If you’ve chosen to save your money in the bank, then you have to realize that it’s not just about opening a saving account. There are other steps you need to do if you want to do it right.
There are 7 steps you need to follow to effectively save your money in the bank, maximize your savings and achieve your saving goals faster, and they start way before visiting the actual bank.
1- Deciding to save in the bank
As we discussed before, banks aren’t the only place you can save your money in. Some people, less than half of adults according to the Global Findex Database, save money outside financial institutions and they choose homes to do so.
That’s why you need to discuss with yourself and or spouse and figure out if saving in the bank is better than home or if it’s better to keep it away from the banks.
If you didn’t make up your mind yet about where to save your money, then you can check these 2 articles where I have researched a lot about the advantages and disadvantages of saving money both at home and in banks.
Another point to consider while deciding about the bank, is the reason for using the bank. Are you going to use the bank just for saving money or are you going to use it to manage all your financial interactions so saving, spending, and investing?
This point is going to affect few of your following actions and it’s worth knowing up front.
2- Choosing a bank
Once you have decided that saving your money in the bank is better for the advantages discussed in the article above, then it’s time to do some homework. You’re not going to the bank just yet.
There are 7 things you need to look for when choosing the right bank for you:
2.1 List of banks available
The first thing you want to do is to have a decent list, not necessarily a full one, with the banks that exist in your country, and you need to do this in 2 categories, a domestic category and an international one.
2.2 Filtering by famous
Here you want to filter or sort that list according to how famous those banks are in a descending manner. You need to have the most famous ones at the top. 1-3 banks in each category are enough.
Are all top banks you have in your list have good reputation? Do they have good reviews and feedback from other people online? Do you hear good things about them from your friends?
If so, then keep going
2.4 Availability across country
Here you need to research number or branches, their locations, and ATMs in your country. You need to look for the bank(s) that have a decent number of branches and well distributed across your city and country if you’re traveling a lot domestically.
Reasons behind this are:
- Knowing how much you’ll go, or travel, to get to a branch to handle something in your account, knowing that not all services or requests can be done online.
- Saving money by withdrawing from your bank’s ATM. Usually, if you withdrew from another bank’s ATM machine, you’ll lose some money for that. This point is irrelevant if you’re sole goal of choosing a bank is to save money, and not use it for spending as well. But if you are going to use the same bank for receiving your salary to spend from as well, then this one is going to help you save unnecessary spending.
2.5 Availability oversees
Another point you need to research is availability of those banks, specially the international ones, outside your country. This is very important if you’re a frequent oversees traveler.
Reason behind this is finding security in knowing that you can have access to your money while in another country. Also, this is so important and very beneficial as a contingency plan in case you had to leave your country for reasons like war or natural disasters.
2.6 Saving account minimum balance and fees
Another comparison that will come handy to you is knowing:
- How much each bank is going to ask for opening a saving account
- the minimum balance you need to keep in it
- Penalty for not meeting the minimum balance
This is going to help you decide which bank you can start with or go for according to you own situations. If you want to have an account immediately and you don’t have a lot of saving yet, then you’ll go with the cheaper one.
Some banks allow specific people with certain exemptions like having no balance required to open an account like for students. This is helpful for students deciding to save money and don’t have the minimum balance required in some banks. This is one of the important steps as we discussed in how students can save money article.
2.7 Online system
It’s 2022 already and I’m sure all banks now have an online system but it’s worth mentioning to look for because having an online system will help you a lot in:
- Remotely accessing your account without needing to physically visit the bank
- Interacting with your money
- Checking your balance
- Downloading a monthly report or electronic statement to explore your balance, and all other things.
3- Opening the right account
Now you can enter the bank of your choice. The one fulfills all or most of the above points. Banks offer more than one option to save your money and the most common 3 accounts you’ll come across is as follows:
Opening a traditional Saving account
This is the basic account you can have to save your money in. It offers you an interest for the money you keep in that account for a certain given duration. If you’ll use that account only for saving, then you have nothing to worry about and interests will be accumulating based on the initial money you put in the account, and over the next months/years, that interest will compound.
High-Yield Savings Accounts
Some banks offer special, high-interest savings accounts that can offer higher rates than the traditional savings accounts we discussed above.
This can be found with online banks which benefit from lower costs due to not having brick-and-mortar branches and offer rates that are often much higher compared to traditional banks.
