Savings accounts are the second biggest bank account type worldwide. The first, of course, is the checking account. Savings accounts are generally used for securely storing the extra cash for people who want to have easy access in case of an emergency. On the other hand, it’s usually not so easy that you could end up spending your savings on stuff that you really didn't intend to spend it on. There are a number of different savings account types that banks are offering and here are some of them, as well as some of the pros and cons:
1. Basic Savings Account AKA Passbook Savings Accounts
This type of account can be a good introduction to both saving money and earning interest. Transactions can either be updated in a passbook (hence the terminology passbook savings) when you visit your bank or on a statement that you receive monthly. Some withdrawals, which can include debit card purchases, checks, or electronic transfers can be limited to six per month by federal law. Up to $250,000 can be deposited and is insured by the Federal Deposit Insurance Company (FDIC). This is an excellent choice for consumers looking for an easy-access low-risk savings account. These accounts, however, generally offer a lower interest rate than some other types due to the flexibility of deposits and withdrawals.
2. A Money Market Savings Account
Both credit unions and banks also offer specialized savings accounts that are known as money market accounts or MMAs AKA deposit accounts or money market savings. They're a bit different from money market mutual funds that investment companies offer since those are not insured. Up to $250,000 on deposit in a bank MMA will be fully insured by the FDIC. Fund deposited in a credit union MMA are insured by the NCUA. Some of these particular accounts sometimes offer fee waivers and/or tiered interest levels in exchange for maintaining a specific monthly balance. Money market accounts are excellent for those consumers who desire a higher interest rate than basic savings accounts. They're also well-suited to those with a willingness to maintain a larger balance.
3. Online Savings Accounts
Many consumers these days prefer to do their banking online. For them, online savings accounts are the perfect option. They offer easy access for viewing deposits and withdrawals, as well as transferring funds online 24/7. You can also withdraw funds at ATMs anytime. Funds may also be accessible from your mobile device, smartphone, or tablet. Deposits could also be NCUA or FDIC insured. Online savings account users also choose them for their relatively high-interest rates in comparison to regular basic savings accounts. They are much less expensive to maintain for the banks since they don't require human beings in branches. Often this can mean higher interest rates. These accounts are great options for customers who are tech-savvy and prefer self-service banking.
4. Automatic Savings Plans
Numerous banks and credit unions are also offering automatic savings plans. One of these could be an excellent way of developing a regular savings habit. In addition, many banks also offer lower banking fees for this type of account. A saver who wants an automatic savings plan simply needs to set it up with their bank and choose the dollar amount to have automatically transferred from checking to savings. Generally, this is done monthly on the same day of the month unless that particular day falls on a holiday or a weekend. If you’re one of those people who knows the amount of money you usually have left over after paying your monthly expenses, then you’ll want to use that amount for transferring automatically to savings. It's a good way of forcing yourself to save.
5. Certificates of Deposit (CDs)
CDs are excellent savings account options especially for people who are trying to save for a goal with a definite target date. They’re available through the majority of financial institutions and usually pay an interest rate that is considerably higher than a traditional savings account or an online account. Why? Well, your investing a fixed amount of money for a specific amount of time. It could range anywhere from just a few months to a year or more. Generally, the longer the term, the higher the interest rate. CDs up to $250,000 will be insured by NCUA or the FDIC for the purpose of protecting investors in case the CD issuer were to experience a financial issue. You might want to start considering a CD if you’re saving for a major financial goal, like purchasing a vehicle or a home, within the next five years.
Your Financial Goals
Saving is a key part of any effective personal financial plan. Your checking account can help with safeguarding your money and facilitating everyday bill paying. An investment account can help you with the job of achieving your goals, both mid-term and long-term. A basic savings account can help you with setting aside funds for your near-term goals. These could include a much-needed vacation, a bill payment, or establishment of a special fund for life's little emergencies. Whatever you're saving for, we hope that the above info will help you with choosing the best account for your personal goals.
Written by Garrett Parker
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