Why college students should open a high-yield savings account
Saving money as a college student is challenging because, let’s face it, the typical student budget is pretty tight. Between classes and homework, students have little time to earn a significant income. And the money that students do have in their bank account is typically eaten up by textbooks, school fees, rent, food and their social life.
But as challenging as it may be, knowing how to manage and save money is an essential lesson students should learn. By building healthy money habits during college, students can form a solid financial foundation for their future.
One such habit would be to create a budget that details how much money you make versus how much money must go towards your monthly expenses. This exercise will help you determine how much money is available to set aside for savings each month.
Another smart money move is to put that money in a high-yield savings account, a valuable tool for young adults to maximize their savings with little sacrifice. These accounts offer three critical benefits for students:
- Higher yields
- Perfect for an emergency fund
- Earn more with no additional risk
To see how high-yield savings accounts can save you money, check out high-yield savings options via the Credible marketplace to save extra cash.
HOW OLD DO YOU HAVE TO BE TO GET A CREDIT CARD?
1. Higher yields
The simple truth is, students who save their money in a traditional savings account are leaving money on the table.
According to Lawrence Soloman, a client adviser for Mercer Advisors, “college students should be interested in high yield savings accounts for one simple reason: they have higher yields than traditional bank accounts, money market funds or other short-term investments.”
The interest you earn with a high-yield account significantly outpaces what you would make in a traditional savings account. Currently, the average annual percentage yield (APY) for all savings accounts (high-yield and traditional) is 0.04%, according to the Federal Deposit Insurance Corporation (FDIC). However, the APY for savings accounts with most major banks is a mere 0.01%.
By contrast, high-yield savings accounts currently come with APYs around 0.40%. These figures disprove one of the biggest myths about high-yield savings accounts — that you’ll get your best rate from your own bank. And since high-yield savings accounts compound interest daily, you’re earning interest every day and you don’t have to start with much to see positive results over time.
HOW TO PAY FOR GRADUATE SCHOOL: 4 WAYS TO FUND YOUR DEGREE
2. Perfect for an emergency fund
College students are wise to begin building an emergency fund to cover unexpected expenses.
“FDIC-insured high-yield savings accounts are a great place for college students to start an emergency fund,” said Ryan McPherson, CFP and director of coaching and advising at SmartPath Advisors.
“Not saving an emergency fund in college is the rough equivalent of playing Russian roulette with your finances,” McPherson added. “Emergencies and unexpected non-emergency expenses will happen, and all of these things cost money, usually more than anticipated. Saving up an emergency fund is critical to avoid having to put unplanned expenses on a credit card.”
No matter how much money you have to deposit, you can save extra cash with high-yield savings options from Credible.
WHAT CREDIT SCORE DO YOU NEED TO GET A STUDENT LOAN?
3. Earn more with no additional risk
Unlike risking your money in the stock market, you don’t inherit risk when you put your money away in a high-yield savings account. That’s because FDIC insurance protects each account up to $250,000 should anything happen to your bank.
Even when the stock market is performing…
Read More: Why college students should open a high-yield savings account