Saving that extra $20, $50, or $100 monthly is a great first step when building your savings, but there are other ways to learn to save smart.
But don’t stop there.
It’s important to save smart: put your hard-earned savings to work and ensure you grow them to your full potential.
Here are some tips to make your money work as hard as you are to help reach your long-term financial goals.
4 Ways To Save Smart By Growing Your Savings
1. Maximize Your Savings with Compound Interest
Compounded interest is a secret weapon in your arsenal to grow your savings over the long term that can significantly contribute to your returns.
The key ingredient here is time.
This means that when you start saving is just as important as the actual dollar amount you’re contributing.
Let’s say you deposited $5,000 in a five-year certificate of deposit (CD) at a 2.25 annual percentage yield (APY), and your balance is $5,588.39 at maturity.
Then, instead of withdrawing the $588.39 in interest earnings, you renew your CD for another five years under the same terms.
Now you’ll earn $588.39 in interest on your initial deposit and an additional $76.96 on the interest itself.
Your CD will be worth $6,253.35 at maturity.
This is an example of interest compounded daily – an excellent way to save smart for the future.
If you feel you’re behind the eight ball on earning interest on your savings, you are not.
Every dollar you save today will go a long way to help with your financial stability.
2. Step Up Your Savings with a CD Ladder
Often, the longer you commit to keeping your money in a CD, the higher the interest rate you’ll earn.
People can maximize their savings by creating a CD ladder, a strategy combining long- and short-term CDs.
For example: rather than put $5,000 into a five-year CD, you might put $1,000 into four separate CDs—a one-year, an eighteen-month, a three-year, and a five-year.
When the first CD matures, you reinvest it in a four-year CD.
Repeat the process with the others as they become due.
This rotation lets you enjoy the higher rates attached to longer-term CDs while still benefiting from the more frequent access to your funds that comes with shorter-term CDs.
CD laddering can be an appealing option for people seeking a steady and secure income stream.
With interest rates expected to continue rising, this may be an appealing strategy to save smart.
You can take advantage of tools to get CD laddering right.
For example, Ally Bank’s online tool helps you estimate the savings generated from your CD ladder by guiding you through the timeline.
Then, it gives step-by-step instructions for when to take action.
3. Earn More with an Interest Checking Account
Even if you consider yourself a diligent saver, you must ensure your bank accounts work as hard as possible to grow your savings.
One way to save smart while expecting solid returns on your cash is by getting an interest checking account.
At a .10 percent annual yield (APY), Ally Bank’s Interest Checking makes even everyday banking count.
Accounts and balances of $15,000 or more get an even higher rate.
Make sure your bank doesn’t charge excessive fees.
It’s your money – you shouldn’t have to pay a bank a monthly maintenance fee for simply having an account.
Opening an interest checking account is a smart move, but it can come with some strings attached.
So, do your homework.
For instance, you may be required to use your debit card several times or agree to receive monthly statements electronically and pay bills online.
If you’re able and willing to save with those terms, you’ll be putting your hard-earned cash to work in a low-risk way.
4. Switch to an Online-Only Bank
Unlike brick-and-mortar banks, online banks don’t have to pay costly rent or other location fees.
They can focus on offering higher interest rates on their products and investing in new digitally focused solutions for customers.
For instance, as an online-only operation, Ally Bank was one of the first institutions to offer a voice-activated banking service.
With new disruptive technologies, Ally Assist is expected in the coming months.
What is the Bottom Line
Ultimately, while stashing that extra cash regularly is an important building block to being a smart saver, it’s important to know what tools your financial institution offers to help your savings grow.
Staying on top of the rates your accounts offer and taking advantage of the right digital savings tools can help you reach your financial goals faster.
Do you have any other tips you would like to add?
Feel free to leave them in the comment section below.
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