How Tiered Savings Accounts Work

With a tiered savings account, you’ll earn a higher interest rate as your balance increases. This can help grow your money at a faster rate, especially if you have a large amount saved. A tiered savings account can be a good place to keep your emergency fund or money you’re setting aside for a big financial goal, but rates can vary from one financial institution to the next. Understanding how they work can help maximize your savings and avoid potential pitfalls.

How to Maximize Your Savings Using a Tiered Savings Account

1. Align Your Account With Your Short- and Long-Term Financial Goals

Begin by reviewing your savings goals, which may include:

• Building your emergency fund
• Paying down debt
• Saving for retirement
• Putting money away for your kids’ education
• Starting a business
• Buying a home

Thanks to its liquidity, a tiered savings account can be a great home for your emergency fund. If you run into a financial surprise, you’ll have easy access to your cash. It can also be a good holding place for money you plan on using in the near future. For example, if you’re aiming to launch a new business within the next two years, holding your startup cash in a tiered savings account will protect it from market volatility and potential losses.

2. Take Interest Rates Into Account

Tiered savings accounts usually have variable APYs. That means rates can drop without warning, which could affect your earnings. It’s also wise to look at yields on other low-risk investments. Rates on high-yield savings accounts aren’t tiered, but some offer yields higher than you’ll get from a tiered savings account. A large balance could generate sizable returns.

3. Integrate Your Account Into Your Overarching Financial Plan

Growing your money with a tiered savings account is just one part of your financial strategy. You might also be:

• Building your retirement nest egg with a 401(k) or individual retirement account (IRA)
• Accessing the stock market through a brokerage account
• Contributing to a health savings account (HSA)
• Exploring other low-risk investments like CDs and bonds
• Working toward other financial goals

To benefit the most from a tiered savings account, you’ll likely need a large balance. How can that money support your greater financial plan? Having a clear vision might motivate you to save more.

Mistakes to Avoid With Tiered Savings Accounts

It is possible to poorly utilize a tiered savings account. Here are some mistakes to steer clear of:

• Not comparing different accounts and tier structures
• Making the initial deposit but not adding more to the account
• Using a tiered savings account to save for long-term goals like retirement
• Putting all your money into a tiered savings account, instead of diversifying your investments
• Overlooking high-yield savings accounts, which could deliver better returns

The Bottom Line

A tiered savings account is a safe, low-risk investment that can help your money work harder. It encourages saving by paying a higher APY as your account balance increases. This type of account is ideal for storing your emergency fund or saving for short-term financial goals—but it’s still wise to compare it against a high-yield savings account or CD, which may offer better returns.

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