Many people come to a financial planner wanting to know how much they should be saving. This can be prompted by wanting to save for a wedding, a down payment on a home, college funding for their children or for their retirement. They often want to know how much they should save, and where the savings should be kept. I always recommend that my clients have an emergency fund. But where should that money be deposited? When the money is needed for a short term goal, sometimes the best option is to keep it in a liquid, short term investment that will still earn interest, but will have minimal risk.
Since the federal reserve dropped short term interest rates this summer, it is probable that the rate on your savings account has declined. At www.depositaccounts.com/savings, you can select the amount you would like to deposit, and enter your zip code or state to get an idea of which accounts offer the best rates for your savings. Since rates vary daily, it is important to select an account that consistently offers a higher yield. Some top interest earning accounts over the past two years include Purepoint Financial Online Savings, Live Oak Bank Online Savins and the SFGI Direct Savings Account. As of this writing, none of these accounts charges a monthly maintenance fee.
If you need to write checks or make debit card withdrawals from a savings accounts, you may want to look into a money market deposit account. Another option is to deposit the money into one of Vanguard's taxable money market mutual funds. The Vanguard Prime MMF (VMMXX) was offering a thirty day yield of 2.07% as of October 1. This does require a minimum of $3,000 in deposits.
The most important thing is to start saving for an emergency fund, and then for your other financial goals. It is important to deposit your money into an account that will earn more than what you are getting in your checking account, and since you will always want to keep three to six months in an emergency fund, you might as well earn interest on your money.
About the Author
Patti Hughes is a Chicago Fee-Only Financial Planner. Lake Life Wealth Advisory Group provides comprehensive and objective financial planning, retirement planning, and investment management to help clients organize, grow and protect their assets through life’s transitions. She is a fiduciary, and does not sell products or earn commissions, so she truly acts in the best interests of her clients.
If you would like to schedule a brief call to get your finances in order, please contact me.