8 Frequently Asked Questions About Savings Accounts
A savings account is a popular type of bank account that is typically used to deposit money and keep it safe. Savings accounts are great tools because they allow you to withdraw funds when you need them, and earn interest on your money when you don’t. You will want to ensure that the institution you choose is FDIC insured and will pay interest on the money you deposit. Below you will find eight frequently asked questions about savings accounts designed to provide you with the basic knowledge you need to determine if a savings account is right for you.
What Are The Benefits To Having A Savings Account?
- One of the great parts about having a savings account is that they are usually free. They are also relatively common, so you can find find them at most community banking institutions, online banks, and local credit unions.
- Setting aside funds for long-term goals is also a smart way to avoid impulse spending. Additionally, using a federally insured institution for your savings, can help you avoid physical damage to cash on hand, as well as dangers that exist if a bank or credit union fails.
- Savings accounts offer easy access to your stash of cash. When you are ready to spend your money, simply withdraw cash or transfer funds to your checking account. Savings accounts also allow users to conveniently make withdrawals with bank’s tellers or at ATMs.
Is Opening A Savings Account Easy?
Yes! Opening a savings account usually takes less than an hour and can sometimes even be accomplished in a couple of minutes. Conveniently, most of us can open an account with a smart phone or mobile device. You can also visit a local bank branch for one-on-one assistance.
You will want to do your research before you choose a bank. Experts recommend comparing banks for their interest rates, minimum balance requirements, fees, and other services that come with your account. Look at eligibility requirements and make sure you have all the required documents to open your account like a government-issued ID, your Social Security number, and a physical mailing address.
Most banks require that at least one account holder is 18 or older. You will want to talk an account specialist if you have a large amount of cash to deposit. You will also want to make sure you have the funds on hand to provide the initial deposit if one is required.
How Do I Add Money To My Savings Account?
Here are some of the more common ways you can add money to a savings account:
- Cash can be brought into your local bank or credit union branch. Cash deposits can be made at most ATMs both inside and outside of normal banking hours.
- Checks can also be deposited directly into a savings account. This can be done with an ATM card or inside the bank with your account number on a deposit slip. Most banks allow account holders to deposit checks with a mobile device or smart phone.
- Savings accounts usually allow transfers from a checking account at the same institution. This is only an option if you have a checking account that is linked to your savings account.
- Electronic transfers from outside banks are another option for depositing funds into your savings account.
- Direct deposits can be an option if your employer offers it. You can also have your paycheck split so that some of it is directed to your savings account and some is routed into your checking account.
What Kind Of Interest Can You Expect To Earn From A Savings Account?
In today’s market, interest rates are relatively low. On average, most savings accounts pay less than one percent interest annually. That being said, you will need to do your research because some savings accounts do offer higher interest rates than other institutions.
Are There Any Costs Or Limitations?
Most savings accounts are free, but there are limitations consumers should be aware of. First, there are usually minimum balances required to keep an account open. If you do not maintain the minimum balance, you will typically be charged a monthly fee. These fees are usually withdrawn directly from your savings account. If this happens and you do not have enough money to cover the fees, overdraft fees could accrue until the account is brought back up to the minimum balance requirement.
Many banks also is a limit to the number of withdrawals that can be made on a savings account within a certain period of time. This number is typically dictated by the Federal Reserve who sets this number at six in 2018. If you happen to make more withdrawals than six during the given period, banks can modify your account so that it becomes a checking account with different fees and rules. You will need to check with your banking institution to see what their individual polices are with respect to limits on withdrawals.
How Can I Use My Savings Account?
Many people use savings accounts to keep their money secure for future necessities. If you happen to need your money in the long term you can also earn interest while your funds sit in the bank. The amount of interest might not be as high as other types of banking tools, but you will have a level of safety that many other accounts do not offer.
Some of the more common uses for savings accounts include:
- An emergency fund is one of the most highly recommended uses for a savings account. Experts advise that you set aside money to cover at least 6 months of bills and possibly more if you have the discipline.
- Many people use their savings account to create a vacation fund. Try putting aside a little bit each month from your checking. Once you remove it to a separate savings account, you will be less likely to spend in on an impulse purchase.
- Major purchases like a house or a car. These types of purchases usually require a down payment that can be conveniently built up over time in a savings account. A healthy down payment also allows users to get better interest rates and pay off loans more quickly.
Can I Have Multiple Savings Accounts?
The answer to this question is yes. In fact, many people find that it is useful to have more than one savings account. This can be a handy tool when you want to save for multiple purposes like Christmas, a vacation, or a major purchase all, at the same time.
Users enjoy the ability to keep tabs on money being saved for specific purposes at any given time. With a dedicated savings account, it is easy to track your progress toward that special purchase with little fuss or hassle.
The drawbacks include potential bank fees and a challenge managing multiple accounts at the same time. However, online savings accounts typically offer decent rates with low minimum balances that allow users to avoid bank fees in most instances. Additionally, online banking apps make it easy to move money between accounts and track them.
Are There Any Alternatives To A Basic Savings Account?
While savings accounts are a popular option for those wishing to set aside funds for the future, there are other options available. Here are some of the other great choices you can use to save your pennies for a rainy day:
- Money market accounts: These types of accounts pay interest on deposits, but they limit how often you can make money transfers. They usually pay more interest than savings accounts on average, and make it easier to spend your money when and how you want. These accounts also provide users with a checkbook type ledger so they can track spending. These accounts are useful for emergency savings or large, infrequent payments.
- Certificates of deposit are a wonderful option if you want an alternative to traditional savings accounts. CD’s require a commitment to leaving savings untouched for at least six months. Each institution has a varying time commitment, but the vast majority have a penalty if you cash out your CD early. Some CDs are a bit more flexible when it comes to time commitments. These usually offer a penalty-free early withdrawal, but come with a slightly lower interest rate.
- Online savings accounts another great option for lower bank fees and higher earnings. Because they do not have the same overhead costs as brick-and-mortar banks, online banks can offer some amazing perks, including the highest-yield savings accounts. Most online institutions allow you to get started with as little money as a dollar. You can also get an ATM card for withdrawing cash at many regular ATMs. Transferring funds to or from your local bank usually takes about three business days and adding funds can be as easy as depositing a check with your smart phone.
Whatever the case may be for your personal savings plan, always be prepared to do your research and compare options. In the end, the account needs to work for you and your specific needs. And if you still have questions after all your research, you can speak to a banker at a local bank or give an online banker a call today for further information.