A savings account is a safe place to deposit your money. It is a secure place where the bank keeps your money while providing you interest in return; you get paid for saving your money. You can earn an annual yield of around 0.50% on savings accounts. Banks are safe because your money is federally insured for up to $250,000. So even if a bank fails, you will not lose your money.
Is there really a need for a savings account?
Savings accounts help you save yourself from the warp of miscellaneous shopping or overspending. You can store money for future emergencies while also earning good interest in it. You can use the checking account to pay your bills and the savings account to store money.
How much money should I deposit?
If you don’t want to be stuck in the dilemma of low finances, it is advisable to store at least an amount that can last for 6 months in case you lose your current employment or get into an emergency. It can also be the amount equal to your 6 months’ income. If you want to buy something special or have other goals, you can save an additional amount as per your preference. You don’t need to add thousands of dollars every month, even the minimum amount will be collateral during the time of emergencies.
You can start the saving process by transferring as little as $25 from your checking to your savings account every month. After saving a good amount, start aiming for long-term goals and consider whether you want to open an IRA. IRAs are a bit riskier than a savings account but good for the long run.
Essential features of savings account
Good APY can help in growing money
As a token of gratitude for providing funds to the bank, the bank pays interest on your money. This interest has very low rates in the expensive brick-and-mortar banks. However, you can take the smart choice and open a savings account in online banks having higher APY compared to the national average of 0.06%. You also don’t have to pay the maintenance fee and get the provision of starting with a small minimum deposit amount.
You will get limited access to money
Making transactions from a savings account is limited to only up to 6 times a month. If you continue beyond that limit then a fee might be imposed. However, if you withdraw this money through a teller or an ATM, it doesn’t add up to the limit. The 6-month cap was relieved by the Federal Reserve in 2020 because they wanted to provide more access in the distressing time of Covid. However, you should still not withdraw money often from the savings account as the main purpose is to save for your goals.
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Other ways to save money
Here are some options that are also federally insured.
Certificate of Deposit
A CD is used to save money over a fixed period. The term can range from somewhere between 3 months to 10 years. It is advisable to only invest that money in a CD that is in excess and you won’t need it in near future. This is so because withdrawing money before the term ends from a CD imposes a penalty.
Money market accounts
These are saving accounts in the disguise of a checking account. A money market account might come with a debit card, credit card, or checkbook so you can make transactions. However, the number of transactions is still limited as with a regular savings account.
CMA (Cash management account)
CMA or cash management accounts are opened with the facility of an investment firm or Robo advisors. They are beneficial if you have an investment account with the same provider. Just like a regular savings account, CMA also provides interest.
How to find the best fit?
To find the most ideal savings account, you should start by analyzing the bank and credit unions online. The best one will have high rates, low or no fees, and provide a strong web experience to its customers.
To open an account, you will need to complete formalities like completing an application, providing social security number, and verify documents like a driver’s license or a passport. Once the account is opened, you can deposit the first amount through a check or online transfer, whatever is preferred by your bank. And voila! You are well on your way to achieving your money goals.
1. What Is the Functionality of a Savings Account?
You can open a savings account in a credit union or a bank.
You will get a stipulated percent as interest on your money.
You can add funds as per your discretion and use them to fulfill various objectives in the long run.
You can withdraw money, too but only up to a certain limit because the main purpose is to save it.
2. Will I Lose My Money?
No, one cannot lose money in a savings account as it is federally insured for up to $250,000. As such, even if there is a major breakdown of a bank, your money will still be secured. Your only concern in a savings account is the impact of inflation and it reduces the value of money over time. Today’s $1 can be tomorrow’s 0.90 cents.
3. Why Should I Open a Savings Account?
A savings account helps you save money without depleting the amount. Even when the interest on money is tumbling down, you will have it tucked away in a secure place. It helps you spend money in moderation and save for the bigger goals of life. Hence, more access to money than the investment account but less than the checking account. These are a few objectives stating why you should open a savings account.