Your hard-earned savings will grow faster if they’re in the right type of account. By Frances Cook.
One of the tricks of the money world is that the same $20 can achieve much more for you, if you know where to put it. The same effort, but a better result? Sign me up.
So when it comes to your savings account, there are a few tricks to make sure you’re both able to stick with the savings habit, and get the most out of it.
Consider setting up multiple savings accounts for different goals. Dumping everything into one savings pot, with no clear goal, is setting yourself up for failure – it’s easy to give in to a shiny short-term desire when you have the cash sitting their with no clear purpose in mind.
Very few people save simply because they “should”. A clear goal will inspire the motivation to stick with it. And there’s no need to stick with one goal – long-term goals, short-term goals – there’s no reason not to have several.
So to keep track of everything, it’s often best to set up multiple savings accounts, tagged to each goal: For example, you always need an emergency fund for unexpected but inevitable life problems like dentistry or car repair; maybe another pot for a future house deposit; then a last fun stash for a Bali holiday? Putting a small amount per week into each account has you making progress towards several goals at once.
If you make each one an online-only account, with no fees, that means you don’t lose anything by having multiple accounts.
Get specific
An extra mental trick is to name each account after the goal you’re using it for. This helps to keep you motivated and on track. There’s nothing like swiping open an app, with every intention of nicking $5 for a coffee, only to be reminded that the account is named ‘London’ after the goal you really want to achieve. Suddenly that coffee doesn’t seem so important.
Some bank accounts even let you put a picture at the top of that named account. So if you’re saving for a holiday, get the beach pic front and centre.
Know how to make your savings work harder
Savings can’t be used for investments, as it’s too risky to tie up money that you might need easily on hand for something like a car repair, or after-hours vet visit. But you should still get the best reward you can from whatever bank account you stash it in.
Kiwibank’s Hayley Tito says a transaction, checking, or everyday account is good for the money you need for routine spending. But if you’re putting money aside for weeks or months, you need a savings account that rewards you for that. “Only leave the amount of money in your transaction account that you’re going to need on a weekly or fortnightly basis,” Tito says.
“Try to put all those extra dollars into a high-interest-earning savings account, so that compound interest can start to work, and you’re rewarded for it.”
The right account can supercharge your savings
As a general rule of thumb, the longer you’re prepared to leave money alone, the more reward you’ll get for it.
So the harder you make it to access your savings, the more interest you’re likely to earn on them.
On-call savings are the type that you can easily switch money in and out from, and will earn interest, but is likely to be at a lower rate.
A notice saver means you are required to give a certain period of notice that you want to take money out (usually 30. 60 or 90 days) , and that delay gives you a cooling off period that protects you from spur-of-the-moment splurges, but still leaves your money accessible. These accounts usually come with a slightly higher interest rate.
Then there are the classic term deposits, which can run anywhere from six months to two years or more. In this case you have to leave the money in the account for that period of time, or pay a penalty fee. But if you can stick with it, you’re usually rewarded with a good interest rate on your savings – and watching that compound is another deterrent to removing your cash before the term is up.
