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How much money should I have in my savings account?

Consumer finance experts recommend that people maintain about five to six months of cash in their savings account to cover medical emergencies, mortgage or rent, utilities, loan and payments, and other necessary expenditures.

However, there is no one-size-fits-all approach to savings. How much money you keep in a savings account (or several accounts) depends on your monthly income and expenses, age, retirement savings goals, and other unique personal factors. Some people may choose to keep even more cash on hand.
At Credit Union of Southern California (CU SoCal), we make opening a savings account easy!
Call 866.287.6225 today to schedule a no-obligation consultation and learn about our mortgages, home equity lines of credit, auto loans, personal loans, checking and savings accounts, and other banking products. As a full-service financial institution, we look forward to helping you with all your banking needs.

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What is a savings account?

A savings account, also called a “deposit account,” is available from credit unions, banks, and online financial institutions. Savings accounts typically pay interest on the monthly balance with tiered levels of interest, so the more you save the more earned interest you’ll receive. There are no restrictions on the number of deposits or withdrawals an account holder can make, however there may be a minimum balance required to receive each of the tiered interest rates.

Types of savings accounts

The type of savings account you choose will depend on your unique financial needs. Here are some types of savings accounts to consider:
Regular savings. Savings are strictly for saving money, rather than paying debts. Regular savings accounts do not come with checks. If you need an account from which to pay bills, a checking account can provide you with check-writing and bill-pay resources.
Interest-bearing savings. Also known as high-yield savings, these accounts require a higher minimum balance and pay interest. The more money you keep in savings the more interest you’ll earn.
Online savings. While credit unions and banks offer online access to consumer savings accounts from which you can manage your money, there are online banks that provide online-only savings accounts. Online banks do not operate out of a traditional brick-and-mortar storefront.
Student savings. These accounts help young people save before and during college. Student accounts typically have lower monthly balance requirements and low or no fees.
Money market. A money market account is a type of savings account offered by credit unions and banks. Money market accounts are sometimes called money market deposit accounts or money market savings accounts. Money market accounts are interest-bearing accounts, meaning that interest is paid on the account balance. Most money market accounts come with a debit card and checks, to make financial transactions easier and more convenient.
Share certificates/certificates of deposit (CD). A certificate of deposit is a type of savings account that holds a fixed amount of money for a fixed period (such as six months, one year, or five years), and in exchange, the financial institution pays you interest. When the term comes to an end and you cash in your certificate, you receive the money you originally invested plus the interest. At credit unions, including CU SoCal, certificates of deposit are simply known as “certificates.”
Traditional IRA and Roth IRA. These are both types of retirement savings accounts, specifically for depositing money that is to be saved for retirement.
Traditional IRAs. The tax benefit of a traditional IRA is related to the amount of the contribution. This is why many people contribute to an IRA at the end of a tax year, so as to reduce their taxable income. Because the IRA contributions come with a tax benefit at the time of deposit, income tax must be paid when the money is withdrawn in retirement. Unlike a Roth IRA, traditional IRAs have no income limits to open one.
Roth IRAs. Because a Roth IRA account is funded with after-tax dollars (meaning earnings that have already been taxed), the account will grow tax-free. Roth IRAs allow the account holder to make tax-free and penalty-free withdrawals after age 59 and one-half.
Learn more about the different types of savings accounts.

How much to keep in savings: the 50/30/20 rule

U.S. Senator, Elizabeth Warren created the 50-30-20 budget rule, which was published in the 2005 book titled “All Your Worth: The Ultimate Lifetime Money Plan,” which she co-authored with her daughter Amelia Warren Tyagi,
The rule states that everyone should divide their after-tax income as follows:
  • Fixed costs/needs (50%)
  • Discretionary funds/wants (30%)
  • Financial goals/long-term savings and paying-down debt (20%)

Other saving strategies

When deciding how much money to keep in your savings account, start by creating two lists side-by-side. On one side of the page, list your monthly income and on the other side list your monthly expenses. Then, add each side of the list. Hopefully your total monthly income is larger than your outgoing expenses. Now subtract your expenses from your total income. See how much money is left. This is roughly the amount you can put toward savings. (Although you may want to keep a little extra in a checking account to cover occasional higher monthly expenses.)
Another method you can try is the Dave Ramsey method.
Dave Ramsey is a personal finance expert and host of The Ramsey Show. Since 1992, Dave has helped people take control of their money, build wealth, and enhance their lives. He recommends that people follow these budget percentages
  • Charitable Giving: 10-15%
  • Saving: 10-15%
  • Housing costs: 25-35%
  • Utilities: 5-10%
  • Food: 5-15%
  • Transportation: 10-15%
  • Clothing: 2-7%
  • Medical/Health: 5-10%
  • Insurance: 10-25%
  • Personal: 5-10%
  • Recreation: 5-10%
  • Debts: 5-10%

