Why a Savings Account Remains Important in Your 40s
For many Americans, they hit the prime of their financial lives in their 40s. While it’s easy to assume that money concerns are going to ease off for this age group, that’s certainly not the case.
In your 40s, it’s still as important as ever to keep up with your savings. A competitive, high-yield savings account–like the Barclays Tiered Savings Account with no monthly fees–remains a core part of your financial strategy.
Financial Brief of the Average American in Their Mid-40s
According to the U.S. Bureau of Labor Statistics (Consumer Expenditure Survey–2022), the average American household–with roughly two earners in their mid-40s–hits the height of their income potential with an average total post-tax annual income of $110,254, which is higher than all other age groups. However, they are also spending the most of all age groups at $91,074 per year.
So, a sample of such a household looks like this:
- An annual post-tax income of $110,254
- Annual spending of $91,074
- An annual discretionary cash flow of $18,550
For such a household, $18,550 is available per year to set aside for savings.
The Benefits of a Savings Account, Even in Your 40s
Emergency fund
In all stages of life, an emergency fund is a crucial part of one’s financial setup. It’s a financial buffer that allows you to pay for most of life’s unexpected expenses.
And, as a 40-something who might have a wide range of financial obligations, it’s more appropriate to maintain an emergency fund that is larger than what others might keep accessible.
The standard advice is to hold enough cash in a savings account to pay for 3 to 6 months of essential expenses.
Based on 2022 BLS data on groceries, housing, and utilities for the average American aged 45-54, these three categories combine for an annual expenditure of $40,664 or about $3,389 per month.
Therefore, the recommended size for an emergency fund ranges from $10,166 to $20,332.
Short-term savings goals
Regardless of your age, it’s always a sound approach to set short-term savings goals–curbing the tendency to spend money that you don’t have.
In the middle stages of life, such goals may include saving for:
- A child’s higher-education costs
- A nice family vacation
- A new vehicle
- Home improvement projects
- Quarterly tax payments
A savings account is ideal for this purpose because it is readily accessible and helps to compartmentalize your finances.
Reducing investment risk
Investors with a lower risk tolerance may begin to think about reducing their investment portfolio’s exposure to stocks as they approach their 50s.
In periods of high interest rates, moving some assets into cash can still yield a decent amount of low-risk growth when that money is held in a high-yield savings account.
How to Pick a Savings Account
With a plethora of savings account options, it can feel like a daunting task to pick one. Here are the key factors to focus on when making your decision:
- Monthly fees
- Interest rates
- Account management
- FDIC insurance
A high-yield savings account from an online bank will likely fit this criteria with flying colors. For instance, as of August 29, 2024, the Barclays Tiered Savings account would pay 4.50% APY without any monthly fees.
No monthly fees
Monthly fees (and minimum balance requirements to waive these fees) are common with savings accounts, especially those offered by brick-and-mortar banks.
You shouldn’t have to pay to keep your money in the bank. The monthly fee can wipe out all or part of your interest earnings.
Interest rates
To no surprise, the savings account’s APY is extremely important because you want to earn plenty of interest on your cash.
Traditional savings accounts are going to pay pennies on your balances.
Meanwhile, an option like the Barclays Tiered Savings account pays significantly more interest based on the amount that you choose to deposit. Furthermore, the account is known to maintain that savings rate at a consistent level–unlike some banks that use temporary teaser rates that crash after attracting new customers.
Account management
Every bank will have a different level of convenience when it comes to account access. Typically, online and mobile banking platforms allow you to check account balances, view transaction history, perform fund transfers, and deposit checks remotely.
Depending on your discipline, you might seek additional ways to access your funds. But, the easier it is to touch your money, the harder it might be to keep to your savings goals.
FDIC insurance
Recent bank failures have reminded consumers to make sure that their deposits are covered by FDIC insurance. In the event that an FDIC member bank fails, deposits are insured up to $250,000 per depositor, per ownership category.
For example, John Doe may be eligible for a combined total of $500,000 FDIC deposit insurance coverage at the same bank by keeping $250,000 in individual accounts and another $250,000 in joint accounts.
Typically, banks will display their FDIC memberships on their websites. You can also confirm a bank’s FDIC membership status on the FDIC website.
