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Financial Wellness for Gen X and Millennials: Find the Highest Savings Rate

One of the first steps to building a solid financial plan is to accumulate a cash reserve. Popular financial planning rules of thumb suggest keeping 3-6 months of living expenses in cash. Homeowners and those in jobs subject to layoffs may prefer to keep a year or more in cash reserve. A cash reserve is a rainy-day fund that should not be invested in stocks or bonds. The purpose of a cash reserve is to pay for large, unexpected expenses such as; home repairs, car repairs, insurance deductibles, or paying bills during a period of unemployment.

If you’re planning to buy a home or car in the next few years, you might also be keeping large amounts in a savings account. Since cash savings is likely to be a larger percentage of total net worth for younger investors, it’s important to compare interest rates regularly. Now that interest rates are more than 0.00%(!), interest rate shopping is important.

First, make sure you’re getting the highest rate offered at your bank or credit union. Banks are constantly offering promotional rates for new accounts, meaning you may need to open a new account or transfer money to a different account to get the highest rate. Don’t let your savings sit in an account getting a lower rate. If you find a higher rate advertised elsewhere, there’s a chance your primary bank or credit union will match it. It might be worth a trip inside a bank branch to inquire about your options. Many banks are willing to work with you to maintain your deposits.

If the rates at your bank are less than satisfactory, look at the many online banks that offer higher rates. Each online bank has different requirements for minimum account size and number of monthly transactions. If you have a large amount of cash savings that you don’t need to access frequently, an online bank may be the best solution. When considering an online bank, be sure to select one that is truly a bank carrying FDIC insurance. A recent search of online bank rates produced the following results:

*Savings account rates found on Bankrate.com on December 12, 2017. This information is presented for informational purposes only and does not constitute a recommendation.

Keep in mind that short-term interest rates are slowly rising. The Federal Reserve is forecasting three rate hikes in 2018. That means the interest rate on your savings account is likely to change next year. Rather than constantly chasing the highest rate, set reminders to check your rates once or twice each year. Saving is hard, so make sure you’re earning a good rate on your cash reserves. You deserve it.