Holding your money in cold cash was a thing in the past. Thanks to the emergence of savings accounts, a tiny card can now keep your thousands of dollars, if not hundreds, making it easier to bring your money everywhere. So, how is a savings account most useful?

These days, you can even access your finances through an online savings account. As a result, you can buy anything from across the globe. Gone are the days that purchases and usage of money are limited to physical interactions.

What is a Savings Account?

A savings account lets you keep your money which you don’t have to spend or need at the moment in an institution.

This account is also helpful in achieving your savings goals. For instance, you want to save money to buy a car. Instead of dropping coins or keeping paper money in your piggy banks, you can open a savings account. The bank will then safely keep your money until you’re ready to use it.

Types Of Saving Accounts

When opening an account, you can choose any of the types below:

1. Student Savings Account

Even if you’re still in school, you should start opening a savings account. A student savings account is best if you’re still studying.

With this, you can enjoy a much lower monthly balance requirement than what other types of accounts require. Other accounts providers offer zero monthly fees to help you build your savings much quicker.

2. Money Market Account

If you want to gain interest from your deposits, then a money market account is one of the best options. The best thing about such an account is that it has higher interest rates than regular savings accounts.

However, this account has higher fees and larger initial deposits.

3. Online Savings Account

Most online savings accounts providers offer no minimum balance requirements. Others even have cheaper monthly fees, while others don’t have one.

You can choose traditional banks offering online accounts or go to online-only banks. Afterwhich, you can use it for remote deposits and online bills payments.

4. Basic Savings Accounts

As its name sounds, this is the simplest type of savings account. You can use it to withdraw money when you need some or deposit more to gain interest.

There’s a limitation, though. Most basic savings accounts only allow you to transfer or withdraw funds up to six times each month. If you want an unlimited withdrawal or transfer of funds, you can still do so, but it must be an over-the-counter transaction.

How is a savings account most useful
I Don’t Want to Be a Millionaire goes into savings being a tool of paying yourself first.

How Savings Accounts Work

Banks aren’t the only ones that provide savings accounts. Financial institutions like credit unions, brokerage firms, and investment firms also offer such accounts. That’s because deposit and savings accounts are their sources of funds for providing loans.

However, these institutions have varied interest rates. Some may have higher interest rates, while some offer fixed rates.

That’s why before opening an account, you must understand the bank’s policies. Also check if they offer no balance requirement or vice versa. This way, you can avoid paying charges or fees for not meeting the required balance.

When it comes to depositing or transferring money to your account, you can do so via direct deposit, ATM, branch, or online. Some banks even offer phone transactions.

For withdrawal fees, some impose a fee when you exceed their minimum required number of withdrawals.

As to the interests you can earn, you’re more likely to incur taxes. Some institutions have fixed tax rates, while others may only charge you when you make more than $10.

With such differences, you must always check them with your prospective bank.

Features Of Savings Account

Aside from the mentioned differences above, it’s also best to open an account on banks with the best features. Here are some vital features that a savings account must have:

1. FDIC Insured

This is the first and most vital feature you should look for in an account. The Federal Deposit Insurance Corporation (FDIC) protects money up to $250,000. This assurance means that even if the bank goes bankrupt, your money in this category will be safe and protected.

2. Automatic Savings Transfers

If you have income that you want to go into your savings account automatically, then find a bank that offers such a feature. Having this feature will prevent you from spending your hard-earned money.

3. Online Transfers

You can also enjoy instant access and control to your account if it has online transfers. As mentioned, you don’t need to physically go to the bank to send money to other accounts. All you need is an internet connection.

Advantages and Disadvantages Of Savings Account

There are also pros and cons of a savings account. Knowing these things will help you gauge if opening such an account is suitable for you. Here are some of them:

Pros

  • No lock-in period
  • Automated bill payments
  • Low startup requirement
  • Protection under FDIC

Cons

  • Varied interest rates
  • More temptations to spend money due to its ease of accessibility
  • Withdrawal limits

How to Maximize Earnings From a Savings Account

A savings account doesn’t only safe keep your money. You can also use it to increase your capital through the following:

1. Start Investing

Here, you can invest in securities and mutual funds via your savings account. All you need is to set up systematic investment planning (SIP) that automatically lets you invest in your chosen mutual funds and other securities.

2. Choose a High-Yield Savings Account

Most importantly, you should choose a high-yield savings account if you want to earn high interests. This means you can earn more than the general interest rates offered by basic savings accounts.

Another is to choose certificates of deposits (CDs) to put in your savings. They have a higher annual rate per year than regular savings accounts. However, this sets a required period before you can withdraw your money.

Why Everyone Should Have a Savings Account

Everyone should open a savings account because of the mentioned features and benefits. Moreover, cold cash can get stolen, lost, or destroyed, so placing them in your savings account can guarantee safety.

You can also resolve emergencies if you have enough funds in your savings accounts. Instead of taking out loans, you can use your emergency savings for such urgent matters. This can result in the avoidance of paying loans for years.

Key Takeaway FAQs for the article:

Is a savings account good to have?

Of course. It may have some disadvantages, but its pros outweigh the cons. Moreover, your savings account can force you to manage your finances better and easier. Do so by taking advantage of the features such as automatic fund transfers and the like.

How to use a savings account effectively?

As mentioned, your savings account can help you during emergencies. However, you need to do it right. This means you should practice placing funds into your savings account regularly. Even if you start saving small, it could accumulate and grow, helping you achieve your financial goals.