Get to know your savings options

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Saving: We all know we should, but many of us don’t. 

Three in five Americans don’t have enough to cover a $500 emergency, let alone pay for retirement. More than 20 percent don’t even have a savings account. Many live paycheck to paycheck, while others had their savings wiped out during the Great Recession.

Of all the generations, Millennials are showing the greatest commitment to turning things around. Although more than 51 percent of Millennials have less than $1,000 saved up, they’ve increased their savings rate more than any other age group—stashing away, on average, 7.5 percent of their income today versus just 5.8 percent in 2013

No matter what your age or income level, it doesn’t take much to start saving. Setting aside as little $100 a month can make a big difference in the long run. But even if that’s too much, you can start with just your spare change.

Our Change Jar program, for example, acts as a piggy bank for your debit card. It rounds up every purchase you make to the nearest dollar, then transfers the difference to your savings account. Think about all the transactions you make during the holidays. You could be socking away as much as 99 cents each time you use your debit card.

Not only do your pennies add up over time, but they’ll also multiply as you earn interest on your savings. The more money you’re able to save, the more options you’ll have for making it grow. Here’s a rundown of the different types of accounts available for your savings:

Savings Account

Nearly four in five Americans have some sort of personal savings account, which is the easiest and most basic way to start a rainy day fund. With an initial deposit of as little as $5, it’s the most accessible of all your savings options, allowing you to withdraw your money whenever you need it.

Savings accounts are also handy when you’re saving for a specific short-term goal, like property taxes or a big trip. Our Holiday/Tax Savings Account lets you build savings through automatic deposits transferred from one of your other accounts, all while earning more than double the interest of your primary savings account.

Money Market Account

As you start to accumulate some funds, you can graduate to a money market account to make it grow even faster. A nest egg of just $500 can net you as much as double the Annual Percentage Yield (APY) of your primary savings account. Although you’ll need to maintain a higher daily balance, you can still make in-person withdrawals as often you like.

With the same protections as a savings account, a money market account is a low-risk way to accelerate your savings.

Certificates

Once you’ve got an emergency fund established, you can start saving for longer-term goals. Certificates (also known as certificates of deposits or CDs) are a way to boost your returns even higher while still keeping your risks low—as long as you won’t need to access your money for a while.

Unlike a savings account, Certificates don’t allow you to deposit and withdraw your funds freely. Instead, you agree to keep your money in place for a set length of time, which can range anywhere from a few days to a decade. The longer your commitment, the higher your interest rate will be. Most Certificates have terms between three months and five years.

401(k)

Fewer than half of Americans are ready for retirement. Are you?

A 401(k) is the number one choice for retirement savings. More than 88 million Americans have them—typically through their employer—and automatically contribute, on average, nearly 7 percent of their pre-tax pay. Contributions and earnings are all tax-deferred, which means you don’t have to pay income taxes on them until you withdraw the money.

When you start a 401(k), your money is invested in a combination of stocks, bonds and money market funds. You get to choose which mutual funds to invest in, and your returns depend on how well they perform. As the risk increases, so does the potential reward.

IRA

Individual Retirement Accounts (IRAs) are the next most popular retirement investment option. Whereas a 401(k) plan is sponsored by an employer, any individual can open an IRA through their credit union, brokerage or mutual fund company.

An IRA lets you invest up to $5,500 a year if you’re 50 or younger and up to $6,500 a year after that. There are two types:

Traditional IRA. Contributions to a traditional IRA are tax-deferred, just like with a 401(k). If you qualify, any money you add to it this year will help lower your tax payment in April while also building your retirement fund. One you begin making withdrawals, they’ll be taxed as income.

Roth IRA. Roth IRAs work the opposite way: You pay income taxes on your contributions now so you can make tax-free withdrawals later. Since the taxes on your money have already been paid, a Roth IRA doesn’t require you to make withdrawals the way a traditional one does.

With so many different savings options available, there’s no excuse not to get started now. Even if all you can set aside is a few pennies per transaction, it adds up over time. Want help determining which option is best for your financial situation? Ask an OCCU representative.