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How to Manage a Savings Account

A savings account is a popular personal finance tool. It’s often used to safely put money aside for a specific purpose or to build up a cushion for the future.

Saving accounts are typically straightforward and designed for your convenience. If you’re planning to open one, you can quickly learn how they work and how you can make the most of your account.

Set your savings goals

Building a savings account isn't always easy. There are many demands on your income and everyday expenses.

It's important, though, to determine what you want out of life and do a little planning for how you're going to get there. With meaningful financial goals, you may find more motivation to save. Here are some goals to start with:

  1. Emergency fund. Experts say you should try to have a cushion big enough to cover 90 days of expenses in an emergency. If that seems too difficult, start with a smaller goal, like $1,000 to cover an unexpected car repair

  2. Retirement. Most employers offer retirement savings accounts, which is great. You also can consider other types of savings accounts for retirement

  3. House or car down payment. The more you can put down, the smaller your monthly payments will be

  4. Vacation or recreation. Dreaming of a 25th anniversary cruise? Start saving now to avoid putting it on a credit card later

Use automation to your advantage

If you have decided to put a certain amount into savings every month, there’s a simple way to make it happen: automatic direct deposit. Have your employer deposit a portion of your pay directly into a savings account at a bank. That way, you can’t forget or be tempted to direct that money toward an impulse purchase.

You also could use different savings accounts for different goals. You could set up direct deposits for each bank account, according to your budget and goals.

There might be another benefit to automation. At many banks, setting up an automatic direct deposit is a way to avoid monthly fees.

Stick to your goals

One popular method for building regular savings into your budget is the 50/30/20 rule,† which suggests a goal of placing 20% of your total income into savings. Whether it's your salary, a tax refund, or a $100 gift, put 20% into savings.

When your household budget is tight, that may sound impossible. If 20% is out of your reach, budget for 15% or even 10%. Even if the balance grows slowly, you will be building a habit of saving and utilizing your savings account. Budgeting for savings will pay off in the long term.

How to choose the right type of savings account

Let's take a look at some of the types of savings accounts available to satisfy your money management needs. Whichever you choose, be aware of possible fees regarding minimum balances or making too many withdrawals within a statement period.

It also pays to ask your bank if they offer relationship rates, which means a higher interest rate for a savings account if you have other accounts with the bank.

  1. Traditional savings accounts. A traditional savings account is a bank account that allows you to save money while earning interest. Interest is compounded, meaning your account gains interest on the initial deposit and as well as earnings.

    The funds in this type of account may be linked with your checking account and are immediately accessible to cover an emergency or an overdraft in checking. FDIC deposit insurance covers $250,000 per depositor, per FDIC-insured bank, for each account ownership category.

  2. High-yield savings accounts. High-yield savings accounts offer annual percentage yields (APYs) that are higher than those offered by traditional savings accounts.

    Like traditional accounts, they earn compound interest and are federally insured. There may be associated fees, minimum deposits, and limits on withdrawals. Funds in these accounts may not be as accessible as those in a traditional account.

  3. Certificates of deposit (CDs). For funds that you don't need access to right away, consider a CD , which locks up your money for a period of months or years in exchange for a return on your investment that may be larger than you would receive with a traditional savings account. Early withdrawals typically incur a penalty, but there are no-penalty CDs on the market. If you and your bank have a good relationship, it may offer the opportunity to "add on" funds during the CD term. It may even "bump up" the interest rate. If you have multiple CDs , consider terms of different lengths so you can access your savings more frequently.

Savings accounts offered at TD Bank

Building your savings is an important step toward financial security and stability. Sometimes it's not easy to put those dollars aside, but it's important to prepare for life’s planned adventures and unwelcome surprises.

This article is for general informational purposes only. It is not intended to provide specific financial, investment, tax, legal, accounting, or other advice and should not be acted or relied upon without the advice of a professional advisor. A professional advisor will recommend action based on your personal circumstances and the most recent information available.

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