A high-yield savings account to save for a car: American Express® High Yield Savings
0.5%
APY
- Monthly fees: $0
- Interest compounded daily
- Minimum deposit to open: $0
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How to save up for a car
Five steps to save up for a used or new car.
The more money you have upfront to pay for your car, the less you’ll have to borrow — saving you money in the long run. Whether it’s for a used or new car, here’s how to save up for a car in five steps.
1. Determine what you can afford and set a goal
Determine how much you want to spend on a car and check out makes and models that fit your budget. Then, figure out how much you want to save for a down payment and what you can afford to borrow. Most experts recommend saving up at least 20% for a downpayment for a new vehicle and 10% for a used vehicle.
A budgeting software is great for this step because it can help you manage your income and expenses and track your savings progress.
2. Consider other car-related expenses
Beyond the cost of the vehicle, remember to put extra money aside for things like insurance, repairs and maintenance. How much you’ll pay for insurance depends on factors like your age, where you live, what you drive and your driving record.
3. Decide if you’ll sell or trade in your current vehicle
If you already have a car, trading it in or selling it can help you get some extra cash for a new one. However, while trading it in to the dealer can be more convenient, you could get up to 20% more from a personal sale.
4. Set a timeline
Set a purchase date and break down the total amount you want to save into monthly payments. Make sure the amount fits into your budget and won’t leave you strapped for cash. It helps to consider these deposits a mandatory bill to help keep you on track and focused on saving.
If you want to earn a few extra bucks, consider using your skills to start a side hustle that suits your talents.
5. Pick a savings account and make regular contributions
Find a savings account that works for you by considering how much you have to open the account, how much you plan to save and how easily you can access your money. Savings accounts like Ally Online Savings and Chime Savings offer automatic transfers and round-up services to help you reach your goal without much thought.
If you have debts or bills that you’ve paid off, consider rerouting the funds that were earmarked for them into your savings account. This way, you’ll save money that you might have spent elsewhere.
How much should I save for a car?
How much you should save for a car largely depends on if you want to pay for it in full or take out a loan. The average cost of a new car is $38,060, according to an April 2020 analysis by Kelley Blue Book.
Used car prices typically range between $11,000 and $20,000. Like anything else, how much you’ll spend depends on what you want and what you can afford. Here’s an average of what you could pay for a car based on how much you can save.
New cars:
| Cost of vehicle | Interest | Monthly payment for 60 months | Total cost | |
|---|---|---|---|---|
| If saving | $38,060 | Earn 2% | $574 | $38,060 |
| If borrowing | $38,060 | Pay 4.21% | $705 | $42,273 |
Used cars:
| Cost of vehicle | Interest | Monthly payment for 60 months | Total cost | |
|---|---|---|---|---|
| If saving | $20,000 | Earn 2% | $317 | $20,000 |
| If borrowing | $20,000 | Pay 6.96% | $396 | $23,739 |
Beyond the cost of the vehicle, you should also account for other expenses that will increase the amount you’ll need to save. Note that these are only averages. The actual costs will depend upon a number of factors such as your age, where you live, what kind of car you drive and your driving record:
- Car insurance: $1,426 per year
- Maintenance: $1,000 per year
- Gas: $1,500 per year
Compare accounts to help you save for a car
When trying to save money for a car, avoid savings accounts with fees and compare key features such as eligibility criteria, rewards and bonuses, special programs and accessibility to your funds.
Bottom line
Make saving for a car a little less daunting by starting early and setting goals. Once you’re ready to open an account, compare savings accounts to find a product that’s right for you.
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