Do I Need a Savings Account?
Why Do I Need a Savings Account?
Are you on the fence about opening a savings account? A savings account, also referred to as an emergency fund, is a deposit account at a financial institution that earns interest. Opening a savings account can be done in person or online through an online depository institution.
Where Can I Get a Savings Account?
Online savings accounts are secure accounts that operate primarily online, without physical branch locations. Despite the lack of brick-and-mortar presence, online savings accounts typically provide the same benefits as traditional savings accounts, with the main difference being the application and management processes, which are online.
Even if a person chooses to open a savings account in person, they often still have access to online features. Many financial institutions have physical branches allowing customers to conveniently manage and monitor their savings accounts through online banking websites or mobile apps.
Benefits of a Savings Account
Savings accounts have many benefits that make them just as essential as checking accounts. If you haven't opened a savings account yet, here are some of the advantages you should know about:
● Ability to Earn Interest: Unlike most checking accounts, savings accounts allow you to earn interest on your deposited funds. By simply keeping your money in a savings account, you can watch it grow over time. The more you save, the more you earn. For example, if you deposit $1,000 into a savings account with a 3.75% Annual Percentage Yield (APY) and refrain from making withdrawals for 12 months, your balance would increase to $1,038.15 without any additional effort on your part.
● Save for Short or Long-Term Financial Goals: By keeping your extra funds in a separate savings account, you are less likely to spend them impulsively. This separation allows you to save for both short-term and long-term financial goals. Whether you're planning a dream vacation, saving for a down payment on a house, paying off student loans, or covering unexpected expenses, a savings account provides a designated space to save money over time.
● Security for Your Money: While some people may keep cash at home, a savings account offers a safer option. By depositing your money in a federally insured bank or credit union, you protect it from the risk of theft, fire, or other unforeseen disasters. All reputable savings accounts come with Federal Deposit Insurance Corporation (FDIC) deposit insurance, which covers depositors in case of bank failure or default. Each depositor is insured up to $250,000, including accrued interest.
● Financial Emergency Support: Life often brings unexpected expenses, and having a savings account can provide a safety net during those times. Whether it's a car repair, medical treatment, or any other unforeseen financial burden, having readily available funds in a savings account can help you cover the costs without resorting to loans or incurring debt like title loans.
Some Fees That Can Come With a Savings Account
While savings accounts are generally designed to help you grow your money, it's important to be aware of potential fees that may be associated with them. Here are some common fees that can come with a savings account:
● Monthly Maintenance Fee: Some savings accounts charge a monthly fee for maintaining the account. This fee is typically waived if you meet certain requirements, such as maintaining a minimum balance or setting up direct deposit.
● Minimum Balance Fee: If your savings account has a minimum balance requirement, failing to maintain that balance may result in a fee. The fee can be charged monthly or assessed if your balance falls below the specified threshold.
● Excess Withdrawal Fee: Savings accounts often have limitations on the number of withdrawals or transfers you can make within a certain period, typically six withdrawals per month due to federal regulations. If you exceed this limit, the bank may charge you an excess withdrawal fee for each additional transaction.
● ATM Withdrawal Fee: If your savings account allows ATM withdrawals, you may be subject to fees when using ATMs that are not affiliated with your bank's network. These fees can be charged by both the ATM owner and your bank.
Overall, a savings account is an important tool that you should consider, and if you don’t already have one, it is extremely simple to set up and can even be done online. Savings accounts can help you figure out financial goals and help you plan your immediate and future finances.
