Savings Account Strategies: Growing Your Wealth Safely

Imagine Joe. He was a hardworking businessman with a unique way of saving money.

Instead of trusting banks or investments, Joe stashed his profits and savings in a secure money-safe box at his house. It was his little secret.

Now, Joe's method has its advantages.

It gave him immediate access to his funds and a sense of control. But there was a problem. 

His money just sat there, idle and untouched. It wasn't growing.

What’s worse? 

It was losing value due to inflation. Joe's money needed to work for him, not lie dormant.

This story illustrates a crucial financial concept. The need for an interest-earning savings account. 

This article explores savings accounts and why they are a safe and effective way to grow wealth. 

We'll guide you on setting saving goals, help you choose the correct account, and discuss the importance of monitoring and adjusting your saving strategy.

“Don't work for the money, let the money work for you.” Robert Kiyosaki.

The Importance of Savings Accounts in Wealth Building

Here are 5 reasons why savings accounts are essential.

1. Security

Keeping money in your house, whether under a mattress or a safe box, is risky. What will happen in case of floods or fire hazards?

In contrast,  your money is always secure in a savings account. It's protected by the Kenya Deposit Insurance Corporation (KDIC). 

In addition, money in a savings account offers security against yourself. It helps you become financially disciplined, as you can’t withdraw on a whim.

Most savings accounts only allow you to withdraw once per month or a few times a year.

For instance, Equity Bank’s EazzySave Account will enable you to make only one monthly withdrawal. With Stanbic’s PureSave Account, you can only make one withdrawal per quarter. 

Moreover, many savings accounts don't offer ATM, USSD, or online access, restricting withdrawals to over-the-counter transactions. This restriction serves as an additional layer of financial discipline.

2. Earning Interest

Keeping money in a savings account pays off in the long run because it earns interest.  Banks use your deposited funds to invest and generate returns, then share some of those profits with you as interest.

For example, let's say you have Ksh200,000  in ABSA Bank’s Digital Savings Account, which offers an annual interest rate of 9%. Over the year, the bank will use your money for various investments, and in return, they'll give you Ksh,18,000 in interest. 

This may sound like little, but it's free money you wouldn't have earned by keeping your cash under the mattress in a safe or current account.

3. Enables you to achieve your saving goals

Imagine you set a goal of saving Ksh200,000 in a year but don’t have a savings account. So, you keep your funds in a  current account.

With easy access to your funds, you could be tempted to dip into them for various expenses, like shopping or dining out. As the months pass, you find it increasingly challenging to resist these temptations, forfeiting your saving goal.

Now, picture this. You open a savings account with an 8% annual interest rate. With this account, your money is not as easily accessible as in a current account. 

As a result, you're less likely to spend your savings impulsively. Over the year, your money earns interest, enabling you to meet your saving goal and even surpass it.

4. Easy and quick funds transfer

You can instantly transfer funds from your current account into your savings account if both are under the same bank. This allows your savings to start earning interest immediately.  

And if you also need to transfer money from your savings account to your current account, the process is also quick and hassle-free. These transactions are primarily free.

5. High liquidity

Liquidity refers to how easily an asset can be converted into cash without significantly affecting its price.

High liquidity means you can get your cash immediately, while low liquidity might take some time.

Assets like savings accounts are highly liquid because you can withdraw your money quickly, whereas assets like real estate or investments might have lower liquidity. Selling them can take time and may take time to fetch the desired value.

Setting Clear Saving Financial Goals

Goals act as your financial roadmap, guiding you toward your desires. To create meaningful saving goals, follow these steps.

1. First, list all the things you want to save money for. This can include short-term and long-term goals.
2. Prioritise and organise your goals into needs like rent or bills, wants such as a big purchase and wishes like your dream home.
3. Make your goals Specific, Measurable, Achievable, Relevant, and Time-bound (SMART). For example, instead of saying, "I want to save for a vacation," say, "I want to save Ksh200 000 for a vacation to Bali by December 2024
4. Select a savings account that suits your needs. Consider factors like the interest rate, risk tolerance, and how easily you can access the funds.
5. Create an emergency fund separate from your savings goals. This way, unexpected expenses won't derail your progress.
6. Regularly monitor your savings goals to ensure you're on the right track. Adjust if necessary to stay on course.

Choosing the Right Savings Account

Only some savings accounts will work for you. As such, you need to know the different types before choosing.

1. Regular saving accounts

It allows you to deposit and withdraw money as needed, making it a flexible choice for general savings. They offer a lower interest rate but provide easy access to your fund.

2. Fixed deposit accounts

These savings accounts require depositing a lump sum for a specific time (tenure). However, you can neither access the funds nor add more money to the account until the end of the term. 

In return for locking in your funds, fixed deposit accounts offer higher interest rates than regular savings accounts. They maintain a fixed interest rate, regardless of any fluctuations.

