This statistic is alarming. A Bankrate survey earlier this year found that more than half of Americans are uncomfortable with what they stash in their emergency savings. And only 44% of people say they can cover a $1,000 expense with their own savings.
So if you have a savings account, especially an emergency fund with three to six months worth of emergency expenses, that alone is worth a compliment. Having savings is very important for your financial health, but sometimes simply saving money isn’t enough. to your account. Putting your savings to good use will help you reach your financial goals faster.
Deposit funds in a high-yield savings account
As I always say, open a high-yield savings account. HYSA is all the rage right now, and for good reason. These special savings products pay a higher average APY (Annual Percentage Yield) compared to regular savings accounts. Many banks also offer HYSAs for free and can be opened with a very small upfront payment.
You also earn interest on your interest payments (something called “compound interest” in the financial world). This is a great perk for an emergency fund.
Make the most of your savings: the best high-yield savings accounts
Opening a HYSA is easy and many online banks will give you approval quickly. There are many great high-yield savings account options out there, but if you need some ideas on where to turn, check out my favorites here.
Take advantage of automation
With automated features like round-up savings, you can save without lifting a finger. Roundup functionality is offered by many banks and financial institutions. These work by rounding up the change from your purchases and automatically depositing them into your savings account. For example, if you spend $12.49 on lunch, the total amount posted is $13.00, and $0.51 is automatically deposited into your savings account. This may seem like a small amount of cash, but it can really add up over time.
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Bonus tip: Consider setting up a percentage (or fixed amount) of your money to automatically move into your savings account on payday. This saves you the hassle of forgetting to deposit cash manually.
Open a health savings account (if eligible)
A Health Savings Account is a fun savings hack to cover your medical expenses. This is because it is a tax-advantaged account. HSAs are funded with pre-tax dollars, and withdrawals (distributions) are also tax-free as long as you use them for qualified medical expenses.
However, there is a catch. To open an HSA, you must be eligible for an HSA. To qualify: 1. You must enroll in a High Deductible Health Plan (HDHP)2. 3. Not enrolled in Medicare 4. Not covered by other medical insurance. No other person may apply as a dependent. However, if you qualify for an HSA, get one. Not only will you save on medical costs, but you will also save on taxes. HSAs can fund up to the 2025 IRS limits of $4,300 (single plan) and $8,550 (family plan).
Please pay yourself first
Establishing good savings habits and determining savings goals is an important part of financial health. Whether you’re working on an emergency fund or saving for a dream vacation, there are many ways to make the most of your savings. For more savings tips, follow me on Instagram. There, we share the best ways to make your savings effective.
Erika Kullberg is an attorney and personal finance expert. You can find more of her work at Erika.com.
