- Be aware of fees attached to the accounts you use for day-to-day cash management.
- Learn to use reward credit cards to your advantage.
- Make your savings automatic so you never forget.
Who doesn't like to pay less for something? How about making managing your money easier at the same time? And helping to ensure that you can live the life you want in retirement too?
A few small changes—like cutting monthly and other banking fees and consolidating as many accounts as you can with one provider—can create cash that you can use to help build your savings.
"These moves are simple, but they're often overlooked," says Erik Lind, vice president of cash management products at Fidelity Investments. "You may think it isn't worth the trouble to save a little bit here and there. But that money can add up to significant savings."
Consider these 4 things that can help cut your costs and give a boost to your savings. The key is to put that found money right into savings, perhaps into an IRA, 401(k), or other tax-advantaged savings account for retirement.
Say no to savings, checking, and ATM fees
Banks sometimes charge fees for having a checking account, and using an out-of-network ATM or overdraft protection. While these fees may seem small, they can add up quickly. The average surcharge that banks charge noncustomers who use their ATMs is $2.97. The average fee banks charge their own customers for going to an outside ATM rose to a new high of $1.72. That means that you may pay a combined average of $4.69 each time you use an out-of-network ATM. Some banks charge a monthly service fee that can usually be avoided by using direct deposit for your paychecks or by keeping a minimum monthly balance. The average monthly fee—for banks that charge fees—is $14.69. (All fees are from Bankrate's 2017 Checking Account Survey.)
Did you know that many nonbank financial institutions, like brokerages, offer some of the same services as banks but at no charge? Credit unions are another option. Whether you opt for a bank, credit union, or a brokerage with cash management accounts, shop around for institutions that charge low or no fees. And then direct that money to savings. It can add up.
"Start by seeing what fees you're paying each month and how much they add up to," says Lind. "Then find a provider that provides the same services with lower or no fees."
To take it to the next level, investigate your options for earning a return on your savings. Interest rates offered by banks vary widely. The average annual percentage yield (APY) on savings accounts was 0.09% as of May 2018.1 Shopping around for higher interest rates could help your money grow over time. Places to consider looking include money market accounts or high-yield savings accounts at banks and credit unions. Another consideration: Using a cash management account at a brokerage firm gives you access to money market funds that may offer higher returns than the rates paid on bank accounts. Money market funds tend to pay a higher rate of return because they are an investment product rather than an FDIC-insured savings product. So, money market funds are managed according to the fund's objective.
Of course, the risks of money market funds and savings accounts are not the same. Your principal is not guaranteed in a money market fund and you could, theoretically, lose money. With an FDIC-insured account, your principal is guaranteed up to $250,000, per depositor, per account type. To find out more, read: Safeguarding Your Accounts.
Save when you spend
Rewards credit cards typically offer points that can be used for airline tickets, hotel rooms, gas, or merchandise. But you can also use a rewards credit card to save. Consider a cash-back credit card that deposits your cash rewards directly into a cash management, investment, or retirement account.
If you earn cash on your credit card, paying regular monthly bills with a credit card can pay off. Think of it as spending and saving too. Of course, you have to spend money in order to get cash back, and if you don't pay off your credit card balances each month, you could be charged an interest rate that could be much higher than the cash-back rewards you might receive. But if you're diligent about paying off your credit cards, those deposited (and invested) rewards can make a real impact.
For example, a $20 monthly cash reward deposited directly into your retirement account each month could grow to about $9,800 in 20 years at a hypothetical compound annual growth rate of 7%.2
Consider just 1 provider to keep things efficient
If you find a financial services institution that offers the mix of products and services you need with low or no fees, consider consolidating your accounts with that provider. Having your checking, brokerage, and retirement accounts all in one place can make it easier to manage your finances and set up automated transfers between accounts.
What's more, the institution may provide additional tools that give you a comprehensive look at your overall cash across all accounts, helping you make better decisions about when and how to invest. For example, an account dashboard or cash alert feature can show you when you have more cash than you need in your checking account to cover monthly expenses. In that case, you could set a 1-time electronic transfer into a brokerage or retirement account and invest that money.
Set it and forget it
Out of sight, out of mind. If you don't keep money earmarked for savings in your checking account, you are less likely to spend it. One of the simplest ways to ensure you save regularly is to make it automatic. That means scheduled, regular, automatic transfers into a savings account or into a retirement account like an IRA.
Read Viewpoints on Fidelity.com: Just 1% more can make a big difference.
Regular transfers are not only forced savings; they can help you stick to your long-term investing strategy in the face of market fluctuation. For example, establishing an automatic investing plan with your brokerage account allows you to invest the same amount each month, regardless of the price of your investment. This strategy, known as dollar-cost averaging, buys more shares in months when the price of your investment is lower and buys fewer shares when the price is higher. Over time, the result can be a lower overall cost per share than if you had invested in larger, less-regular amounts.
Of course, dollar-cost averaging does not ensure a profit or protect against a loss in declining markets. For the strategy to be effective, you must continue to purchase shares in both market ups and market downs.
Remember that even small savings can add up if you take that money and give it a chance to grow. With time and a good investment plan, those extra contributions can add up to a meaningful boost to your savings. The sooner you start, the sooner you can give your money a chance to grow.
Next steps to consider
Pay bills and track spending while you manage investments.
Spending on your card can put money in your Fidelity account.
A forgotten financial account could be declared abandoned.