Maximize Your Savings: Smarter Alternatives to Traditional Bank Accounts

The majority of people's savings are in low-interest accounts, eroding in value as inflation eats away at them. According to a recent Vanguard study, 57% of participants are earning less than a 3% return on their savings, including 24% earning less than 1%. This is usually due to the savings being held in traditional checking or savings accounts. Rachel Elson, a certified financial planner with Perigon Wealth Management in San Francisco, encourages clients to maintain an emergency reserve of three to six months of expenses in a checking or savings account. However, for longer-term savings, she advocates for high-yield savings accounts insured by the Federal Deposit Insurance Corporation (FDIC). These accounts often yield over 4% interest, significantly higher than the 0.41% average for standard savings accounts. A money market account could be another viable option, offering a balance between accessibility and reasonable interest rates, albeit typically lower than high-yield savings accounts. For longer-term investments, stock market index funds or exchange-traded funds (ETFs) could be considered. Elson also recommends increasing contributions to 401(k) or Health Savings Account (HSA), or even setting up a Roth individual retirement account (IRA) independently. Roth IRAs offer flexibility as your contributions (though not their earnings) can be withdrawn at any time, tax-free, for any purpose. Elson emphasises the importance of aligning your investment strategy with your financial goals, ensuring that your money is used effectively. Thus, exploring these more lucrative alternatives to traditional bank accounts can help your savings work harder for you.