The list of things one needs to do or not do while in the military can become overwhelming. At a time when young adults should be discovering themselves and learning to enjoy their new freedom, some find themselves forwarding American military interests overseas. Naturally, personal finances and banking might take a back seat.
But if you’re thinking ahead and taking initiative when it comes to your investments and savings, we congratulate you. However, it might be hard to know where to begin. One member, in particular, had these questions and took them to the people in the r/MilitaryFinance community. Here is what they said.
Please remember, of course, that anything you read online, and in this article, are opinions, and you should always speak with an expert before making any financial or legal decisions.
Why Are We Talking About This?
Low interest rates mean your money is worth less every year.
The military isn’t particularly famous for making veterans filthy rich or financially knowledgeable. Many people come back and have to learn the hard way how to adjust to the money-centric world we live in. In order to give them a little extra help, we found one veteran who was struggling with some familiar questions and collected the most popular answers. The most important being: service members should deposit their money into a high-yield savings account, and here are a few tips on how to make the most of it.
The Question
Managing your finances.
The author of the post is a 19-year-old E-2 and has a fair amount of savings due to his parents contributing to his account as well. The account is a regular savings account.
However, he has begun wondering if there isn’t a better option to keep his money safe while making better returns. He started by looking into high-yield savings accounts and asked the community how much he should put into one versus other accounts, or if he should use one at all.
Background on High-Yield Savings Accounts
You can increase your savings over time.
Traditional savings accounts typically pay a very low interest rate in return for allowing them to use your funds toward their own purposes. This interest rate is very low and has always been dramatically outpaced by yearly inflation. As a result, savings accounts are typically seen as a way to save what money you have and not as a way to make any profit.
As the internet took off, some companies began offering online-only banking options. These accounts didn’t have physical locations, customer service, or other typical banking features, which means that these companies could afford to pay higher interest rates, since they didn’t incur these costs.
These accounts exploded in popularity as people realized they could be earning more money than banks were leading them to believe. So, other traditional banks began offering similar online-only accounts with higher interest rates, proving that paying low interest rates for so long was simply a business decision, not a necessity.
These accounts came to be known as high-yield savings accounts and they are now as varied and diverse as regular savings and checking accounts. Banks offer different account services and investment opportunities along with their high-yield savings accounts.
The Community Response
The original savings account.
All commenters on the original thread agreed that if the author is going to keep his money in a savings account, he should definitely use a high-yield savings account instead of a regular savings account, especially since they are in the military and might not have regular access to physical bank locations anyway.
That high-yield savings account should form only part of his savings and investment strategy, of course, argued a few other commenters. Savings accounts limit how much money you can withdraw and how many withdrawals you can make in a month. So, it’s always a good idea to have a checking account or some other reserve of money that you can access on a regular basis, hopefully with a debit card attached in case of emergencies.
The money in the high-yield savings account should be kept in case of emergencies, retirement, expensive future financial goals, or other long-term purposes like a down payment.
That being said, there were only a handful of actionable recommendations for which high-yield savings account the author should choose.
Any high-yield savings account is going to out-perform a regular savings account, so the decision of which one to go with depends on three things: the interest rate, the account benefits and features, and the trust and reliability of the company behind it.
Most high-yield savings accounts offer interest rates ranging from 4% to 5%, but these change regularly and can increase or decrease at any time for any reason. In the end, a small difference in interest rate won’t make much of a difference in the short term, so many experts prefer to decide based on the usability and trust of the holding company. You should pick a company that you feel comfortable with and that offers features and benefits you find helpful and useful. A visit to Trustpilot or the app store is a quick way to weed out some of the less reliable or exploitative accounts.
Then, if you’ve found a handful that meets these criteria, you can make your final decision based on the sign-up bonuses that many offer. If you’re going to get a high-yield savings account, you might as well sign up for the one that gives you money!
How to Use your High-Yield Savings Account
A photo of a series of piggy banks.
It is generally not good financial advice to keep all your money in a savings account or to keep all your accounts at one institution. Even though your money is insured through the FDIC, common sense would lead us to conclude that things can always go wrong, and even if a bank goes bankrupt, it might still prevent you from accessing your money at a time when you need it most. It is good practice to have a handful of accounts of different types at different institutions that you use for different purposes.
That being said, many of the companies that offer high-yield savings accounts also combine them with their existing products, or offer special features or benefits if you have, or open, other accounts at the same company.
These benefits can range from accounts that charge no fees for certain common transactions, higher interest rates, cash bonuses, account automation, contribution matching, free trading stocks, and more. The types of benefits and incentives vary by company. For example, trading companies might offer incentives and benefits to make trading more affordable or easier. So, we recommend you look into a couple to find what appeals to you.
Whichever company you choose to go with, the sooner you act the sooner your higher interest rate will begin to pay off. However, don’t rush into one without reading the fine print. Banks can be notoriously tricky and underhanded, trapping customers into expensive contracts or hidden fees for regular activity. Make sure you check for minimum balance requirements, activity or transfer limits, or even if the interest rate is only for a limited time before dropping to a lower amount. Then, incorporate your new account into your existing financial system — you don’t have to transfer everything from your current savings account if you don’t want to.
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