Four ways to save without your savings account
A saving strategy that doesn鈥檛 feature a savings account might seem counterintuitive, like trying to get in shape without a gym membership. But you don鈥檛 need elaborate equipment to break a sweat, and you don鈥檛 have to depend on your savings account to boost聽your nest egg.
With low interest聽rates, you won鈥檛 see significant聽growth in your account, so聽the following strategies could prove to be much more effective.
1. Use certificates of deposit to set aside cash
The benefits of聽聽may not be obvious right away. To some people, CDs聽might even sound like a borderline scam:聽You鈥檙e telling me my money is聽locked away for up to five years, and if I want to withdraw it early, I鈥檒l be charged a fee? 聽
That is correct. But look at it this way: If you want to save $1,000 for an island getaway, it鈥檚 best to shove that money to the side and forget about it. If you keep that cash in a standard savings account, you might dip into it when your checking account is running low. Put it in a CD, and it will be there when you need it.
Plus, long-term certificates 鈥� those with term lengths between three and five years 聽鈥� typically have better annual percentage yields than even the聽. And short-term CDs will still help you achieve your more immediate savings goals, such as聽a vacation, even though聽their interest rates aren鈥檛 quite as strong. Check out NerdWallet鈥檚聽聽tool to see what鈥檚 available.
2. Control your spending with a聽prepaid card
Say you saved up for that vacation and are sunning yourself on some far-off beach. Life is good: Your relaxation levels have reached a new peak, and you鈥檙e close to becoming the human embodiment of an Enya song.
But you鈥檝e also let your guard down, which can leave you prone to impulse purchases. New rainstick? Sure. Wildly overpriced banana boat ride? Why not?
That鈥檚 when a prepaid debit card can come in handy. This payment method doubles as a budgeting tool. Unlike with other plastic, you can limit your spending to only the cash loaded onto your prepaid card, so you won鈥檛 have to raid聽your savings to cover next month鈥檚 credit card bill.聽聽have no monthly fees, and it doesn鈥檛 cost much to load money onto them.
3. Set alerts on your checking account
Online banking has made it easier than ever to unleash your inner control freak, which can be helpful聽when it comes to saving money.
At most banks, customers can choose to receive texts or emails when their checking account balance goes below a certain amount. That鈥檚 primarily to聽protect you from overdraft fees, but can also help you monitor and rein in your spending, and, in turn, keep your聽savings intact.
You can set this limit as high as you鈥檇聽like and change it over time. Like a prepaid debit card, alerts also can help you control your spending.
4. Find a no-fee account, trim聽other聽expenses
At $12 a month, it can be tempting to write off a bank鈥檚 maintenance fee as a minor inconvenience. But if you were to put聽that cash in a聽retirement account聽and give it聽some time to grow, it聽wouldn鈥檛 feel so insignificant.
Say that聽$12 went into聽your 401(k) plan each month and stayed there for 30 years. Assuming a 6.5% rate of return, you鈥檇 be left with an additional聽$13,000 鈥� not enough to retire, but a solid addition to your post-work fund, and a good incentive to switch over to聽a聽.
Next, re-evaluate your budget. Make cuts where possible. That doesn鈥檛 mean resorting to DIY haircuts and聽a diet of SpaghettiOs and Pop-Tarts.聽Using the extra dough to increase聽your monthly retirement contributions by a few percentage points will allow you to reap a nice reward down the road, thanks to聽. Alternatively, you could use that extra cash to pay down high-interest debt. Any kind of adjustment to your spending and savings habits, no matter how small, can make a big difference over time.
Tony Armstrong is a staff writer at NerdWallet, a personal finance website. Email:聽tony@nerdwallet.com. Twitter:聽.
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