BBVA Review: No-Frills Checking, Savings, and CDs

In this BBVA review, we’ll discuss three of the bank’s most popular accounts: checking, savings, and certificates of deposit.

BBVA is a regional bank that operates more than 600 branches across seven states. The majority of the bank’s locations are in Texas, but it also operates in Alabama, Arizona, California, Colorado, Florida, and New Mexico.

The bank’s accounts don’t do anything revolutionary, but they tend to offer solid, no-frills services. You won’t get the fanciest features or the highest rates, but your bank accounts will do what you need them to do. The accounts are also low-fee, so you won’t pay much for the privilege of banking with BBVA.

Table of Contents

  • BBVA Review at a Glance
  • BBVA Bank Checking Account
    • Overdraft Fees
  • BBVA Bank Savings Account
  • BBVA CDs
  • Other Things to Know About BBVA Bank
    • BBVA Customer Service
    • BBVA Locations
    • Fees
    • BBVA App
    • Interest Rates
    • BBVA Routing Number
    • Other Services: BBVA Credit Card or Loan
  • BBVA Review Summary

BBVA Review at a Glance

Pros

  • Simple, no-frills accounts
  • Low or no monthly fees
  • User-friendly website and app

Cons

  • Lower interest rates than some competitors
  • Steep overdraft fees

The Bottom Line: BBVA Bank is a good choice for people who live in its service region if you’re looking for simple, low-fee accounts. If you’re the kind of person who wants to optimize and earn the best interest rates available, there are better alternatives.

BBVA Bank Checking Account

BBVA offers three main checking accounts for customers to choose from. The Free Checking Account is exactly what it sounds like.

There’s no monthly fee to keep the account open and you get free access to services like online banking and online bill pay. The only requirement to open the account is a $25 minimum deposit.

The ClearConnect Checking Account is an online-only version of the Free Checking Account. You get all of the same features, plus free withdrawals from any Allpoint ATM.

The Interest Checking Account gives you the chance to earn interest on your checking account balance, but the rate is low enough that it isn’t worth the hassle. There’s a $25 monthly charge to keep the account open, which can only be waived by meeting one of the following requirements:

  • Maintain an average daily balance of $5,000
  • Maintain a combined average daily balance of $25,000 across your checking and money market accounts
  • Enroll in BBVA Premier Personal Banking
  • Be a BBVA Global Wealth Client

In addition to the interest you can earn, you’ll also get two ATM fees refunded each statement and a personalized debit card.

Overdraft Fees

One thing that you should look into when opening any checking account is the overdraft fees that the account might charge.

One of the biggest downsides of BBVA’s checking accounts is their punishing overdraft fees.

Each of the accounts charges a $38 overdraft fee ($32 if you live in California), with a maximum of 6 fees assessed each day. That means you could pay as much as $228 in overdraft fees in a single day.

If you leave your account balance negative for ten consecutive days, you’ll be charged an additional $25 fee, putting you further into the hole.

If you decide to open a BBVA checking account, you should avoid signing up for overdraft services as even a small mistake could result in significant fees being charged to your account. By opting out of the overdraft service, your transactions will simply be declined if you do not have enough money in your account.

BBVA Bank Savings Account

BBVA Bank offers two different savings accounts that you can use to store extra money and build a nest egg.

The ClearChoice Savings Account is a no-frills savings account. You can set up automatic transfers into the account to help your savings grow over time, and you’ll earn some interest in the process.

One thing to watch out for is the $15 quarterly fee. You can avoid this fee by setting up an automatic transfer of at least $25 per month from your checking account to your savings account or by maintaining a minimum daily collected balance of $500 or more.

The ClearConnect Savings Account is an online-focused version of the ClearChoice Savings Account. All the features are the same, but the ClearConnect Savings Account does not carry a quarterly fee, making it a better choice.

Both accounts have a $3 quarterly paper statement fee that can be avoided by signing up for electronic statements. They also both share a $25 minimum deposit requirement.

BBVA CDs

BBVA Bank’s Certificates of Deposit are designed to give you a long-term place to store money and help it grow.

You can choose CDs with terms of 12, 15, 18, or 36 months, giving you the opportunity to get a CD with a term that fits your financial needs.

All four terms require the same $500 minimum deposit.

Unlike BBVA’s other accounts, its CDs offer competitive interest rates. You can find better rates elsewhere, but the difference won’t be as large.

All of BBVA’s CDs are fee-free and they are eligible for up to $250,000 in FDIC insurance, meaning you’ll be protected in the event that the bank closes and you cannot recover your money.

Related: What is a Certificate of Deposit and When Should You Use One?

Other Things to Know About BBVA Bank

While it’s important to know about the specific accounts offered by a bank, you want to get a look at the full picture before you commit to opening an account.

BBVA Customer Service

One of the most important things to think about when you’re choosing a bank is the quality and availability of customer service.

You might not think about it much, but your bank account is an integral part of your life. If you’re suddenly cut off from access to your money, you’ll have trouble buying groceries, paying bills, or handling any number of other essentials tasks.

BBVA is well known for its availability and customer service. Its relatively small number of branches means that you won’t be able to find a location to visit to get help as easily, but the bank has compensated by providing other methods of customer service.

You can use the bank’s website or Twitter to get in touch with BBVA customer service representatives. You can also call in by phone or schedule a time for the bank to call you to provide assistance.

BBVA Locations

This regional bank operates more than 600 BBVA branches across seven states. The majority of the bank’s BBVA locations are in Texas, but it also operates in Alabama, Arizona, California, Colorado, Florida, and New Mexico.

Search for BBVA Locations near me.

Fees

We’ve already covered the hefty overdraft fees that you might face if you sign up for overdraft services. Overdraft and monthly account fees are among the most common bank fees you’ll see, but it’s still good to keep in mind other fees that might be charged.

Service Fee
Overdraft Protection Transfer $12
Returned Item $38
Stop Payment $32
Incoming Wire Transfer $15
Cashier’s Check $10
Out of Network ATM $3

BBVA App

Banking these days doesn’t have to be done inside a stodgy old building where you have to wait in line before speaking to a teller. Modern banks offer fully-featured online services that let you view your account balances, make deposits, and do everything that you need to do to manage your account.

BBVA has multiple accounts that are online-only or online-focused. To make sure those accounts offer the best experience possible, BBVA has put effort into developing an easy-to-use, powerful app that you can install on both iOS and Android smartphones.

You can also do your banking from a computer using the bank’s website. If you want to do something a little more complicated than setting up a transfer, having a full computer in front of you rather than just a smartphone might make it easier.

Interest Rates

BBVA falls short of other banks — especially online banks — when it comes to interest rates. The money you keep in your bank accounts should be working for you, but BBVA’s accounts tend to pay poor rates. The only accounts that are really competitive are the money market accounts and the certificates of deposit.

Account Interest Rate (APY)
Free Checking 0%
ClearConnect Checking 0%
ClearChoice Interest Checking .05%
ClearChoice Savings .05%
ClearConnect Savings .05%
ClearChoice Money Market 1.5%
12-month CD 1.5%
15-month CD 1.0%
18-month CD 1.0%
36-month CD 1.0%

Current rates as of January 2020. Please see BBVA website for the most up-to-date information.

If you want to get a better rate on your checking and savings balances, you should consider working with an online bank.

BBVA Routing Number

State Routing Number
Alabama 062001186
Arizona 122105744
California 321170538
Colorado 107005319
Florida 063013924
New Mexico 107000783
Texas 113010547
All other states 062001186

Other Services: BBVA Credit Card or Loan

When you open a bank account, you should think about more than just the account that you’re opening. Look at the other services that the bank offers.

Can you get a loan if you need one? Are there any benefits for account holders who want to get a mortgage? Keeping all of your finances at one bank can make managing your money much easier, so it’s worth considering when comparing accounts.

The good news for people interested in BBVA is that the bank offers a full suite of personal banking services. You can get a BBVA credit card, BBVA auto loan, student loan, personal loan, or mortgage through the bank. You can also work with the bank to manage your investments, helping you save for larger goals such as retirement.

If you want to do all of your banking in one place, BBVA isn’t a bad choice of bank. For more information, check out some BBVA credit card reviews.

BBVA Review Summary

BBVA Bank is a possible choice for people who live near its network of branches. For the most part, it offers no-frills, low-fee accounts. The high overdraft fee is of some concern, but it can be avoided through careful management of your money.

If you’re looking for better interest rates and potentially lower fees, consider working with an online bank. Online banks tend to offer the best rates and lowest fees due to their lower operating costs.

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Ally Bank Review: One of the Best Online Savings Accounts Around

In this Ally Bank review, we’re going to cover the pros and cons of Ally’s four main banking products: 

  • Online checking
  • Online savings
  • Certificates of Deposit
  • Money market accounts

Banks have never been the most exciting businesses to run or work with. Everyone needs a bank account, but it’s hard to tell the difference between two banks.

One thing that has made the banking world more exciting in recent years is the rise of online banking. Where before you had to physically visit a bank to deposit money, make a withdrawal, or set up transfers, online banks put that power in the palm of your hand.

Even better, online banks are much cheaper to run than traditional brick-and-mortar operations. While many banks nickel and dime their customers to squeeze out extra profit, online banks are able to offer low fees and great rates while making enough to keep operating.

The combination of their convenience and low cost makes online banks the way to go, especially if you’re tech-savvy.

Ally Bank is one of the best-known online banks, and it offers some of the best online banking products on the market. You can easily do all of your banking, borrowing, and investing through Ally, no problem. Still, you want to know all the details before you commit.

Table of Contents

  • Ally Bank Review at a Glance
  • What is Ally Bank?
  • Interest Checking Ally Bank Account
    • APY
    • No Maintenance Fees or Minimum Balance
    • ATM Fee Refunds
    • No Fees for Checks
  • Online Savings Ally Bank Account
    • APY
    • No Maintenance Fees or Minimum Balance
  • Ally Bank CD Rates and Types
    • APY
    • FDIC Insured
  • Money Market Account
    • APY
    • No Maintenance Fees
  • Ally Bank FAQs
    • Is Ally Bank Safe?
    • What Other Services Does Ally Bank Offer?
  • Ally Bank Review Conclusion

Ally Bank Review at a Glance

Pros

  • Great interest rates. You’ll be hard-pressed to earn more elsewhere.
  • No or low fees. You can easily do all of your banking for free with Ally.
  • Easy access to your money. $10 in ATM fee waivers each statement makes it easy to use any ATM you want.
  • Great customer service. You can reach Ally by phone or email 24 hours a day.

Cons

  • No physical branches. If you like visiting your bank and speaking to people face-to-face, look for a more traditional bank.
  • Some products are unnecessary. For example, the No Penalty CD is generally inferior to the Online Savings account. The only time it would be better is if there is a huge drop in interest rates, which is uncommon.

Best for: Ally Bank is a great fit for almost anyone. However, if you prefer to do your banking in person, you’ll either need to look elsewhere or open another account with a local bank.

What is Ally Bank?

Ally Bank was originally founded by General Motors back in 1919 as General Motors Acceptance Corporation. It got its start offering car loans to customers, and it continues to offer those loans to customers today.

In 2010, GMAC re-branded as Ally and became a fully online bank, offering banking products, home and auto loans, credit cards, and a wealth management and brokerage platform.

In short, the company has nearly a century of experience in providing banking services, so you can rest easy knowing that many satisfied customers have come before you.

Interest Checking Ally Bank Account

Everyone needs a checking account. Ally Bank’s aim is to be a full-service banking operation, so it offers its own interest checking account.

APY

Unlike most brick-and-mortar banks, which barely pay interest on savings account balances, Ally Bank pays interest even on the money in your checking account. While the rate is nothing to write home about, it’s exciting to get paid to have a checking account instead of the other way around.

You can earn an increased rate if you keep at least $15,000 in your Ally checking account. However, the Ally Bank online savings account pays far more interest, so it makes more sense to keep your extra cash in a linked savings account to maximize your interest earnings.

No Maintenance Fees or Minimum Balance

One of the most important aspects of a bank account is its maintenance fee. You should never pay a bank a fee for the privilege of storing your money. Banks should pay you because they use your deposits to finance their other activities.

Ally is true to this ideal, not charging any monthly maintenance fees and not forcing you to jump through hoops to avoid penalties.

Even better, there’s no minimum balance required to open the account or keep it open.

ATM Fee Refunds

If you like to pay with cash, you probably visit ATMs on a regular basis. The trouble with ATMs is that many of them charge fees when you use them.

Ally offers up to $10 in ATM fee reimbursement per statement cycle. That means you can use any ATM you’d like without having to worry about paying to access your funds.

No Fees for Checks

Most payments nowadays are made online. However, there are still certain occasions when paper checks are the best (or only) option. Ally offers free checks to its customers, so you don’t have to pay for a checkbook you’ll hardly ever use.

Online Savings Ally Bank Account

The purpose of a savings account is to keep your money safe and, ideally, earn some interest in the process. Ally’s Online Savings Account accomplishes both.

APY

These days, most brick-and-mortar banks offer around .1% interest on your savings account deposits. Some banks pay as little as .01%, which might as well be nothing at all.

One of the hallmarks of online banks is their high interest rates on deposits. Ally is no different, offering rates ten, twenty, or fifty times higher than brick-and-mortar banks.

Interest rates are constantly changing, so you’re best off visiting Ally’s site to get the most recent rates.

No Maintenance Fees or Minimum Balance

As I mentioned before, you should never pay a bank for the privilege of keeping your money in an account. Ally charges no monthly maintenance fees for its savings account.

Ally Bank CD Rates and Types

Certificates of deposit are long-term savings vehicles that let you sacrifice some flexibility for increased interest rates.

Ally offers three types of CDs: the High Yield CD, the Raise Your Rate CD, and the No Penalty CD:

High Yield CD: a standard certificate of deposit with terms from 3 to 60 months.

Raise Your Rate CD: 2- and 4-year terms. You’ll also have the opportunity to increase your rate over the course of your term period if your balance tier goes up.

No Penalty CD: 11-month term. You can make a withdrawal at any time, penalty-free, and keep your accumulated interest.

APY

Ally Bank CD rates, other than the No Penalty CD, are higher than its online savings account. If you’re able to commit your money and want to earn the extra interest, then consider opening a CD account.

