If you saw my last blog post, you may have seen that I mentioned a Roth IRA and high-yield account in regard to saving your money for the long run. These financial tools can help you grow your money without picking up a finger or doing any extra work. They serve a different purpose, but when they work together, they develop a strong foundation to your financial future.

Roth IRA

A Roth IRA is a type of account that individuals open to start planning for retirement and their future. The IRA stands for Individual Retirement Arrangement. This type of arrangement is beneficial because it allows the money that you earn to be tax-free, which means that the government cannot take this money out of your account for any reason. How it works is an individual pays taxes on the money they earn before it goes into a Roth account and the money put in grows over time without being taxed. 

However, this account does have income limitations when opening. So, it is best to open this account when there is a reliable stream of income that you can contribute from during every pay period.

Example: Say that you work a part time job and put $200/month in a Roth IRA account at age 20. With an average return rate of 7%, by the time you are 60, you will have over $500,000 completely tax-free. Patience is key.

High-Yield Savings Account

A high-yield savings account is a type of account that offers higher interest rates than a regular savings account, giving room for your money to grow at a faster rate. They are ideal for people saving for short-term, significant purchases like a down payment on a car, a vacation, or just for emergencies. These accounts are very flexible, which means you can typically access your funds whenever you want them.

High-yield accounts work by giving the individual a return on deposited funds, thus creating compound interest. You deposit money, earn interest that is added to your balance every month, and that new, larger balance then earns even more interest.

Example: You set up a high-yield savings account with your bank at 4% APY and no initial deposit. After one year of $100/month deposits, you will have $1,225 in your account, thanks to interest.

Get Started

To open a Roth IRA account, you can use brokerages, which are financial institutions that act as a middleman between people and markets. The top brokerage firms to use to open a Roth are Charles Schwab, Fidelity, or Vanguard. They have easy-to-navigate websites and the customer support reviews on them are positive.

• Charles Schwab
• Fidelity
• Vanguard

To open a high-yield savings account, you must go through a financial institution or bank. They usually have applications that require basic personal information like name, address, and SSN. Once the account is made, an initial deposit is needed. From there, the money making can start. Some factors that you want to look for as you shop around which institution you want to start your account in include:

• APY (Annual Percentage Yield)
• Fees and minimum requirements
• Accessibility and convenience
• Security and Customer Service

You do not need a lot of money to start with these tools. The most important thing is consistency and discipline. Open a Roth IRA to let your future wealth grow tax-free and open a high-yield account to protect and stretch your money.

Thank you for reading! Feel free to share your own budgeting tips or experiences in the comments. Subscribe for more content and ride the wealth wave!