3. Target saving accounts

A target savings account, sometimes called a goal-based savings account, is designed for specific financial goals. You set a target with the financial institution and then start making deposits until you achieve the target.

It can help you focus on your financial objectives as you’ll be restricted from accessing the funds.

Considerations to make when choosing a savings account

1. Your saving goals: Consider a regular savings account to set up an emergency fund, as it offers more liquidity. If you’re planning for a Xmas vacay, then a target savings account is ideal. Otherwise, opt for a fixed savings account to save for a specific period. 
2. Convenience: How do you want to access the funds? Via bank, ATM, or online? Note that the more convenient, the more likely you’ll spend on something unplanned.
3. Minimum opening deposit. This is the initial amount you must deposit when opening a savings account. It's an essential consideration because it can vary widely between financial institutions.
4. The minimum interest-earning balance: It's the lowest amount you must maintain in a savings account to qualify for earning interest.
5. Interest rate: The higher the interest, the higher you’ll earn. Consider the inflation rate when looking at the interest rate offered. You'll lose money if you deposit money in a savings account, earning less than the interest rate. The current inflation rate is 7.3%.
6. Withdrawal limit: Check out how many withdrawals are allowed. This is an essential consideration because exceeding these limits may result in penalties or a loss of interest.
7. Account fees: Check if there are fees such as withdrawal fees, overdraft fees, penalties for exceeding withdrawal, etc. Such costs can eat into your interest earnings.

To make an informed decision, visit our savings account comparison page for a detailed breakdown of various savings account options, including their features, interest rates, minimum requirements, and more

Maximizing Interest Earnings

Choose accounts with competitive rates, like high-yield savings or Central Depository System (CDS) accounts, to maximize your savings interest earnings. 

Also, take advantage of the magic of compound interest, avoid penalties by not exceeding the withdrawal limits, and automate regular deposits to prevent missing your deposits.

Automating Your Savings

You'll effortlessly build disciplined saving habits by setting up regular transfers from your checking to your savings account. This simple strategy ensures that you consistently contribute to your savings goals without even thinking about it.

Additionally, automating your savings minimizes the temptation to spend the money you intend to save, making it easier to stay on track. Over time, this consistent approach can help you achieve your financial goals more efficiently.

Building an Emergency Fund

Creating a rainy day fund is crucial for tackling unexpected financial challenges like job loss, illness, or family emergencies. To ensure it's there when needed, maintain a separate emergency fund distinct from your savings account. 

Opt for a regular savings account for your emergency fund, as it offers easy access to your funds. Aim to accumulate at least 3-6 months' living expenses in your emergency fund to provide a safety net during unexpected situations.

Read in Detail: 9 Rules of Establishing an Emergency Fund.

Strategies for Short-Term and Long-Term Goals

Savings accounts are ideal for saving money for your short and long-term goals. Set up an emergency fund in a regular savings account for short-term needs such as medical bills, car repairs, or other repairs. 

For long-term goals such as retirement, a downpayment for a house, or funding your children’s education, open a target fixed account and contribute regularly. 

Remember, there are limits on the number of withdrawals you can make, so diversify your savings accounts to maximize your financial growth.

Read Also: 7 Short-Term Financial Goals to Set for Yourself.

Minimizing Fees and Charges

Minimizing fees associated with savings accounts is essential for maximizing your savings. Here are some strategies to follow:

1. Compare savings account options from different banks or credit unions to find one with low or no fees.
2. Monitor your account transactions regularly to spot any unexpected fees or unauthorized charges. Promptly address any issues with your bank to prevent additional fees.
3. Plan your finances to avoid tapping into your savings prematurely, ensuring you don't incur fees.
4. Be aware of the minimum balance requirement and ensure your account balance stays above it to prevent fees.

Monitoring and Adjusting Your Savings Strategy

Regularly reviewing and adjusting your savings strategy will help you stay on target. Here’s how to keep on track:

1. Periodically review your savings goals and adjust as needed to accommodate changes in income, expenses, or financial priorities.
2. Keep tabs on your savings progress by regularly monitoring your account balances and contributions to ensure they align with your objectives.
3. Establish milestones along the way to motivate and gauge your progress. Celebrate achievements to stay motivated.
4. Prioritise building an emergency fund to handle unexpected expenses, providing financial security while you work toward your larger goals.
5. Consider consulting a financial advisor for expert guidance on optimizing your savings strategy as your financial situation evolves.

Wrapping Up

In conclusion, the importance of an interest-earning savings account cannot be overstated. It's a powerful tool to make your money work for you, ensuring your wealth grows rather than remains stagnant. 

As you set your financial goals, choose the right savings account, and monitor your strategy, remember  the words of the author of "Rich Dad Poor Dad," Robert Kiyosaki:

"Don't work for the money; let the money work for you."