Retirement is one of the most important financial goals to plan for. The average planned retirement age is 66, according to Gallup. With a national average life expectancy of 78.7 years, it’s vital to have over one decade of retirement savings.
A 2020 Charles Schwab study found that the average non-retiree thinks they need $1.9 million for a comfortable retirement. Yet the Federal Reserve reported that only 36% of non-retiree participants believe their retirement savings strategy is on track.
There are several ways to save for retirement to earn passive income and manage risk. A high-yield savings account can play a pivotal role in any retirement savings plan.
4 tips to begin planning for retirement
- Open a high-yield savings account
- Automate deposits
- Earn 401(k) matching contributions
- Save for specific goals
1. Open a high-yield savings account
The Federal Reserve states that non-retirement deposit accounts are the second most common way to build a retirement fund.
Non-retirement deposit accounts include:
- High-yield savings account
- Traditional savings account
- Money market account
- Certificate of deposit
A high-yield savings account can be the best overall option due to its higher interest rates. You can find the best high-yield savings account offers via Credible. Credible can tell you each financial institution’s minimum account balance requirement, APY, and whether an account is available in-person, online-only, or both.
For instance, your deposit may earn closer to 0.70% annual percentage yield (APY) versus 0.05% APY in a traditional savings account.
The high-yield savings interest rate is variable and adjusts with the Federal Reserve benchmark rate. Traditional savings accounts and money market accounts also have a variable interest.
A certificate of deposit (CD) earns a fixed interest rate for the deposit term but an early withdrawal incurs a penalty. High-yield savings options can earn a competitive interest rate and allow for up to six monthly withdrawals without penalty.
There isn’t a minimum credit score necessary to open a high-yield savings account. Many don’t charge a monthly service fee or require a minimum balance to open an account. Head to Credible to view high-yield savings options instantly.
Online banks and credit unions offer fee-free high-yield savings accounts with up to $250,000 in insurance from the Federal Deposit Insurance Corporation (FDIC) or the National Credit Union Administration (NCUA).
2. Automate deposits
Starting to save for retirement as soon as possible increases the likelihood of retiring on-time. The sooner your money can earn interest, the less money you need to save to make “catch up contributions.” You are also less likely to delay retirement because you can afford to retire.
Automating deposits into a high-yield savings account each month lets you effortlessly save for retirement. No matter what bills you have this month, you keep saving for the future.
Even if you can only set aside $20 a month, you start a good savings habit. You can boost your savings rate as your salary increases. If you’re unsure how much to save each month, a retirement calculator can recommend a monthly savings amount.
Also, consider recurring contributions into a tax-advantaged individual retirement account (IRA). Investing can be riskier than FDIC-insured deposit accounts but has more long-term growth potential.
As retirement draws closer, you may decide to increase your high-yield savings deposit amount to avoid the inherent volatility of stocks and bonds. If you don’t already have a high-yield savings account, then allow Credible to help you find a suitable option for your needs.
3. Earn a 401(k) matching contributions
If your employer offers matching contributions for a workplace retirement plan, invest enough each month to earn the match. The employer match is like free money and is an effortless way to save for retirement.
If your employer doesn’t offer matching contributions, consider investing with a traditional or Roth IRA. Each account type has its own tax benefits and you can start making penalty-free withdrawals at age 59 ½.
4. Save for specific goals
It’s important to plan for short-term and long-term goals in addition to retirement to avoid going into debt. It’s possible to open a high-yield savings account for each goal. Let your high-yield savings account do the heavy lifting when it comes to earning interest on your hard-earned money. Open a high-yield savings account today to start collecting cash.
You can also pay cash for smaller expenses (like a vacation) in order to protect your FICO score, credit history, and credit utilization rate by not borrowing money.
Also, consider opening high-yield savings accounts for larger goals like a down payment on a home. A large cash down payment can waive private mortgage interest (PMI) and reduce the total loan interest charges.
As your goals change, you can repurpose the account for the next goal. Some of these goals can eventually be for your retirement years, like a cross-country RV trip.
Are high-yield savings accounts worth it?
A high-yield savings account is a low-risk and easy way to earn a higher interest rate on non-invested cash. These accounts are insured up to $250,000 and don’t charge a monthly service fee or other hidden bank fees.
You can find a high-yield savings option that best fits your goals to effortlessly start saving money. Retirement may seem like a lifetime away but today is the best time to start planning.