Mar 13 2008

Where do you park your savings? And, how much to save?

My post about ING Direct has got me to thinking: Where do you park and build your savings accounts?

I’m talking about your emergency savings account, down payment savings, "oh no, the laptop is about to explode!" savings, etc.

Do you keep them in a brick & mortar bank? An online bank? A CD? A money market fund (thanks, Flexo, for clarifying what that is). What sorts of interest rates are you getting right now?

Maybe you use a variety of savings vehicles.

For our emergency fund, I’m looking for high interest rates, no fees, and the ability to get it fast if I need to.

Another question for you:

What’s the "ideal" percentage of income you should be saving each month? I’ve heard 10-12 percent tossed around, but I don’t know what that’s based on. Is that 10 percent of your gross income? Or net? And, is that totally in addition to your retirement savings, or is that all combined?

Dear readers, help me out! What are your thoughts?

17 Responses to “Where do you park your savings? And, how much to save?”

  1. Mine is sitting in my checking account right since it is playing out 6% which is higher that anything I have found.

  2. My fiance and I put our savings into an online high yield savings account. We have multiple accounts opened with Capital One for different goals and one opened with Emigrant for a goal. I think both are earning a little less then 3.5% which isn’t as good as when I opened them at around 5% about a year ago.

    We basically save as much as we can each month. We are shooting for different goals and save all we can to reach those goals as quick as possible. I’m not sure the total percentage we save but it is pretty high because we are big savers. I think a good goal to shoot for is to build up your emergency fund to at least 3 months of expenses. We are trying to build ours up to 6 months. I think the 10-12% rule is more for retirement so we contribute 10% of gross to our retirement from each paycheck.

    I think the best way to start is by saving what you can and slowly try to increase that amount you save. Whatever you feel the most comfortable with is the correct answer for how much you personally should be saving.

  3. Being single, I’m lucky to have been able to save up to 50% of my salary on every payday ^^

  4. When I was working, we went to a financial advisor to get our things in order. He had us put our emergency fund (6 months of expenses) into a money market account. I think our interest rate is 4.85%. I like that we can get to our “emergency” money quickly if we need to. We no longer add to this fund…we just let the interest add up.

    Once we had 6 months of savings secured, our advisor had us work on saving an additional amount. He wanted us to put half of that amount in mutual funds, and the other half in CD’s and bonds. We only got 25% of that amount saved before I had my baby and quit my job. But we put it in mutual funds.

    We both have 401k accounts too. I worked for 8 years and always contributed 10% of my gross income. DH contributed 10% for several years and now does up to what his company match is (maybe 5%??). I would be more comfortable if we could get to the point of saving 10% a month (gross income) for retirement and an additional 5% for personal savings (college, new house etc..). I would like to get to the point where we can do a Roth IRA for our remaining 5% retirement.

    For our shorter term savings (property taxes, homeowners insurance, association dues, vacations etc..) we just use a regular savings account and deposit a set sum each paycheck. I then keep track of how much of that account belongs in what “pot”. (I just use Excel…nothing very high tech).

    Sorry for the book. Not saying that what we do is the best or totally right, but just wanted to let you know what works for us as of now (and where we would eventually like to be). I think every family has a different equation that works for them and that you just have to figure out what works best for you.

  5. We use emigrant direct – its an online bank. Because we are reducing our debt, we keep 1,000 as an emergency fund. We get rid of the student loans we will build up more. This is different from our 401K – for that we each do 6% and we each get 3% match, so 9% total for each of us.

  6. The numbers I have seen, and that seem reasonable are to have a “catastrophy” fund of 3-6 months of salary broken into different CD’s. It’ll make more sense if I lay it out the way I have it planned as steps, or milestones:

    1. $1,000 emergency fund.
    2. Pay off all debt.
    3. Build emergency fund to 3 months of savings.
    4. Start or increase contribution to retirement fund.
    5. Build emergency fund to 6 months.
    6. Start a growth fund in mutual funds.

    Basically, it’s a cycle of stability then growth, growing outward in time period and risk. Start with the near term and low risk, then move outwards into longer term and higher risk.

    The way I’ve seen it laid out is that the emergency fund is really an umbrella fund to be used dependent on cycle. For example, say you are funded at the six month level, and come across a can’t beat deal on a car or a house. You have immediate money to toss at the deal. You can also use it to gain yourself a lower premium on healthcare with the idea that you can afford to take on more of the liability for catastrophies. If you are good enough at this you can continually increas your “self” insurance to include cars, etc.

    For 401(k) contributions, the ideal is 15%, I’ve been told. My formula for these contributions is C = (B+D)/(S-ST), where C is the contribution percentage, B is the budget amount required, D is the deductions, S is the median monthly salary, and T is the median tax rate of all taxes combined.

