Find out the basics about saving accounts

Did you know that as of 2019, the average, single American in their mid-thirties had less than $3000 in their savings account and some found it difficult to save anything at all?

This shocking question proves one thing — a large percentage of the population in our country is barely managing to keep their head above water. Between paying utility bills, mortgage, rent, student loans, and surviving, people often lack the ability or the motivation to put aside a teeny bit into savings. This does not appear to be the worst news until they’re faced with unknown and unexpected financial hardships. So, how do we ensure there’s always a nest egg to fall back on? The answer is simple — savings accounts.

What is a savings account?

A savings account is an account where you can deposit your cash for a certain interest rate in return. It is usually set up at a bank or any other financial institution.

Why should you get a savings account?

The amount accumulated in a savings account acts as an emergency fund in times of dire need, thereby helping reduce one burden at least when you’re undergoing a financial crisis. But this is not the only advantage, savings accounts come with a ton of other benefits, such as the ones discussed below:

• Interest accumulated: Savings accounts pay interest on the amount deposited, which means that for a particular principal sum, you will be earning a certain amount of interest on a monthly, quarterly, or yearly basis. While the savings account’s interest rate is generally lower than other investments, they are a safe way to save. Keep in mind that rates differ in terms of age bands and banks.
• They are great for short-term savings: If you want to save for something special like a new car or a vacation in the Bahamas, savings accounts are the best way to go. This does not mean you have to open it specifically for a reason, you can get one to simply put in any surplus amount of their choice.
• Easy liquidity: One of the biggest advantages of a savings account is the liquidity that it offers. You can literally access your entire savings at any time and move money around with ease.
• Setting up an account is super easy: The process of setting up a savings account with any bank is very simple. With internet banking, you may not even have to go to the bank to set one up but this depends on the establishment that is offering it.
• Your money is safe: Would you believe us if we told you that your money is safer at the bank that it is in your locker at home? According to the FDIC, Your savings account is federally insured up to $250,000, per depositor, per insured bank.
• Can be easily linked to your checking account: Your savings account can also be linked to your checking or paycheck account. This ensures a smooth flow of money between your primary account and your savings one if you want to do more than six withdrawals per statement cycle.

Despite all these fantastic and truly convincing benefits, there are some disadvantages to having a savings account that you must note. The biggest one is the fact that you can access your account and the sum in there too easily. These easy withdrawals can lead to overspending, throwing your plans of saving out the window. Another con is that if you have only one account, you are allowed only six withdrawals per month, despite the fact that there is no limitation to the amount withdrawn. Luckily, there are ways you can work around these limitations.

How much should you try to put in every month?

Any amount that you want to put in your savings account will depend on why you’re opening the account.

• If it’s an account to put any surplus amount, your monthly amount is bound to vary.
• If it’s to save for something specific, then you’ll start with zero but slowly build to your desired amount. In such a case, you may want to think about your expenses, the amount you are able to set aside, and the time within which you want to buy the item.
• If the account is created as an emergency fund, advisors typically recommend that the savings amount should be able to cover around three to six months of expenses. This emergency fund covers situations such as loss of employment, unexpected medical expenses, or any unknown circumstance.

How to choose a bank for a savings account?

Almost all banks offer low rates of interest when it comes to savings accounts. But, this is not a general rule. Most credit unions and online banks offer higher rates of interest on savings accounts. Online banks do not have to account for physical branches and thus can offer better and competitive interest rates.

The only way to choose the right one for you is to look around and find one that suits all of your needs. This search begins with the bank where you already have a checking account. Opening an account in the same bank may not give you higher interest rates than other banks but will offer you other intrabank benefits.

But, if that’s not working out for you, you can always look for competitive rates in other banks once you have a framework of what you’re looking for. Try avoiding promotional offers on savings accounts as they usually come with some underlying clauses that will later lapse and can curtail your benefits after a certain period of time. One of the most important things to remember is that you want to steer clear of banks that cut into the interest you receive with fees or unnecessary charges.

Now, armed with all this information, it’s time to plan your future and ensure that you always have some monetary fallback in times of need. Choose wisely to ensure that your money, and your stress levels, are safe and secure.