Why get a savings account?

The most noticeable benefit of a savings account is interest earned on money deposited. The interest rate on a savings account is currently very low, but it still provides extra money. A savings account has many characteristics of a checking account, but it offers other benefits. A benefit of having a savings account is that it can create a saving mindset. Finally, a savings account will provide additional security.

A savings account annual interest rate is, as of April 2015, ranging anywhere from .05% to 1%. This may not seem like a high number, but it is still creating money. For example, 1% of a thousand dollars is ten dollars. Current rates can be checked regularly through your institution’s website or other online sources such as http://www.bankrate.com/.

A savings account is a great offer because it has very high liquidity. Liquidity measures how quick an asset or any financial instrument can be converted into cash (usually into a checking account). The process is as simple as doing a quick online transfer from savings to checking. In addition to having liquidity, a savings account is backed by the FDIC in conjunction with a bank’s checking account, or the NCUSIF if your saving account is with a credit union. Your account is insured up to $250,000. (Personal limits also apply if you have multiple accounts.) Basically, a savings account provides interest with zero risk on savings up to $250,000. Specific variations on a savings account, like a money market account, may provide higher interest rates but may limit the amount of transactions that can occur. It is important to talk with a bank or credit union representative to figure out which account fits your needs.

Besides earning interest, savings accounts are great for creating a saving mindset. First, while savings accounts are liquid, the money is set aside from regular checking. This makes it more difficult to spend unexpected amounts of money on any good or service. The process of transferring money from savings to checking creates time to mull over the decision and can prevent unnecessary expensive purchases. However, the money is still available and accessible in times of emergency. Next, taking extra income and depositing into a savings account can develop a mindset more geared towards saving. Saving money is important for achieving future financial goals, and a savings account is the first step in saving and earning interest income.

Finally, a savings account can create additional security for money stored in an account. For example, a savings account has a different account number than the checking account, so if account information were to get stolen, the savings account funds would remain difficult to be stolen. It is a good idea to not link your debit card to your savings account. This will create an extra barrier if your debit card were to get stolen.

In conclusion, a savings account is a great complement to a regular checking account. It provides many of the same features of a checking account but earns interest on the money deposited. It also allows you to create a saving mindset which is important in the long run. Savings accounts can also come in many different styles, so it’s important to contact your financial institution to figure out which is right for you!

Written by Jonathan Alton, Financial Wellness for College Students Peer Educator, and Kathy Sweedler, Consumer Economics Educator, University of Illinois Extension

How does the time value of money help young investors?

The time value of money concept is one of the most important factors individuals face when it comes to investing assets. Time value of money is the idea that money available today is worth more than the same amount of money available at a future date, because of interest earning potential.

Let’s say you are offered $100 today, or were given the opportunity to collect $100 one year from now. Would you take the money now, or later? Your best option would be to accept the $100 today, because of interest earning potential and opportunity cost.

Taking the payment today would allow you to invest your money in a savings vehicle like a savings account or money market account. Investing your money allows you to earn interest, meaning the bank is paying you a small percentage for using your deposited funds. Therefore, depositing your money in a savings account will allow your money to grow every year.

Going back to the example, the opportunity cost of choosing to defer a $100 payment today is the interest you could have earned through investing your money. Opportunity cost is a trade-off between what you chose and what you could have had. For instance, if you pay $10 for a movie ticket, your cost of attending the movie is not only the $10, but also the time and value of what you could have enjoyed doing instead of going to the movie. That being said, when choosing to spend or save your money, it is important to think about the opportunity cost of your decision, making sure that the benefits outweigh the costs.

The main idea of the time value of money is that as a young investor, you should start saving as soon as possible! The sooner you invest, the higher your interest earning potential, and thus, the more likely your money will grow over time.

Written by Jessica Wesser, Financial Wellness Peer Educator, University of Illinois Extension

Steps Toward Investing (Recorded Webinar)

Stocks, bonds, and IRAs – oh my!  Where should a young investor start? The recorded webinar, “Steps Toward Investing,” explores investment options and strategies. Learn about important investment concepts such as diversification, purchasing power risk, and market risk. Don’t miss out on the opportunity to have your money grow; learn how to invest while you’re still young!

