Recently, TD Bank released the results of research that indicate that fewer people have savings accounts. What’s interesting about the results, however, is that this doesn’t mean people aren’t saving money — especially millennials.
Instead, it appears that many consumers are changing where they keep their money, moving it out of savings accounts. According to TD Bank, 70% of adults had savings accounts in 2014, compared with 83% in 2013. However, 59% of millennials say that they have savings to draw on, and 54% of gen-Xers said the same thing.
This trend toward finding other places to keep money is likely to grow over time. Even I don’t keep very much money in my own savings account.
So where do you keep your savings?
Taxable Investment Accounts
While I do keep a small amount of money in a savings account, it’s only enough to last me a few weeks in an emergency situation. I want that money to be liquid, but I don’t want most of my emergency fund sitting around earning practically nothing.
Instead, I keep most of my emergency fund in a taxable investment account. The returns are better, and if I do have to sell at a loss (as I did a few years ago when my home flooded), at least I get a tax deduction out of it.
I know others who use their Roth IRAs as emergency funds. Many tap into them for short-term needs and replace the money within 60 days to avoid penalty. This isn’t something I would do with my own Roth IRA, but it can work well. It’s one way to keep saving for the future and put the money to work at a higher rate of return.
Another alternative to a traditional savings account is to use CD ladders to build your savings and emergency funds. You can open a regular CD at your local bank or credit union and stagger the length of each — 6 months, 1 year, 2 years, etc. Then as each one comes due you’ll have a continuous amount of money become available to you.
Automatic Savings Apps
Another popular tactic is to use automatic programs that take small amounts of money and deposit them in accounts. Acorns.com has an app that will take your pocket change and invest it for a small monthly fee. I’ve been using Digit.co to take small amounts of automatic savings for me, so I don’t have to think about it.
Digit won’t pay you an interest yield, though. So, every few weeks, I move the money into my investment account. I’ll be moving soon, though, so I let Digit carry on with the automatic withdrawals without moving the money. My plan? Buy furniture with what has accumulated.
This strategy is an interesting way to save up for a short-term goal, and one that I think will allow me to furnish the deficiencies in my new home without changing up my spending plan or dipping into other assets.
I might not be earning anything on that money, but it’s slowly but surely going to benefit me, and wouldn’t provide me with enough to make a difference over a short period of time even if I did something else with it.
Thanks to all these new tools and mindsets, we have the chances to create new savings strategies. We are no longer required to follow one path.
Do you keep your money in a traditional savings account? Why or why not?
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I love your idea of keeping the emergency money in a taxable account. I didn’t know you could do that. I keep my emergency money with CIT Bank. At least I know I’m getting a better interest rate on my money. Keeping my money separated from my credit union account helps me forget it’s even there and it’s still earning some interest.
Forgetting is interestingly a very good way to save money. I always remember how Fidelity did a study and they found that the group of people that has the highest account balances were people who were actually dead! Yes, dead!
Set it and forget it. It works!
Please let me know your answer
Thanks for sharing the information. I still stick to the old traditional way though. But your strategies seem tempting!
Great article and a good question. I have a free money market acct. tied to it for transfers and check writing when needed. I have instant “loans against my stocks” available just by writing a special check – so funds are there if needed for an emergency.
Thanks for the advice Miranda. I didn’t know that ‘taxable investment accounts’ give you tax deductions if sold at a loss. I actually love investing in the share market and use a portion of my savings to buy a block of blue chip shares with high dividend yields. This way I get the upside of both income and capital growth.