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2022. New year. New you. New look at banking? It would be a smart move.
Now is a great time to take a fresh look at your banking habits and see what you can do to help reach your financial goals. Here are five facts to know about banking in 2022 and actions you can take to boost your finances in the new year.
1. Your emergency fund is still a top priority
With the COVID-19 pandemic, you might have read more in the last two years about the importance of saving money for emergencies than ever before.
It's still important for 2022.
You want to have enough savings to help cover unexpected financial setbacks — ideally enough to cover at least three months’ worth of expenses — stashed in an easy-to-access savings account, says Caroline Wetzel, a vice president at Procyon Partners, a wealth advisory firm in Shelton, Connecticut.
An ample savings balance can be helpful for more than just financial emergencies. “The pandemic has many people reframing and reshaping their expectations in life,” leading some to quit their jobs to pursue more fulfilling roles, Wetzel says. “If you are thinking about becoming part of 'The Great Resignation,' you may need to boost your emergency savings even more, along the lines of six months’ of cash instead of three,” to cover any drops in income, she says.
Take action: Set up an automated savings transfer from checking to savings to build your bank balance. Make sure that your money is working hard for you, earning as much interest as possible. You’ll often find the best savings rates with high-interest online savings accounts.
If your emergency savings account is fully funded with enough cash to cover three to six months’ worth of expenses, consider putting any extra money into investments that have the growth potential to outpace inflation.
2. Adjusting your budget can help ease the burden of inflation
Inflation edged up in the latter part of 2021, so you will want to pay attention to it in 2022. You may not be able to control inflation, but adjusting your budget can help ease the burden of higher prices and help you avoid savings shortfalls.
Take action: “This is a good time to take stock of where you spent money over the last year,” Wetzel says. (Online bank and credit card statements are a good place to look.) Review your expenses and prioritize must-haves, which could include groceries, housing costs and building up your emergency fund. Then, determine if any lower-priority expenses can be cut going into the new year, she says.
If some of your must-haves increase in price throughout the year, you’ll know that you can still afford the things that matter most. Use any extra funds to create (or update) a solid savings plan.
3. It may be easier to avoid overdraft fees
You may have more options to steer clear of overdrafts in 2022. At least one large bank has announced an end to overdraft fees in early 2022, and the Consumer Financial Protection Bureau recently reported that it will be “enhancing its supervisory and enforcement scrutiny of banks that are heavily dependent on overdraft fees.” The bureau could assess huge penalties for illegal overdraft practices.
Take action: If you were hit with overdraft fees in the past, think about switching to an institution that makes it easy to avoid these fees.
4. Another institution could be a better fit
Since the start of the pandemic, many people have been assessing what’s important to them, Wetzel says. For some, that could include deciding if the banks they do business with match their values.
According to a recent NerdWallet survey, 78% of banking customers say having a primary bank that is ethical or socially responsible is very or somewhat important. The survey of more than 2,000 U.S. adults was commissioned by NerdWallet and conducted online by The Harris Poll.
This finding suggests that ethical or social issues such as racial equity, environmental impact and community impact are important to consumers when choosing whom to do business with.
Take action: If your current bank doesn't reflect your values, consider choosing a new institution that does.
5. Your child might use a new banking app
Banks and financial institutions have rolled out banking apps specifically for kids and teens, and if your child hasn’t signed up already, these apps are worth a look in 2022. Banking apps can help kids build financial literacy, says Clark Kendall, president and CEO of Kendall Capital, a wealth management firm in Rockville, Maryland. “Giving kids a budget and the responsibility to make certain purchases — such as their own clothes or shoes — helps better prepare them for managing their own money in the future,” he says.
Take action: Have your child download a kid-focused banking app to learn about spending and saving. Parents can transfer money electronically through many apps and help children set up savings goals. When kids see their own bank balances grow, it may help them decide whether they need to splurge on a trendy purchase, Kendall says.
With the new year comes a chance to chart a path forward and get financially fit. In 2022, that could mean budgeting and investing to fight inflation or finding a new bank home, whether that’s for a better savings rate, lower overdraft fees, or more personal alignment with your values.