There’s little reason to open a No Penalty CD, however. It functions more like a savings account than a CD, but it pays a lower rate, so you get no benefit from opening the account.

FDIC Insured

Like savings and checking accounts, all of Ally Bank’s CDs are protected by the FDIC. They offer a great way to earn a bit more interest while keeping your money safe.

Related: How to Invest: A Beginner’s Guide to Investing in the Stock Market

Money Market Account

Allly Bank’s money market accounts combine the interest rates of savings accounts with the flexibility of checking accounts.

The main difference between Ally’s checking and money market accounts is the way you access your money. With a money market account, you can use a debit card and checks to pay for purchases from your account.

APY

Ally’s money market account offers three rate tiers based on the balance in your money market accounts. The rates tiers are:

  • Less than $5,000
  • $5,000 – $24,999.99
  • More than $25,000

Regardless of your balance, you’ll earn a much lower rate than you would earn from an Ally Bank Online Savings Account. If you want to maximize your interest earnings, you should open separate checking and savings accounts.

No Maintenance Fees

If you do decide to open a money market account, you can rest easy knowing that there are no monthly maintenance fees or minimum balances.

Ally Bank FAQs

We’ve covered the main benefits of Ally’s primary banking products. Now let’s take a look at some of the most common questions you might still be asking.

Is Ally Bank Safe?

One of the first things you want to know about your bank is whether it’s a safe place to keep your money. You can rest assured that Ally Bank is just as safe as any other bank in the United States.

FDIC Insurance

Ally is insured by the FDIC up to the $250,000 maximum allowed by law. If Ally goes under, you’ll be reimbursed for the amount you lost, up to $250,000.

Protection from Hackers

As an online bank, it’s understandable that you’d be worried that Ally could be susceptible to cyber attacks, putting your money at risk.

Ally uses all of the latest standards in online data safety, including encryption, multi-factor authentication, and automatic account monitoring for fraud.

What Other Services Does Ally Bank Offer?

Ally offers a wide variety of other banking services, making it possible to manage your entire financial life with a single bank. Some of the services offered by Ally Bank are:

  • Credit cards
  • Auto lending
  • Home lending
  • Home refinancing
  • No-Fee Individual Retirement Accounts (IRAs)
  • Self-directed investing
  • Professionally managed investment portfolios
  • Foreign exchange trading

Ally generally has low fees for all its banking products and service. While its best services are in the world of banking and lending, the convenience factor of having your investments with the same institution is worth considering.

Ally Bank Review Conclusion

Overall, I would highly recommend working with Ally Bank. It offers high rates, low fees, an easy-to-use app, and great customer service.

There’s not much that can go wrong if you bank with Ally.

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Best Online Savings Accounts in January 2020

Online banks — especially online savings accounts —  have become increasingly popular over the past few years.

According to a recent Statista report, the number of online banking customers in the U.S. rose by nearly 24 million from 2014 to 2018. That number is projected to increase even more in the coming years.

So, what is it about online banks that have customers signing up in droves? Great benefits and high interest rates.

» Jump straight to our savings account ratings.

Benefits of Online Banking

1. Higher interest rates: Online banks have lower overhead (since they have no physical branches, bank tellers, etc.). Having fewer expenses typically means that online banks are able to offer significantly higher APYs to customers than traditional brick-and-mortar banks.

2. Lower fees: Another perk of lower overhead is that online banks aren’t forced to nickel and dime their customers by hitting them with extraneous fees.

3. Convenience: Driving around town to find a branch location for your bank, only to find that they close at 5 o’clock and aren’t open on weekends, is a pain. Many online banks are open 24/7, and you can access everything you need from your smartphone or computer.

High-Yield Online Savings Accounts in January

DollarSprout Reviews: Banks with the Best Savings Accounts

While a high interest rate is great, it’s not the only variable we take into consideration when determining who has the best online savings accounts. Fees, customer service, locations, and more, can all impact your banking experience, and potentially even lower returns. If you’re stuck between two banks with seemingly good savings accounts, check out our bank and credit union reviews. We look at dozens of variables to help you determine which bank best fits your needs. Here’s our methodology.

CIT Bank 1.80% APY (tiered) – By rewarding people who actively add to their savings, the CIT Bank Savings Builder Account helps people build their savings account’s balance while building good saving habits, giving it a strong leg up on the competition.

»Read DollarSprout’s CIT Bank review

Discover Bank 1.70% APY – If you’re not sure about online banking, using a reputable, established company like Discover Bank should offer some peace of mind. Zero-fee savings, checking and money market products, along with industry leading interest rates, make Discover Bank a great option for online banking.

»Read DollarSprout’s Discover Bank review

Synchrony Bank 1.80% APY – Similar to other banks on this list, Synchrony Bank offers an annual percentage yield that is significantly higher than the national average. If you are looking for a high yield account to grow your savings, but also want ATM access to your funds, Synchrony is worth looking into.

»Read DollarSprout’s Synchrony Bank review

Ally Bank 1.60% APY Ally offers high rates, low fees, an easy-to-use app, and great customer service. $10 in ATM fee waivers each statement makes it easy to use any ATM you want, and their 24/7 customer support more than compensates for the lack of physical branches.

»Read DollarSprout’s Ally Bank review

Barclays Bank – 1.70% APY – Barclays has no physical branches in the United States, but makes up for it with a very competitive annual percentage yield. There are no monthly fees and no minimum balance you must maintain.

»Read DollarSprout’s Barclays Bank review

Other Banks with Top Rates:

  • MySavingsDirect – 1.90% APY
  • CIBC Bank USA – 1.85% APY
  • Citizens Access – 1.85% APY
  • PurePoint – 1.80% APY
  • Marcus by Goldman Sachs – 1.70% APY
  • American Express National Bank – 1.70% APY

How to Open a New Online Savings Account

1. Get Your Documents Together

In particular, you may need these documents:

  • Social Security Number or Social Security Card
  • Driver’s License Number or Driver’s License (or other state-issued ID)

If you’re not a U.S. citizen, you may also need to scan and send in your immigration papers.

2. Research and Choose an Online Bank

You can’t go wrong with any of the banks featured on this page. They are all FDIC insured and they all offer great Annual Percentage Yields (APYs), so find one that suits you and move forward.

3. Complete Your Application

You’ll need to provide the documentation you gathered earlier in this step as well as details about yourself such as your name, address, and phone number. If you’re applying with a credit union, you’ll need to provide proof that you meet the membership criteria.

Some banks require you to mail in a page with your signature on it so they know what it looks like. You may have to print out and mail in a form or wait for them to send you a form with a stamped envelope to mail back. This can take a few days to process, so keep this in mind if you’re looking for a bank account you can open and start using quickly.

4. Fund Your Account

The last step is to make an opening deposit. The easiest way to do this is by linking your current bank account by providing your new bank with the necessary routing and account numbers.

Some banks will make a small test deposit of $1.00 or less into your account to verify that you actually do own the account. If this happens, you’ll then need to go back to your new bank and report the exact amount of the deposits to confirm the link between the two accounts.

From there, you can deposit as little or as much as you want into the new account and close your old one if you wish.

Online Savings Account FAQs

How Do Savings Accounts Work?

If you need a safe, reliable place to store and save your money, an online savings account might be a perfect solution. A savings account acts as a secure way to store your hard-earned cash while you gain interest on the deposit that you place into the savings account. The best savings accounts are those with high minimum deposits and higher interest rates so that the returned earnings are higher. Traditionally, savings accounts are some of the safest ways to earn income, though the saving accounts that your parents may have signed you up for are probably not the best high-yield savings if you are looking to build wealth.

You store your money and earn a little interest as time goes on. And by little, we do mean little. Don’t expect anything more than .01-1% annual returns at most major banks. Online banks allow for higher returns, around 2% or a little more, but the intent here is to have a fund of money that you intend to keep for safeguarding and not use as a central place for your investments. It’s simple and secure, and you can easily track your savings as you continue to make deposits and build up your wealth.

However, unlike a checking account, a savings account isn’t something that interacts with your daily cash flow and balances. The comparison between a checking vs savings account is simple, one is for daily use and the other is not. In the same way, you would not give and take from a piggy bank. You are not allowed – or supposed to – have daily interaction with your savings account. Instead, you store it away to accrue wealth, save for something, or establish some sort of savings fund.

Are There Drawbacks to Online Savings Accounts?

As you might expect, banking entirely online isn’t without some limitations. Here are the most common:

1. Getting cash can be difficult: If you regularly deposit and withdraw cash from your bank account, you might find online banking inconvenient. Because there are no physical branches, it’s not possible to walk into the bank and deposit cash. Some online banks belong to ATM networks, but these ATMs may be harder to find than major banks’ ATMs.

2. Less personal service: Of course, online banks typically have a customer service hotline or online chat service. But with online banks, you don’t have the option of walking into a branch and sitting down face-to-face with a banker.

You can read more about the pros and cons of online banking here.

Choose the Account That Fits Your Needs

Finding the best online savings account doesn’t do much good if you aren’t committed to making saving money a habit.

If you aren’t ready to fully commit to online banking, you may want to consider a hybrid approach.

For example, you can use an online bank for most of your everyday banking needs but still keep a small savings or checking account at a local bank or credit union for when you need access to cash or in-person banking services.

The good news is that no matter what your preferences are, there’s a banking style out there that’s right for you.

How DollarSprout Rates Online Savings Accounts

The Editorial Team at DollarSprout looks at multiple factors when determining a 1-5 star rating for online savings accounts. Here are the most important factors that weigh into our ratings:

  • Annual Percentage Yield (APY)
  • Fees, and the likelihood that a user will incur them
  • Account balance requirements
  • Customer service
  • Mobile app reviews

For savings accounts in particular, APY and fees play a heavier role in our ratings than other factors because they directly affect your bottom line. For other product categories (such as checking accounts, for instance), we may place an emphasis on other factors when determining a rating.

The star ratings are broken down into half-star increments, with 1 star being poor and 5 stars being excellent.

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How to Get a Personal Loan and Where to Find One

If you need to buy a car, you take out an auto loan. If you want to buy a house, you get a mortgage.

But what if you need something more specific, like money for your wedding or for a home repair? You can take out a personal loan.

Personal loans can help take care of an unexpected expense like a car repair, pay for a home improvement project, or an outstanding medical bill.

If you have multiple outstanding credit card balances, you can also use a personal loan to consolidate them into one affordable payment. With a personal loan, you can pay for essentially anything.

A personal loan lets you borrow money in a lump sum at a fixed rate. You repay the money in installments over a period of time, usually between two and five years. Taking out a personal loan is usually cheaper than using a credit card.

9 Steps to Get a Personal Loan

Getting a personal loan is a fairly straightforward process. If you’ve applied for other types of loans, the steps will look familiar.

1. Decide Between a Secured or Unsecured Loan

The first step to getting a personal loan is to decide whether you’re interested in a secured or unsecured loan. To get a secured loan, you’ll need to offer an asset you own as collateral. If you default on your loan, the lender will take your asset. The asset can be your house, car, or another valuable item.

A secured loan can give the chance to borrow more money at a lower interest rate because the collateral makes lenders feel more confident they’ll get their money back if you stop making payments.

An unsecured loan, on the other hand, doesn’t involve any collateral and comes with a quicker application process. It’s more difficult to qualify for than a secured loan, so it may not be an option if you don’t have the best credit.

Related: How to Get Out of Debt: A Step-by-Step Guide

2. Assess Your Creditworthiness

Your creditworthiness describes how responsible you are with loans and how likely you are to repay your loan. When lenders consider you for a personal loan, they’ll look at your credit report to figure out whether you’re a responsible or risky borrower.

It’s a good idea to get a free credit report from one of the three major credit bureaus — Experian, Equifax, or TransUnion — before applying for a loan.

If you have subpar credit, you may want to focus on improving your credit by doing things like paying your bills on time and lowering your total credit use before applying for a personal loan. This way, you can increase your chances of landing a favorable interest rate and terms.

3. Compare Rates Online

Interest rates vary from lender to lender. Look at several different lenders including banks, credit unions, and online-only lenders to find out what kinds of rates they’re offering. Comparing rates online can reduce your risk of overpaying for a personal loan.

4. Get Pre-Qualified

Once you’ve found the right lender, you’ll need to go through the pre-qualification process. While the exact steps to prequalify will depend on the lender, most lenders require you to apply online, in person, or via phone.

They’ll ask for personal information such as your name, address, income, employment details, and the amount you want to borrow. After the lender has reviewed your application, they’ll send you some loan options.

5. Look for the Best Deal

Don’t make the mistake of pre-qualifying with just one lender. By pre-qualifying with several different lenders, you can compare all of your options and find the best deal available to you.

Looking for the best deal can save you hundreds or even thousands of dollars down the road. Don’t forget to look at online-only lenders who may have better rates and lower fees.

Related: Should You Pay Off Debt or Save Money? Here’s How to Decide

6. Know the Alternatives to a Personal Loan

Although a personal loan may make sense for your situation, you should know your alternatives before pursuing one. A 0% APR credit card can be beneficial if you need access to quick cash and are confident that you’ll be able to repay it on time and in full. These offers are usually only available to people with excellent credit.

You may also look into a home equity line of credit, or HELOC, where you can get a revolving credit line that’s secured by your home. A HELOC may have a lower interest rate because the home is used as collateral. If your home has equity and you know you’ll be able to pay off your loan and avoid foreclosure, this may be a good choice.

Consider getting a co-signer if you don’t qualify for a loan on your own.

7. Understand Your Offers

Take the time to really understand all the personal loan offers you get. While it’s important to look at interest rates, monthly payments, and terms, it’s just as crucial to compare fees, payment options, and other important details.

One offer may have the lowest interest rate and seem like the best option, but it may have a higher APR or charge a prepayment penalty. Understanding the ins and outs of each offer can help you avoid unwanted surprises later on.

Related: How to Get Pre-Approved for a Mortgage and When to Start Trying

8. Submit Your Application

When you’ve decided on a lender and offer, it’s time to officially submit your application online, in person, or via phone. You’ll need to submit some documents, so gather those in advance to expedite the process. These documents may include tax returns, recent pay stubs, and a valid ID.

When you submit your application, the lender will likely perform a hard credit inquiry, which can affect your credit score. To avoid lowering your score too much, try not to apply for too many personal loans at once.