  7. You should try to save 25% of your income. It helps a lot if you don’t have any credit card debt. It always amuses me when people say I can’t afford to put 25% of my money into savings, but they can afford to pay 18% or MORE into credit card debt.

    Saving 25% of your income in different investment vehicles gives you financial opportunities when the opportunity presents itself.

    Definitely put money into a 401K. Especially if your company matches anything. Second put $10,000 or more into a high paying CD. (Might be hard to find at the moment.) Grow that to 6 months of your income. You never know when you will need it. Don’t be foolish and just quit your job because you know you have 6 months of income in savings. This is for those critical things that occur.

    Put other amounts into a high paying interest account like ING Direct or similar vehicles. This is for short term, I need cash fast to pay taxes or something.

    But, hey, that’s just my opinion.

  8. I hate to have all my eggs in one basket, so we have a variety of money parking lots. We have a regular bank savings, a couple CDs, a high interest savings, a money market and mutual funds. We of course also have our retirement and college savings accounts.

    I do this simply because I find good rates and don’t want to pass them up and because I don’t want to be tempted to spend any of it! LOL. Each account does have it’s own purpose, I guess. Vacation fund, emergency fund, general savings, etc.

    Take Care


  9. I opened an account online with Bank Of America. I really only use it for the money (minute amounts) that I get from my web adventures. Other than that, I have a whopping $9.16 in my change jar.

  10. My short-term savings is in a high-yield savings account with USAA, which I love. The interest rate has gone down a lot since the beginning of the year. I’ve also played around with CDs but the interest rates I was able to find weren’t superior enough to my savings account to make it worth the loss of liquidity.

    15% seems like a good amount of savings for your average person…I save a lot more, of course, but that’s because I have unusual goals.

  11. 9% up to about $12k (???) goes into the 401k with a company match of 50% so that’s HUGE. Then I take the first 20% of the paycheck and have it direct deposited into savings.

    Every other Friday when it’s payday I take whatever the balance was in checking and send it straight to savings. If I didn’t need it last week I shouldn’t need it this week.

    We save a lot but then we do withdraw big chunks at a time.

  12. Our emergency fund is invested in a money market fund. I don’t know what the “ideal” savings rate is but considering that the average national rate is negative I am going to say that anything above 1% is already a step forward. Right now our savings rate is around 30% of our gross income and we are about to start putting away extra money away in a Roth IRA for my husband. I really need to calculate this better.

  13. Great information to share with others. My rule is never save more than 10% of my total salary. I need to live by my rule as I get carried away and end up investing more than I could afford.

  14. We have 2 savings accounts, 1 at our local bank and 1 at ING. The ING account is our emergency fund, with categories in it for our property taxes as well as new car savings. The savings account at our local bank is actually for our irregular expenses such as car insurance, kids activities, vacation, etc. We can access this any time very quickly and it usually carries between $2000-$4000 in it. Plenty to cover an emergency immediately while we waited on a transfer from ING.

  15. Personally I keep 2 savings accounts. One at the local bank with about $1000 that I can have super quick access to at the ATM if an emergency were to come up. Other savings I keep in an online account with HSBC currently earning 3.5%. I pretty much try to put whatever I can into savings, even if it’s just temporary, to build a little bit of earnings on it. Hopefully I’ll be able to start putting more in once I pay off the debt I built up during college. These accounts do not include investment stuff or retirement.

  16. RIght now we use bankrate and bankaholic to find the best rate and also the best bank (people leave their feedback on bankaholic about how they liked dealing with the bank). We go not only with the highest rate, but also with the best rating, which sometimes means a little bit lower rate. We are going to switch to WaMu which has about 5% right now AND a local branch that I can have quick access to money. That is for the emergency fund. Other funds we are looking at putting into CD’s to lock higher interest rates. Vacation is something we only use at a fixed time, so having it in a 6 month CD makes sense. You can also put things in a three month CD (like the fund to replace the laptop and TV – who knows, after 3 months without, you may just find that life is much better without it and that savings fund can go right into snowball at that point). Delayed gratification has other benefits too. :)

  17. We have most of our savings with ING. We keep a minimum balance at BofA since our checking account is still there.

    I’ve heard the 10% rule as being gross income, I believe. Not sure if it’s supposed to be only retirement though. You probably shouldn’t worry about a general percentage #. Work on figuring out how much savings and retirement you will need for yourself. Easier said than done but any general rule could end up hurting you if your situation isn’t the same as the general masses.

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Hey! I'm Kacie, wife to Shane and mother to Jonathan (7), Vivienne (5) and Amelia (2) . I write about my family's finance: how we save money, improve our spending, and plan for the future.

I hope I can inspire and encourage you to improve your situation. See disclosure.

I'm adopting a much slower-paced posting schedule, and treating this as a hobby blog now.

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