Maximizing Your Savings with Tiered Savings Accounts

At O1ne Mortgage, we understand the importance of making your money work harder for you. One effective way to achieve this is through a tiered savings account. These accounts offer higher interest rates as your balance increases, allowing you to grow your savings more efficiently. In this blog, we’ll explore how tiered savings accounts work, how to maximize your savings, and common mistakes to avoid. For personalized mortgage services, call us at 213-732-3074.

Understanding Tiered Savings Accounts

A tiered savings account is designed to reward you with higher annual percentage yields (APYs) as your account balance grows. Unlike regular savings accounts that offer a fixed interest rate regardless of the balance, tiered savings accounts provide incremental increases in interest rates based on the amount of money you have saved. This structure is common among traditional banks, online banks, and credit unions.

For example, TD Bank’s Signature Savings account offers an APY of just 0.01% for lower balances. However, if your balance reaches $10,000, the rate jumps to 2%, and it continues to increase with higher balances. Balances of $100,000 or more can earn up to 4% if you link an eligible account.

How to Maximize Your Savings Using a Tiered Savings Account

Align Your Account with Your Financial Goals

Start by reviewing your short- and long-term financial goals. These may include:

• Building your emergency fund
• Paying down debt
• Saving for retirement
• Funding your children’s education
• Starting a business
• Buying a home

Thanks to its liquidity, a tiered savings account is an excellent place for your emergency fund. If you encounter a financial surprise, you’ll have easy access to your cash. It’s also a good holding place for money you plan to use in the near future, such as launching a new business. Holding your startup cash in a tiered savings account protects it from market volatility and potential losses. Additionally, most savings accounts are insured by the Federal Deposit Insurance Corp. (FDIC) or National Credit Union Administration (NCUA), covering up to $250,000 per person per account category and per financial institution.

However, a tiered savings account isn’t ideal for long-term financial goals. Over the last century, the stock market has had average annual returns of around 10%. For far-off goals like retirement, you’ll likely want to keep some of your money invested in retirement accounts that offer attractive tax perks.

Consider Interest Rates

Tiered savings accounts usually have variable APYs, meaning rates can drop without warning, affecting your earnings. It’s wise to compare yields on other low-risk investments. High-yield savings accounts, for instance, aren’t tiered but may offer higher yields than tiered savings accounts. A large balance could generate sizable returns.

Certificate of deposit (CD) yields can be even higher, though you’ll sacrifice liquidity. Most CDs require you to give up access to your funds until the account matures, which might not be an issue depending on your financial goals.

Integrate Your Account into Your Financial Plan

Growing your money with a tiered savings account is just one part of your financial strategy. You might also be:

• Building your retirement nest egg with a 401(k) or individual retirement account (IRA)
• Accessing the stock market through a brokerage account
• Contributing to a health savings account (HSA)
• Exploring other low-risk investments like CDs and bonds
• Working toward other financial goals

To benefit the most from a tiered savings account, you’ll likely need a large balance. How can that money support your greater financial plan? Having a clear vision might motivate you to save more.

Common Mistakes to Avoid with Tiered Savings Accounts

While tiered savings accounts can be beneficial, it’s possible to misuse them. Here are some mistakes to avoid:

• Not comparing different accounts and tier structures
• Making the initial deposit but not adding more to the account
• Using a tiered savings account to save for long-term goals like retirement
• Putting all your money into a tiered savings account instead of diversifying your investments
• Overlooking high-yield savings accounts, which could deliver better returns

The Bottom Line

A tiered savings account is a safe, low-risk investment that can help your money work harder. It encourages saving by paying a higher APY as your account balance increases. This type of account is ideal for storing your emergency fund or saving for short-term financial goals. However, it’s still wise to compare it against high-yield savings accounts or CDs, which may offer better returns.

At O1ne Mortgage, we are committed to helping you achieve your financial goals. For personalized mortgage services and expert advice, call us at 213-732-3074. Let us help you make the most of your savings and secure your financial future.