Bite Size Idea is back! Sorry for the brief hiatus, but I had to take a break from the digital world.  There have been some major transitions around here, to which I devoted my energies.

The first was the transition from student life to working full-time.  I am now settled into my day job and loving it.

The second was moving from Utah (where we attended school) to Atlanta, GA.  We’re loving the city: there’s plenty to see, eat and do.

But enough about me.  The good news is that I’m back to writing.  My new pledge is at least one great post per week, with resumed activity on twitter and facebook.

When we last parted, Bite Size Idea was in the middle of Money Mistakes Week, discussing checking account mistakes.  Let’s resume where we left off and move on to savings account mistakes.

1) Not Having a Savings Account

This is a smack-yourself-in-the-face mistake.  You need to be saving money.  Americans are notorious for their low savings rates. How low, you ask? Try the 1-3% range! (Check out this Fortune article for more info.)

Thanks to the recession we are currently experiencing, that savings rate has increased a bit. There are some (myself included) of the cynical view that once the economy picks back up, our collective savings rate will go back down. I hope I’m wrong.

You need to think about your future. You need a savings account.

2) Not Saving for the Right Things

So you’ve decided that you need to save money for your future.  But where should you put it? What goes into the savings account and what goes into the retirement account?  In the next post, we’ll discuss where to put your retirement savings, but for now the short answer will suffice: Do not “invest” your retirement money into a savings account.

Because the rate of return on a savings account is so dismal compared to stock investments, a savings account is really no “investment” account at all.  Your savings account should be viewed as a place to store your emergency fund and money for short-term goals.

Be sure to read all about emergency funds here.

My Savings Account Mistake:

As a brief aside, perhaps you wish to keep your emergency fund or short-term savings in a rewards checking account because the interest rate is higher.  Not a bad idea.

But a word of caution: we did this for a few years and kept a running tally of our emergency fund in an excel spreadsheet.  On several occasions we noted with chagrin that our emergency fund on paper had a higher balance than our actual checking account.

Oops.  If you choose to keep your savings in your checking account because of a better return, be extra vigilant that your savings does not get spent away in monthly expenses.

3) Taking a Sucky Interest Rate Because of Laziness

Listen, banks aren’t all bad.  But one way they prey on our laziness is by offering crummy savings accounts as an add-on to your checking account.  If they already have your money in the form of your checking account, they (rightly) assume that you’ll bite at the opportunity to have a savings account in the same place.  Sounds convenient and it is.

But there’s a catch.  The interest rate you’ll likely receive will be obscenely low.  Its like when you were a kid and your brother offered you a dime to clean his room.  You were so eager at the prospect of money in any form that you didn’t stop and think about the fact that your brother was breaking child labor laws in 73 countries.

OK, that’s a bit of a tangent, but the idea is that you should shop around for better rates rather than take the first one you see.  Overcome your inherent laziness.  How bad can savings rates get at your local bank, you ask?  To use ours as an example, the savings account offered with our checking currently has a 0.25% interest rate.  That’s a quarter for every $100.

An abomination. Disgusting.

You can find a better rate.  Use this free tool.

4) Not Making Frequent Contributions to Your Savings

In my last post, about checking account mistakes, I told you about the importance of free EFT and Bill Pay.  Once you’ve signed up for it, make sure to schedule monthly transfers from your checking to savings account.

Hopefully you’ve set up direct deposit as well, so that your paycheck is electronically credited to you checking account.  After that, set up a scheduled transfer to your savings account.  Ideally, this transfer would take place a day or two after your paycheck hits the checking account so that you save before spending.

This is automated savings.  This is paying yourself first.

Notice how I’m not answering the question, “How much should I save?” There is no one answer. You know what you are saving for. After a 3-6 month emergency fund, make monthly contributions for large upcoming expenses: wedding, car, down payment.

5) No Online Access to Your Account

Do you like listening to a sales pitch for a HELOC every time you want to check your savings account balance? Me neither. Give me what I’m looking  for without trying to sell me something. Unfortunately, when you walk into the bank branch, often this is just what happens.

Online banking offers the escape from salesmen-masquerading-as-bank-tellers. Sign up with a bank that offers online access to check your balances, transfer funds, and schedule EFTs.

Make the Switch

We all make mistakes with our financial accounts;  even guys who write about personal finance.  Heck, I just told you one of mine in this post.

Let your savings account mistakes be a thing of the past.  Let go of your lame account.  Use my tools and find an awesome savings account.