written by: Cayden Conor•edited by: Donna Cosmato•updated: 9/11/2011
When determining your plan of action for saving money, you should choose the savings accounts that best fit your scenario and lifestyle needs. Some accounts are specially set up for health care or for college for your children. Some accounts are used to create a retirement for you.
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Whether you are young, middle-aged or older, you should have a retirement savings plan in place. If you don't, it's never too late to start saving, although the younger you start, the more you can save for retirement.
Social Security does not pay enough to let you live comfortably, and there is a possibility that Social Security won't always be there especially for the younger generations.
Savings accounts come in various forms with various interest rates. Choose the method of saving that is best for you, whether it is a 529 Plan, an offshore savings account, a retirement account or a regular bank savings plan. You should have more than one savings account in place even if the second one is just for emergencies.
If you have children, once you set up your own savings accounts, you may set up an account to save for their college. There are certain accounts that you can put money into to save for your children's college education, and many are tax-deductible.
Another method of saving is to open a health savings account if you have a high-deductible health plan. This money is tax-deductible when you put it in and tax-free when you take it out, if it is used for certain non-elective health care procedures. Saving for emergencies and health care separate from your retirement savings accounts allows you to keep your savings for later years, instead of using it, then having to play catch up to replace the money in the accounts.
If you have a high deductible health insurance, you may be eligible to open a health savings account. These accounts have specific rules that you must follow, but they are tax-deductible. This account must be managed by an authorized third-party such as a bank. The deposits are limited to a specific amount per year, and you can only withdraw money to cover authorized, non-elective health care issues.
You might be able to find a better interest rate for your savings if you choose an offshore account. There are certain regulations for offshore accounts, including tax regulations. A higher interest rate will help you save faster, but interest rates must be compared with fees for using an offshore account. If the interest rate doesn’t cover the fees, or if it only allows you to break even, the hassle of an offshore account may not be the right route for you. Always research the options, and there are several: Different countries and each country has several banks with varying fees and interest rates.
College savings accounts vary—you must check all restrictions and rules for each type of account before making a decision. Savings bonds, which used to be a great way to put away money for your child’s college education, are good, if the interest rate is high. As of late 2010, the interest rate was hovering around two percent, which is not a good rate for savings. You may also check into a 529 Plan. The money saved via a 529 Plan is tax-deductible, and if used for qualified college expenses, remains tax-free when you withdraw the funds.
If you prefer savings bonds, research the different types of bonds available. You may wish to use savings bonds for your own retirement or for a child’s college education. Depending on the type and interest rates, you may be able to make savings bonds work for you.
Should you want a savings account with a higher interest than a traditional savings account, you might consider purchasing certificates of deposit (CDs). While you will incur penalties if you remove the money early, you can make this work to your benefit by purchasing three-month or six-month CDs. These do not pay as high an interest rate as the longer term CDs, but if you have one or two short CDs and at least one long CD, you can earn much more interest and still have some of your money available to you at least every three months without incurring fees.
Basic savings accounts and deposit accounts allow you to save money while having easy access to the money. These types of accounts generally have low to no interest benefits for you, but allow instant access to your cash.
When setting up your savings account portfolio, you should have one account set aside for emergencies. You may have a health emergency, or your house may need a major appliance replaced. You may also need to make an emergency out-of-state trip for the illness or death of a loved one. An emergency savings account covers these scenarios without touching savings for your retirement.
Saving for your retirement is the most important reason to save money during your younger years. Social Security does not begin to cover the lifestyle to which you have become accustomed. While many companies offer retirement packages, there is no way to know whether you will be with that company long enough to draw retirement. Many companies do not even offer a retirement package, in which case, you should definitely save money yourself.
You may not want to keep all of your savings in a savings account as a typical savings account with your bank pays the lowest of all interest rates. It is also the safest place to put your money. There are other higher-paying accounts and investments you can make that are risky but not as risky as certain investments. If you waited until you were older to start saving, you may want to consider other options for faster interest building on your money.
When choosing a savings account to add to your retirement plan, you should choose the accounts that have the best interest rates. You can figure out how much you will earn in additional savings through the banks’ interest rates and the method they use to figure the interest to help you better choose the proper account for your situation.
Another method for saving, though it is not a direct method, is to pay off high-interest credit cards as soon as possible. You should not use your entire savings to pay it down, but you should use some if the interest rate is over 10 percent. In the alternative, you can pay off a couple hundred dollars over the monthly minimum due to get the balance down. All the money you are saving in your savings account is actually earning less for you when compared to the high interest being charged on your credit cards.
What it all boils down to is how you are saving. Paying off high-interest cards, investing or putting your money in various accounts all save you money over the years. The key is to manage your money properly. With proper management of your funds, you may be able to save up more than you thought you could, so even if you didn’t start saving in your early 20s, you may still be able to save enough for retirement.