Saving money is one of the most important aspects of building wealth. Just saving money, however, is not enough. You have to have a plan to make sure your savings grow. This guide will help you learn more about your banking options and pick the perfect one for your unique situation. The perfect match for your savings is just a little research away, and the financial reward is well worth the time!
Understanding the Importance of Strategic Savings
Saving money and putting it into a standard transactional account will not help you grow your wealth. Strategic savings mean saving your money into accounts that reward you for saving more. This will help you defeat inflation and reach your goals much quicker. Banks use your savings to fund other activities, and as a result, they pay you interest. This is a fundamental concept, and by knowing it, you can start demanding more interest on your savings.
Defining Your Financial Goals: Short-Term and Long-Term
Before opening a new savings account, you have to define your financial goals. Short-term financial goals include saving up for a vacation, a new car, and even saving up for emergencies. This means that you want easy access to your savings and minimal penalties for early withdrawal.
Long-term financial goals include saving up for a home and saving up for your retirement. This means that you can afford to lock up your savings for a very long time and earn more interest. Separating your savings into short-term and long-term goals will prevent you from spending your home savings on a weekend vacation.
Types of Savings Accounts: High-Yield, Money Market, and CDs
Australians have access to a variety of savings accounts from ING and beyond from which they can choose and invest in order to build their wealth. High-yield savings accounts give you a higher interest return compared to normal savings accounts, but you will be required to meet certain conditions, such as making a certain amount of deposits into your account on a monthly basis in order to earn bonus interest.
Money market accounts are similar to high-yield savings accounts, but they give you a higher interest return based on the amount of money in your account. Certificates of Deposit, commonly referred to as Term Deposits in Australia, require you to deposit your money for a certain period of time and earn interest on it. You will not be allowed to withdraw your money before a certain period of time has elapsed, and if you do, you will incur certain penalties.
Evaluating Interest Rates and Compounding
Compound interest is the biggest advantage of a savings account. It is interest on interest; in other words, you earn interest on your principal amount and also on the interest you have accumulated over time. You must therefore look for a high annual percentage yield when selecting a savings account. Even a small percentage difference will make a huge impact in the future.
You must also be on the lookout for any account-keeping fees that some institutions might charge, which will act as a deduction on your interest earnings. Some institutions give high interest rates for new customers, but after some months, they reduce significantly. You must therefore read the product disclosure statement in order to get a clear picture of what is on offer.
Start Maximising Your Financial Future
Choosing the right location for your money provides a sense of security and will help you achieve your goals faster. Assess your current banking situation and determine if it is helping you achieve your goals. Take the time to research banks and credit unions in your area to determine the best interest rates currently being offered. Every little change in managing your money can mean thousands of dollars in extra interest over the course of a decade!