Part of a student’s education is learning how to make smart financial decisions. Opening a high yield savings account is a good place to start. (iStock)
Saving money as a student is difficult because, let’s face it, the typical student budget is pretty tight. Between lessons and homework, students have little time to earn a significant income. And the money that students have in their bank accounts is usually consumed by books, tuition, rent, food, and their social life.
But as difficult as it can be, knowing how to manage and save money is an essential lesson students should learn. By adopting healthy financial habits in college, students can build a solid financial foundation for their future.
One such habit would be to create a budget that details how much money you earn versus how much money should be spent on your monthly expenses. This exercise will help you determine how much money you can set aside to save each month.
Another smart money move is to put that money in a high yield savings account, a valuable tool for young adults to maximize their savings with little sacrifice. These accounts provide three essential benefits for students:
- Higher returns
- Perfect for an emergency fund
- Earn more without additional risk
To see how High Yield Savings Accounts can save you money, check out High Yield Savings Options through Credible Market to Save Extra Money.
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1. Higher returns
The simple truth is that students who save their money in a traditional savings account are leaving money on the table.
According to Lawrence Soloman, client advisor at Mercer Advisors, “Students should be interested in high yield savings accounts for one simple reason: they have higher returns than traditional bank accounts, money market funds, or money market funds. other short-term investments ”.
The interest you earn with a high yield account is significantly more than what you would earn with a traditional savings account. Currently, the average annual percentage return (APY) for all savings accounts (high yield and traditional) is 0.04%, according to the Federal Deposit Insurance Corporation (FDIC). However, the APY for savings accounts with most major banks is only 0.01%.
In contrast, high yield savings accounts currently have an APY of around 0.40%. These numbers dispel one of the biggest myths about high yield savings accounts: You’ll get your best rate from your own bank. And because high yield savings accounts earn interest daily, you earn interest every day, and you don’t have to start with much to see positive results over time.
To get an idea of the best returns available from the best online banks, visit the Credible Marketplace to save some extra cash.
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2. Perfect for an emergency fund
University students are advised to begin building an emergency fund to cover unforeseen expenses.
“High yield FDIC insured savings accounts are a great place for students to start an emergency fund,” said Ryan McPherson, CFP and director of coaching and counseling at SmartPath Advisors.
“Not saving emergency funds in college is roughly the same as playing Russian roulette with your finances,” McPherson added. “Emergencies and unforeseen non-emergency expenses will happen, and all of these things cost money, usually more than expected. Saving an emergency fund is essential to avoid having to record unforeseen expenses on a credit card.”
No matter how much you need to deposit, you can save extra cash with Credible’s high yield savings options.
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3. Earn more without additional risk
Unlike risking your money on the stock market, you don’t inherit the risk when you put your money in a high yield savings account. This is because FDIC insurance protects each account for up to $ 250,000 if something happens to your bank.
Even when the stock market is doing well, there is always the possibility of a market downturn that can jeopardize the money you might need for tuition, books, or an unforeseen emergency.
By saving in a high yield, FDIC protected account, you can count on your money to earn interest every day and that it will be there when you need it.
Final thoughts
In the wake of the coronavirus pandemic, the Federal Reserve has ordered emergency rate cuts. In response, most banks have also reduced the return on their savings. Current rates will not last forever, although it may be some time before high yield interest rates rise again in 2021.
What is important is to start saving now. College is the best time for a young student to systematically invest in a savings account, as it is an effective strategy for building wealth and can help you meet your savings goals.
Find out how to make more money with high yield savings options through Credible.
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