👋Hi Friends,
📆This Week’s Topic
This week we will be talking about savings. We have not talked about savings accounts since the beginning of the newsletter. On Friday Finance’s third week we talked about savings accounts and important information. Today we are going to discuss the information about how to save effectively. I am going to talk about why saving is important as well as the different types of saving accounts, and we will end with the best ways to save and achieve your financial goals.
💳 The Importance Of Savings
Everyone has financial goals, whether that be a down payment for your dream house, a new car, a vacation, or another item you wish to get in the short term. Saving money for most is a great way to achieve these goals. Savings accounts allows you to gather money and gain interest without risking anything. Investing is another option although for shorter term goals savings account can be easier to do. Savings helps you get the things you want and keep you safe from any future financial struggles.
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📊 The 3 Types of Savings Accounts
There are three different types of savings accounts. The first type is called a Checking Savings account. Checking Savings is an account that operates as a checking account with a debit card with a small interest rate. These accounts are the worst as the tend to pay between 0.05-0.10% APR (Annual Percentage Rate). As a result, these accounts pay so little because of the convenience.
Stepping up we have a Regular Savings account, this is probably the one you have. Regular Savings accounts are better than Checking Savings and sometimes charge you a minimum balance fee or a monthly fee for keeping the account open. These account incur fees are usually have a interest rate between 0.25-0.50%.
The final and best account and is called a High-Yield Savings account. These accounts will never charge you fees and have the highest interest rates on the market generally these accounts can pay you anywhere from 1-5% per year. These accounts actually allow you to boost your savings instead of just keeping them stable. For example, if you had a Checking Savings account with $10,000 deposited in five years you would have $10,025. Those $25 would probably equate to the fees anyway. If you deposited the same $10,000 making 3% per year you have $11,500. This shows that these accounts can make a decent difference in your finances.
⛱How To Save Effectively
The best way to save is to set aside a certain amount each month to save. Whether that is a couple of hundred or a couple thousand dollars. For example, if I was make $4,000 per month I might try to save $1,000. You should be saving at least 20% of every paycheck your receive. Although, this depends greatly on your salary and various expenses. This ensures you can keep you savings growing without issue. Also, even though the amounts start our small they can keep getting bigger. If you deposit $10,000 and do a $1,000 contribution monthly after a year you will have $22,464.12. Out of that $464.12 is interest. That is almost $500 for free! This way your can save faster and more effectively.
⏳ Final Summary
In Summary, savings is not the hard to master. Get a high-yield savings account with a 2-3% APR. After you get set up with that, you should be saving at least 20% of every paycheck. If you can afford to save more than 20% feel free to do that too! A little bit of savings can make a big difference. If you deposited $1,000 and contributed $100 per month for 5 years you account balance would be at almost $8,000. Also, almost $700 of that is only from the interest accrued. Savings is a way for your extra money to help you.
🙏Thank You & Important Information
Anyway, thank you so much for reading this edition of Friday Finance! fridayfinancedc.com and click the button labeled shop at the top of the homepage. From there you can browse our merch and any purchase helps Friday Finance greatly. If you wish to donate to help improve to content and pay our writers. We are going to use half of the proceeds for the business and the other half will be split among the writers. Anyway, have a great week and I will see you next week.
Jacob Gans
Friday Finance