How To Make Your Savings Work For You

In the past few years there has been a noticeable shift away from excessive consumerism toward a more frugal lifestyle.  For some this change is the result of the struggling economy, while others realize the many benefits of living a simple and sustainable lifestyle.  Regardless of the cause, more people are paying attention not only to their spending but also their savings.

Flickr/cc - kodomut

 With this increased interest in being fiscally responsible, more people are reducing their expenses which results in more money back in their pocket.  Making and saving money today is no easy feat, therefore knowing where to go with extra cash is important to ensure financial security.  Here we look at popular savings strategies that may work for you.

• The emergency fund-  Before you start thinking about growth opportunities from your savings, you must first make sure you have a well padded emergency fund in place.  It is imperative you do not overlook this step or you could find yourself in need of quick cash with all of your savings tied up in long term investments.  In the current economy it is recommended you have at least six month's worth of income in your emergency fund.  
• High yield savings accounts-  If you are able to meet the eligibility requirements in place for a high yield savings account, this is the best type of account for both your emergency fund as well as other short to mid term savings goals.  In order to offer customers a higher interest rate on savings, this type of account will require a certain minimum balance and restrict the amount of money you can take out of the account each month.  The bank offering this account will have fewer expenses maintaining the account, therefore they can offer a more attractive interest rate. 
• CD ladder-  A long standing savings strategy includes placing your money in a certificate of deposit.  Unlike a savings account, where your money is easily available, CDs have a maturity date which allows for a higher interest rate to be paid on this type of account.  Unfortunately not all savers can afford to have their assets tied up for a year or longer.  To gain the benefits of a CD without losing the liquidity of your investment, consider a CD ladder.  A CD ladder will start with CDs that mature in a short period of time and build up to CDs that mature several years out.  By doing this you are always within one year of the shortest CD while benefiting from the higher interest rates of long term CDs. 
• Stock bonds and mutual funds-  If you are willing to give up access to your money for a  longer period of time, you may benefit from investing in stock bonds and mutual funds.  There is a higher risk associated with this type of investment compared to savings accounts and CDs, however the return on your investment could be much higher.  Before investing in stocks or mutual funds, it is important to assess your risk tolerance and long term financial goals. 

There are numerous options available to those who want to grow their savings, each with its own pros and cons. To find the savings strategy that is right for you, consider your short and long term goals, risk tolerance and accessibility to cash.


Special thanks to those filling in while I am on vacation - Article courtesy of Trisha Wagner, a freelance writer for DepositAccounts.com, where you can compare rates of savings accounts from dozens of banks in one place.