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Maximizing Your Savings with Tiered Savings Accounts

How Tiered Savings Accounts Work

With a tiered savings account, your interest rate increases as your balance grows. This can help your money grow faster, especially if you have a substantial amount saved. These accounts are available from traditional banks, online banks, and credit unions, and they offer competitive annual percentage yields (APYs) to encourage higher balances.

For example, TD Bank’s Signature Savings account offers an APY of 0.01% for lower balances, but this rate can jump to 2% for balances of $10,000 and even reach 4% for balances of $100,000 or more when linked to an eligible account.

How to Maximize Your Savings Using a Tiered Savings Account

1. Align Your Account with Your Financial Goals

Start by reviewing your financial goals, such as building an emergency fund, paying down debt, saving for retirement, or setting aside money for your children’s education. A tiered savings account is ideal for short-term goals due to its liquidity and the security provided by FDIC or NCUA insurance, which covers up to $250,000 per person per account category and financial institution.

2. Take Interest Rates into Account

Tiered savings accounts typically have variable APYs, meaning rates can change without notice. It’s important to compare these rates with other low-risk investments like high-yield savings accounts or certificates of deposit (CDs), which might offer better returns despite sacrificing some liquidity.

3. Integrate Your Account into Your Financial Plan

Using a tiered savings account should be part of a broader financial strategy that includes retirement accounts, brokerage accounts, health savings accounts (HSAs), and other low-risk investments. A clear financial plan can motivate you to save more and make the most of your tiered savings account.

Mistakes to Avoid with Tiered Savings Accounts

To make the most of a tiered savings account, avoid these common mistakes:

• Not comparing different accounts and tier structures
• Making an initial deposit but not adding more to the account
• Using a tiered savings account 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 that might offer better returns

The Bottom Line

A tiered savings account is a safe, low-risk investment that can help your money grow by offering higher APYs as your balance increases. It’s ideal for storing your emergency fund or saving for short-term financial goals. However, it’s wise to compare it against high-yield savings accounts or CDs, which may offer better returns.

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