As you age, it’s easy to develop banking habits that silently chip away at your finances. Perhaps you’re holding a significant amount of money in your checking account as a precaution, or you’re hesitant to embrace mobile banking. While these choices may seem inconsequential, they can have a larger impact than you realize. The good news is that it’s never too late to break these habits and adopt better financial practices. Here are seven common banking blunders to steer clear of to maximize your savings and earnings both now and during retirement.
**Mistake 1: Excessive Checking Account Balances**
**Issue:** Lost interest and increased risk in case of debit card theft
Many individuals make the mistake of maintaining higher checking account balances than necessary for a false sense of security. However, most checking accounts offer little to no interest, with the average rate being a measly 0.07%. This means that having $10,000 in your account would only earn you $7 in interest annually. By keeping excess funds in your checking account, you also face heightened risk in case your debit card is lost or stolen.
**Expert tip:** Financial experts recommend keeping just enough money in your checking account for monthly expenses and setting aside any surplus in a high-yield savings account or other secure investments.
**Mistake 2: Neglecting High-Yield Savings Accounts**
**Issue:** Missing out on significant interest earnings
Sticking to a traditional savings account with minimal interest rates of 0.10% or lower means missing out on substantial interest earnings. High-yield savings accounts from FDIC-insured digital banks offer APYs of 4% or more, compared to the national average of 0.42%. Over time, this difference can amount to hundreds or even thousands of dollars in lost interest.
**Expert tip:** Switch to a high-yield savings account to capitalize on higher interest rates and maximize your savings potential.
**Mistake 3: Incurring ATM Fees**
**Issue:** Regularly paying fees for out-of-network ATM transactions
While ATM fees may seem insignificant individually, they can accumulate rapidly. The average out-of-network ATM fee is approximately $4.77 per transaction, which can add up over time.
**Expert tip:** Avoid unnecessary ATM fees by using in-network ATMs or opting for banks that reimburse ATM charges.
By avoiding these common banking mistakes, you can safeguard your hard-earned money and make the most of your financial resources.
Consider the costs of ATM fees and the importance of choosing the right bank. Using an out-of-network ATM weekly can lead to over $245 in fees annually, especially with banks that impose high ATM fees alongside monthly charges and low interest rates on savings. It all adds up.
Pro tip: Utilize your bank’s ATM locator for in-network machines. If you often need cash in areas without your bank’s ATMs, consider switching to a bank that refunds out-of-network ATM fees, such as Axos Bank, TD Bank, or Ally Bank.
Dive deeper: Learn about common bank fees and simple ways to avoid them. Avoid the mistake of relying on credit cards as an emergency fund, which can result in more than 20% APR in annual interest on unpaid balances. Building an emergency fund in a high-yield savings account is key to avoiding high-interest debt and maintaining financial stability in times of crisis.
Be mindful of staying with the same bank out of habit, as this may lead to higher fees and lower interest rates. Many people stick with their bank for convenience, but switching to a new bank that offers lower fees and higher interest rates can bring significant savings in the long run. Online banks, in particular, often provide fee-free accounts and higher interest rates compared to traditional banks.
Expert advice: Don’t hesitate to explore different financial institutions if your current bank isn’t meeting your needs. Contrary to common belief, switching banks does not impact your credit or future borrowing options.
Lastly, be cautious about locking too much money into a Certificate of Deposit (CD) due to potential early withdrawal penalties. While CDs are considered safe investments, tying up excessive savings in CDs may limit your financial flexibility.
Saving your money in a certificate of deposit (CD) locks it away for months or years, with potential penalties for early withdrawal, such as forfeiting interest or part of your deposit. It’s advisable to avoid using a CD for emergency funds and instead opt for a High-Yield Savings Account (HYSA). Consider a CD ladder strategy for other savings, spreading your money across different CDs for easier access.
Embrace online banking for convenience and security, as avoiding it may expose you to scams and fraud. Secure login credentials can protect your information and account. Mobile banking allows for easy account management and monitoring of transactions to prevent fraudulent activities. Ensure you have online access, enable two-factor authentication, and set up account alerts for added security.
To maximize your financial management, review your accounts for hidden features, open a high-yield savings account, choose accounts with low fees, keep a portion of expenses in checking and emergency funds in an HYSA, invest for long-term goals, and practice secure banking habits. Utilize automatic transfers, monitor your statements for unauthorized transactions, and use in-network ATMs to avoid unnecessary fees.
Understanding the difference between saving and investing is key to managing your finances effectively. Saving involves keeping your money in secure accounts with low risk, while investing entails purchasing assets that offer potential higher returns. Learn more about saving and investing to make informed financial decisions.
Planning for retirement: How to choose a cost-effective investment platform
Our team of experienced editors regularly evaluates top investment platforms based on factors such as fees, assets, user experience, and more to help you find the best one for your specific needs, whether you’re a beginner, active trader, retiree, or anyone else. Begin by checking out our curated list of the top low-cost investment platforms to match your financial goals and budget.
Understanding the difference between a money market account and a money market mutual fund account can help you make informed decisions about your savings. While both offer a low-risk way to grow your money, a money market account is an interest-bearing deposit account provided by banks, credit unions, and financial tech companies, backed by insurance up to $250,000 per person, per account. On the other hand, a money market mutual fund is a type of mutual fund available through brokerage accounts and investment platforms, investing in low-risk securities with protection under the Securities Investor Protection Corporation.
Deciding whether to pay for identity theft protection or account monitoring services depends on your individual needs and financial situation. Consider options like Experian CreditCenter, AppGuard, and Norton Online Security for comprehensive protection. However, free services like CreditWise from Capital One also provide monitoring of personal information to alert you of any suspicious activities.
When comparing a no-penalty certificate of deposit (CD) to a savings account, consider factors such as deposit amount, accessibility, and savings goals. A no-penalty CD may be ideal for a lump sum you won’t need for some time, while a high-yield savings account offers flexibility for regular deposits and quick access to funds.
Determining the appropriate amount for an emergency fund is crucial for financial security. Suggestions typically range from setting aside at least $1,000 initially to saving up to three to six months’ worth of expenses, especially if you’re the primary earner in your household. Learn more about building and maintaining an emergency fund to safeguard your finances during unforeseen circumstances.
For further information, refer to reliable sources such as the Federal Reserve and expert insights from finance writer Cassidy Horton, featured in prominent publications like NerdWallet and Forbes Advisor.