Checking accounts aren’t meant to save money per say. They are mainly made for ongoing and frequent transactions, yet one of the points you can look for to use your checking account for saving, is to consider choosing an account that rewards you for your purchases using your debit card. This way you get to spend and save, even little.
4- Issue a Certificates of Deposit (CDs)
Like savings accounts, Certificates of Deposits (CDs) are FDIC-insured, and they offer a higher interest rate compared to savings accounts, especially with larger and longer deposits.
The difference here is that with a CD, you won’t have access to your money in for the specified amount of time agreed upon, otherwise you’ll lose money either from the interest that you should’ve had, or from the original money is you broke that certificate too soon.
The most common agreed periods you can lock your money for are six months, one year, three years, and five years. Most of the times it’s automatically renewed, and interests will compound each year upon the increased sum from the previous year.
Use the CDs for the amount of money that you know for 90% certainty, you won’t use in the near future. Otherwise, just stick to the savings accounts or change your strategy and build a CD ladder as discussed below.
5- Build a CD ladder
Because locking your money with a CD means you won’t have access to it in the near future, you can divide up the money you’re intending to lock with a CD and put it into several certificates of deposit with different term lengths or open them at different months.
An example would be, instead of putting all $10,000 into one certificate, you can either:
(A) Open 5 certificates, one for a year, two for 3 years, two for 5 years
(B) you can open one in January with $2000 for a year, one in March with $2000 for a year, one in May with $2000 for 3 years, two in Jul with $2000 each for 5 years.
You can use option (A) if you’re not certain about your short-term future and the possibility of needing that money. While option (B) can be used if you’re not certain about your upcoming months and that you may need that money. This way you still have access to the money that isn’t locked, and if few months passed and you didn’t need it, you lock it up in another certificate and so on.
6- Automate saving
If you can automate your saving process, then that will hugely impact your saving progress and help achieving your goals faster. There are few scenarios you can go about that:
6.1 Automatic wiring from checking account to saving account
If you’re receiving your salary via bank account, whether it’s the same bank or a different one, then work with that bank to automatically deduct a certain amount of your salary and transfer it to your saving account.
It’s better to have the saving account in the same bank you’re receiving your salary in to avoid any transactional fees, but it’s mandatory since you may find higher rates in other banks, specially if you’ve been forced by your employer to use certain banks to receive your salary.
Even if that’s the case, you shouldn’t be concerned about this, since most transactional fees between banks are almost nothing compared to having a lower interest if you used the same bank, or manually took it from “salary” bank and deposited into the “saving” bank.
6.2 Manually depositing into your saving account
Some people don’t receive their salary via banks, and they have it in hand. Some jobs pay you through online banks. Sometimes you even have extra cash in hand that you need to save. For all these circumstances, you’ll have to manually put your money into the saving account.
Even though this requires manual action from your side, you still are able to automate it by committing to having a depositing day in your agenda. It can be the same day of receiving your money or it can be any other day of the month that you’ll set for yourself to manually deposit any cash you have for savings.
6.3 Ask people to send the money to your saving account
Here you can use your saving account to receive any kind of money, aside from your salary, by asking people or giving them your saving account to wire that money to.
Let’s say you sold something, and the buyer asks you where to send the money. If you have decided that you’ll save that money, give them the saving account details. Same if you’re someone paying you back, give them the saving account and save that money.
7- Cancel subscriptions or receiving physical statements that cost money
If you were asked to subscribe to banks services or receiving physical bank statement, then my recommendation is to opt out of this, specially if it costs money which is the case in most banks.
The alternative here is using the bank’s online system, checked in point 2.7 above.
- The Global Findex Database 2017. The World Bank. https://globalfindex.worldbank.org/index.php/basic-page-overview. Accessed January 25, 2022.
- 8 low-risk ways to earn higher interest. Porter TJ. Bankrate. https://www.bankrate.com/banking/savings/low-risk-ways-to-earn-higher-interest/. Published January 15, 2022. Accessed January 25, 2022.
- The 7 Best Places to Put Your Savings. Folger J. Investopedia. https://www.investopedia.com/financial-edge/0810/the-7-best-places-to-put-your-savings.aspx. Updated June 8, 2021. Accessed January 25, 2022.
- 4 Ways to Earn More Interest on Your Money. Tierney S. Nerdwallet. https://www.nerdwallet.com/article/banking/4-ways-to-earn-more-interest-on-savings. Published April 9, 2021. Accessed January 25, 2022.