Once you’ve submitted your application, you’ll need to wait for a decision from the lender. While some lenders guarantee same-day decisions, others take a few business days or longer to get back to prospective borrowers.

9. Accept Your Loan

You’ll have a few business days to accept the loan after you’ve been approved. When you accept the loan, find out when the first payment is due. Consider setting up automatic payments from your checking account.

Automatic payments can reduce your risk of forgetting to pay on time and can even land you some great discounts on your interest rate. If possible, add extra payments to your loan each month. This can save you money on interest and help pay off your loan early.

A Personal Loan Can Save You Money

As long as you take the time to find the best offer and lender, a personal loan can be a great way to cover your expenses or make large purchases without breaking the bank. If you make payments on time, you can even improve your credit score in the process.

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Best Money Market Accounts in 2020

Think of a money market account (MMA) as a blend between a checking and a savings account.

MMAs typically offer a higher interest rate than traditional savings accounts, and, depending on the bank, will allow quick access to funds via check writing, electronic funds transfer (EFT), and/or debit card or ATM withdrawals. We’ve found the best money market rates that are available on the market, which are outlined below. 

Best Money Market Rates in December 2019

Interested in seeing how these rates compare to online savings accounts? See our roundup of best online savings account here.

Money Market Accounts vs. Other Account Types

Here are the key differences between MMAs, savings, and checking accounts:

Account Type Interest Rate Key Features
Money Market Account (MMA) High You can write checks or make debit card purchases on the account, up to 6 times a month. This is the key difference between an MMA and savings or checking account. Depending on account, you could get a higher interest than a normal savings account. Some online banks will have savings accounts that are competitive with MMAs.
Savings Account High Online-only banks usually have very high interest rates (and are sometimes higher than money market accounts, depending on the bank). You cannot make purchases directly from a savings accounts, but you can quickly transfer money from a savings to a checking account.
Checking Account Very low, or zero This is your everyday spending account, which is usually linked to a debit card. A checking account is not designed to be a place to amass significant savings. Most checking accounts offer no interest, so your money will not grow.

Before you open a money market account, make sure you at least have a checking account. A checking account is a basic necessity that everyone should have before they consider opening any other banking or investing account types.

Money Market Accounts (MMAs) at a Glance

  • Usually, have higher interest rates than traditional savings or checking accounts
  • May have higher minimum opening balances and maintenance balances
  • Ability to withdraw up to six times per month
  • May have fees for excess withdrawals or falling below minimums

Deposits and interest payments held in MMAs at FDIC-insured banks are covered by FDIC insurance. This means that if the bank fails for any reason, the federal government will reimburse your account balance (up to $250,000 per depositor, per FDIC-insured bank, per ownership category). MMAs held at credit unions are insured by the National Credit Union Administration, which is the equivalent of FDIC insurance for banks.

When to Consider Opening a Money Market Account

There are several instances where opening a money market account makes sense:

Saving up for a down payment:  When you are putting money away to save towards a house, the combination of high interest, liquidity, and stability that comes with a money market account is ideal. 

A place to park your emergency fund: Experts recommend having 3-6 months of living expenses saved up and tucked away in case something unexpected happens (ie, job loss, pay cut, car repairs, etc). A money market account provides quick access to your money and an appealing interest rate, which makes it perfect for an emergency fund.

Sinking funds for planned, irregular expenses: A sinking fund is used for any expense that you know is coming. Think of things like insurance payments, property taxes, vacations, holiday shopping, back-to-school shopping, etc. 

What’s the Average Interest Rate for Money Market Accounts?

At the time of this writing, the national average annual percentage yield (APY) for money market accounts is 0.24%. This is according to a weekly survey of institutions done by Bankrate.

Despite the low national average, there are many banks that offer nearly ten times that much interest. Don’t just automatically sign up for your current bank’s MMA; be sure to shop around to make sure you are getting the best rate possible.

Keep in mind that interest rates can fluctuate often, which can increase or decrease your returns.

How DollarSprout Rates Money Market Accounts

The Editorial Team at DollarSprout looks at multiple factors when determining a 1-5 star rating for online savings accounts. Here are the most important factors that weigh into our ratings:

  • Annual Percentage Yield (APY)
  • Fees, and the likelihood that a user will incur them
  • Account balance requirements
  • Customer service
  • Mobile app reviews

For money market accounts in particular, APY and fees play a heavier role in our ratings than other factors because they directly affect your bottom line. For other product categories (such as checking accounts, for instance), we may place an emphasis on other factors when determining a rating.

The star ratings are broken down into half-star increments, with 1 star being poor and 5 stars being excellent.

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How to Open a Bank Account Online the Easy Way: A Step-by-Step Guide

Banking has come a long way since the days of our parents.

These days, thanks to the online banking revolution, banking tasks are much easier to manage.

After all, two-thirds of Americans do most of their banking online, according to one American Banking Association survey.

To start saving time with online banking, you’ll first need to open up a bank account online. If you’ve never done it before, it’s a lot easier than you might think.

Table of Contents

  • What Does it Mean to Bank Online?
  • Where to Open an Online Bank Account
    • Check if Your Local Banks Offer Online Banking
    • CIT Bank
    • Discover Bank
    • BBVA
  • How to Open a Bank Account Online in 5 Easy Steps
    • 1. Gather Your Information
    • 2. Research and Choose an Online Bank
    • 3. Choose Your Account
    • 4. Complete Your Application
    • 5. Fund Your Account
  • FAQs About Opening a Bank Account Online
    • Are There Any Free Bank Accounts Online?
    • Can You Open a Bank Account Online with No Deposit?
    • Can You Open a Bank Account Without a Photo ID?
  • Opening an Online Bank Account is Easy

What Does it Mean to Bank Online?

Online banking is a style of bank account management in which you can complete almost all banking activities online. By banking online, you can open your account, transfer money between accounts, send money to friends and family, and pay bills — all from your phone or computer.

Banks that offer online banking can be entirely online. In other words, there are no physical branches that you can visit. Other types of banks offer both options, where you may be able to visit a branch location and conduct your business online, depending on what is most convenient for you.

It’s important to note that if you choose an online-only bank with no physical branches, you may be limited in your ability to use cash. With these banks, you may not be able to withdraw or deposit cash at all, unless you use an ATM.

Furthermore, many online banks only allow you to withdraw cash at an ATM but don’t accept cash deposits, even at special deposit-accepting ATMs.

Related: How Many Bank Accounts Should I Have? At Least These 3

Where to Open an Online Bank Account

Fortunately, there are many options for places to open an online bank account.

Check if Your Local Banks Offer Online Banking

The first option is to check with your current bank to see if they offer online banking. These days, most banks offer this option, with the exception of small banks and credit unions.

Start with your bank’s website. If you can’t find the information you’re looking for, give them a call and ask what the process is like for current members to set up online banking.

CIT Bank

CIT Bank offers great rates on its savings accounts. If you’re interested in opening an account here, you can do it entirely online.

You’ll need to provide your Social Security Number and your driver’s license number (or other state ID number). Finally, to make an opening deposit, you’ll also need to write yourself a check from your current bank account or provide your routing and account numbers to fund your initial deposit.

Related: CIT Bank Review 2019

Discover Bank

Discover Bank also offers some great high-yield accounts you can open entirely online.

The process for opening an account at Discover Bank is simple. Again, you’ll need to provide details like your Social Security Number, name, email, etc. Discover Bank’s savings account has no minimum deposit requirements, so you don’t need to transfer any money to fund your account right away.

Related: Discover Bank Review 2019

BBVA

BBVA takes it a step further than some other banks by offering a Consumer Switch Kit. This kit helps you completely switch banks, including setting up direct deposit to your new bank account and checking to make sure all your financial information points to your new bank.

Related: BBVA Review: No-Frills Checking, Savings, and CDs

 

How to Open a Bank Account Online in 5 Easy Steps

Opening a bank account online is often easier than doing it in person. After all, how many times have you gone to apply for something in person and forgotten a key document you need?

With online banking, you don’t have to worry about that because you apply right from the comfort of your home.

1. Gather Your Information

Banks are required by law to verify your identity. The easiest way to do this is by checking your government-issued identification.

It’s handy to have a scanner or scanner app handy, since you may be required to scan the entire document. In other cases, the bank will only ask for the identification number. In particular, you may need these documents:

  • Social Security Number or Social Security Card
  • Driver’s License Number or Driver’s License (or other state-issued ID)

If you’re not a U.S. citizen, you may also need to scan and send in your immigration papers.

2. Research and Choose an Online Bank

The next step is to find a bank you’d like to open an account with.

If you’re happy with your current bank, you can check with them to see if they offer online banking. That way you won’t need to open a new account. If your current bank doesn’t offer an online option or you’re not satisfied with the products and services, there are plenty of alternatives to choose from.

Try searching for banks according to what’s most important for you. For instance, maybe you prefer the highest-rated banks for customer service or the banks that have the highest APY on savings accounts.

3. Choose Your Account

Once you’ve narrowed it down to a particular bank, it’s time to choose what accounts you want to open.

Most banks require customers to open one savings account at a minimum. If you choose a credit union, you’ll need to make a small deposit in a savings account to establish your membership before you can open any other account types.

You may also want to consider opening a checking account if this will be your main bank. If you’re saving for long-term goals, consider a money market account and/or a certificate of deposit.

Related: Checking vs. Savings Account: What’s the Difference?

4. Complete Your Application

Now it’s time to actually apply for these accounts. You can usually apply for all of your chosen accounts at the same time rather than completing a separate application for each account.

You’ll need to provide the documentation you gathered earlier in this step as well as details about yourself such as your name, address, and phone number. If you’re applying with a credit union, you’ll need to provide proof that you meet the membership criteria.

Some banks require you to mail in a page with your signature on it so they know what it looks like. You may have to print out and mail in a form or wait for them to send you a form with a stamped envelope to mail back. This can take a few days to process, so keep this in mind if you’re looking for a bank account you can open and start using quickly.

5. Fund Your Account

The last step is to make an opening deposit. The easiest way to do this is by linking your current bank account by providing your new bank with the necessary routing and account numbers.

Some banks will make a small test deposit of $1.00 or less into your account to verify that you actually do own the account. If this happens, you’ll then need to go back to your new bank and report the exact amount of the deposits to confirm the link between the two accounts.

From there, you can deposit as little or as much as you want into the new account and close your old one if you wish.

Related: Radius Bank Savings Account Review: Is It Really All That Good?

FAQs About Opening a Bank Account Online

Here are the answers to some popular questions that come up regarding banking online.

Are There Any Free Bank Accounts Online?

Yes, there are many free bank accounts available. You’ll need to be careful to read the fine print though so you understand exactly what fees are involved. You can find all of the information you need in the bank’s Schedule of Fees or Truth-In-Savings Disclosure.

For example, some banks don’t charge any fees at all and are thus truly fee-free. Other banks advertise as being “free” because they don’t charge a monthly fee. However, they may come with other fees such as overdraft charges or inactivity fees.

Can You Open a Bank Account Online with No Deposit?

This depends on the bank’s policies. Some bank accounts have minimum opening deposit requirements while other banks have no minimum requirements at all.

The best way to know is by contacting the bank or reading through the fine print.

Can You Open a Bank Account Without a Photo ID?

You’ll be hard pressed to find a bank that doesn’t require a photo ID. In fact, most banks require two forms of ID in order to open a bank account online or in person.

Opening an Online Bank Account is Easy

The internet has made many everyday activities easier, and opening a new bank account is no exception. As long as you have the right documents in place and a way to scan them, opening a bank account online shouldn’t take more than a few minutes of your time.

Best of all, you only have to do it once and you’ll be all set with your new online bank.

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Credit Card vs. Debit Card: The Difference and Why You Need to Know

Debit cards and credit cards look almost identical.

They have 16-digit card numbers, PIN codes, and expiration dates. However, a debit card is linked to your bank account while a credit card allows you to borrow money from the card issuer.

While both offer protection and convenience over carrying cash, there are some major differences between these two card types that could significantly impact your wallet.

Here’s what to consider when choosing which card to swipe.

Table of Contents

  • Debit Card Overview
  • Credit Card Overview
  • Credit Card vs. Debit Card
    • Building Credit
    • Earning Rewards
    • Fraud and Security
    • Access to Cash
    • Overspending
    • Additional Perks and Benefits
  • Credit Card vs. Debit Card: Which Should You Use?

Debit Card Overview

Debit cards look like credit cards. They even tend to carry a mark of a major credit card network, such as Visa or Mastercard. For all the similarities, one significant distinction stands out: where the money comes from to pay for a purchase.

Banks and credit unions offer a debit card when you open a new account. The card allows you to access the funds even if you’re not at the issuing bank. When you make a purchase or withdraw cash using your debit card, the money is drawn directly from your checking account.

If there isn’t enough money to cover the cost, the bank denies the transaction. This is a crucial variation since a credit card charges your purchase against a line of credit that you pay later.

Credit Card Overview

Credit cards are separate from any checking or savings account you might have. To make a purchase, you borrow money from the credit card company. Your ability to spend depends on your credit limit. Generally, better credit scores allow for higher spending limits.

With a credit card, you don’t pay for the purchase right away. The credit company pays the merchant and adds the amount to the balance of your account. Usually, they’ll send a bill once per month for the charges.

Though you don’t have to pay it in full, you will pay interest if you carry your balance from one month to the next. This can cost you since interest rates vary greatly between cards. The average in 2018 was 16.86%, but rates can go as high as 25% or more.

If you’re diligent in paying your balance every month, using a credit card could benefit you. That’s because most credit companies offer rewards or cash back for the money you spend. By paying your balance in full, you can cash in on the rewards programs.

But if you bring a balance forward from month to month, you’ll pay interest fees. Those add up over time and tend to cancel out any bonus you could get from rewards programs.

Credit Card vs. Debit Card

In the right situation, both a debit and credit card could be a fit for your financial goals. Here are the factors to help you decide which is best for you.

Building Credit

Your credit score has a big impact on your financial well-being. A solid credit history can qualify you for lower rates when buying a home, shopping for a car, and even getting car insurance. Without it, you might not be eligible for a cell phone plan or to rent an apartment. Therefore, in most cases, building your credit is essential.

