The year 2020 has been exceptionally taxing for almost everyone across the world. The coronavirus pandemic has not only caused health concerns but also deteriorated the financial position of many. Nevertheless, the start of a new year brings in new hopes and allows us to start afresh.
2020, being the rough year that it was, caused many of us to dig into our savings, even leading to high debts to some cases. However, better financial planning and renewed hope can make 2021 a better financial year for all of us. Here are some places where you can save money in 2021 to cover up for the previous year’s losses and build a healthier financial foundation for the years to come.
High-Yield Savings Accounts
Savings accounts are excellent means to save money and grow it safely and wisely. They enable you to save money regularly and pay out a reasonable rate of interest on the savings. To top it all, high-yield savings accounts specifically pay about 20 to 25 times higher rate of interest than the standard savings accounts.
While looking at and comparing the variety of financial institutions offering high-yield savings accounts, it is vital to consider a few parameters. The most significant factor is the interest rate; however, other features like minimum initial deposit, minimum balance required, and fees also need to be considered.
Some high-yield savings accounts pay a fixed interest rate while others may offer a flexible rate that can be changed anytime. The savings accounts may also specify a minimum or maximum balance to hold to become eligible for the high-interest rates. Additionally, high fees can eat into earned interests. Therefore, it is critical to understand the fees charged by the bank or financial institution on the high-yield savings accounts to work out the effective returns.
You may need to hold your high-yield savings account in a different financial institution from the one in which you hold your checking account. It may sound inconvenient, but with the fast and efficient electronic transfer services, moving the money between your checking account and savings account will be simpler and quicker than you imagine.
Currently, the include Varo Bank with an annual percentage yield of 0.81%, followed by SmartyPig by Sallie Mae with an APY of 0.80%, and Customers Bank with an APY of 0.80%. These alternatives do not charge a monthly fee and have almost none to low minimum balance requirement. You may also check with your financial advisor for other options that go better with your investment time horizon, financial status, and .
Another excellent avenue to save money in 2021 is mutual funds. Mutual funds will add a lot of diversification to your investment portfolio, making it less risky and more efficient. They are managed by professionals and invest in a basket of securities to reduce risk exposure and increase returns.
Therefore, mutual funds can function as a good place to save money in 2021. You can choose the fund to invest in based on your investment preference, time horizon, and risk tolerance. Mutual funds also provide tax savings on your investments and can help in enhancing overall returns. You must consider the expense ratios and assets under management of different mutual funds before picking the one that suits you the best.
Index funds are also the right kind of investment for 2021. The stock market made a nice rebound in the fourth quarter of 2020 and it is expected to remain stable in the coming year if the second wave of Covid-19 virus does not have a devastating effect on the economy.Buying into index funds works particularly well when the market is down as it hedges portfolio positions against uncertainty and unpredictable forces such as in inflation and exchange rate risk.
Index funds follow specific market indices instead of particular stocks and generate higher long-term returns. For example, the S&P 500 index fund has generated an annual return of 9.85% from 1994 to 2014. Thus, index funds are excellent places to save money in 2021 and forget for a few years. Even if the market plunges further, the long-term returns from index funds will be positively high.
Gold is another avenue where you can save money in 2021. It is considered to be a safe haven and works well for long-term savings, especially when the market is volatile and uncertain. When the stock market is down, the gold prices go up and serve as the hedge against market uncertainty. Investment in gold can be done in the form of physical gold, gold ETFs, gold mutual funds, or digital gold.
As a bottom line, there are numerous ways how you can tide over the financial challenges faced in 2020. Start the new year with new hopes and new savings and make the future brighter and stronger!