Interest rates are incredibly low right now.
Thats good news if youre applying for a mortgage.
But its terrible news if youre looking for a high-yield savings account.
According to the FDIC, the average interest rate on savings accounts is 0.06%.
But what if we told you there was a savings account that could immediately sextuple your money?
Thats your balance times six!
For every dollar saved, youd receive $5 in matching funds?
It might sound too good to be true, but it isnt.
What are Individual Development Accounts?
An individual development account is a savings account with a specific, set purpose.
IDAs can also be used to fund small businesses and micro enterprise development.
Individual development accounts are typically funded by a government program.
Then, the funding for the program is administered through a non-profit organization.
Most IDAs will match your contributions dollar for dollar.
However, some programs are even more generous.
Probably not as good as youd like.
It always seems like an uphill battle to build (and keep) a decent amount in savings.
But what if your car breaks down, or you have a sudden medical bill?
Through the Oregon IDA Initiative, most accounts currently match participants contributions 3:1.
That means for every dollar participants save, theyll receive three in matching funds, quadrupling their monthly savings.
Most programs across the state are currently transitioning to a 5:1 match rate.
Who is eligible for IDA programs?
Most IDA programs are income-based, being made available to low-income individuals.
Two hundred percent of the federal poverty level for a family of four is currently $53,000.
Eighty percent of the area median income for the same family in Oregons Multnomah County is $77,350.
Limits on Assets
IDA programs may also include an asset test or resource limit.
Well look to Oregon as an example again.
Under this IDA program, your net worth must be $20,000 or less.
The eligibility requirements for IDA programs can change from state to state or even program to program.
If youre not sure if you qualify for your local individual development account, ask.
The income limits may be higher than youd think.
Is There a Cap on How Much I Can Save?
Oregons IDA program allows for your contributions and the match to add up to $3,000 every 12 months.
Do IDAs Provide Financial Education?
IDA programs almost always come attached to financial education.
In fact, in some cases, this free financial literacy training will be a requirement.
Oregon requires completion of a financial education course administered through local nonprofit organizations.
Nonprofit organizations will also help participants create a personal development plan, where theyll receive goal-specific coaching.
Microenterprise savers, for example, work with small business centers to develop a business plan, says McGuire.
Home buyers would work with housing centers to learn about the ins and outs of home buying.
Your nonprofit can help you figure out a monthly savings plan so you might maximize your matched funds.
How Do I Find an IDA Program Near Me?
Prior to 2017, it was relatively easy to find an individual development account.
Many programs existedbecauseof AFI, says McGuire.
It got cut under the Tax Cuts and Jobs Act.
She says that as a result, there are not many programs left of Oregons size.
However, that doesnt mean you should abandon your search.
Without the federal funding, a select few programs havent disappeared so much as shrunk.
Its just that all the contributions now come from non-federal funds due to the lack of federal grant money.
Vermont, for example, has aMatched Savingsprogram.
Though it isnt quite as robust as Oregons IDA Initiative, program participants can receive dollar-for-dollar matched funds.
McGuire says that Massachusetts may have a similar program soon.
ArizonaandFloridahave a pop in of IDA program specifically for participants saving for higher education.
There have been rumblings of policy development at the federal level.
The program running in Florida and Arizona is being considered as a national model, according to McGuire.
The reality is that wealth is structured inequitably in our country, says McGuire.
A lot of narratives about poverty suggest people are poor because they did something wrong.
But the main problem that poor people have isnt poor money management skills.
The problem is that they dont have enough money.
Individual development accounts do just that, while also supporting the growth of local small businesses.
Hopefully, in the future, theyll be restored to their full breadth prior to the TCJA.
Until then, look to see if theres one hiding in a neighborhood near you.
She is a regular contributor to The Penny Hoarder.
When you log into your bank account, how do your savings look?
Probably not as good as youd like.
It always seems like an uphill battle to build (and keep) a decent amount in savings.
But what if your car breaks down, or you have a sudden medical bill?
