So I have been saving up for a while, from college to now maybe $20k, and I keep it in a bank and get like no interest but I can withdraw my money anytime I want.
Due to using the money to pay for my credit card per month and getting my workplace to transfer my the money there I can’t deal with savings accounts that require me to deposit a huge amount and not expect it to go up or down. I would say I can save up to 24k slowly but also quickly go back to 19-20k. (Health and vet)
I heard about a different type of savings (not Roth IRA) but similar, you put like say 20k and get interest on it so you end up with like 20k+400. Downside is I can’t withdraw my money for a year??
I’m not sure which banks have this program and how much I can invest or should invest, I feel like I’m 5.
In: Mathematics
I don’t know about the US but in the UK it your getting less than 4.5% interest on your money at the moment you are losing out. Those are the rates for easy access savings (deposit/withdraw as much/often as you like).
I put money in Accorns and it gained more than keeping it in a bank. It’s not interest, they use it on the stock market.
However that was when the economy was good.. now it might not grow as quickly and you might even lose money if the stock market is really bad… I dunno I’m not very good at this stuff either but I do recommend Accorns. If you are interested I can give you a code and we will both get 10$
You could try a high yield savings account. SoFi, Amex, and Marcus are all examples. But they’ll have a 6 withdrawal per month limit. However, they’re FDIC insured.
You can also try putting the money in a brokerage account in a government money market fund, like SPAXX or VMFXX at Schwab or Vanguard. These are _not_ FDIC insured but are invested in short duration government bonds, so are considered very safe.
Both options should get you ~5% yields.
Plenty of online banks (some of the banks local to you may also) offer HYSA (high yield savings accounts) that earn upwards of 5% interest and your cash access your money whenever you’d like
[look here for examples ](https://www.nerdwallet.com/best/banking/high-yield-online-savings-accounts)
The savings account you’re referring to is called a Certificate of Deposit, or CD. Pretty much all US banks offer CDs (I’m assuming you’re in the US, you mentioned Roth IRAs). Money in CDs have higher interest rates but you have to keep the money untouched for a period of time.
Make an appointment with your bank and ask a banker to explain different types of accounts. Or ask to speak with a financial advisor. They understand and explain things much better than random people on the Internet.
The “trick” is to keep as much money easily available as you’ll probably need + an emergency buffer and put the rest into something that brings interest. Say, a cheap ETF on msci world (not advice, just a possible “beginner” product). You don’t want to put so much into it that you constantly have to sell because that costs money, just what you can probably leave sitting there for some years. There are usually saving plans for them too.
A simple savings account probably won’t even bring enough interest to make up for inflation. Better than getting no interest at all while the money is sitting in a “normal” account, but not really good either.
We used to have pretty great sovereign bonds or building loan contracts with good saving interest (Germany) but even those don’t pay anymore. You’d have to compare what options you can get locally. The next “simplest” option often are index funds.
I inherited money when my dad died a couple of years ago. I’m not the least bit interested in high risk/high yield investments, so I put a chunk of it into a CD (certificate of deposit) and they earn around 5%, which is around $1,000 per year for your 20K. You can usually choose from a couple of different maturation periods; the ones I’ve done have been from 5 months up to 11 months.
All good savings are currently >4% APY.
4% APY on $20k means $800 in interest the first year (minus incomes taxes).
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> Downside is I can’t withdraw my money for a year
That’s a CD (Certificate of Deposit; at a credit union it may be called a Share, as you technically own part of a credit union when you are member). 1Yr CDs were around 5.5% but they recently have been dropping and now are 5.05%, which is $1010 on $20k. 3mo CDs are at 5.15% currently (1Yr being lower than 3mo means banks either are uncertain of the future or they believe interest rates will come down, which mortgage rates have been slowly decreasing and now are averaging 6.78% for 30yr fixed).
Certificate of Deposit (CD) is what you are referring to. CDs require that you keep the money locked up for a certain amount of time.
High Yield Savings Account (HYSA) are online accounts that get you a higher interest rate (~4.5% right now). You can’t instantly withdraw from it like savings from a local bank – since have to deposit and withdraw from it through a bank transfer. A HYSA with Zelle support can send money instantly- but you still need a secondary bank if you want to get it as cash.
Roth IRA, Trad IRA, 401K are not savings accounts. These are retirement accounts. If you withdraw from a Trad IRA and 401K, you’ll have to pay tax + a fine on top of it. Roth IRA is the exception. You are able to withdraw the amount you contributed at anytime with no penalty (but you do have to fill out additional paperwork during tax season).
The alternative to a HYSA is to open an investment account and invest your money into treasury bills like FZSXX for Fidelity or SNSXX for Schwab. Treasury bills are an investment, which is not FDIC insured. Technically, you can lose money investing in treasury bills. However, that is almost never going to happen unless the US government is collapsing. The upside of this is that the return is higher than a high yield savings. The downside is that you have to sell the asset and wait for the funds to settle before you can withdraw it. This means that it will probably take about a week to get money out if you need it.
Plenty of online banks have accounts like this, you can search up high yield savings accounts with the bank you’re currently using or any other local banks. Check out what their terms and conditions are since they’re different from bank to bank and even account to account.
I’m not in the US so I can’t use a US example, but I currently have 2 of such accounts.
Account A gives me an annual interest rate of around 5%, I can withdraw my money at anytime and there’s no minimal deposit. But the interest would only apply for the first $15k I deposit every year. Meaning if I say deposit $20k to within a year, only $15k would get the 5% interest, and the remaining $5k is money just sitting there that I should be investing somewhere else.
Account B is a term limit lockup that gives a variable interest rate depending on how long I lock it up for. I basically get more interest if I lock up that money for 2 years than 2 months for example. The kicked of course is that I’m not able to touch that money until the term is up, so this would be money that I don’t need immediately and I have no problems with just leaving it sitting around and pretending doesn’t exist until I’m allowed to withdraw it plus interest. But there’s also no limits to how much I can deposit into this account. I can deposit $1k or $100k and I would still get interest on the full amount.
There are pros and cons to each as you can tell. Like if I have an emergency fund, I wouldn’t put it into Account B because there are times I might need that money today. If I need to get a medical procedure done or an expensive car repair, I can’t be waiting around for months to get money freed up.
As for how to budget, you just need to sit down for a day and go through your finances. Like how much are you really spending every month, is there money you can afford to set aside for investing. Like do you really need $20k just sitting in your savings account, or can you afford to take half of that and put it in a high interest account for a year? Personally, I barely have $2k in my savings account (with its glorious 0.01% interest), because there’s about as much liquid cash I really need with my current lifestyle. The rest of my money are all in high yield accounts or brokerages passively earning money.
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