Pound Foolish doesn’t shop around for accounts or they use check cashing stores because they think banks are bad.
Penny Wise makes sure to maintain a savings account that’s federally insured. They also check the rate to know how fast their money will grow. Pound Foolish savers never check rates and rarely get beyond basic saving plans. They let fear and lack of knowledge keep them from better tools, like investments. Penny Wise savers use cash equivalents to supplement savings for more growth. And they even explore higher-risk investments that can offer a greater return.
Pound Foolish never shops around for financing or credit, so they wind up paying more. And they don’t pay off debt quickly to keep interest charges low. Penny Wise pays off balances in-full every month to use credit interest-free. And they always use a low APR card for big purchases. Pound Foolish gets on a debt treadmill where their balances never go down. And they don’t consider options like credit counseling that can help them get off.
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Ways to save money using your checking account
The best way to save money using a checking account is to avoid added fees.
- Overdraft fees are typically the biggest financial drain. Average overdraft fees run upwards of $30 per overdraft. If you are prone to overdrafts, then you need to get overdraft protection on the account, such as linking it to your savings account.
- Many checking accounts also have monthly maintenance fees, but there are often ways to avoid them. For example, you may be able to avoid the fee by using Direct Deposit or maintaining a certain minimum balance every month.
- Also check what fees your account charges if you do or don’t use certain features of the account. For instance, if you have an online checking account, they may charge an extra fee if you don’t use Bill Pay that month. Know your fees and use the account accordingly.
- If you see that you’re consistently getting charged fees for your account, shop around for different accounts that would fit you better. For example, if your account charges a fee for not maintaining a certain balance, then find an account with no minimum balance requirement.
- There are some checking accounts that offer interest rate growth on the money in your account. However, you usually must maintain a certain minimum balance and you may earn higher rates of return if you have a higher balance. If you can afford this type of account, use it. This will make the money in your checking account more productive than just waiting to be spent!
Ways to save money using your savings account
Saving accounts are usually all about growth, but higher rates usually mean more requirements and potential fees. So, you need to find an account (or accounts) that minimize fees while delivering the fastest growth possible.
- APY means annual percentage yield and it’s basically the interest rate on a savings account (like APR on a credit card). Most savings accounts have APY of less than 1 percent and many have rates less than .1 percent. The higher the rate, the faster your money will earn new money.
- Compounding refers to how fast interest earned gets rolled back into the balance. Most savings accounts have compound interest, which means you earn money on the money you already earned. The faster an account compounds, the quicker you earn. Most savings accounts compound monthly.
- Minimum balance requirements are also key on savings accounts. The best earners that offer over 1% APY or even 2% APY require a certain minimum balance or you may pay a fee. Check these requirements and make sure you can consistently meet them to avoid offsetting what you earn.
- Money Market Accounts (MMAs) are basically like a hyper-charged savings account. They earn higher rates of interest faster. They also usually offered tiered savings rates. That means the more money that you have in the account, the more you earn.
It’s important to note that you are not limited to having just one savings account. In fact, it’s often beneficial to have more than one. You can start with a basic savings account, then when you get enough funds, transfer a portion of the funds to higher earning MMA. Then you could use your savings account as your emergency fund and not worry about tapping the money in the MMA.
Ways to save money using your credit card account
The easiest way to save money using your credit card account is to avoid interest charges. If you can’t avoid interest charges entirely, then you need to do what you can to minimize them.
- The best way to save money using your credit card account is to use it interest-free. If you start and end a billing cycle with a zero balance, then no interest charges apply to the transactions made that month. That means if you pay off your credit card bills in-full every month, you enjoy using credit interest-free.
- For purchases that can’t be paid off within a single billing cycle, be smart! Any rewards you earn will be completely offset by interest charges within 2-3 billing cycles. So, you’re better off using a low-APR credit card for big purchases. You may not earn rewards, but you’ll pay less in the long run.
- When it comes to fees, most credit cards don’t have them as long as you pay on time. But some cards carry an annual fee. This can be as high as $500 on cards that offer insanely good rewards programs. But you must often spend big to earn those rewards, as well as justify the cost of such a high fee. Unless you can afford to pay off big credit card spending without a risk of debt problems, best to stay away!
- Finally, make sure to avoid penalty fees, and worse penalty APR. Most credit cards charge late fees and apply penalty APR if you’re late with a payment. It takes six consecutive months of on-time payments to restore your original rate. In that time, you’ll pay more for your debt.