This is one area where debit cards come up short. Using debit doesn’t help your credit at all. Neither your payment history or usage report to any of the major credit bureaus, and it has no impact on your credit score.

On the other hand, credit cards are great for your credit score. If you don’t already have a credit history, getting a credit card is the fastest way to begin. Some companies require you to have minimum credit qualifications to get approval. But a secured credit card or one from a department store tends to come with less stringent requirements.

Once you open an account, credit agencies usually receive an update on your balance and payment history each month. Because of this quick turnaround, using a credit card is one of the best ways to build your credit.

See Also: The Ultimate Credit Sesame Review: Is it Safe and Do You Need it?

Earning Rewards

Earning rewards is quite common, and you’ll generally earn points or get relationship rewards.

Rewards points – Every time you use the card to make a purchase, you accrue points. The amount you get varies from card to card. For example, you could earn 1 point for every $1 you spend or 1 point for every $5. Trading your points for travel discounts or gift cards is pretty simple.

Relationship rewards – These are specific to the company that issues the card and typically come in the form of discounts or other perks. For instance, you might get a free night’s stay at a hotel if you have a hotel-branded card. Or your debit card could offer discounts at individual stores and online retailers.

Depending on the card, signup bonuses for new account holders can pocket rewards for free airfare, hotel rooms, or hundreds of dollars in cash back. After the signup bonus, you’ll continue to earn on every purchase. That means you could get rewards every time you buy groceries, get gas, or make a hotel reservation.

Credit card rewards are everywhere. However, finding a debit card with a rewards program can be a challenge.

Fraud and Security

Credit cards and debit cards are both at risk for fraud and identity theft. But a debit card has a higher chance of difficulties. It comes down to access to funds and your liability under federal law.

If your debit card information gets out, the thief has direct access to your money. Time is short to react because the funds are drawn from your account almost immediately. It could take weeks or months to sort out debit card fraud.

With credit card purchases, it’s the credit company’s money on the line. A quick call lets you dispute the charge, and you’re not responsible for paying it until the matter settles.

Your liability under federal law is different with a debit card vs. credit card, too.

For credit cards, the Fair Credit Billing Act (FCBA) puts limits on your liability as a cardholder, such as:

  • $0 liability for costs if a company gets notice before the card is used
  • $0 liability for unauthorized use if only the credit card number is stolen

Debit cards fall under the Electronic Funds Transfer Act (EFTA), which isn’t nearly as comprehensive. The liability varies but generally includes:

  • No obligation if a card is reported lost before unauthorized charges are made
  • $50 liability when reporting the loss within 2 business days
  • $500 liability if reported more than 2 days but less than 60 days after the statement is sent
  • For more than 60 days after the statement is sent, liability extends to all the money taken from your account

Generally, a credit card is your best bet for security and protection against fraud. Under current law, your liability is much less if it involves fraudulent use of a credit card.

Precautions play an important role in keeping your information safe. Keep a record of your account numbers, never leave them out in the open, and don’t share your account number over the phone unless you initiate the call.

Access to Cash

Having quick access to cash is a significant draw of debit cards. Paying for purchases is easy by swiping your card at a retailer, and the money draws straight from your bank account. If you want cash in your hand, asking for cash back during the checkout process is a breeze, too.

Debit cards also give you access to cash at one of the 470,135 ATMs across the country. Fees sometimes apply to withdraw the money, and that can add up if you do so frequently. But most banks are part of a free ATM network or will reimburse you for any access fees you might pay.

Withdrawing cash at an ATM with a credit card is also an option, though the cost is much higher. Most credit card companies charge a 3% to 5% cash advance fee. On top of that, there’s typically a higher interest charge for cash advances than regular purchases.

It’s more cost effective to use a debit card for access to cash. But if you need more money than what’s in your bank account or don’t have your debit card with you, using a credit card is a viable option.

Overspending

It’s harder, though not impossible, to overspend with a debit card. Unless you’re enrolled in overdraft protection, your bank simply denies the transaction if you don’t have sufficient funds.

The caveat is if for automatic recurring payments. For example, if your insurance premium is set to auto draft, your bank may still allow the transaction to go through, even if you’ve declined overdraft protection. Policies vary, so be sure to check with your bank so you know what to expect.

For credit cards, a cap determines how much you can use at one time. If you’re not tracking your expenses, you could go over that limit. The credit company will usually decline your transaction when this happens, but not always.

When opening the account, you were likely given a choice to participate in “over-limit protection.” But going over the limit comes at a cost, as the company often charges additional fees for overspending if you opt into this program.

Additional Perks and Benefits

Each card is different, but there are some additional benefits to consider. If you need short-term financing, a credit card is useful. After you make a purchase and before the bill comes, you have a grace period before interest charges appear. This gives you “free” financing for up to a full billing cycle, depending on when you bought the item.

Another perk is that extended warranties are almost automatic for electronics and other items. It can cushion your travel budget, too. For example, you may get free rental car insurance when you use your credit card to make the reservation.

Credit Card vs. Debit Card: Which Should You Use?

A credit card generally has more consumer protections against fraud and most let you earn rewards points. But a debit card can help to keep your spending on track because it pulls money from your checking account almost instantly.

Whether you choose to use a credit card or debit card, your decision carries some weight. They’re both excellent options to make purchases and pay for services, and the right one for you depends on the situation.

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Checking vs. Savings Account: What’s the Difference?

When you think about a checking vs. savings account, they seem almost identical at first glance.

Both are used to safely store your money and hopefully earn a little interest in the process. But when you boil it down, there is a major difference between checking and savings accounts.

Table of Contents

  • What is a Checking Account?
  • What is a Savings Account?
  • Checking vs. Savings Account
    • Interest Rates
    • Monthly Fees
    • Making Transactions
    • Withdrawal Limitations
  • Types of Checking Accounts
    • Free Checking
    • Rewards or Interest Checking
    • Second-Chance Checking
  • Types of Savings Accounts
    • Share Accounts (Credit Union)
    • Holiday Club Accounts
    • IRAs
    • HSAs
  • Checking Account vs. Savings Account FAQs
    • Do I Need a Checking Account and a Savings Account?
    • Should I Keep My Checking and Savings Accounts at the Same Bank?
    • Should I Link My Checking and Savings Accounts?
  • Each Account Has a Purpose

What is a Checking Account?

A checking account is a bank account designed to hold your everyday spending money. This is the account you’ll use to make debit card purchases, write checks, or withdraw cash for everyday spending from an ATM.

Each bank and credit union sets the rules for its checking accounts. In general, most checking accounts are free and you can make an unlimited number of transactions into and out of them.

They usually pay little, if any, interest.

Some banks and credit unions offer interest-bearing or rewards checking accounts, which work a little differently. It’s important to read the fine print of these accounts because there may be fees or penalties if you don’t meet the requirements each month.

These accounts commonly come with minimum requirements for balance amounts, transactions, or direct deposits.

What is a Savings Account?

A savings account, on the other hand, is exactly what it sounds like — an account for saving extra money.

You can have a general savings account for your emergency fund as well as additional accounts for specific purposes like saving for your next vacation, car repairs, veterinary bills, etc.

Most banks will let you open several savings accounts at once so that you can “bin” your savings.

Savings accounts come with some restrictions that make them a less than ideal choice for everyday spending. For example, savings accounts are limited to six transactions per month due to federal regulations (although ATM withdrawals and in-person withdrawals typically don’t count towards this limit).

You also generally can’t use a debit card or checks to pay for purchases from your savings account.

Checking vs. Savings Account

There are several big differences between checking and savings accounts. Let’s look at a side-by-side comparison.

Interest Rates

Savings accounts generally offer higher interest rates than checking accounts. The highest interest rates currently offered on savings accounts are upwards of 2.50% APY.

Checking accounts generally don’t offer interest at all. Some types of checking accounts, such as rewards checking accounts, may offer high interest rates on a limited balance amount, but you’ll need to meet a lot of requirements to receive those rates.

Monthly Fees

Savings accounts are usually free. However, some online savings accounts may come with a monthly fee if you don’t meet a certain minimum balance requirement.

Checking accounts are also generally free. If you opt for a rewards checking account, you may have to pay a fee for not meeting the minimum account requirements each month. It’s a good idea to carefully weigh whether you’ll be able to meet these requirements before opening the account, or else you could end up paying costly fees.

Making Transactions

You can withdraw money from your savings account online via ACH transfer, through an ATM, from a bank teller, with a cashier’s check, or using a wire transfer.

Checking accounts let you do all these same transactions, but you can also use your debit card or write checks to make purchases.

Withdrawal Limitations

As we mentioned above, savings accounts are limited to just six withdrawals per month for most types of transactions combined. These withdrawal limitations are set in place by federal Regulation D. A few types of withdrawals, including ATM or in-person withdrawals, don’t count towards this limit.

If you exceed the 6-withdrawals limit, most banks and credit unions will charge you an “excessive withdrawal fee,” which can range from $5-$10 or more. They can also shut down your account if you continue to go over the limit.

Checking accounts, on the other hand, have no withdrawal limitations. You can make as many withdrawals as you want. That’s what makes them so great for everyday spending.

Still, most banks do have limits on how much you can withdraw per day through certain methods (like ATM withdrawals). That’s why it’s a good idea to check with your bank before making any big money moves.

Related: BBVA Review: No-Frills Checking, Savings, and CDs

Types of Checking Accounts

There are several types of checking accounts you can choose from:

Free Checking

This is what most banks and credit unions offer. It’s exactly what it sounds like — free, but they generally don’t offer interest or any rewards.

Rewards or Interest Checking

These checking accounts offer interest payments and/or rewards, like points towards discounts or identity theft protection. They usually come with more requirements, such as minimum balance or transaction amounts.

Second-Chance Checking

Banks and credit unions can actually deny you for a checking account if you’ve had trouble managing one in the past. Almost anyone can be approved for a second-chance checking account. However, they often come with high monthly fees.

Types of Savings Accounts

Though nearly all banks and credit unions offer regular savings accounts, you might also see these specialty savings options:

Share Accounts (Credit Union)

These are special savings accounts at credit unions that establish your membership (credit unions view you as a member, not as a customer). Typically, you’ll be required to deposit — and keep — at least $5 in the account to keep your membership active.

Holiday Club Accounts

These accounts are designed to help you save for the holidays.

You can open the account at any time of the year. Some accounts may require you to make a minimum deposit each month, and you can’t withdraw the money from the account. As the holidays roll around, the money — plus interest — is automatically deposited into your checking account.

IRAs

Individual Retirement Accounts (IRAs) are designed for you to save for retirement on your own. These savings accounts have a lot of rules dictated by the IRS regarding how much you can save, when you can withdraw your funds, etc. IRAs opened at banks and credit unions typically earn far less than at investment brokers. However, they are FDIC insured.

HSAs

Health Savings Accounts (HSAs) are another type of IRS-governed account designed specifically for people to save for health care. These accounts are reserved for people with High Deductible Health Plans.

Checking Account vs. Savings Account FAQs

The differences we’ve highlighted so far between a checking account vs. savings account are fairly clean cut. However, there are still a few questions we see over and over.

Do I Need a Checking Account and a Savings Account?

Not necessarily. If you have a rare checking account that offers a high interest rate and/or you don’t need to save much money, then you can probably get by with just a checking account.

For most people, however, it’s best to have both types of accounts. That way you can earn a higher interest rate on your savings. It also allows you to separate your savings from your everyday spending, so you’re not as tempted to spend it.

Here’s one example of how you can use checking and savings accounts in tandem:

Should I Keep My Checking and Savings Accounts at the Same Bank?

This is usually a good idea.

If your checking and savings accounts are at separate banks, it can take a few days for your money to be transferred from one bank to the other due to the limitations of ACH transfers. If you need the money immediately for an emergency, you might not have instantaneous access to it.

However, there are some reasons why you might want to consider opening accounts at separate banks.

If you could earn a far higher interest rate with a savings account at another bank, it might be worth opening that savings account. Similarly, if you find yourself withdrawing your savings too frequently to spend on spur-of-the-moment purchases, having an extra step of transferring your money over can make it easier to stop sabotaging your savings goals.

Should I Link My Checking and Savings Accounts?

Yes, this is a good idea.

If your accounts are linked, you’ll be able to transfer money between them.

Another big advantage of linking your savings and checking accounts is that you can set up overdraft transfer protection. If you overdraw your checking account, this allows your bank to automatically transfer over the cash from your savings to cover the deficit.

There is usually a fee for this service, but it’s often a lot cheaper than having a negative checking account balance and paying an overdraft fee. You’ll need to speak with your bank to set this up ahead of time so you’re ready if you overdraw your checking account.

Each Account Has a Purpose

Savings and checking accounts are both complementary pillars of a solid money management system. Checking accounts are used for everyday spending, while savings accounts are better used to store money for future spending.

For most people, using these two accounts together — and using them wisely by budgeting, avoiding overspending, and saving as much as possible — is key to a happy financial future.

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74 Creative Ways to Save Money on a Tight Budget

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There isn’t a person on this Earth who hasn’t thought, “I wish I could save more money.”

However, wanting to save money and learning how to save money are two very different things. Many of us want to have better financial habits and dream of long term wealth. Yet, those initial steps often stop us.

Saving money, it turns out, can be a challenge at first. But, that doesn’t mean it’s an impossible skill to learn. Once you learn how to save money, it gets addicting. You start to wonder how you can save in many different aspects of your life. You watch your savings accounts grow and then your savings enable you to pay off debt. Suddenly, after months and years of good savings habits, you find yourself with excess money that you can generously give to others and make the world a better place.

Of course, it’s important to realize everyone is different. Some people learn how to save money from a very young age. Other people watched their parents struggle and live paycheck to paycheck. I truly believe some people are born spenders and some are born savers, regardless of how they’re raised and what their overall life values are.

The key is to learn the basics of saving money first, which will help you organize your finances. Then, it’s time to do a deep look inward at how you view money emotionally. Once you realize your triggers and how your spending habits affect your life, you become more aware and more willing to make positive changes. Then, once that’s done, you can learn how to save strategically in just about every area of your life, from buying a car to lowering your electric bill.

All of this information is below, listed one step at a time. By the time you’re finished reading this, you’ll not only understand the mechanics of saving money, but you’ll have a strong understanding of why it’s important to you and how to get there.

