The idea of saving resources for future use is as old as human civilization. With the flow of time, people have seen many forms and ways of saving resources. The necessity of secure ways to keep money, the most liquid form of assets, has been felt in modern times. That is where commercial banks came with the concept of ‘savings account. In this article, we will discuss about a savings account, its features, benefits, and tips & tricks.
What is a Savings Account?
A savings account is a type of service by commercial banks or retail banks that allows clients to deposit money in the bank to conserve it for short-term crises, withdraw whenever needed, and yield a little interest on the balance periodically. The account holder deposits money in the savings account steadily and accumulates an ample amount after a certain period. It is an excellent way to save money for specific significant events like buying a car or visiting a new country during a vacation. This type of account is not for day-to-day use.
Instead, it is kept for unseen expenses that may arise in the future.
Features of a Saving Account – Features That are Offered by Banks to the Clients
Insured deposits: A savings account ensures that your money is secured as long as the bank holds it. The Federal Deposit Insurance Corporation insures deposits up to $2,50,000 per depositor. [1] So, even if the bank you’re keeping money in fails, you won’t have to worry about getting your deposited money back.
An unlimited number of transfers and withdrawals: Until 2020, the number of withdrawals from a savings account was six times in a month. But the federal reserve system passed a new bill that revoked the old system and made the number unlimited. This step was taken as the citizens were suffering from the financial crisis during the pandemic. [2]
Interest-bearing account: Banks provide interest on the deposited amount in the savings account. This rate is much lower than the CD account. However, a high-yield savings account can much higher interest than the traditional one. [3] Moreover, If the depositor does not withdraw the interest amount, the compounded method will be applied to add interest in the future.
Limited ways of transaction: savings account holders do not get numerous ways for transacting money. For instance, they cannot draw a check for frequent withdrawals like the checking account holders.
Linkage to the current account: a linkage can be created between a savings account and a checking account of the same bank client. Money can be transferred to the checking account from the prior one at the time of crisis so that the account holder can avoid charges of overdrafts, minimum balance, etc.
Other features: No maintenance fees (if the minimum balance is maintained), Debit cards, online banking services, EMI, etc.
Benefits of Having a Saving Account
Security and safety of your money: The surplus amount of your earned money should be kept safe and secured. If you keep that lazy money in your house or any physical place, there’s a huge chance that the money might be damaged. Here comes the blessing of a savings account. A bank is the most secure and safest way to keep your money. Banks will guard your deposited money until you withdraw that. Besides, your money will also be insured by the federal government in case of failure of the respective bank.
Utilization Of Your Unused Money: If you do not keep your money in any financial institute or use only a checking account, your money will be unused and won’t keep up with the flow of time. Hence, the value of your money will be decreased in the future. Keeping money in a savings account will automatically add interest on the deposited money and help you maintain your money’s time value. Besides, the banks invest the deposited money into many sectors, which affect the national economy through proper utilization of resources.
Emergency Fund: Often, we face different unseen issues in our life that put us into financial crisis. That is why keeping an emergency fund is highly necessary for every individual. A savings account is considered to be the best way to keep an emergency fund. There are two justifiable reasons why a savings account is better than other bank accounts for keeping an emergency fund. Firstly, a checking account can give you liquid money when you demand it, but it does not interest the deposited money. So, if an emergency does not arise, the opportunity cost would be too high in a checking account. Secondly, a CD account gives you a high-interest rate, but it restricts the depositor from withdrawing money before maturity. Even banks charge the depositor for such actions.
Source to fund significant expenses: whether you want to save money for buying a car or for your next vacation, a savings account can be an excellent way to accumulate your money periodically. Usually, it’s difficult for people with limited income to bear significant expenses at a time. So, a savings account can save the day as you can accumulate your money whenever you have a surplus amount in hand. And bear your significant expenses with the saved amount along with the earned interest.
Building a habit of saving money: In life, it’s crucial to learn money management and make a habit of saving money. It helps us overcome various financial crises and ensure that we have the cash in hand when any great investment opportunities come. For instance, a job holder should save a portion of his salary each month to avoid any crisis after retirement. Or a student should save a little sum of money whenever possible to work on their dream start-up from a very early stage. A savings account is the most practical way of saving money and building such a habit. The unique features of a savings account encourage people to keep more and consistently. There are limited ways to transact money in a savings account. It helps the depositor restrain from impulse buying. Hence, it allows individuals to build better money management skills.
Flexible Transactions: Unlike a CD account, a savings account allows you to deposit money at your own pace. You can deposit your money after each month or week or even every day. The deposit and withdrawal period is highly flexible for the savings account.
EMI: savings account can be used for Easy Monthly Installation opportunities purchasing products. The debit card provided to the account holder is used for such service. Even a portion of the deposited money can be used for the down payment if necessary.
Things you Should Know before Opening a Saving Account
The bank you are considering to open a savings account will provide necessary information about their services, terms, and conditions. But it’s always great to have preconceived knowledge before doing something related to your money. Here are some valuable tips &tricks that you should know to choose a savings account accurately and operate it properly for attaining maximum benefits.
Firstly, suppose you already have a handsome amount of cash in hand. In that case, a CD account will be a better option since savings accounts offer a very low-interest rate on the deposited money. You can choose a money market, or high-yield savings account for a higher rate of interest.
Secondly, compare your options before opening an account. You should not select a bank just because of its reputation and brand image. Look for different other options and evaluate them to find out the most convenient & profitable one. Besides, you don’t have to worry about the security of your money as the federal government will insure it. It would be best if you also compare between different types of savings accounts before choosing one. Some of the savings accounts provide more interest, while some are more flexible in terms of transactions.
Fourthly, list what kind of services you want from the bank and what the bank is providing. Choosing a bank that offers more online services, e.g., mobile app to manage your transactions, debit card type and its advantages, loan options, and bank location. Determining these options will help you enjoy banking services more conveniently and gain more interest in your deposited amount. You should also assess your savings amount at each period to be consistent throughout the whole savings journey.
Finally, remember that the charges vary from bank to bank. So, if you can select the right bank and the right type of savings account, costs can be minimized significantly. Besides, you can always create a link with your current account for better transactions and cost reduction.
Bottom Line
Better money management and having a habit of saving money early can ensure a better lifestyle and help you during crises. Whether you’re a student or a job holder, or a businessman, do not procrastinate any longer. Choose the appropriate type of savings account for you and start saving money while you can!
Related Readings:
References
- What is the difference between checking and savings accounts? – Bank of America;
https://bettermoneyhabits.bankofamerica.com/en/personal-banking/the-difference-between-checking-and-savings-account - Press release – the federal reserve system;
https://www.federalreserve.gov/newsevents/pressreleases/bcreg20200424a.htm - High yield savings accounts – usnews;
https://money.usnews.com/banking/high-yield-savings-accounts
I am a finance enthusiast who writes well-researched articles and blogs on business analysis, the financial service industry, and marketing analytics. My writings result from accurate market data and the application of my profound theoretical knowledge about business.