10 Mistakes You’re Probably Making with Your Savings Account

Forty percent of Americans have less than $300 in savings — far lower than figures before the coronavirus pandemic, which forced 55% of respondents to dip into those accounts, according to a GOBankingRates survey. But it doesn’t take a coronavirus raging across the world and causing lockdowns, closed workplaces, and skyrocketing  unemployment to realize that people with healthy savings accounts do better than those living paycheck to paycheck. If you’re going to start turning these statistics around and invest in yourself, here are some simple mistakes to avoid. 

Related: How COVID-19 Changes Retirement in America

Money for savings must be kept separate from money to pay living expenses, in part for psychological reasons — because paying bills and splurging on a new pair of shoes should be thought about differently. “The urge that one feels to spend when they see ‘extra’ money in their checking account as the end of the month approaches has a way of being spent on things that the account owner may not even be able to recall. It is called mindless spending and is not the best practice,” says Jaclyn Strauss, a CPA and the founder of My Macro Memoir. “One needs a savings account to create discipline and earmark money that is not readily available for spending.”

Related: Useless Things We Bought During the Pandemic

It’s one thing to have a checking and a savings account, but it can still be tempting to throw your extra money into one savings account when you should actually have a separate retirement fund — and even a separate emergency fund. “Funds saved for retirement must be deposited in an account that provides tax benefits,” points out Justin Nabity, CFP, and Founder and CEO of Physician’s Thrive. “One must also have a separate savings account for other financial purposes where you can track your progress to stay motivated and you can automatically transfer varying amounts to different savings accounts every month, so you don't get confused about where your funds are going.” Make sure you have retirement savings set up in the correct type of retirement account; then establish an emergency fund account; and a separate saving account from that. 

Related: 20 Painless Ways to Grow Your Emergency Fund

A low-interest account won’t do you any favors; your money may as well be stuffed in a mattress. “We know that interest rates are close to an all-time low; however, there are still many savings accounts that pay something. Something is always better than nothing,” Strauss says. To find one that will benefit you, Strauss recommends taking your search online. “Check your local credit union or other online banks, such as American Express Savings.”

Related: 11 Benefits of Banking with Credit Unions Instead of Banks

For more smart personal-finance tips, please sign up for our free newsletters.

You may already be a step ahead of the crowd with separate savings accounts, but do you know your savings interest rate? You must know what you get now if you’re going to shop around to find a higher one — or know you don’t need to.

Related: 24 Money-Saving Tools That'll Keep Your Budget on Track

Probably the biggest mistake you can make is paying for a savings account in the form of fees. Ensure you meet the bank’s minimum requirements to avoid them. “Many of these accounts do not have fees associated with them, especially if you maintain a minimum balance or meet the condition of making a direct deposit into the account monthly,” Strauss says.

Related: Stop Paying for These 37 Things to Save Money Now

Not having a goal will leave you feeling unmotivated to save money at all. Whether it’s for a house or vacation, a goal will motivate you to put money into an account. “One should have a savings account goal because the feeling of achieving the goal is so rewarding that it may become addictive. And this is not a bad thing. It is a great thing,” Strauss says.  

Related: 14 Tips to Meet Your Financial Goals in 2021

How much you save is up to you and your income level. Generally you should follow the 50/30/20 rule, says Steve Sexton, a financial consultant and CEO of the Sexton Advisory Group: Use 50% of your income to pay monthly expenses and 30% for discretionary spending — and save the remaining 20%. 

Related: Money-Saving Lessons From a Depression-Era Dad

Not knowing how much your savings account is worth is not going to do you any favors. You should know it and let it motivate you to keep upping the level. At the very least, check in on a savings account every six months, Strauss recommends. If you’re good about saving and this is a habit, checking that balance will likely result in celebration and self-satisfaction. “This becomes a motivator for the person to work to slightly increase the amount they are saving each month,” Strauss says.

Related: 100 Top Money-Saving Tips

To be successful with a savings account and meet your goals, paying into it must be done consistently. “The easiest way to create a savings habit is by setting it up electronically from your payroll or checking account. Set it and forget it — arrange to have your money deposited into your savings account monthly,” Sexton says. Strauss points out that “Once someone triggers this process after month two, they do not miss the money, as they never feel like they had it as it goes right into savings.” 

Related: 16 Ways to Simplify Your Finances During a Time of Economic Turmoil

The bank you choose to house your savings should be easy to use and access. Choosing a bank without online banking makes you less likely to automatically “pay” your savings monthly. “A valuable bank should at least provide online banking services. These services include online bill payment and payment transfers to another account,” Nabity says. 

Related: 15 Money-Saving Hacks for When You're Stuck at Home