About 26% of adults in the United States have no savings set aside for emergencies. While the number seems low, it’s really a staggering amount of adults without extra cash in the bank to fall back on. For college students that already live on a tight budget, a savings account is a must.
Maintaining an emergency fund will help you through those unexpected situations in life like car repairs or medical bills. You never want to rely on high-interest credit cards or payday loans to get you out of financial trouble. Opening a savings account early on not only helps you through potential emergencies, it helps boost short and long-term financial responsibility.
Do You Have Access to an Emergency Fund?
Most college students won’t have access to certificates of deposits or retirement accounts to count on during emergencies. So, investing in a local savings account that is liquid and readily available is your best bet. There are generally no penalties for withdrawing cash from your savings account and you won’t deal with interest rates from using a credit card or quick loan. Come to our credit union to start accumulating money so you can be ready for whatever hardships life brings your way.
How Much Should You Save?
Clearly, the more you save, the more secure you’ll be. Financial experts suggest individuals or families with one breadwinner should save three to nine months’ worth of expenses in case of a job loss or other dire situation. However, saving as little as $500 can make a difference. The amount of money in your emergency fund will largely depend on your comfort level and financial availability.
What Are Your Interest Rate Options?
Interest rates are generally low, but don’t let that discourage you. The main objective of maintaining a savings account is for emergencies. If you want to invest your money in a savings with the highest interest rate possible, you’ll have better luck with a credit union.
Credit unions are more likely to offer better interest rates on savings accounts because they support members rather than shareholders. Mutual funds, CDs, savings bonds and other money options provide better interest rates but also offer less flexibility when it comes to money availability. Your ultimate goal is to have extra cash available.
How Do You Start Saving?
If budgeting or saving large amounts is not a habit of yours, start by saving small amounts. You’ll want to set a goal of how much to accumulate over a specific time frame. Another option is to open a savings account and allowing direct, automatic deposits on a monthly basis. Out of sight, out of mind is the goal here. If you don’t make the transfer yourself, you won’t forget to save and you won’t pay attention to the small amount transferred from your paycheck. Financial institutions offer a variety of options to avoid monthly fees and encourage better saving habits.
FAQs
For college students that already live on a tight budget, a savings account is a must. Maintaining an emergency fund will help you through those unexpected situations in life like car repairs or medical bills. You never want to rely on high-interest credit cards or payday loans to get you out of financial trouble.
Should I open a savings account as a college student? ›
It Gains You Interest
Even if you only make that initial deposit, leaving some amount of money in the account is only going to gain you interest over time. Just putting in $100 and waiting out your college career without even touching your savings account, you're going to end up with more money than when you started.
Why is saving money important for college students? ›
Saving makes college less expensive.
The student could take out a loan at 4.5% to be paid back in monthly payments of $207 for 10 years after he or she graduates. By the time the student retires that $20,000 debt, he or she will have spent $24,907.
Why is savings account best for students? ›
A savings account helps to save money and also earn interest on the deposited amount. This is one method of increasing your wealth and achieving your financial goal. By putting aside some amount in the savings account every month, students develop the habit of saving.
Why are savings accounts a good option to pay for college costs? ›
Tax-Free Growth
Most states, including North Carolina, have a 529 plan — a tax-advantaged education savings plan. With an NC 529 Account, the money you invest may grow over time, and any earnings are free from federal and state income tax when withdrawn and used for qualified education expenses.
Why should I open a student bank account? ›
A student account often grants you access to special rates on travel and shopping, low or no ATM fees, and various other deals and discounts for student-oriented services.
How much savings is good for a college student? ›
If your savings are currently a bit anemic, aim for enough money to cover three to six months of expenses. To put a number to that goal, add up all your regular expenses and multiply the total by at least three. Hopefully, you'll never need to dip into those funds, but if you do, they'll be waiting for you.
When should you start saving for college? ›
Short answer: The earlier, the better ...
The earlier you save, the more time your money has to grow. This is the magic of compounding—when your returns earn more returns and so on. You can open a 529 and make the most of the time you have as soon as the beneficiary has a Social Security number!
What are the benefits of saving money? ›
Having adequate savings enables you to live a more fulfilled life. You are more likely to be less stressed about your future goals like retirement or unexpected expenses like healthcare. Savings allow you to be relieved and at ease, knowing you have sufficient funds to navigate different situations in life.
How does money affect college students? ›
Students with fewer money worries perform better in college and are more likely to graduate, while financially stressed students have lower grades and are more likely to drop out.
But 529s and ESAs are generally considered better choices for college savings because of their tax advantages. There are two types of tax-advantaged college savings plans designed to help parents finance education: 529 Plans and Education Savings Accounts (also known as ESAs or Coverdell accounts).
How do college savings accounts work? ›
Education Savings Plans
The account holder contributes money to the plan, which is invested in a preset selection of investment options. Account holders can choose which investments (usually mutual funds) they want to make. How those investments perform determines how much the account value grows over time.
What is a college savings account? ›
A 529 college savings plan is a state-sponsored investment plan that enables you to save money for a beneficiary and pay for education expenses.
How does savings affect college financial aid? ›
Impact of Savings Plans on Eligibility for Need-Based Financial Aid. The impact on eligibility for need-based aid depends on whether the college savings plan is reported as a student asset or parent asset on the FAFSA, as illustrated in this table. Student assets reduce aid eligibility by 20% of the net asset value.
Is a college savings account better than a regular savings account? ›
A 529 college savings account can offer some advantages that you might miss out on with a regular savings account. The main benefits of a 529 plan over a savings account include: Tax-deferred growth. Tax-free withdrawals for qualified education expenses.
Should I open a savings account or 529? ›
Earmarking your money for something specific, like education, can help motivate you to keep saving. But the tax advantages are the main reason 529 plans stand out from regular savings accounts. On top of tax-free growth, some states allow taxpayers to deduct or get a credit for 529 plan contributions on their taxes.
Maintaining an emergency fund will help you through those unexpected situations in life like car repairs or medical bills. You never want to rely on high-interest credit cards or payday loans to get you out of financial trouble. Opening a savings account early on not only helps you through potential emergencies, it helps boost short and long-term financial responsibility.