If you’re looking to save some money on a short term basis while simultaneously growing that amount, a savings Account could be a great option
Savings Accounts pay interest, which makes them a smart choice to put aside the money you won’t be accessed immediately. This makes it ideal for short term saving purposes like making the down payment for a house, saving up for a vacation, a wedding, buying a car or just keeping money aside for emergencies.
How Savings Accounts Work
A savings account is typically opened to keep aside money not meant for casual expenditure It is a deposit account at banks and other financial institutions that pay a certain interest rate on that amount. Your bank will make small additions to your account every month based on their willingness to compete with other banks offering similar savings account options.
In some cases, there is a minimum monthly amount required to maintain the account. There are also monthly limits imposed on the number of withdrawals made for a savings account.
Experts recommend that a savings account always hold funds able to sustain the account holder for anywhere from three to six months. Unforeseen circumstances could leave you needing money for emergencies, which savings account with its interest rate could greatly contribute to.
The Pros and Cons of a Savings Account
- Pro: A savings account keeps your money safe. You can be assured that your funds at the bank are safe since banks and credit unions are insured themselves by the Federal Deposit Insurance Corporation.
- Con: A savings account isn’t recommended for long term investments as they pay lower interest rates than other long term investment options.
- Pro: For funds that aren’t required on an everyday basis, its recommended to keep them in a savings account. Banks pay interest on the amount that is kept in these accounts.
- Con: The accessibility of funds from this account may cause you to be tempted to use them.
How to open a Savings Account
Choose to go to a bank or financial institution after researching minimum balance requirements, credit, interest rates, etc. that suit your needs.
Collect all documents you might be required to submit. Carry your government identification, social security numbers, and any other necessary documents.
Go to your bank in person and submit an application or choose to open a savings account online from your bank’s website.
How to use a Savings Account
To deposit funds to your account:
- Ask your employer to make a fixed direct deposit by spitting your salary between your savings account and checking account.
- Deposit cash traditionally at your bank’s teller window or at some ATMs.
- You can deposit funds from your checking account to your savings account internally.
- Make transfers from other banks to your savings account via online transfers.
When you need to access funds from your account:
- Withdraw cash directly from an ATM.
- Transfer funds from your savings account to other accounts internally.
- Make electronic transfers directly from your savings account to any other bank accounts you might have.
A savings account is a great place to officially demarcate between the money you use for your everyday expenditure and money that is saved for a later date. The money you put aside in a savings account could be helpful in the event of a job loss, an accident or other unexpected circumstances.
Dana George-Berberich is a freelance reporter and novelist. She has written finance articles for newspapers across the country and for companies like Dun & Bradstreet and Bankrate.
