Money Talk: Three of the best ways to spend your refund deposit
When you first get your refund deposit, your initial thought may be “What can I buy with this?” While not the worst idea, there are better ideas that can leave you in a stronger financial position when you graduate.
Saving is the best route to go when getting your refund deposit, but putting all your eggs in one basket – or savings account – can leave you without wiggle room. When you’re saving money you always want to diversify. Thankfully there are simple and easy ways to do this.
High-yield savings accounts
While this might seem like a no-brainer, many people aren’t receiving the interest rates that they could be. In the current market, most brick-and-mortar banks – like Chase and Bank of America – offer paltry interest rates of about 0.01 percent while the average has historically been 0.06 percent, according to CNN.
Online banks have been offering rates much higher than the historical average. Personally, I put a portion of my money in a Barclays Bank Dream Account, which offers a daily compounding rate of 1.04 percent. On top of that, if you don’t make withdrawals for six consecutive months, you can earn a 2.5 percent on all interest earned over that period.
This is by far the quickest and easiest way to sit on your money and let it grow.
Opening a 401(K) or Roth IRA
Much like a savings account, a 401(K) is essentially the same thing, except you’re financially penalized for taking money out of it. Although, on average you can see much higher returns than savings accounts, typically up to 5 percent.
When looking into a 401(K) it’s important to remember that it’s a long-term game – at least 25 years before you should expect it to pay out. The good news is that as you continually put money into it, the larger your contributions get, therefore the compounding interest you receive on it.
The only downside to a 401(K) is that your payout is taxed. A Roth IRA is similar to a 401(K), but your payout is not taxed, but different institutions have different rules when it comes to mandatory contributions and necessary income.
Stocks can be a tricky game, but you can play it various ways. The recommended way – especially for beginners – is to buy and hold, but you can also watch and anticipate the market buying and selling shares.
While buying stocks is closed off to many due to the brokerage fees that come with buying them, Silicon Valley is making it more accessible for the small-time investor. According to Investopedia.com, some stock brokerages will charge around $2 per share bought or sold over $999 or they’ll charge a minimum price for lower stock counts, that is to say once you get past the minimum required to buy open an account with them, which is typically in the thousands of dollars.
App services such as Loyal3 and Robinhood allow you to make investments as small as $10 into your favorite companies.
Personally, I use Loyal3 to invest my funds. While it is only limited to 64 stocks – as opposed to Robinhood, which has the entire market available – it has contracts with these companies that allow for smoother purchases.
I use Robinhood to track my stocks in real time as it gives updates on any significant changes in the stocks you choose to watch, where Loyal3 only gives prices and returns when the market has closed.
It’s hard to save money, especially when you’re young. The desire for new experiences and new toys is hard to resist. That being said, it’s hard to argue against giving up a little of that for a little security in the future.
Before you put your money in anything, it’s always important to do research first – be curious and skeptical.