Women, on average, have less saved than men. According to the latest stats, women have an average of $54,000 saved, compared to $62,000 for men. And a new survey suggests one overlooked habit may be widening that gap.
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A recent Vanguard survey found that women are less likely than men to use a high-yielding savings option (26% versus 14%). In addition, more women reported not completely understanding how inflation impacts savings rates (66% versus 58%).
In this “Financially Savvy Female” column, we’re chatting with Sonia Fraher, head of cash and savings at Vanguard, about why women are underutilizing high-yield savings accounts, how a lack of understanding about savings rates creates missed opportunities and how women can create a savings strategy that works.
Why are women less likely to use high-yield savings accounts?
While our research shows women are more likely to see themselves as “savers” than “investors,” the gender difference when it comes to using high-yield savings options could be caused by a misunderstanding of the product and its functionality. Additionally, many women may not consider using high-yield savings options if they are offered by an investment firm because they do not see themselves as “investors.”
There have also been studies that show women have lower confidence in their financial literacy than men, which can make a high-yield savings option feel overwhelming, since selecting the proper vehicle often requires comparison across rates and financial providers.
However, for both men and women, there are two major behavioral factors that can contribute to their not leveraging a high-yield savings vehicle — habit and inertia. Consumers are comfortable with the traditional savings account they have always used and don’t realize they may need to make a change to ensure they are earning the returns they deserve on their savings.
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How does inflation quietly erode savings?
Many people do not understand how inflation impacts their savings; however, it’s important that the savings vehicle you use earns an annual percentage yield (APY) greater than the rate of inflation. Otherwise, your savings are actually losing value.
If you do not recognize this impact, you may not pursue high-yield savings options and instead, feel content sitting in a traditional bank savings account — which currently offers an average savings rate of 0.39% — without realizing this decision is causing your hard-earned savings to lose value.
As a way to combat this, you should consider checking your account’s APY to ensure you are earning the returns you deserve on your savings — and if not, consider making a change.
What are some simple savings strategies women can start using today?
Although creating or changing your savings strategy can feel overwhelming, these three tips can serve as a great starting point to help women develop a savings strategy that works for their lifestyles:
- Start small: Even contributing a small amount can make a big difference over the long term. Think about expenses or subscriptions you could go without — maybe a streaming [service] you forgot about — and consider [redirecting] those funds, even if it’s only $10 to $20 a month, to a high-yield savings vehicle. This can help you build a savings buffer that will continue to grow, due to the power of compounding, without having to make significant lifestyle changes.
- Automate when possible: Another key element of saving is consistent contributions. Automating a small portion of your paycheck to a high-yield savings vehicle and making this a habit can go a long way toward helping you achieve your savings goals through the financial benefits of compound interest. Automation also takes the mental load off you, so you don’t need to continue to remember to make savings contributions.
- Review the annual percentage yield (APY) where you are saving: It’s important to understand the returns you are earning on your savings, and APY is a great way to make an apples-to-apples comparison between savings vehicles. The higher the APY, the higher the rate of return. Take a close look at your current APY to see where you stack up. If you are earning less than 2.5%, it’s probably time to reconsider where you are saving, since your savings are actually losing value by not keeping up with the pace of inflation.
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This article originally appeared on GOBankingRates.com: Many Women Are Missing Out on an Easy Way To Grow Their Savings: Here’s Why
