Did you know that approximately 62% of Americans have less than $1,000 in their savings account and 21% of Americans don’t even have a savings account?!? If you’re one of those Americans then I suggest starting with my article on Tips to Jump-start Your Savings!
If you are in the few percentage of Americans who actually save money then this post is definitely for you! If you aren’t saving quite yet it will still be a useful read for once you start so I hope you’ll continue reading!
How Do Banks Make Money?
Most people never think about how their bank makes money! In fact, most people probably think of fees and account charges as being the primary method of earnings for banks, however, it’s actually quite different! Banks hold the normal persons money for “free” for them and in return offer security in return!
However, what the bank does next is then loan money out to individuals, corporations, etc. and charge interest on those loans. These loans can include credit cards, auto loans, home loans, business loans, etc.
So basically the bank takes your money and invests it and then makes a return on it!
There are other methods banks employ to generate revenue including investing in stocks, commodities and certificates but loans and interest are the main areas of revenue for most banks. Again though, they are using someone else’s money to make themselves money. Not a bad little gig aye?
What’s The Better Option?
Saving money is great! In fact, if you truly want to be financially secure it’s a necessity, however, keeping your money in a savings account that is generating you .02% interest, if you’re lucky, is not!
So let’s look at a couple places and options you can save your money! Not only save it, but earn returns on it! Most options, including just letting your savings sit in a bank account, come with a little risk so I’ll list them from Least to Most risky below.
Certificate of Deposit
A Certificate of Deposit, more commonly referred to as a CD, is you tell the bank that you’ll leave the money in the bank for a certain period of time. Unlike a traditional savings account, during this time you’ll be unable to deposit or withdraw money from the CD. This time-frame can range anywhere from 6 months to 5 years and give you returns of 1.05% to 2.25% at the time of posting this article!
This is much higher than a return you’d get from your savings account, but it will tie up your money for some time. This may be a bad thing or if you have the habit of spending your savings all the time, this could be a good thing!
There is no risk to losing your money as you’re guaranteed a certain APY (Annual Percentage Yield). There could be fees if you withdraw the money early but I wouldn’t consider that a risk as much as bad judgement! 😛
Save & Invest Your Change
Another great option if you’re looking to try to earn a bit higher rate than what you’ll get from a CD is to use an app like Acorns.
Acorns is an app that you can link to your checking and/or savings accounts or even to a credit card and it will automatically round up all our purchases to the nearest dollar and then invest that money into a portfolio of stocks, bonds, etc.
For example, if you purchase a large Dunkin’ Donuts coffee for $2.29 (Mmmm Dunkin’s!) it will round it up to $3.00 and invest the other $.71 into your Acorns account. The fees associated with using Acorns is extremely cheap and this is an app I myself use!
Another nice feature if once you get use to it and see how easy it is to use, you can also add additional funds whenever you want! Want to throw an extra $100 in to your Acorns account? Hit a button and your done! How about just an extra $5? Same thing, hit a button and your done! It’s really a nifty app to help you save a little here and there!
Invest in Stocks
Another great option is to take your savings and invest in stocks. Even if you don’t now how to invest you can do so easily and for free using a service like Loyal3.
Loyal3, instead of showing and allowing you to buy every stock out there in the world, limits your choices to the top 100 stocks! Companies like Google, Tesla, Amazon, etc are the types of stocks you can buy on Loyal3 and you don’t even need to save enough to buy a full stock!
If you want to understand how Loyal3 works, I’ve actually already written a post before titled A beginner’s guide to purchasing stock! Check it out and I’m sure you’ll be an investor in no time flat!
Best of all? Loyal3 is completely free!
This post doesn’t give you all the options you can do instead of letting your money sit in a savings account, but it does get you thinking and I hope it made you realize that just letting your money sit in your savings account helps no one except for your bank!
Also, by just letting it sit in your savings, you’ll most likely spend it anyways! 😛
Don’t like the three options listed above? Then find another way to make your money make money! Maybe invest in a local business? Invest in yourself, new skills, schooling, books, etc!
So get out there and make your money work for you!
Don’t make your bank money! Make yourself money!