University of Illinois Extension, along with the University of Illinois’ Student Money Management Center, hosted the webinar “Steps Toward Investing” on November 11, 2014. The FREE webinar will focus on terms related to investing & the benefits of investing early. WatcSaving Badgeh it below!

This is a Saving Badge eligible program, so make sure to take the quiz after watching to get credit!

“Steps Toward Investing” is part of the Get $avvy: Grow Your Green Stuff webinar series. Don’t miss the next webinar, “Making the Most of Job Benefits,” on Tuesday, February 24, from 4:00-5:00 p.m. Register here.

Written by Andrea Pellegrini, University of Illinois USFSCO Student Money Management Center

How can I save and budget money while maintaining a love life in college?

Students often have had very little experience with budgeting by the time their first semester in college rolls around. It is most likely their first extended stay away from home, and they have the newly found responsibility of making their own financial decisions. College students may also start exploring new relationships and a potential love life once they reach campus. But how can students stick to a budget, save money, and maintain a love life all at once?

It may seem overwhelming at first but there are a few tips and guidelines that make the process much more manageable.

  • Consider free on-campus activities. The Illini Union Board hosts events such as movies on the quad, comedy shows, and trivia night. These free activities are perfect for a casual date or with a group of friends.
  • Keep it homemade. Most people would agree that making homemade meals for a significant other is a kind gesture. You can make them their favorite dish or entrée that they mentioned one time. It shows you listen, care, and will cost much less than a night out on the town.
  • Use daily deal coupons. Websites like Groupon and LivingSocial provide activity-based coupons. These coupons often come in the form of activities like cooking classes, zip lining, sporting events, and much more. These activities provide a relatively inexpensive way to venture out and try new activities in the surrounding area.
  • Try a new restaurant. Despite popular belief, it is possible to spend money and maintain a budget. However, it is important to keep the spending within reason and to limit the frequency of the spending. Want to try that new Thai place on campus with your study partner from biology class? Go for it! It’ll be a fun experience but make sure it doesn’t become a habit. The next date could potentially be one of the three previously mentioned activities. See what I’m getting at here?

The aforementioned tips provide ways to maintain a love life while sticking to a budget. It may be beneficial to allocate a certain percentage of income or spending money towards miscellaneous expenses (your love life expenses may fall under this umbrella). This way you will know how much you can and are willing to spend each month. In addition to budgeting for your love life, make sure to continue to budget for food, books, rent, and anything else that you will need on a monthly basis.

Written by Alex Hoffmann, Financial Wellness Peer Educator, University of Illinois Extension

Expect the Unexpected – Saving for Emergencies

Planning for the unexpected can ensure that you are able to weather a financial hardship should you lose your job, have a car repair, or any other unplanned expense. By having savings set aside for emergencies, you decrease the need to rely on credit cards or loans to cover emergency situations. Borrowing funds to cover emergencies can create additional financial hardship. Most experts recommend that you have between three and six months of income set aside in emergency funds, but having any money set aside can help when a financial storm arises.

A recent survey has found that “18- to 30-year-olds are the most likely to have up to five months’ expenses saved up since they might have the benefit of lower expenses due to having roommates, living with their parents or being students.” Your college years can be an ideal time to create and build your emergency savings.

If you’re not sure how to start saving for an emergency, here’s a crash course in what to look for:

  • Prioritize your spendingneeds come before wants. If going without something could cause you physical pain or injury (like water, shelter, food, medications or proper clothing), then it’s probably a need. If you could get by without it, it’s likely a want.
  • Analyze areas of opportunityidentify ways you can save. If you cut out a $4 beverage or snack just once a week, you could save over $200 a year.
  • Save extra moneyturn birthday money into a rainy day fund. If you don’t have regular income, putting away gift money or profit you make off selling unused items can help start your emergency fund.

Getting Through Tough Financial Times is a resource developed by University of Illinois Extension to help individuals and families weather financial storms. This site provides information on spending habits, managing finances, and smart savings strategies.

Written by Sheri Williamson and Andrea Pellegrini, University of Illinois USFSCO Student Money Management Center