It’s not possible to control all the events that impact your life, but one thing you can control is your ability to save. It’s not just about the amount of money you save, but how and where you save it. Maximizing your savings isn’t something that should happen only when you near retirement age. It’s something everyone should think about — even in your 20s or 30s.

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Time is your greatest asset when you are young-ish. Saving a small amount of money in a savings account now will help you earn more over time because of compound interest. Here’s how it works: if you deposit $3,000 in a savings account and you’re paid 5 percent on interest each year, you’ll earn about $150 that first year. If you keep that money in the account, you’ll earn interest on your new principal balance. So your new balance of $3,150 will earn you $157.50 in interest. This will continue year after year and year. In a decade, you’ll have about $4,886.68 total — without adding a dime more into the account. Of course, it would behoove you to deposit more money annually, but even if you don’t, you can see why it pays to have a savings account.

If you keep all your money in your checking account, it’s time to open up a savings account. Don’t just store your money in an account that doesn’t pay! And if you do have a savings account, it’s time for you to compare your return to the rates that are offered by other banks. In fact, this is something you should do periodically. Don’t just assume your rate is the best one out there. You can get started by comparing savings rates below:

Parking your money in a savings account is a relatively easy way to earn money, but if you’re serious about maximizing your savings then you need to consider other financial tools. Unfortunately, many adults in their late 20s or early 30s have the ability to save — a decent job that earns enough income to stash some away — but don’t know enough about personal finance to yield the best return on their savings. Here are four ways you can maximize your savings for a brighter financial future:

1. Open an online savings account.

One option you should seriously consider is opening an online savings account. Unlike a traditional savings account that might be provided to you by a brick-and-mortar bank, an online savings account typically has a higher interest rate and lower fees. And compared to, say, a checking account, an online savings account pays a better Annual Percentage Yield. APY is your yearly rate of return taking into account the effect of compound interest. Online savings accounts can offer high yields because they don’t have to pay for expenses like physical locations or branch employees. As such, most online savings accounts also require no minimum balance.

When choosing an online savings account, obviously it’s important to consider the advertised interest rate, but there are other factors you should think about like the OSA’s commitment to service, how its interest rates have trended over time (have they kept their rates steady or lowered them?), and transfer limits. Because you can link your OSA to your existing banking account to transfer funds, it might be worthwhile for you to see what the OSA’s transfer limits are.

It might seem bizarre to consider an online savings account at first, especially if you’ve spent most of your adult life at the same bank or credit union. But remember not to be complacent. Your current bank or savings account might not offer you the maximum yield you can get. Plus, as part of a generation that grew up using technology, you should embrace online savings accounts — not be wary of them!

2. Open a money market account.

A money market account works similarly to an online savings account, but there are some differences to keep in mind. You’re usually required to maintain a minimum balance with a money market account. Those balances are typically much higher than, say, a traditional savings account — but because of the deposit requirement, money market accounts tend to carry higher savings rates. Since MMAs require you to have a minimum balance, there’s usually no monthly fee for having one of theses accounts.

While you can typically access your funds in a money market account through ATMS, transfers and checks, one potential drawback of MMAs is that there are limits to the number of withdrawals and transfers you can make. Only six withdrawal transactions are allowed each month.

If you’re new to savings accounts and want to put your money somewhere safe — with the ability to access it from time to time — your best bet to maximize your savings is a money market account.

3. Invest in a certificate of deposit.

If you’d like to earn the maximum amount of interest on your savings, a Certificate of Deposit is probably your best bet. CDs are savings certificates that pay interest on your deposit. They’re typically offered in terms of a few months to five years. The major difference between a CD and a savings account or MMA is that you will incur a penalty fee if you make any withdrawals from the CD before it matures. On the plus side, locking your money away in a CD means you will earn higher yields than a regular savings account. The longer you leave your money in a CD, the better your return will be.

CDs are a low-risk investment and available in an assortment of maturities and terms from banks and credit unions across the U.S. They are a great way to maximize your savings. However, if you anticipate that you might need to access the money you put into a CD, it’s best to go with another investment. And the likelihood of that happening in your late 20s or early 30s is high, so think carefully before you make a decision. Explore the best rates with our CD rates table.

4. Bank incentives

Many banks use a number of incentives to woo customers, including offering rewards savings accounts, promotional deals, and demographic specials.

A rewards checking or savings account is offered by many small banks and local credit unions. These types of accounts offer high interest rates to customers who meet certain qualifications, such as requiring a specific number of transactions per month or enrolling in direct deposit. Be careful about signing up for a rewards savings account just for the incentives — they may not be worth it. How likely are you to take advantage of the rewards you reap? If you’re only going to earn something like $50, it’s probably not worth signing up for one of these accounts. The most important thing you can do to maximize your savings is earning a good rate of return on your money. You should never sign up for a rewards savings account that does not have a good rate of return. If you are considering signing up for one of these accounts, read all the fine print and make sure that your account makes sense for your lifestyle.

If you’re shopping around for a savings account, be sure to take advantage of short-term introductory yields. Typically, these promotional deals are offered to new customers by online banks. However, don’t allow these deals to be the main drivers of your decision. These deals all have an expiration date. You want to make sure that you’re happy with all of the terms of the account — and the rate you will enjoy once any bonus deal ends — because once the promotion is over you won’t enjoy the bonus rates anymore.

If you’re part of the military or under the age of 21, another way that you can maximize your savings potential is taking advantage of programs and accounts specifically targeting your demographic. The Defense Department has a savings deposit program for members of the military. And some credit unions offer special savings accounts for service members and young savers.

No matter how you choose to maximize your savings, it’s important to be disciplined, avoid the temptation of withdrawing more than depositing, and keep an eye on your long-term goals. Saving isn’t going to be easy, but it will be rewarding in the long run.

Ask a Question

  • ctak

    One of the first things I did when I had some extra cash lying around was open an online savings account. I then automated my other account from Chase to deposit money in there each month. Why have your money lying around in a big bank when online savings accounts offer more?