Table of Contents

  • How to Save Money: Start with the Basics
    • 1. Know Your Exact Income and Expenses
    • 2. Create a Budget Spreadsheet
    • 3. Automate Whenever Possible
    • 4. Daily, Weekly, and Monthly Check Ins
  • Strategies and Challenges for Saving Money
    • 5. Use the Savings Bucket Strategy
    • 6. Do a No Spend Challenge
    • 7. Cash Only Challenge
    • 8. Save Your Change Challenge
    • 9. The Accountability Partner Strategy
  • The Emotional Aspect of Saving Money
    • 10. Know Your “Why”
    • 11. Assess Your Childhood Experience With Saving Money
    • 12. Identify Spending Triggers
    • 13. Set Big (But Achievable) Savings Goals
  • Improve Your Credit
    • 14. Check Your Credit Report
    • 15. Fix Any Adverse Accounts on Your Credit Report
    • 16. Make Your Payments on Time, Every Time
    • 17. Improve Your Credit Utilization
  • Money Saving Tips When Buying a Car
    • 18. Buy Used
    • 19. Do Your Research Ahead of Time
    • 20. Get Pre-Approved for a Loan
    • 21. Or, Buy a Car in Cash
    • 22. Shop Around for Car Insurance
  • Money Savings Tips for Homeowners
    • 23. Get a Smart Thermostat
    • 24. Switch to LED Bulbs
    • 25. Close Your Blinds
    • 26. Monitor Water Usage
    • 27. Get Energy Efficient Appliances
    • 28. Do Regular Home Maintenance
  • Money Savings Tips for Parents
    • 29. Compare Daycare Costs to Staying Home
    • 30. Don’t Fall Prey to the Latest Gadgets
    • 31. Try Cloth Diapers
    • 32. Make Your Own Baby Food
    • 33. Stick to the Four Gift Rule
    • 34. Choose One Extracurricular Activity
    • 35. Shop Gently Used Clothing
    • 36. Swap Babysitting With Other Moms
    • 37. Have Affordable Birthday Parties
    • 38. Research Free or Low Cost Entertainment Activities
  • Money Savings Tips for the Self-Employed
    • 39. Work at Home or at the Library
    • 40. Set Aside Money for Taxes First
    • 41. Regularly Reevaluate Your Expenses
    • 42. Save for Retirement
  • Money Savings Tips for the Grocery Store
    • 43. Check Your Fridge & Pantry Before You Go
    • 44. Meal Plan
    • 45. Bring a List
    • 46. Using Grocery Apps
    • 47. Stop Buying Sodas & Alcohol
  • Money Saving Tips for Traveling
    • 48. Be Flexible
    • 49. Rent an Airbnb
    • 50. Use Credit Card Rewards
    • 51. Go Camping
    • 52. Plan Free or Low Cost Activities
  • Money Saving Tips for Your Health
    • 53. Get Annual Checkups
    • 54. Stop Smoking
    • 55. Exercise Regularly
    • 56. Buy Generic Medications
    • 57. Buy Over the Counter Medications On Sale
  • Money Saving Tips for Retirement
    • 58. Start Saving Early
    • 59. Invest Automatically
    • 60. Take Advantage of Employer Matches
    • 61. Be Aware of Fees
  • Other Generic Savings Tips
    • 62. Beware of Recurring Subscriptions
    • 63. Make Your Own Laundry Detergent
    • 64. Save for the Holidays All Year
    • 65. Pay Your Car Insurance Bi-Annually
    • 66. Buy High Quality Clothes
    • 67. Always Check Online Coupons
    • 68. Cancel Your Cable
    • 69. Refinance Your Federal Student Loans
    • 70. DIY When You Can
    • 71. Buy Term Life Insurance When You’re Young
    • 72. Bring Snacks With You When Running Errands
    • 73. Barter & Negotiate
    • 74. Beware of ATM Fees
  • Final Thoughts

How to Save Money: Start with the Basics

Before you can enjoy seeing piles of cash in your bank account à la Scrooge McDuck, you have to learn the basics of how saving money works.

1. Know Your Exact Income and Expenses

Without a doubt, the best way to start saving money is to learn exactly how much money you have coming in and exactly how much money you have going out. Now, you probably have a rough idea of what your income is or how much your paycheck has on it each time you get it. But, it’s time to look even closer.

What number exactly is hitting your paycheck each payday? Then, what number exactly is going out in bills and expenses? There are several ways you can track your expenses.

  • Use An App: Mint, YNAB, and EveryDollar are popular expense tracking apps.
  • Use a Pen and Paper: Go old school with a handy notebook and write down everything you spend.
  • Download an Excel Spreadsheet: Lots of people like using excel to see their progress over time.
  • Use Tiller: This is kind of a mix of an app and an excel spreadsheet. Tiller will collect your information and create the spreadsheets for you.

2. Create a Budget Spreadsheet

Once you have a strong understanding of your income and expenses, it’s time to make a budget spreadsheet and apply the information you just gathered. For example, maybe you found out that you spend $500 more than you earn each month. With a budget, you can input your income and your expenses, scan the list, and find categories where you can cut back.

For example, you might see that you have a high cable bill or a high car insurance bill. Those are companies you can call and try to get your bills lowered to create more breathing room in a budget. Yet, you won’t know to even do this or attempt to in save money until you see all the numbers in one place.

Lots of people tell me that they really don’t want to know the numbers, and I get it. It can be nauseating to think about how much money you spend every month unintentionally (I feel this way every month when I realize I’ve spent $1,000 on food…again.)

Yet, knowledge is power, and the more you know, the more you realize where your budget is weak, which will allow you to be more aware day in and day out as you go about your regular spending.

3. Automate Whenever Possible

Younger generations are big fans of automation, and yet I find older generations are still skeptical about it. I personally pay every single bill I have automatically except for my daughter’s ballet class tuition (just waiting on her teacher to get on the automation bandwagon!) I also like to save automatically.

Human beings are emotional creatures and sometimes we know what’s best for us financially but we don’t do it. We know we should save some of every paycheck but then other things come up. When you learn more about automating you can ensure you save without having to think about it. That’s when saving money becomes relatively simple.

4. Daily, Weekly, and Monthly Check Ins

When it comes to the basics of saving money, the last component is to check in with your money. It’s not enough to create a budget or automate your savings. You have to look at everything regularly. At first, that might mean daily tracking of your spending. Then, it might ween weekly tracking. Eventually, you might be able to check in once a month.

However, you do need to make sure you aren’t being charged twice for something, that all automatic bills really did get paid, and to check for fraud. This habit will help you catch any financial inaccuracy, which can definitely save you money in the long run.

Strategies and Challenges for Saving Money

For many people, saving money can be a little…boring. So, in order to make things more interesting you can take part in money saving challenges or savings strategies that can make the process a little bit more fun and interesting. Below are some of my favorite strategies and challenges that can help you save money.

5. Use the Savings Bucket Strategy

Note: There is a savings bucket strategy and also a different retirement bucket strategy you can learn about when you start planning your retirement savings. In this section, I’m discussing a savings bucket strategy.

A savings bucket strategy is when you have multiple savings accounts or savings buckets so you can very clearly see your financial goals. I have anywhere from 3-6 savings buckets going on at one time.

This strategy works really well for goals because it encourages you not to dip into your savings. For example, I saved $10,000 during my pregnancy with my twins because I put money in a savings bucket labeled “Twins.” The name on the savings bucket ensured I didn’t dip into it for vacation or shopping for new shoes. When your savings bucket is for one specific thing, you’re more likely to keep contributing to it (and not withdrawing from it) until the bucket is full.

6. Do a No Spend Challenge

A no spend challenge is where you decide to only spend money on essentials for a specific amount of time. So, people can have no spend days or no spend months if they’re taking part in this challenge. Some people like to use a calendar and put a big X on the days where they don’t spend any money. The idea is to bring awareness to the spending you do on little things.

Related: 52-Week Money Challenge: How to Save $5,000 This Year

7. Cash Only Challenge

There are many studies that show you spend less money when you use cash, not cards. So, having a cash only challenge can help you save more of what you have. For this challenge, you can leave your automatic bills as they are, but take out cash for clothing, groceries, eating out, entertainment, and more and try to see if the cash envelopes encourage you to save more money.

8. Save Your Change Challenge

Once you start using more cash, you can then take part in a save your change challenge, where you collect all of your loose change to see how much you can save in a month or even a year. You can make it a competition with your family members or friends or perhaps agree that you’ll all go out to eat together using the change you’ve collected at the end of the year.

9. The Accountability Partner Strategy

Whether you’re single or married, one of the best ways to start saving money is by using the accountability partner strategy. This means you can pick one person to go along with you on this savings journey and who keeps you accountable for your goals. It can be a co-worker who agrees to bring a brown bag lunch with you and sit with you at lunchtime. It can be your spouse who agrees to monthly budget check ins. It can be your mom or your sister who wants you to succeed. Regardless of who it is, a good accountability partner can mean the difference between you achieving your savings goals and you abandoning them.

The Emotional Aspect of Saving Money

10. Know Your “Why”

You can save money in many ways, like buying cheaper gas or only going to see matinee movies, but at the core of each money decision is a reason for why we want to save money to begin with.

When you take the time to know your why, you can save money much faster and easier. You can make quick decisions about saving money because your why is at the forefront of your brain. And, your reason why you want to save may change over time. For now, you may want to save money so you can get out of debt or get current on your bills. In the future, you might want to save money because you want to retire early or buy a vacation home.

Your why is important because it helps you make everyday decisions like whether or not to buy a raffle ticket at the fair or whether or not to buy a cup of coffee. When you have a reason for saving that’s bigger and more profound than daily wants, you’ll be more adept at making the right financial choices for you.

11. Assess Your Childhood Experience With Saving Money

If you want to dig deep and really understand your relationship with saving money, look back to your childhood. Some people grew up in families where they saved consistently but did so at the expense of enjoying everyday life. Other people grew up in families who didn’t save at all and struggled living paycheck to paycheck.

Whether or not your family actively talked about saving money, you absorbed money lessons from them. You saw how saving, or the lack thereof, affected your family growing up.

When you assess your childhood experience with saving money, you can better understand your own savings tendencies. You can decided to emulate your parents or you can decide to change a pattern. Either way, much like having a why, understanding how your childhood affects your savings patterns is an important component to saving more money.

12. Identify Spending Triggers

Each and every one of us has a spending trigger that leads to money problems. In order to save more money, take note of the times you spend on things outside of your normal budget.

Ask yourself what you’re feeling as you buy the item. Are you stressed? Happy? Trying to make your day better? Once you know the feeling behind your spending, you can be more aware of it and redirect it when the feeling bubbles up.

An easy example of a spending trigger is going to buy a pint of ice cream after a bad day. Another example is scrolling Instagram late at night and making a snap decision to buy shoes online after seeing an influencer wear them.

13. Set Big (But Achievable) Savings Goals

Most of the time, we sell ourselves short. We are afraid to make big savings goals because we don’t want to fail. However, goal setting is a great way to save money. It keeps you accountable.

Achievable goal setting is more than just thinking, “It would be nice if I could save $10,000 this year.” It’s about setting measurable and achievable goals and then breaking those goals down into smaller goals that you can tackle one by one. As you achieve smaller goals, you build momentum. You build faith in yourself. That’s how you accomplish bigger savings goals, so don’t be afraid to make some.

Improve Your Credit

14. Check Your Credit Report

Why should you check your credit score when you want to save money? Your credit history and credit score are integral parts of saving money long term. When you have a solid credit history and good credit score, you qualify for lower interest rates when buying a car, a buying a home, or anything else. A good credit score can save you thousands of dollars over the course of your lifetime when you borrow money for these big ticket items. So, first and foremost, start saving money by simply checking your credit score for free.

15. Fix Any Adverse Accounts on Your Credit Report

Again, when you have a good credit score and a clean credit report, you can get better interest rates on loans, saving you money in the long term. The adverse account section on your credit report, usually found near the top of your report, is extremely important. If you have any items in this section, take the steps now to clear them.

You can have adverse accounts even if you’re generally responsible with money. For example, I once got declined for a credit card, checked my credit report, and found out my local public library reported me to collections for not returning an audiobook. I borrowed the audio book when I was in graduate school and since I moved, I didn’t receive any notices in the mail. Luckily, I found the audio book in storage, mailed it back, and the library took requested that the adverse account get removed from my credit report.

16. Make Your Payments on Time, Every Time

We all know we’re supposed to pay our bills on time. First of all, it’s the right thing to do, but secondly, your payment history makes up 35% of your credit score. You could still have a decent credit score (even if you currently have debt) if you have a solid payment history since it makes up such a big percentage of your score. And, it makes sense, right? Lenders want to know they can trust you to make payments on time. If you’ve proven that with your payment history, they’re more willing to offer you a lower interest rate because you’re a lower risk to them.

17. Improve Your Credit Utilization

The other big part of your credit score is your credit utilization. Credit utilization refers to how close you are to your credit card limits, and this makes up a whopping 30% of your credit score. So, someone who has maxed out credit cards won’t have a good credit utilization. Yet, a great way to improve your score quickly is to pay down debt and free up “space” on your credit cards. This is yet another way to improve your credit score so you can save money on interest down the road.

Money Saving Tips When Buying a Car

18. Buy Used

New cars lose 10% of their value in the first month of ownership. Therefore, you can save money buying a used car, even if it’s only been used for a few months. Cars are one of the most expensive items we own that actively go down in value. My husband and I both drive used cars, and they both have more than 100,000 miles on them. We have no plans to trade them in anytime soon for something newer and shinier.

19. Do Your Research Ahead of Time

There is so much information available online now. You can view a car’s CarFax report to see if it’s been in an accident. You can see the price a dealer bought the car for vs. what they’re selling the car for. And, you can use all of that information to see whether or not the car you’re looking at is a good deal. I did a lot of research on the car I drive now, and I found one dealership selling it for $1,000 under the Kelly Blue Book value. So, I went there to buy it.

20. Get Pre-Approved for a Loan

If you plan on taking out a car loan, you already know from earlier in this post that the better your credit score is, the better interest rate you can potentially get. In order to see where you stand, take the time to get pre-approved for a loan before going into the car dealership. You can compare rates from dozens of online lenders, see what you qualify for, and go into the dealership already knowing you’re approved for a certain amount. This can help you save money because it gives you many more lending options than what your dealer can offer you.