How to grow your savings

Growing your savings can be easier than you might think. Here are some proven methods to save money fast:
Create a budget. First, create a list and add up your monthly income sources and your monthly expenses. Make sure you know exactly how much money you need to pay your bills each month. Then compare this to how much you earn each month to determine what amount is left that can be put into a savings account. Financial experts recommend saving 20% of each paycheck. Looking at the numbers you can see where you can cut expenses to increase savings.
Pay off high-interest debt. The interest you’ll pay on high-interest loans and debt will outweigh any interest earned in a savings account and could cost thousands of dollars each year. For this reason, paying off high-interest loans and credit card debt should be a top priority before you attempt to put money into a savings account.
Automate your savings. Most credit unions and banks offer a feature called automatic bank account transfers that lets you automatically have money moved from your checking account into savings. This makes saving easier. Use your budget to determine how much money you can afford to move into savings each month, being sure to leave a “safety cushion” of money in checking just in case.
Automate your bills. Setting up “automatic bill pay” keeps bills paid on time so you won’t have to worry about getting dinged with late fees or interest for missed bill payments.
Reduce rent. This could mean finding a lower priced apartment if you’re renting, or even sharing an apartment with a roommate. Any money you save on rent should go toward paying off high-interest debt and loans, and then into a savings account.
Cut back on utilities. To save money on utilities, turn off lights, reduce heater and air conditioner use (when safe to do so), and don’t leave the water running while you brush your teeth.
Cancel unused subscriptions. This covers a wide range of expenses, including magazine and online news subscriptions, gym and fitness memberships, movie streaming services, etc. Look for ways to cut back, especially if you find you no longer use the service as much.
Sell unused items. Many people earn extra money by selling household items they no longer need or want including furniture, d├ęcor, kids’ toys, baby items, and just about anything else. There are several online sales platforms available for selling good and clothes.

How much should I save for retirement?

The general recommendation from financial experts is to save between 10% and 15% of your pre-tax salary each year. Other factors to consider are your current age, how many years you have until retirement, your salary and expenses, and your personal financial goals.

How much to have saved by age

As mentioned above, there are recommended savings guidelines, but the amount of money you need to put into savings each month and how much you can put into savings largely depends on your age, income, monthly debt and loans, number of dependents, your financial goals, and even the state you live in.
Given the steep increase in the cost of consumer goods, it may be more difficult than in the past to add to your savings account.
Young adults should focus on not accumulating debt, and therefore any earned income should go toward paying off credit cards in full each month, before money is exclusively put into savings.
Anyone saving money for a home should start saving as soon as possible. Even if you qualify for a low-down payment program, you’ll also need money for closing costs equal 2% to 5% of the purchase price. For example, a $300,000 home will have closing costs of $6,000-$15,000.
It’s never too late or too early to start saving for retirement. There is no age limit to contribute to a traditional IRA. You can make contributions to your Roth IRA after you reach age 70 ½.

How much to keep in savings vs. checking

Most financial experts recommend having between three months and six months of living expenses in a savings account. This should include enough money to pay your rent or mortgage, buy food, pay your monthly debts including phone, household utility bills, loans, credit cards, auto and home insurance, and other necessities.
When it comes to how much money to keep in a checking account, it’s important to make sure you keep sufficient funds in your checking account so that you don’t bounce a check or attempt to withdraw more money than you have in your account. Doing so can result in overdraft fees or a negative balance.

How much is too much?

How much to keep in savings? You can never have too much money saved. However, if you have an excess of savings in an account that doesn’t pay much interest, you could be losing out on opportunities to make your money work for you in other ways. If you find you have a surplus of savings, consider buying a credit union share certificate, putting money into a higher-interest money market account, or setting up a Roth IRA for retirement. These are just some of the ways you can use your savings to earn more money.

Which savings account is right for me?

Opening a savings account at a credit union or bank is easy. You’ll be asked to open your account with a minimum balance. The type of account you choose should be based on your savings priorities. Everyone should have a traditional savings account. If other types of accounts interest you, it’s recommended you speak to an account representative at the financial institution about interest rates and account requirements. You may also speak to your tax accountant, financial planner, or other finance professionals.

Why savvy consumers choose CU SoCal

For over 60 years CU SoCal has been providing financial services, including mortgages, Home Equity Loans, HELOCs, car loans, personal loans, credit cards, and other banking products, to those who live, work, worship, or attend school in Orange County, Los Angeles County, Riverside County, and San Bernardino County.
Please give us a call today at 866.287.6225 today to schedule a no-obligation consultation with a CU SoCal Member Services specialist

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