But regardless of the rules, one thing is clear: Americans who save are saving more than before.
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Although there is no magic number as to how much money a person should have in savings, experts agree that it is imperative to have at least an emergency fund – from 3 to 9 months of spending – in savings. A rule of thumb is to follow the 50/30/20 method of budgeting by allocating 50% of one’s income to needs, 30% to wants, and 20% to savings.
But regardless of the rules, one thing is clear: Americans who save are saving more than before. Northwestern Mutual’s 2021 Planning and Progression Study found that average Americans’ personal savings accounts increased 10% between 2020 and 2021, from $65,900 to $73,100, which does not include investments. And according to data from the US Federal Reserve’s 2019 Consumer Finances Survey, the most recent year for which they surveyed participants, Americans have a weighted average savings account balance of $41,600. which includes checking, savings, money market, and prepaid debit cards, while the median was just $5,300. During the pandemic, Americans’ savings soared above normal levels according to data from Moody’s Analytics, a phenomenon economists call excess savings. Specifically, Federal Reserve Economic Data (FRED) reveals that in April 2020, the personal savings rate increased 25.5% from just two months prior.
Of course, these data points only reflect Americans who actually saved. The reality is that many people still have little or no savings: nearly one in five Americans saved no money in 2021, according to recent data from the latest MagnifyMoney Savings Index. And 18% of respondents admitted to having contributed zero dollars to their savings in the past year and 48% have contributed less than $5,000. Bankrate’s July 2021 Emergency Savings Survey found that a quarter of Americans have no emergency funds and only 1 in 6 households report having more savings now than before the pandemic.
If you feel way behind your savings, be patient. The pros say you should start small – don’t expect to rack up savings overnight. According to Greg McBride, chief financial analyst at Bankrate.com. Start by saving a month of expenses and go from there.
Beyond that, “you should also consider additional savings goals, like saving for a down payment on a house or saving for a special vacation. Funds for these goals can be placed in separate sub-accounts so they are not mixed with money set aside in an emergency fund,” says Chanelle Bessette, Banking Specialist at NerdWallet. Certified Financial Planner Elaine King Fuentes adds, “It would be great to have the freedom and be able to do whatever you want for at least a year.
A big no-no when it comes to savings: put it in an account that pays little (the average savings account only pays 0.06% now). Only 21% of Americans say they have kept their savings in a high-yield savings account that pays better APYs in 2021, while 45% said they use a regular savings account according to a survey by NextAdvisor.
But accounts with higher APYs do exist. In fact, at the time of writing this story, LendingClub offers 0.65% interest with a minimum balance of $2,500, Marcus from Goldman Sachs has savings accounts with 0.50% and no minimum balance, Alliant’s current APY is 0.55% with a minimum balance of $5, and Comenity Direct’s APY is 0.60% with a minimum balance of $100.
