4 Surprising Ways Smart People Use Their Savings

Setting aside extra money in savings is a wise financial decision. You never know when you may need extra cash. Many people with savings use their extra money to prepare for the future or improve their current life situation. Here are a few ways smart people use their savings.

1. Invest and let your money grow for decades

Many people assume they need to time the market or utilize sophisticated strategies to get the best results when it comes to investing in the stock market. But you can benefit from investing your savings and letting your investment grow over multiple decades.

Buying and holding investments can be worthwhile because of long-term growth. There are no guarantees when you invest your money, but when you hold your investments long-term, there will be more time for compound interest to work.

Many savvy savers invest extra money by purchasing shares of low-cost index funds. An index fund is a collection of stocks and bonds. Instead of spending your limited time trying to hand-pick individual stocks and bonds, you can buy shares of index funds.

Expect to pay management fees when buying shares of index funds. It's wise to pay attention to these fees and prioritize low-cost funds. Investing in a low-cost index fund can help you maximize your long-term returns. Review our list of the best low-cost index funds for inspiration.

2. Stash savings in a high-yield savings account

If you're not looking to put your savings to use yet, you can make a money move to boost your earnings. If you're keeping your stash in a savings account with a low annual percentage yield (APY), you're missing out on the opportunity to earn more money from interest.

Many smart people stash their savings in a high-yield savings account to earn more interest and boost their bank account balance faster. This is a simple way to earn more while your money sits in the bank. You can open a new bank account online in minutes. Review our list of the best high-yield savings accounts to compare current rates.

3. Make purchases that improve your quality of life

Another way smart people use their savings wisely is to improve their lives. Is there a purchase you can make using a portion of your savings to make your life more enjoyable? One example is using your savings for a down payment on a mortgage so you can buy a home.

Another example is to use some of your savings to take a much-needed vacation. You can decide how to use your money to make positive changes in your life. But remember that it's OK to spend some of your savings. Spending money to improve your life is smart.

4. Pay insurance premiums yearly

Saving for upcoming purchases is a smart money move. Many people who can afford to save regularly pay their insurance premiums once a year (as opposed to monthly or bi-annually) to get a discount on their insurance bills. They save up all year until their next payment is due and pay for a year of coverage all at once.

Many auto insurance companies, for example, offer discounts to drivers who pay their insurance premium once a year rather than monthly. If you have extra savings sitting in the bank and your insurer offers discounts to customers who pay their premiums once a year, consider putting your savings to use so you pay less overall on necessary insurance coverage.

Put your savings to work

The above strategies are examples of how you can use your savings responsibly. You can use extra cash to get a better deal on everyday expenses like insurance, invest in low-cost index funds and let your money grow for decades, earn more interest from your savings, or use your money to improve your life. For additional tips, check out our personal finance resources.