Graduates have options for saving

Students graduating this year may soon start earning enough money to support themselves, but whether they plan to buy a house, start a business, or travel around the world, there are multiple options banks offer to help people save for their future.

No matter what their job, making certain lifestyle choices and maintaining a good credit rating can help graduates become wealthy, said Ronald Johnson, UCLA director of financial aid.

Additionally, graduates can earn large profits later in life if they start saving money early, due to compound interest accrued on savings made while young, according to Lauren Olsen, a personal banker at Wells Fargo.

Advisers said graduates should begin planning for their long-term financial future as soon as possible.

“It’s never too early for a student to sit down and talk with a financial planner. Having students outline what their goals are and what they want to achieve gives them an opportunity to look at the things they are doing ““ then you can sit down with someone who can quantify those and say how to get them,” Johnson said.

The easiest way to save is through a savings account, as these require the least amount of money to open ““ for example, Bank of America’s basic savings account requires an initial deposit of $100 to open.

Most banks offer savings accounts with higher interest rates to students, but these accounts are likely to change upon graduation.

For example, Bank of America offers student savings and checking accounts with certain benefits, as long as students can prove they are enrolled in a university, and after five years the account will become a regular savings account with an interest rate of 0.2 percent.

By contrast, higher interest rates up to 5 percent are available to graduates who invest larger sums into certificate of deposit accounts (CDs) or money market accounts. As more money is saved, a higher rate of interest is returned.

Advisers said students should also develop long-term investment plans, such as individual retirement accounts (IRAs), to build tax-free, long-term savings that grow along with financial markets.

“IRAs are the most important thing for a young person to get established, especially if you are not working for a corporation. You can start those at $50 a month and you’re getting a return based all on performance,” said Nicholas Tower, new account specialist at Wells Fargo.

Financial advisers also said it is particularly important to start saving through 401(k) retirement plans while young.

“(Choosing a good 401(k) plan) is important for students looking for jobs. If you start (putting money into the 401(k)) at 20, you would make tenfold what you’d make if you started at 30,” said Olsen.

However, savings options can become limited if graduates are not able to provide an initial investment, especially if graduates are spending most of their funds on paying down existing debts.

Though many students may spend much of their early careers paying off student loans, advisers said banks offer a variety of options to repay loans more quickly, which students may not be aware of.

“Many times students will get a rate reduction for making their loans on time, and oftentimes certain loans will give the student a discount at graduation. They need to go back and look at their options and make sure they’re realized,” Johnson said.

Advisers also said auto-payment services could help graduates meet deadlines for loan payments and prevent them from jeopardizing their credit rating.

In the short-run, bank advisers said establishing and maintaining a good credit rating should be a priority for students, especially if they do not invest in long-term savings.

“You talk to most (students) and they say that they can’t afford to save. When they hit the real world, saving isn’t on their minds and they just want to survive,” said Tower.

Other advisers said graduates can easily fall into debt.

“I would have students avoid overextending themselves on credit. It’s more important for the students to be prudent and not take advantage of all the solicitation they are going to receive,” Johnson said.

In addition to avoiding unnecessary credit card offers, Johnson said lifestyle choices could help students become richer.

“Students should also not try to get into a lifestyle that is over their heads too quickly. Once they graduate, they should still try to live in a minimalist existence until they get more funds,” he said.

Olsen advised students to budget carefully with saving in mind.

“A budget is not really a spending plan ““ it’s better to think of it as a savings plan,” she said.

Others noted that developing small-scale saving patterns would help graduates consider their long-term investments.

“A student should get into the habit of having a certain amount of their paycheck going into savings. Once you start seeing those resources growing, it’s going to stimulate you to use that resource even more,” Johnson said.