This post is part of The One Hour Project, in which you can spend just one hour to put your finances in a better place without a big lifestyle change, through frugality or other financial choices.
One final thing that you can do that can kick your finances into gear is opening up a high-yield savings account. Many banks now offer online-only savings accounts that offer very nice interest rates, often far exceeding the rates of return you can get from your local brick and mortar bank. HSBC Direct, the online version of HSBC, for example, is currently offering a 5.05% APY account, and ING Direct has a brilliantly simple and intuitive interface that holds a 4.3% APY savings account. Both of these likely decimate what you can find at your local bank – and you can manage the account straight from your computer.
If you maintain any savings at all – or are even thinking about starting – a high-yield online savings account is worth getting. It takes a bit of time to sign up – and you have to have a checking account to link the new savings account to – but once you’ve done that, it’s all about the savings.
Which bank should I use? I generally point people to ING Direct for starters – not only because it’s the bank I use, but because their interface is brilliantly simple to use. Other banks offer higher rates, but ING is probably the best choice for getting used to online-only banking.
Once you have the account set up, it’s worthwhile to set up an automatic savings plan. It pulls out a specified amount from your checking to your savings on a regular basis – usually weekly or monthly, but you can set up about anything you imagine. So, you could set it up to pull out $50 from your checking to your savings every week, or the day after you receive a paycheck. That money then hides away until you need it, earning a 4-5% interest rate.
What about after that? Once a person has their high-interest debts paid off and has some significant money in savings, I usually recommend that they begin investing in low-cost index funds. It’s a great way to start dipping your toes into stock investing without getting buried in fees, and it’s easy as pie – you deposit some money with a brokerage, tell them what fund you want to buy, and they do the rest for you. When you want to sell them, log in and sell them.
Again, I almost always point people who are just getting started towards either Vanguard (my favorite, and where I keep my investments) or Fidelity. Both offer a large array of low-cost index funds for investing, and signing up for an account at either one is quite easy. I consider them to be the cream of the crop for people wanting to buy low-cost index funds and just sit back and watch them grow, but be aware that many of the good funds at both businesses have a high minimum. Most of the Vanguard funds require $3,000 as an initial investment, but their fees are so low that it’s worth it – just save your money in that high-interest savings account.
In fact, that’s a good way to do things. Deposit a small amount each week into a high-yield savings account, then eventually use the money in there to invest. It’s actually exactly what I do – I deposit a sum into an online savings account each week, then use that money for investments. Right now, I’m actually buying into a diversity of Vanguard funds using this approach so that my investment is diversified – later, I’ll use that same plan to keep the portfolio balanced.
There’s no better time than right now to get started – so why not spend an hour and get the ball rolling?