10 Mistakes You’re Probably Making with Your Savings Account

Sixty-one percent of U.S. consumers are living paycheck to paycheck, according to a LendingClub research study — that's 203 million people who are barely getting by financially. Inflation and financial-market volatility were factors for 13% of households that spent more than they earned in the past six months, the survey said. Higher prices for consumer goods, housing, and more have made it challenging for many consumers to set aside money for emergency savings and retirement. But avoiding these common pitfalls for managing money can go a long way toward helping you to save more. 

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

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 certified public accountant. “One needs a savings account to create discipline and earmark money that is not readily available for spending.”

Related: Simple Ways to Save Money Every Day of the Month

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, certified financial planner, and founder and CEO of Physician’s Thrive, which provides financial and business advice to medical professionals. “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.

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 can benefit you, Strauss recommends taking your search online. “Check your local credit union or other online banks, such as American Express Savings.”

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You may already be a step ahead of the crowd with separate savings accounts, but do you know the rate paid on your savings account? Knowing how much your current account earns is key if you’re going to shop around for a higher rate — or to know if you don’t need to.

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.

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.

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, 30% for discretionary spending, and save the remaining 20%. 

Not knowing how much is in your savings account isn't 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, financial expert Strauss says. If you’re good about saving and make it a habit, checking that balance can encourage more saving. “This becomes a motivator for the person to work to slightly increase the amount they are saving each month,” Strauss says.

To meet your savings goals, depositing money into a savings account 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.” 

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,” says Nabity, the financial planner. “These services include online bill payment and payment transfers to another account.” 

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