Interest rates are now incredibly low. If you are applying for a mortgage, this is good news. But if you are looking for a high-yield savings account, this is terrible news.
According to the FDIC, the average interest rate on a savings account is 0.06%. To give you an idea of how low this is, it takes a full year for a balance of $2,500 to earn $15 in interest.
But what if we tell you that you have a savings account that can increase your money sixfold immediately? That is your balance multiplied by six! For every dollar saved, you will receive a matching fund of $5?
This sounds too good to be true, but it is not.
What is a personal development account?
A personal development account is a savings account with a specific purpose. For example, you might open an IDA with the purpose of buying your first house, buying a car, or paying for college tuition. IDA can also be used to fund the development of small businesses and micro-enterprises.
Personal development accounts are usually funded by government programs. The funding for the program is then managed by a non-profit organization. You contact a non-profit organization to set up an IDA, where you will receive funds that match the money you saved. Most IDAs will match your donation per dollar per dollar. However, some programs are even more generous.
Oregon has one of the most powerful IDA programs in the country. Through the Oregon IDA program, most accounts currently match participants’ contributions 3:1. This means that for every dollar saved by participants, they will receive three matching funds, quadrupling their monthly savings.
Holly McGuire, Director of Economic Opportunities Neighborhood partnership In Portland, Oregon, he said the match rate would be higher there. Most projects across the state are currently transitioning to a 5:1 match ratio. This is similar to getting 500% interest immediately after you deposit the deposit in your savings account.
Who is eligible to participate in the IDA program?
Most IDA programs are income-based and are offered to low-income individuals. However, even if you don’t necessarily consider yourself to be a low-income family, you should consider looking for IDA.
For example, the IDA program in Oregon allows IDA participants to earn 200% of the federal poverty level or 80% of the region’s median income, whichever is higher. The 200% federal poverty line for a family of four is currently $53,000. 80% of the regional median income of the same household in Multnomah County, Oregon is $77,350.
Because the regional median income is large, a family of four with an annual income of $77,350 or less will be eligible.
You may see that most (if not all) IDA programs require you to live within a specific set of geographic boundaries.
IDA plans may also include asset testing or resource restrictions. We will again use Oregon as an example. According to this IDA plan, your net worth must be US$20,000 or less. But the value of your first home and your first $60,000 saved in a tax-friendly retirement account don’t count.
The eligibility requirements for IDA programs may vary from state to state, and even from program to program. If you are not sure whether you are eligible for a local personal development account, please ask. The income limit may be higher than you think.
Is there a limit on how much I can save?
Yes it is. The upper limit of how much money you can save in your personal development account varies from program to program.
The IDA program in Oregon allows your donation and matching amount to increase to $3,000 every 12 months. With the new 5:1 match ratio, this means that IDA participants only need to save $600 per year to reach the maximum limit of the program.
The upper limit, like the eligibility limit, will vary based on where you live and the IDA account you can use.
Does IDA provide financial education?
IDA projects are almost always related to financial education. In fact, in some cases, this kind of free financial knowledge training will be necessary.
Oregon requires completion of financial education courses managed by local non-profit organizations. Non-profit organizations will also help participants develop personal development plans, where they will receive guidance on specific goals.
“For example, micro-enterprise savers work with small business centers to develop business plans,” McGuire said. “Home buyers will work with the housing center to understand the ins and outs of buying a house.”
Before your matching funds can be paid to your IDA, the courses and plans for your savings goals need to be completed. Your non-profit organization can help you develop a monthly savings plan so that you can maximize the use of matching funds.
The financial knowledge education requirements for participants is one of the characteristics of the plan, which will change according to your place of residence.
How do I find the IDA project closest to me?
Before 2017, personal development accounts were easier to find. Through a program called “Independent Assets” (AFI), federal funds are set aside for these programs nationwide.
“Many programs exist because AFI,” McGuire said. “According to the Tax Cuts and Employment Act, it was cut. AFI has just been eliminated. “
She said, therefore, there are not many projects of this size in Oregon. However, this does not mean that you should give up searching. Without federal funding, a few projects have not disappeared, but have shrunk. Just because of the lack of federal funding, all donations now come from non-federal funds.
Coupled with the fact that when AFI disappeared, information about local IDA became more scattered, making it difficult for you to find a specific search tool. Your best option may be to perform a hyper-local Google search or contact your local United Way.
Statewide IDA Program
However, some states are developing active statewide plans or plans.For example, Vermont has a Matching savings program. Although it is not as powerful as the IDA program in Oregon, program participants can obtain matching funding from one dollar to one dollar. McGuire said Massachusetts may soon have a similar project.
The future of personal development accounts
Will the personal development account or matching fund savings plan be easier to find or access in the future?
They may be. There have been rumors about policy making at the federal level. According to McGuire, the projects running in Florida and Arizona are considered a national model. Another policy proposed by advocates across the country is the Commitment Account, which operates in roughly the same way as IDA before the AFI funding cut.
“The reality is that our country’s wealth structure is unfair,” McGuire said. “Many narratives about poverty indicate that people are poor because they did something wrong. But the main problem for the poor is not poor financial management skills. The problem is that they don’t have enough money.
“In order to solve poverty,” she continued, “we need to support people in getting rid of structures built to hold wealth in the hands of a few.”
The personal development account does just that, and it also supports the development of local small businesses. Hopefully, in the future, they will be restored to their full scope before the TCJA.
Before that, see if there is a block hidden near you.
Pittsburgh writer Brynne Conroy is the founder of the Women’s Thrift blog and the author of “The Handbook of Feminist Finance.” She is a regular contributor to The Penny Hoarder.