Storing your money inside a safe or under a mattress might seem secure but it’s dangerous in the event of theft or a fire. Having a savings account is one of the simplest ways to keep your money safe and ensure it earns some interest over a specific period of time. Savings accounts are offered by banks and credit unions, which are both federally insured. Opening a savings account is the first wise decision that the financially prudent individual should make. Let’s take a look at a few of the reasons why you should open a savings account.
What is a savings account?
A savings account is a demand deposit account held at a financial institution that earns interest. A demand deposit account allows you to withdraw money at any time with no advance notice. Interest on a savings account is compounded on a daily or monthly basis.The two basic types of savings accounts are online savings accounts and traditional savings accounts.
Online savings accounts are offered by online banks who pay higher interest rates and have fewer brick and mortar locations. Traditional savings account pay lower interest rates but are more convenient due to having more locations. Traditional banks also offer larger loan options such as home loans and auto loans. Traditional banks pay lower interest rates due to their high overhead costs. Online banks are typically the best deal for savings accounts with no fees and higher interest rates.
Why should you open a savings account?
Safety
Opening a savings account allows you to store cash funds safely and securely at a bank or credit union. Keeping cash at home is not safe as money can be stolen, lost or destroyed in the event of a fire. You cannot lose money in a savings account. Unlike investments in stocks, real estate, or bonds, the value can never decline. Even if the bank or credit union fails, then your savings are insured by the federal government. Bank savings accounts are insured by the Federal Deposit Insurance Corporation (FDIC) and credit union accounts are insured by the National Credit Union Administration (NCUA) so you avoid the risk of losing money.
Purpose
A savings account is very useful for setting money aside for short-term and long-term goals. A savings account is useful when saving for a car, home, vacation or a big purpose. It is also vital to keep your emergency savings at a bank. Emergency savings safeguard you in the event of illness, job loss, or a major financial crisis.
Liquidity
Savings accounts offer easy access to your cash whenever you need it. You can withdraw your money at any time. All you have to do is withdraw cash from the ATM or visit the tellers in your bank. You can also transfer funds to your checking account to access your cash by check or debit card.
Interest
While savings account pay low interest rates on your savings, they do still offer some interest income. It’s better to make 2% interest than nothing! Compound interest will help to add a few extra dollars on your savings account balance.
How to open a savings account?
Don’t worry – the process of opening a savings account is relatively hassle-free and really fast. If you have all of your information, you can get it done in a few minutes! The easiest way to open an account is to do it on a laptop or desktop PC. Opening an account on a smartphone is still challenging. If you need help or in person assistance, visit a bank branch. Remember, the account holder needs to be at least 18 years old. In case, you are opening an account for a minor, you need to open a custodial account.
Do your due diligence first.
Compare interest rates, fees, minimum balance requirements, of different banks. Opt for a savings account that pays the highest interest rate on your money with no account maintenance fees. You should never pay fees for money you are trying to save. A savings account should not cost you money but make you money. Online banks like CIT Bank and Capital One Bank pay fantastic rates and have no monthly feed. Check out the interest rate at your local credit union as well. If you are considering credit unions, ensure that you meet the eligibility criteria for joining.
Select the best account for you.
Once you zero in on an option, make sure it fulfills all of your requirements. Some savings accounts require a minimum of $10,000 to earn the highest interest rates while others may only require $1 to earn a great rate. Get an account that’s easy to use and that you will actually put money into, whether that means the branch is suitably located or the mobile app makes sense to you.
Have your account info ready.
Find out what you need to open an account – government-issued identification (a driver’s license number, military ID, or other ID), your Social Security number, and a mailing address.
Submit your application.
Open the account online or in-person after filling out and submitting an application.
Fund Your Account
An initial deposit might be required. A lot of accounts can be opened with $0 or $25. The amount needed to initially fund the account varies depending upon the institution.
Final Thoughts
Remember that savings accounts are not checking accounts. They are not designed to facilitate a high volume of transactions. You can make unlimited deposits to a savings account in a month but can only perform a maximum of six withdrawals per month. Make sure that the bank is FDIC insured so that your money is safe. Once you have accrued over $1,000 in savings, open a high interest money market account.
Opening a savings account is convenient, so if you are yet to open one, go ahead and do it ASAP!
Read why CIT Bank is my favorite online bank.