21. Or, Buy a Car in Cash

Buying a car is a cash gives you strong negotiating power. Even though car dealerships make money off of financing cars, they still like getting lump sum payments for cars on their lot. Buying a car in cash saves you money on interest and gives you more negotiating power at the dealership.

22. Shop Around for Car Insurance

When you buy a car, you also have to get car insurance. Shop around for car insurance ahead of time, and pay attention to the introductory rates. Many car insurance companies offer lower introductory rates but raise them after the first year. Make sure to ask lots of questions about what’s covered under each level of insurance to make sure you’re getting the best deal.

Money Savings Tips for Homeowners

23. Get a Smart Thermostat

Getting a smart thermostat like a Nest does have an upfront cost, but over the years, it can save you money on your home energy costs. Smart thermostats learn your habits and make it easy for you to adjust the temperature of your home while you’re away. So, if you forget to turn down the heat on your way to work, you can adjust it from your phone instead of paying to heat a house you’re not spending time in during the day.

24. Switch to LED Bulbs

Like a smart thermostat, LED bulbs do cost a little bit more upfront. However, switching your light bulbs to LED bulbs save you money on energy costs and can last years longer than traditional light bulbs.

25. Close Your Blinds

If you keep your blinds closed in your home, it keeps your home cooler, especially in the summertime. If the sun increases the temperature of your home, your air conditioner has to work harder to keep your home cool, which costs you more money.

26. Monitor Water Usage

A running toilet or a leaky faucet might seem like issues you can ignore, but you’re actually letting money go down the drain. Take the time to repair these issues when they happen or you might notice an increase in your water bill over time. You can also lower the temperature of your hot water heater to 120 degrees, which can help save money over time.

27. Get Energy Efficient Appliances

These days, there are many energy efficient appliances available on the marketplace. I recommend waiting until they go on sale or asking for discounts at the store if you buy three at once. If you slowly convert your appliances to energy efficient appliances one by one, over time you can save hundreds if not thousands of dollars on energy costs in your home.

28. Do Regular Home Maintenance

This goes without saying, but as a homeowner myself, I know that some maintenance tasks can fall through the cracks. It’s easy to put off cleaning the gutters or changing the air filters, but these tasks can cause bigger, more expensive issues down the road if you don’t take care of them. You can find many lists online with home maintenance tasks. Go through them one at a time — they’ll save money in the long run and can even increase the value of your home.

Money Savings Tips for Parents

29. Compare Daycare Costs to Staying Home

One of the biggest expenses parents have right away are childcare costs. Childcare costs are extremely expensive, and it’s something you should research and consider well before having children. One thing to compare is the cost of daycare vs. having one parent stay home.

Depending on your income, you might be able to decide to stay home if childcare costs are equivalent to your income. I stayed home with my twins, but I worked to build a business I could do from home before doing so. That way, I could still pursue my career and take care of them at the same time. That decision was years in the making and took a lot of work outside of my regular day job to make happen. If you can find a way toearn money online, you might be able to make an income and stay home with your kids full time.

30. Don’t Fall Prey to the Latest Gadgets

There is an overabundance of gadgets on the marketplace claiming to make parents lives easier. My advice is to wait to buy things until you need them. It’s tempting to put a lot of expensive items on your baby registry, but you might discover you don’t need them (or that your baby doesn’t like them.) Remember, babies have existed for thousands of years without special night lights or toys with blinking lights. Keep things simple at first to save money and buy items as needed.

31. Try Cloth Diapers

Full disclosure: I used cloth diapers for my twins. I wish I could say it’s because I wanted to be more environmentally conscious. The truth is that it was my first year of self-employment, and my income wasn’t what it is now. My husband was a medical school student. We had two babies, and we wanted to save money. We asked for cloth diapers as baby shower gifts, and we were able to wash and reuse them for over a year. This saved us more than $1,000 on the cost of diapers in my twins’ first year of life. It was a lot of work, but it helped us when we had low incomes.

Related: 16 Places to Get $1,000+ in Free Baby Samples

32. Make Your Own Baby Food

Like everything else, baby food is expensive if you buy it from the store. But, you can make your own mashed sweet potatoes and mashed peas all by yourself. There are tons of expensive gadgets you can buy to make them, or you can just use your own regular blender, put the baby food in ice cube trays and save them for a later day.

33. Stick to the Four Gift Rule

When your children are old enough to enjoy Christmas, try out the four gift rule. This rule says you only buy four gifts for your kids: something they want, something they need, something to wear, and something to read. You can also add in a gift or two from Santa. This gift rule covers all the bases to ensure your child has plenty of gifts under the tree without going overboard.

34. Choose One Extracurricular Activity

There’s a lot of pressure these days to have your children in multiple different extracurricular activities. I know some young children who are in art class, Spanish class, piano classes, and sports. While exposing your kids to many different interests is great, it also gets expensive. (It’s also exhausting as a parent to bring them to all these activities.) We chose one activity for each of our kids. My son plays tennis and my daughter goes to ballet. This allows them to focus on one thing, get better at it, and enjoy it more and more over time.

35. Shop Gently Used Clothing

I’m a big fan of buying gently used clothes for my kids. I like to shop using apps like Poshmark or Mercari. I also shop at Once Upon a Child, which is a chain of stores full of gently used name brand clothes. I love it when other people buy their children Burberry and Polo shirts and then sell it to consignment stores, where I get to pick them up for 90% off of their retail price. My kids don’t know the difference, and I save a lot of money as they grow.

Related: 10 Legit Ways to Get Free Clothes Online

36. Swap Babysitting With Other Moms

If you don’t live near family, it can be pricey to get a babysitter for date night or doctor’s appointments where you don’t want little ones running around. So, try to swap babysitting with other families. Maybe you get to know another family who lives on your street and offer to watch their kids one night if they watch your kids on another. This giving each of you an opportunity to have a cheap date night without paying a premium for a babysitter.

37. Have Affordable Birthday Parties

My twins are almost five years old, and I still haven’t thrown them an official birthday party yet. This is another area where parents tend to go overboard. I’ve seen many one year old birthday parties with inflatables and ponies. While that’s amazing if you can afford it, it can be harmful to you financially if you can’t. There’s no reason to go into debt for a birthday party (and you’re not a bad parent if you decide not to have one.)

38. Research Free or Low Cost Entertainment Activities

There are so many free activities you can do with your kids. One of my favorites is taking my kids to our local public library. There, they can play with toys, pick out books, and see the fish in the fish tank. The library also offers several discounts to local museums you can take advantage of. Simply ask a library for more information about the perks that come with your library membership.

Related: 40 Free Things To Do When You’re Out of Ideas (and Money)

Money Savings Tips for the Self-Employed

39. Work at Home or at the Library

Co-working spaces are great because you can surround yourself with other entrepreneurs but they also come with a membership cost. Also, working in coffee shops is fine too (I happen to be writing this in a coffee shop right now) but it can lead you to spend money on pricey lattes and food (guilty.) So, work at home or at the library mostly if you want to save money and cut costs.

40. Set Aside Money for Taxes First

There’s nothing worse than getting to tax day and realizing you owe a lot more money than you originally thought. Early in my self-employment days, I had a rather unpleasant surprise on tax day, and since then, I’ve saved 30-35% of my income first before paying myself. If you can’t pay the taxes you owe, you might get hit with expensive fees or you might be tempted to pay for them with a high interest rate credit card. So, make it a habit to save your taxes first to avoid this.

Related: What Is a Sinking Fund? What Are They Used For? 

41. Regularly Reevaluate Your Expenses

As entrepreneurs, it’s natural to try out new software, courses, products, and even employees. However, each month take note of your expenses. See what’s working for you and what isn’t. Make sure you’re aware of recurring subscriptions and taking note of your cash flow. You can save money by only keeping the expenses you really need that benefit your business.

42. Save for Retirement

It’s a lot easier to save for retirement when you work a full time job with an automatic 401(k) withdrawal and employer match. Yet, that’s not available to most people who are self-employed.

Still, take the time to research your retirement account options anyway and try to automate the process as much as possible to encourage yourself to save more.

Money Savings Tips for the Grocery Store

43. Check Your Fridge & Pantry Before You Go

This is such a simple tip, but it can save you so much money. I can’t tell you how many times I bought a dozen eggs or several boxes of chicken stock without remembering that I had them in my fridge at home. Checking your fridge before you go can also help prevent food waste in addition to saving you money.

44. Meal Plan

Many people think meal planning takes a long time, but it really doesn’t. All you need to do is take note of the food you have and think of dinners you can make with what you already have on hand. Make a grocery list with the additional ingredients you need to complete the list, and make a note of what you’ll have for breakfast, lunch, and dinner each day. Meal planning helps you save money because it reduces the likelihood that you’re going to order takeout.

Related: How to Meal Prep for Less Than $50 per Week

45. Bring a List

Bringing a list to the grocery store is crucial for saving money, and sticking to the list is obviously important too. When you stick to your list and stay disciplined, you don’t allow yourself to throw Oreos into your cart or buy things you don’t need. I also recommend going to the grocery store alone if you have children, but they are equally as guilty of throwing things into the cart!

46. Using Grocery Apps

There are numerous apps available today that can help you save money on your groceries.

Ibotta is one of the most popular ones currently. Learn more in our full Ibotta review.

Related: 10 Apps Like Ibotta to Save on Groceries 

47. Stop Buying Sodas & Alcohol

I admit; I’m a mom who likes to drink wine. Yet, I realized that buying wine every time I went to the grocery store really increased my bill. It also made me tired at night, which meant it was harder for me to write after my kids went to bed. So, these days, I save wine for special occasions, and I really don’t miss it that much. I also don’t buy sodas or sparkling water at the grocery store. I buy milk and juice for my kids and occasionally some small water bottles for being on the go. This is a very simple and easy way to save money and also to be healthier and reduce my caloric intake.

Related: Why Am I Poor? 10 Things You Do That Keep You Broke

Money Saving Tips for Traveling

48. Be Flexible

When you’re flexible with your travel dates and the locations you want to visit, you can save a considerable amount of money. Sometimes, I like to let the prices dictate where I travel. That might mean on a given week of the year we have available to travel, plane flights to Florida are much cheaper than plane flights to Chicago, so we pick Florida. By being open and more adventurous, we can still have a great time traveling but at a price that fits our budget. Skyscanner is my favorite website to use to search for cheap flights because it lets me search “Everywhere.”

49. Rent an Airbnb

When you rent an Airbnb when you travel, you can save money on your accommodations. Vacation rentals tend to have kitchens, which means you can make a lot of your meals at home. This can free up money to visit museums, see a game, and more.

Related: Our Complete Guide to Becoming a Profitable Airbnb Host

50. Use Credit Card Rewards

If you know how to use a credit card responsibly, then you might benefit from credit card rewards. You can sign up for new travel credit cards, and use the sign up bonus to get free flights, hotels, excursions, and more. Keep in mind that this is a hack for people with excellent credit scores who pay off their credit cards at the end of each month.

51. Go Camping

Camping is a great way to have a fun vacation without spending a lot of money. You can camp in the wilderness or find a campsite that has showers and bathrooms. Bring your own food, sit around the campfire, and enjoy time with your family and kids on a dime.

52. Plan Free or Low Cost Activities

Just because you’re traveling doesn’t mean you have to buy expensive massages or go on thousand dollar excursions. Do your research to find free museum days, restaurants that allow kids to eat free, and more. There are so many ways to save if you plan free or low cost activities while you’re there.

Related: 40 Cheap or Completely Free Things to Do With Friends and Family 

Money Saving Tips for Your Health

53. Get Annual Checkups

Annual physicals are typically included in most healthcare plans. Getting an annual checkup, even if you feel you’re healthy, can help spot potential problems early, which can save you money on medications, hospital bills, and more.

54. Stop Smoking

Most people know smoking is bad for your health, but it also has a significant impact on your wallet. According to research from UC Davis, smoking one pack a day can cost you $2,000 per year and $80,000 over the course of forty years.

55. Exercise Regularly

Exercising is excellent for your physical and mental health. If you regularly exercise and get your heart rate up every day, you are helping to prevent chronic illness down the road that could be extremely expensive.

56. Buy Generic Medications

One way you can save money is by purchasing generic medications. Some pharmacies will automatically give you the generic version of medication but others won’t. So, it always pays to ask if that’s the best price for the medication. You can also ask your pharmacy if they know of any coupons available for your medication.

57. Buy Over the Counter Medications On Sale

I have a bad habit of buying over the counter medications at CVS because it’s a fast way to grab Children’s Tylenol when I need it. However, this convenience costs me every time. It’s far cheaper to buy basic medications at big box stores when they’re on sale and save them for when you need them.

Money Saving Tips for Retirement

58. Start Saving Early

The earlier you start saving for retirement, the more savings you’ll have when you’re ready for retirement. It’s a simple concept, but many young people have other pressing financial burdens like student loans and taking care of young children. Still, if you can start saving early, even if it’s just a little bit, your savings will grow more due to compound interest, and your future self will thank you.

Related: How to Start Investing for Beginners

59. Invest Automatically

The easiest way to save money in general, not just for retirement, is to save automatically. No matter how great you are with saving money, automating your savings is still the best way to ensure it happens. You can set it up with your employer to have a specific amount taken out of your paycheck every pay period and invested for you. This is a great and simple way to save more money for your future.

60. Take Advantage of Employer Matches

Employer matches are free money. So, if you work a 9-5 job, and an employer match is one of your benefits, make sure you take the time to set up your retirement accounts so you can benefit from this.

61. Be Aware of Fees

More and more people are becoming aware of the fees that come with managed funds or 401(k) accounts. There are many low cost brokers out there. Some of the most well known are Vanguard, Fidelity, and Charles Schwab. These companies enable you to buy mutual funds and invest your money with lower fees than many of their competitors. A 1% fee from your financial advisor might seem low at first, but when you look at how much that will cost you over a 30 year investment period, you could be losing hundreds of thousands of dollars to fees.

