Building Wealth

Saving money is essential to building long-term wealth, but it’s also how we reach short-term goals. Regardless of your age or needs, you should strive to save a percentage of every paycheck. How much you save may start small, but it will establish a habit of saving, and you can increase how much you save as you earn more in the future.

To begin the saving process, you may need scale back your spending. Learn how to do that by visiting the Basics of Budgeting section of our website.

Savings Options

The first question to ask yourself is why you are saving. Your goals will shape your saving strategy. Our website tackles some of the major reasons people save, like for a house, college, or retirement. Whatever your goal, there are numerous savings vehicles you can use. The type of account you select will depend on your needs. How much interest do you hope to earn? When do you need access to your money? These factors will shape your decisions.

Savings Accounts
From basic savings accounts with low interest rates and high liquidity, to money market accounts with higher yield and higher minimum balance requirements, you have options! You don’t need to limit your savings to just one kind of account. You can use different accounts for different savings goals.

Basic bank savings accounts typically offer less than one percent interest, so they aren’t going to grow your money. The benefits of these accounts include quick and easy access to your money and low minimum balance requirements. Most basic bank savings accounts can be accessed in person and online.

Money market accounts typically offer a higher yield and pay interest based on current market rates. The downside is that they typically require you to maintain a higher minimum balance.

There are a growing number of online savings accounts that mirror the pros and cons of traditional savings accounts. These accounts may offer higher interest rates because they do not have the same expenses as brick and mortar banks.

Certificates of Deposit
Certificates of Deposit, or CDs, yield some of the highest interest rates of bank-based savings options. These accounts are less liquid, meaning your money may be tied up for several months to years. If you want to withdraw your money early, you will have to pay a penalty. But so long as you keep your money in the CD for the duration of your agreement, there’s very little risk or cost to you. There are different types of CDs, and you should know the terms of each before choosing the best option to meet your needs. Types include brokered, bump-up, callable, jumbo, liquid, traditional, variable rate, and zero-coupon. Learn more about certificates of deposit from the Securities and Exchange Commission.

Retirement Accounts
For long-term saving with higher interest rates, most Americans turn to retirement accounts. 401(k) plans, IRAs (both traditional and Roth), and annuities are among the most common ways Americans save for retirement. Visit the Retirement Planning section of our website to learn more.

Health Savings Accounts
One final savings option to consider is a Health Savings Account. HSAs are similar to traditional IRA accounts, because your contributions are tax deductible. The money in these accounts is used exclusively for health-related costs. Any HSA you choose will provide details of eligible expenses, such as doctor visits and prescriptions.
 

Helpful Resources