These Are The Worst Places To Keep Your Savings
While you might think keeping your savings in a bank account is better than, say, under a mattress (and, to be clear, it absolutely is), a traditional bank account still might not be the best option for you. Since most traditional big banks (think Chase, Wells Fargo, and Bank of America) offer extremely low-interest rates on their accounts, keeping your money in one of these accounts not only doesn't help your money grow but could even be costing you thanks to inflation.
As of March 2024, inflation in the United States was roughly 3.48%, meaning a savings account would need to offer at least the same to keep up with inflation. However, most of the big banks aren't even close. For instance, the current interest rate on a Chase savings account is just 0.01%. Not only is this lower than the national average APY available (which, as of April 2024, was 0.46% APY, according to the FDIC), but it also pales in comparison to high-yield accounts that can offer APY rates over 5.3%. Long story short, leaving your money in one of these big bank low-yield savings accounts means you're actually losing the purchasing power of your money.
As if this wasn't enough, there are a lot of other things to consider when it comes to your savings. From just how much money you should keep saved to whether investing could be a good option to what kind of retirement account might help you best hit your savings goals. Let's dive into the do's and don'ts of your savings.
Where NOT to store your savings
Beyond avoiding traditional bank accounts, you might also consider avoiding certificates of deposit (CDs). While these can offer appealing APY rates, there are strings attached that might not work for you. For starters, most CDs have fixed terms, meaning you're unable to access that money for a set amount of time. This can be especially problematic in cases of emergencies (remember that having an accessible emergency fund is one of the smartest financial decisions you can make). Another thing to consider is that most CD accounts aren't offering significantly higher APY rates than many of the high-yield savings accounts out there. The highest-yield CD accounts currently available are barely above available APY rates for savings accounts, meaning you'll lose access to your money and not even earn much to show for it.
Another place to avoid storing your money is in commodities, such as precious metals (like gold), oil, or even corn. While people tend to think of commodities as guaranteed investments, the reality is much more tumultuous. As financial radio personality Dave Ramsey put it, "I don't buy precious metals at all because I like my money — I don't want to lose it. That simple." While commodities can be more stable than something like cryptocurrency or NFTs, prices can fluctuate rapidly and there's no guarantee of any return on your investment. Also, no investment can promise or guarantee the security of your initial principal so, as a savings strategy, investment of any kind isn't necessarily the best choice.
Other savings considerations
It's important to assess if or when you might need to dip into your savings before making a decision about where, exactly, to move your money for safekeeping. For instance, if you know you have a big purchase coming up, placing your savings into a locked-in long-term interest-earning account might not be the right option for you. Another thing to keep in mind about savings is that it's crucial to keep a certain amount of your savings readily and easily available to you in case of an emergency. This is where high-interest savings accounts or money-market accounts can become especially important as they generally allow for easy access to funds, plus fast transfer options.
As Bankrate senior economic analyst Mark Hamrick told CNBC, "This is a very good time to take advantage of the higher savings yields." High annual percentage yield (APY) savings accounts can allow users to earn money on their savings while it sits in their account. However, according to a 2024 Bankrate survey, 78% of people with savings accounts reported earning less than 4% APY on their money. This means most people today aren't keeping up with inflation. In fact, 34% of survey respondents reported earning less than 1% or no interest at all on their savings. This is part of why it is extremely important to shop around for the right bank. While factors like physical convenience for brick-and-mortar banks might seem appealing, ultimately finding a solid APY can and should be a significant factor in your considerations.