Other Generic Savings Tips

62. Beware of Recurring Subscriptions

There is a service called Trim that will review your accounts and notify you of any recurring subscriptions you might have. You might not realize that you haven’t cancelled your New York Times subscription or your Care.com subscription. That’s an easy way that Trim can help you save money. Check out ourfull Trim review to learn more.

63. Make Your Own Laundry Detergent

I don’t make my own laundry detergent personally, but there are many amazing recipes online. If you’re looking to be more frugal in every aspect of your life, this is an easy way to do so.

64. Save for the Holidays All Year

The holidays come at the same time every year, and I love saving $50-$100 every month in a separate, high yield savings account earmarked for Christmas. This helps me to have a set budget around the holidays and prevents me from buying things I can’t afford using a high interest credit card.

Related: 5 Ways to Still Enjoy Christmas If You’re on a Tight Budget

65. Pay Your Car Insurance Bi-Annually

When you pay for your car insurance monthly, you usually pay more for it over the course of a year. So, consider paying for it every six months. You’ll have to budget for it ahead of time, but it will save you money over the course of the year.

66. Buy High Quality Clothes

This might seem counter-intuitive because I’ve already mentioned my love of buying second hand clothes. However, it’s important to mention because I usually buy second hand, high quality clothes. High quality clothes that are well made with premium materials can last years longer than cheap clothes. This is especially important when buying items like winter coats or winter boots. There are some companies, like Patagonia, that will repair clothes for you, enabling them to last decades. Sometimes, buying more expensive, higher quality items can save you more money over the course of your lifetime.

67. Always Check Online Coupons

There are so many online coupons sites available that search for deals for you. The Honey app is one of my favorites.

Simply add the Honey extension to your browser, and it will automatically check for coupons when you’re checking out at any website. It’s a very simple way to save money on your everyday purchases.

Related: Honey App Review 2020

68. Cancel Your Cable

This is one of the most well known money saving tricks in the book. I personally haven’t have cable for about eight years, and I went four of those years without having a TV whatsoever. Now that the more affordable or free Netflix and Hulu exist, there’s really no reason to spend $60 or more per month on cable.

Related: 6 Legal Ways to Get Free TV or Heavily Discounted Cable

69. Refinance Your Federal Student Loans

Not everyone is a good candidate for refinancing federal student loans. For example, if you’re trying to get Public Service Loan Forgiveness, refinancing your federal student loans with a private lender would disqualify you for that. However, if you’re not pursuing PSLF and understand the pros and cons of refinancing, you could lower your monthly student loan payment considerably by refinancing with a private lender.

Related: How Refinancing Your Student Loans Could Save You $22,359

70. DIY When You Can

Insourcing, or completing tasks by yourself at home or in your business, is a great way to save money. Of course, it has its limits. You might be able to paint a room by yourself, but you might not want to rewire your house or change your plumbing on your own. So, anytime you are a faced with a task to complete at home, ask yourself, “Can I do this on my own?” “How much money can I save by doing this on my own?” “Should I do this on my own?” Those questions will help you to decide if it’s worth it to DIY a task or not.

71. Buy Term Life Insurance When You’re Young

Many people don’t feel the need to buy term life insurance until they’re older or have several dependents, but it can save you money to buy life insurance when you’re young and healthy. The reason is you don’t know what the future holds. You could contract a disease or experience an illness that will exclude you from life insurance in the future. The best time to get it is as early as possible when you’re as healthy as possible. Term life insurance is relatively inexpensive and is a worthwhile purchase.

Related: What Are the Different Types of Life Insurance? 

72. Bring Snacks With You When Running Errands

Whenever I run errands, whether I’m by myself or with my kids, I always bring snacks. Otherwise, I might be tempted to make a Starbucks run or buy a granola bar in the checkout line. These costs are, of course, minimal on a day to day basis. Yet, if you look at what you mindlessly spend on snacks over the course of a year, the cost could be substantial. A small habit change like this could save you over $100 a year!

73. Barter & Negotiate

Bartering is when you trade goods or services with someone else without actually exchanging cash. And, negotiating is when you ask for lower prices on services or goods that you want. Both of these money saving methods have been around since the beginning of time, and you can still use them to your advantage. Furthermore, consider a price drop app like Earny — if the price a previously purchased item drops, the app will scan your inbox, do a price comparison analysis, and collect the savings on your behalf.

74. Beware of ATM Fees

ATM fees are rising. I use an online bank that refunds my ATM fees, but the ATM machine close to my house actually charges $4 every time I make a withdrawal. That’s an incredibly high amount, especially because I usually just withdraw $10 to tip my hairdresser (I rarely have cash on me.) Luckily, I get all those ATM fees refunded to me, but if you don’t, think about how much those fees are costing you each year. You can save money by using ATMs associated with your bank or getting cash back at places like grocery stores and Target.

Related: 9 Credit Card Fees to Look Out For (and How to Avoid Them)

Final Thoughts

As evidenced, there are many, many ways to save money in dozens of different categories in your life. Believe it or not, there are even more ways to save money that aren’t included on this list. And, while it’s important to monitor your spending, be aware of energy costs, and keep your grocery bills in check, the most important aspect of saving money is one of the reasons I mentioned early in this post: knowing your why.

When you first know why you want to save money and what some of your biggest goals in life are, you’re more likely to be willing to follow all the other tips on this list. So today, take some time to evaluate your life, where you’ve been, and where you’re headed. Why is saving money important to you? What’s your reason? Then, use that reason to fuel your motivation to start following the other tips on this list.

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9 Simple Steps to Buy a House for the First Time

Learning how to buy a house is an exhausting, confusing, and often frustrating procedure.

There’s so much to understand and process, from selecting the right mortgage to picking the right real estate agent to financially preparing for homeownership. It’s easy to get intimidated.

The best way to avoid that is to increase what you know about buying a home.

Because the more you know, the better choices you can make. And when you make informed choices, you save yourself time and money and end up purchasing the home of your dreams.

Table of Contents

  • How to Buy a House in 9 Simple Steps
    • Step 1: Get Financially Prepared
    • Step 2: Determine Much House You Can Afford
    • Step 3: Settle on Where You Want to Live
    • Step 4: Determine How Much You Need for a Down Payment
    • Step 5: Get Pre-Approved for a Loan
    • Step 6: Find a Buyer’s Agent
    • Step 7: Find a Home You Love
    • Step 8: Submit an Offer
    • Step 9: Move In!
  • Buying Your First Home Can Build Long-Term Wealth

How to Buy a House in 9 Simple Steps

As long as you follow a step-by-step plan when buying a house for the first time, you can avoid much of the stress that accompanies the process.

Step 1: Get Financially Prepared

Before you even consider where you want to live and how much house you can afford, you should ask yourself “how should I financially prepare for buying a house?”

Pull Your Credit Report

Whether you have good or bad credit, you want to pull your credit report to know where you stand.

You can look at your credit report from each of the three main credit bureaus for free once a year. Go to AnnualCreditReport.com, fill out the required information to confirm your identity, and review your report. If you have problems or any issues with some accounts, you’ll find those at the top of your credit report. Take note of them so you know where to begin fixing your credit.

Even if you think your credit history is excellent and there are no adverse issues, still check your credit score and report. There could be a mistake in it. For instance, maybe you’ll find an account in collections from the public library for not returning a book. It seems small and inconsequential, but it makes a difference when you’re shopping for a mortgage.

Lenders don’t like to see borrowers with adverse accounts or any accounts in collections, so be sure to resolve those before talking to a bank about a home loan. An easy way to view your credit report and get help with challenging any adverse actions is through a service like Credit Karma.

Credit Karma is a free credit reporting and monitoring service that provides your credit score from two credit reporting bureaus, giving you a more comprehensive picture of where you stand. You can get updated scores every week as well, which is helpful if you’re actively working to improve them.

Improve Your Credit Score

If your credit score isn’t great, you can use your credit report to find valuable information for improving your score.

To start, it’s good to know what variables affect your credit score. These include:

Payment History 35%
Accounts Owed 30%
Length of Credit History 15%
Credit Mix 10%
New Credit 10%

Looking at this breakdown, you can see what a huge role your payment history plays in your credit score.

Your payment history is the record of all the bills you’ve paid on time. Banks prefer a history of timely payments because it means they will likely get paid on time if they loan you money.

If you have late payments on your credit report, don’t stress. You can’t undo the past. And although your late payments over 30 days will remain on your credit report for seven years, you can work to demonstrate that you are now current on all of your accounts.

Be prepared for your potential lender to ask about any late payments. If they do, explain honestly why the payments were late and how you’re working to fix the issues. Point to your current good standing with your accounts as proof. They will hopefully take that into consideration and lend you the money.

Don’t Take Out New Loans

Once you start the home buying process, try to avoid taking out new loans. Although part of your credit score relies on a good account mix, this is not the time to add new accounts to your report. Taking on new loans, even if you can technically afford them, can affect your credit score and your debt-to-income ratio, or DTI.

So while you’re in the middle of checking your credit, getting pre-approved, and seeing how much home you can afford, it’s a good rule of thumb to avoid taking out any new car loans or applying for new credit cards.

Eliminate High-Interest Debt

Another quick way to improve your credit score is to pay down any outstanding debts you may have. The amount of money you owe in relation to your credit limits makes up 30% of your credit score. If you’re maxing out your credit cards and using up most of your available credit, you’ll have a lower score. Before applying to lenders for a home loan, try to pay off as much consumer debt as possible to improve your score.

If you need to find a way to get extra money so you can pay down debt, you have two options: cut back on expenses or earn more money. If you’re not sure where to start with cutting expenses, create a budget. List all of your bills, subscriptions, monthly obligations, and other debts to see where you have room to reduce the cost. If you’ve never made a budget before, the 50/30/20 budget format is easy to follow and use.

You can also use a service like Trim to help you navigate through cutting expenses by doing the work of canceling unwanted subscription services and negotiating bills on your behalf. You can learn all about the service in our Trim review.

If you feel like you’ve cut back on as many expenses as you can, the next step is to pick up a gig to make more cash.

Here are a few examples of ways you can earn extra money:

  • Rent out a room on Airbnb
  • Deliver groceries with Instacart
  • Deliver take out with Uber Eats
  • Start an online business

Make sure you’re using this money to eliminate your outstanding debts (or save for your down payment) rather than using it for frivolous expenses.

Set a Monthly Savings Goal

Once you’ve pulled your credit report, repaired adverse accounts, and worked to get out of debt, it’s time to set monthly savings goals. You’ll need a down payment, ideally 20% of your home purchase price (although you can purchase a house with a smaller down payment), and enough money for closing costs in order to buy a house.

In order to stay motivated to save money every month, put a picture of your dream house on the fridge. Set reminders. Work together with your spouse as accountability partners to reach your goal of homeownership. If you’re single and buying a home, find accountability through your parents, coworkers, or friends.

As far as where to keep your down payment savings, consider a high-yield online savings account, which is preferable to investing for short-term goals like buying a house. This way, the money is earning some interest while you save to buy your home.

Related: 12 Ways Renters Can Save for a Down Payment

Step 2: Determine Much House You Can Afford

Banks often approve people for a bigger mortgage than they need, but that doesn’t mean you have to use all of it. You know how much house you can afford, and that’s what you should stick to. But how can you figure that out? Use the rules below.

28% Rule for Mortgage Payments

The 28% percent rule means that your mortgage payment should be 28% of your gross monthly income or less. Some financial experts actually recommend that it should be 25% of your monthly income or less.

Keep in mind that your total income is your gross income, not net income. Gross income is what your paycheck looks like before taxes, health insurance, and other expenses are deducted. Net income is your income after those expenses have been taken out.

If you live in a higher cost of living area like the New York City metropolitan area or in parts of California, this percentage might be higher. Keep in mind, though, that the goal is to not overextend yourself. By sticking to the 28% rule, you will have a house payment that’s manageable with your gross income.

32% Rule for Total Housing Costs

The 28% rule mentioned above applies just to mortgage payments, but there are more costs to consider when buying a home. For example, you’ll have to pay homeowner’s insurance, and if you put down less than 20% in a down payment, you’ll likely have to pay for private mortgage insurance (PMI), too.

The 32% rule says that all of these payments combined — mortgage, PMI, and homeowner’s insurance — should not exceed 32% of your gross income.

40% Rule for Total Monthly Debt Payments

Lastly, if you have other debts you’ll still be paying as a homeowner, like student loan debt, credit card debt, or a car loan, stick to the 40% rule. This rule says that the total of all of your debts, including your house payment, should be no more than 40% of your total gross income.

While these percentage rules aren’t set in stone, they provide good guidelines to ensure you can afford not only your mortgage payment but your other bills, too. You don’t want to overextend yourself or your finances.

Buying a home isn’t a quick process, but it is a worthwhile one. And once you get your finances organized, you can start thinking about where you want to live.

Step 3: Settle on Where You Want to Live

When you’re deciding to buy a house, you also need to decide where you want to live. It might seem like you already have the answer or even know the exact neighborhood you prefer, but it’s important to keep an open mind when you’re buying a home.

What to Know About Desirable Neighborhoods

Sometimes, highly desirable neighborhoods also have high markups. You might be surprised to find an equally beautiful, but less expensive, neighborhood just 15 or 20 minutes away from where you think you want to live.

If you’re set on living in a certain neighborhood, consider buying the least expensive house in the neighborhood. If you have DIY skills or are willing to invest more in your home over time, you could increase the value of an older home simply by updating or renovating it.

Consider School Districts

If you have children, carefully research school districts’ zoning maps or feeder patterns. You don’t want to think the house you’re buying is squarely in the district you want only to realize later that it isn’t. Also, every school district is different. Some allow you to go to any school within the district while others only allow you to go to the school closest to your specific neighborhood.

It’s important to know that information ahead of time as it might affect where you choose to buy a house.

If you don’t have kids yet and plan to have them in the future, consider homes that are further out from your desired area. Specific neighborhoods near good school districts might be too competitive, and it might be wise to buy a less expensive home, build equity, and then move into a specific district once you have children.

How Long Do You Want to Live There?

Buying and selling homes can get expensive. There are closing costs, real estate agent fees, and moving costs to consider. It’s not something you should do every year or even every few years because of these expenses. Ideally, strive to live in a home for at least five years before you consider selling it. This allows your home time to appreciate in value before you sell.

