Personal Savings Products: Savings Accounts

If you want to save money toward a goal, you need a savings account. A checking account is not enough for most people because it’s too easy to spend. Your checking account should hold enough funds to pay your bills and cover your monthly expenses plus a little cushion. If you want to save money, you need an account that is separate from your checking but where your funds remain accessible. A savings account is a good option as long as you manage it properly.

Why Open A Savings Account?

Chances are you have a savings account already. If you don’t, here are a few reasons why you should:

  • To save for emergencies
  • To save for big-ticket purchases
  • To save for unexpected expenses or unemployment
  • To encourage financial stability
  • To discourage spending
  • To earn interest

Opening A Savings Account

If you do not have a savings account, you can open one within minutes in person or online. Opening an account with a bank or credit union ensures your money is safe because it is Federal Deposit Insurance Corporation (FDIC) insured. Once you open an account, the bank pays you interest on the money you deposit and leave in the account. Interest compounds daily and is paid out on a monthly basis.

Maximizing Earnings

Savings accounts today offer higher interest rates and perks. If you take full advantage of them, you can actually make some money while you’re saving for your future. Here are some tips for maximizing your earnings with a savings account:

  • Search around for high-interest savings accounts. Accounts described as “high-yield” typically have competitive rates. A quick Google search will return many options.
  • Search for banks offering bonuses or incentives for opening an account. These accounts may require a minimum opening and monthly balance or direct deposit. Be sure you understand the terms of the account.
  • Control account fees. If your bank requires a minimum account balance to avoid maintenance fees, make sure you keep that minimum amount in your account at all times. You can also search for banks that offer accounts with no maintenance fees.
  • Fund the account according to your financial goals. Only put in what you can afford. Remember, the idea is not to withdraw from the account until you have met your short-term or long-term savings goal. The higher the balance, the more interest you will earn and the more money you will make.

Managing Your Savings Account

To get the most out of your savings account, you must manage it properly. Do not think of it as just another account. This will defeat the purpose of your savings. Instead, make it difficult to access. Do not order debit cards for the account. Here are some tips on how to use a savings account:

Define your short-term and long-term financial goals. If you want to buy a new home, car, start a new business, or save money for retirement, you should define your short-term and long-term goals and a strategic financial plan to meet them.

Pay off debts. You will not be able to put much money into a savings account if you hold a lot of debt. Pay off your debts first so that you can begin to work towards your savings goals.

Pay yourself first. Once your debts are paid off, pay yourself first. Decide how much you want to save each month and transfer that amount into your savings immediately. If you use direct deposit, you can have the bank automatically draft the money into your savings, so you don’t have to think about it.

Only put in what you can afford. Putting too much into savings can leave your checking account a little short. You want to avoid digging into your savings to pay bills or expenses. Only put into savings an amount you can live without.

Separate your savings account from your checking account. Online banking makes it easy to transfer funds back and forth between accounts. Avoid the temptation to withdraw funds from savings for anything except your financial goals.

Manage the balances in your accounts. If you have both a checking and savings account that are linked, be sure you manage the balances in both accounts to avoid overdrafts. You will be charged fees for overdrafts even if your accounts are linked. You also want to avoid having money taken out of your savings to cover deficits in your checking. Be sure to manage your money wisely.

A savings account is a good idea if you are saving money toward a short-term goal or if you are a risk-averse investor. While you are not earning as much interest as you would if you have opened a certificate of deposit (CD) or other investment account, your money is accessible when you need it without penalty. It is a good addition to your financial plan but should not be your only savings plan. Consult a qualified financial planner who can help you review your assets and create a plan that fits your lifestyle.

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