When you’re thinking about where to live, consider how long you want to live there. If you want kids, try to picture your future family living in that home as well. Will it accommodate more than one kid? Pets? Aging parents? Take all potential variables into consideration when deciding how long you can comfortably live in a house.

Step 4: Determine How Much You Need for a Down Payment

Saving for a down payment is an important part of the home buying process. It takes discipline to save several thousand dollars for this purpose, and the more you save, the bigger percentage of your home you will own and the lower your mortgage payment will be. A first-time home buyer down payment isn’t any different from an experienced home buyer down payment.

Here’s what you need to know about down payments.

Most Lenders Prefer 20%

If you want to qualify for a conventional mortgage, lenders prefer that you put 20% down on a home. Let’s say the house you want to buy is $200,000. This means you should save $40,000 for your down payment.

Keep in mind your down payment doesn’t cover other costs associated with closing on your home. You’ll still need to save additional money for the inspection, closing costs, and realtor fees.

Put as Little as 3.5% Down with an FHA Loan

If you’re wondering how to buy a house with no money down, an FHA Loan might be your closest option.

Not all home loans require 20% down. If you qualify for an FHA Loan, which is a common option for a first-time home buyer loan, you can put down as little as 3.5% to purchase your home.

Keep in mind, though, if you only put down 3.5%, you might be subject to a higher interest rate as well as PMI.

PMI

PMI, also known as private mortgage insurance, is an additional bill you have to pay if you put down less than 20% on a home. This isn’t money that goes towards paying down your mortgage loan, although it can be rolled into your monthly mortgage payment. It is an insurance payment that you make.

Because you put down less than 20% on your home, the bank considers you a riskier borrower. The insurance protects them should you ever foreclose on your home.

One thing to note is that once you’ve paid the mortgage down to 80% of the home’s appraised value, you can ask your lender to remove the PMI. So while you’ll have to pay this for a while, you can initiate the process to have it removed.

VA Loans

If you served in the military, you might be eligible for a VA loan. VA loans are a different type of loan because you can buy a home for $0 down without having to pay PMI. The reason is that a portion of each VA loan is backed by the federal government. There are fees and potentially higher interest rates with a VA loan, so it’s important to compare the pros and cons of a VA loan versus a conventional mortgage before deciding which is best for you.

USDA Loans

The USDA offers zero down payment, low-interest mortgages for eligible home buyers in rural and suburban areas. They are issued through the USDA Rural Development Guaranteed Housing Loan Program administered by the United States Department of Agriculture.

There are income eligibility requirements, and the property must be in a USDA-determined rural area. But if you, and the homes you’re interested in, meet these requirements, these loans are a solid mortgage option.

First-Time Home Buyer Programs

If you’re buying your first home, it’s important to see if you qualify for first-time home buyer programs. The FHA loan program and the VA loan program are options, but there are others, like the HUD Good Next Door Neighbor program, which helps teachers, firefighters, police officers, and other personnel buy their first homes.

There are also other first-time home buyer benefits, like grants, that you can apply for. You can find those grants by talking to your real estate agent or brokers because many of these grants are state- or income-specific. You can also look online to see what grants might be available to you in your area.

Don’t Forget About Closing Costs

As mentioned, you’ll also need to save for closing costs. Some buyers do ask the seller to pay for part or all of closing costs during the sale, but you shouldn’t count on this. Instead, speak with your real estate agent to get an estimate of closing costs. By law, they are required to give you the exact amount you have to pay in closing costs a few days before your closing date.

Beware of Wire Fraud

In the days leading up to your closing date, you’ll get information about where to send your money for closing. Unfortunately, over the past few years, there have been numerous reports of wire fraud and phishing scams.

Hackers can break into your real estate agent’s email, and instruct you to send your money to a completely different account. Once you wire money to the wrong account, it’s very difficult to recover it. Make sure to call your real estate agent before wiring to confirm the correct account numbers over the phone before sending your payment.

Tax Credits and Deductions

In your research of home buyer benefits, you might come across information on first-time home buyer tax credits. That’s usually referring to the federal tax buyer credit that President Obama created during the 2008 recession and housing crisis. Unfortunately, that tax credit is no longer to new homeowners.

However, all homeowners can deduct the interest paid on their mortgages on their taxes as well as several other expenses, like moving costs. Once you become a homeowner, it’s important to research any change in tax law as it relates to owning a home or consult an accountant to ensure you’re getting the biggest tax benefits possible.

Step 5: Get Pre-Approved for a Loan

As evidenced by this list, it might take some time to financially prepare to buy your first home. All of that is important because it leads you to a crucial home buying step: securing a loan.

Pre-Qualified vs. Pre-Approved

You might have heard two terms when it comes to getting initial bank approval for a home loan: pre-qualification and pre-approval.

Pre-qualification happens when you submit your financial information to a lender, either over the phone or online, and they provide an approximate home price you can afford based on that information. This is not a guarantee for a loan; it’s more of a snapshot to let you know where you stand. Think of it as the first step in actively searching for a home to buy.

If you do not get pre-qualified based on your financials, you know that you have to continue to work on your credit, save more for a down payment, and do whatever else is needed to purchase a home.

If you do get pre-qualified, you can begin looking for a buyer’s agent. Eventually, you will need to get pre-approved for a loan, which is different from pre-qualification.

Requirements for Pre-Approval

Mortgage pre-approval is more official than pre-qualification. Pre-approval acts as a conditional commitment from the bank to give you a mortgage. As such, you’ll need to provide a lot more information than you did during the pre-qualification process.

Here is a list of documents your lender will likely request during pre-approval:

  • Proof of income
  • Proof of assets
  • Employment verification
  • Identification documents
  • Social Security numbers to run credit

Your lender will review all of this information, and you should be prepared to answer some questions. For instance, they might ask you to explain past credit mistakes or ask for previous employment data. If you’re self-employed, you will likely have to show two years of profit and loss statements from your business. If you haven’t been in business for two years yet, you might have to delay the homeownership process until you can prove you have a steady income.

After your lender reviews these documents and determines that you’re a good risk (meaning you’ll pay them on time and not default on your mortgage), you’ll get an official pre-approval letter. The pre-approval letter is a key piece of the home buying process. It demonstrates that you’re serious about purchasing a home and that you have the money available to do so. In fact, some listing agents won’t even show homes to prospective buyers who haven’t been pre-approved.

Having that letter removes the risk of you being denied a loan after making an offer. It also often makes listing agents more willing to work with you.

Related: 10 Home Buying Mistakes That Could Cost You Thousands 

Step 6: Find a Buyer’s Agent

Finding a good real estate agent is integral to buying a home. You want someone with experience, patience, and a willingness to help you through this process.

Keep in mind that not all real estate agents are Realtors. A Realtor is a special designation that real estate agents can get for being members of the National Association of Realtors, which has a strict code of ethics they must abide by. Here are a few ways you can find a real estate agent or Realtor.

Word of Mouth

Start your search by asking friends and family members for recommendations of real estate agents in your area. Ask why they recommend them. Is it because they got them a good deal? Is it because they carefully explained the process?

You want to find an agent who will help you through this process whether it’s your first time buying a house or your tenth.

Online Search

Some of the most popular websites to find real estate agents are Realtor.com, Redfin, and Zillow. Carefully and thoroughly read all the reviews to make sure the person you want to work with is responsive and knowledgeable about your area.

Buyer’s Agents vs. Listing Agents

When you’re buying your first home, you’ll be looking for a buyer’s agent.

Although real estate agents can do both, sometimes they specialize in one or the other. A listing agent is an agent who lists your home for sale. They’ll be responsible for helping you price the home, inviting buyer’s agents to come to open houses, and more. A buyer’s agent, on the other hand, works just with you — the buyer — to help you through the whole home buying process.

It’s okay to be picky when selecting a buyer’s agent so if you don’t feel comfortable with the first one you find, move on to another. You want someone you can trust to look out for your best interest. After all, this is the person who’ll be your advocate on everything from negotiating the selling price to what the seller will pay during closing (think commissions, closing costs, etc.) to helping you find a fair and unbiased home inspector.

Step 7: Find a Home You Love

Now that you’re pre-approved for a loan and have a buyer’s agent, it’s time to start looking for your home. An easy place to start is browsing listings online. You can even attend open houses in neighborhoods you’re considering.

Research Homes Online

You can browse public listings on sites like Zillow or your real estate agent might give you access to a private portal that shows you homes that match the criteria you want. You can continuously refresh this portal to find the newest homes for sale in your desired neighborhoods.

This is especially beneficial if you’re in a competitive housing market where homes go quickly.

Visit a Lot of Homes

Your buyer’s agent should ask you for a list of the things you want in a home. It’s okay to be as detailed as possible; give them your comprehensive wish list for your ideal home. Ultimately, you might not be able to get everything on your list, but it will give your agent a good idea of what you’re looking for.

That list will give you a starting point for homes to visit. As you see them, you might find other things you want or realize that you don’t actually need a fireplace or a large backyard like you thought. The more homes you visit, the more you’ll discover the right home features for you.

Keep frequent and open communication with your real estate agent so they know if your preferences change.

See Beyond the Decor

When you visit an open house, try not to get distracted by the decor. You shouldn’t walk into a living room and say, “Oh, I love the furniture,” because the furniture most likely doesn’t come with the home. Instead, pay attention to the things beyond the decor, like the high ceiling, multiple windows, and more permanent features.

If you are adept at seeing beyond decor, you could also get a great deal on a home. For example, you might tour a nice, well-built home with the layout you want, but it’s full of floral wallpaper. Many buyers might be put off by all the work that removing wallpaper entails. But if you can see beyond it, you might get a solid house for a good price.

Only Visit Homes In Your Price Range

Make it clear to your real estate agent ahead of time that you only want to visit homes in your price range. If you can’t find a home you like, your agent might try to convince you to increase your budget by $10,000 or $20,000 so you can get certain features you want in a home.

Stand firm that you don’t want that, and that you’d prefer to keep looking. Your real estate agent should respect your decision.

However, you might find that you need to make compromises to stay within your budget. For example, let’s say you want a home with two bathrooms but you can’t find one in your price range. You might have to settle for a home with only one bathroom. Staying within your pre-established price range will keep your monthly budget manageable and, when finances allow for it, you can always upgrade your home.

It’s important to stick to your budget because if you start out with something you can’t afford, it could become a hindrance. You don’t want to be house poor before you even get the keys.

Step 8: Submit an Offer

Submitting an offer can be an anxiety-ridden experience, especially in a competitive market. This is where your buyer’s agent can be most helpful.

You might submit offers that aren’t accepted, and you have to start your search all over again. And sometimes you have to adjust your offer to make it stand out.

This is not to say you should always offer over asking price or make other concessions like letting the seller live in their home beyond the initial closing date. But you should know your market well.

If you keep making offers on homes that are being rejected, it can be frustrating and disheartening. Talk to your agent about why it keeps happening and ways to prevent it in the future.

It’s also important to be flexible and understand that you might not get your initial dream home. Fortunately, there are many beautiful homes on the market, and the right one for you is out there.

If Your Offer is Accepted, the Escrow Process Begins

Once your offer is accepted, the escrow process begins. This means that you won’t get the keys to the house the day after you buy it. It can take 1-2 months to go from an accepted offer to walking in the door.

At the beginning of the escrow process, the buyer will deposit what’s called earnest money into the escrow account. This is a sign of good faith while the escrow agent reviews all documents related to the sale.

Get a Home Inspection

During the escrow process, you’ll also arrange a home inspection. If something in the house needs to be updated or repaired, you’ll negotiate those repairs during this time period. You’ll also arrange for an appraisal of the house and finalize your financing during this time period.

Keep in mind your lender will not finance a house for more than it’s worth, so if your home appraisal comes back as less than the agreed-upon purchase price, you’ll have even more negotiating to do with your seller.

Sometimes, if buyers really want a house and the seller won’t lower the price, they’ll pay the difference between what a home is worth and their offer. This is not usually recommended, though, especially if you put 0% down on your home. You don’t want to owe more on your home than it’s worth.

Protect Your Home with Insurance

Lastly, you should get insurance on your home before moving in. In order to get the best price, obtain quotes from different insurance companies. Read the policies and what they cover before choosing one. You want to make sure it’s comprehensive enough to cover exactly what you need.

Keep in mind that you might get the best savings by using a company you already do business with. Insurance companies like it when you bundle multiple insurance policies and are often willing to give you a discount as a thank you for being a loyal customer.

Step 9: Move In!

Now that you’ve found your home, here are some tips for ensuring you continue to stay in your home for years to come.

Have a Robust Emergency Fund

Homeowners should have an emergency fund with at least 3-6 months of living expenses in it. This fund will give you incredible peace of mind. If you lose your job unexpectedly, you now have 3-6 months to find a new job without worrying about losing your home. You can also use this money for unexpected major repairs like replacing your hot water heater or fixing a flooded basement.

If you’re looking for a high-interest bank to park your emergency savings while still providing you easy access to your money, check out our list of the best online savings accounts.

Maintain It Often

You don’t want minor issues to turn into major repairs. A leaky sink, dirty fireplace, or bad outlet are all small, inexpensive fixes, but if left unattended for too long, they can turn into expensive projects. Make sure you’re performing routine maintenance on your home. That includes everything from changing the air filters to replacing smoke detector batteries to fixing that creaky step.

This also applies to cosmetic maintenance. Touch up paint when it’s needed or replace your carpeting before mold becomes an issue (of particular concern if you have pets who might have accidents in the house). Keeping up with these tasks now when they’re manageable prevents you from having to use your emergency fund later.

Properly maintaining your home over time makes it healthier, more affordable, and ensures that it grows in value over time.

Avoid Overextending Yourself

Your home is one of the biggest purchases you’ll ever make. You didn’t want to put a strain on your budget with a mortgage you can’t afford. And you don’t want to strain your budget now by using your home equity as a bank account.

Once you’ve been living there a few years, it’s tempting to use a home equity line of credit to upgrade your kitchen or your bathrooms. However, try to avoid overextending yourself. Don’t place buying new furniture above paying your mortgage bill.

Buying Your First Home Can Build Long-Term Wealth

Protect your investment in your home and be careful about leveraging it to borrow money.

Ultimately, if you stay focused, make prompt payments, and maintain your home, you’ll be on your way to building long-term wealth through homeownership.

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