Benefits of a Savings Account
Opening a savings account — and regularly contributing to it — is an easy way to set money aside to cover an emergency or to work toward meeting your longer-term financial goals.
Like checking accounts, savings accounts are typically safe and offer easy access to your money. But unlike many checking accounts, savings accounts also help your money grow thanks to the interest you can earn.
Read on for more details about the benefits of a savings account, whether you’re saving for a rainy day or your golden years.
Security
Savings accounts can be among the safest investments out there. That’s largely thanks to the Federal Deposit Insurance Corporation. (FDIC), which insures accounts up to $250,000 per depositor per bank[1]. This means that, in the unlikely event that your financial institution fails, the money in your savings account — including any earned interest — would still be safe.
Accessibility
When you open a savings account, you can easily access your money at any time. You can use your bank’s mobile app or website to transfer your money to a checking account or visit an ATM or branch location in person to make a transfer or cash withdrawal.
There are no maturity dates with savings accounts — you can access your money as soon as you need it. This makes savings accounts a good choice for an emergency fund.
However, keep in mind that your bank may limit you to a fixed number of monthly withdrawals from your savings account. If you exceed that limit, the bank may charge you a fee or even close your account.
If you expect to make frequent withdrawals from your account, a checking account may be a better option. These accounts typically have no limits on the number of withdrawals you can make per month — although you may earn less interest, or no interest at all.
Interest Accrual
Earning interest is one of the biggest benefits of savings accounts.
This means your bank will pay you to keep your money in the account.
Typically, banks advertise the savings accounts they offer by their APYs (annual percentage yields). This is the rate of return you’ll receive over one year of savings — including any compound interest.
APYs vary from bank to bank and account to account. They may also fluctuate over time. Some banks offer high-yield savings accounts, which can pay as much as 10 times the average APY[2].
Depending on the bank, you may receive interest payments in your account monthly, quarterly, or on another regular schedule. Over time, this will help your savings balance grow.
Easy To Open
Opening a savings account is relatively easy — especially if you’re using a bank where you already have a checking account.
Depending on the bank, you can set up an account online or at a bank branch. All you need to provide is your contact information, Social Security number, and at least one form of government-issued photo identification (such as your driver’s license or passport).
Once you open the account, you can deposit cash or checks into your account or initiate a wire transfer. You can also often instantly transfer funds from a checking account at the same financial institution.
Your bank may require you to make a minimum initial deposit. It may also charge fees for keeping the account. Often, the bank will waive these fees if you maintain a certain minimum balance in your savings account or link it to other accounts at the same financial institution.
In addition, your bank may allow you to set up automatic direct deposits from your checking account to your savings account. This feature can help make saving money a no-brainer.
Typically, you can decide the frequency and amount you want to transfer. For example, you could set up your checking account to deposit a portion of your paycheck every payday.
The Benefits Of A Savings Account Make It A Good Choice
In general, opening a savings account is a good idea, no matter your financial goals or how much money you can regularly save.
These types of accounts are safer than many other options. Although you won’t get rich overnight from the interest accrued in your account, you are unlikely to lose a dime — unlike with stocks. You can also withdraw your money when needed, making a savings account a good choice for meeting both short- and long-term financial goals.
Savings accounts also have low barriers to entry, and many require no minimum deposit to open.
Ultimately, it’s always best to do your due diligence before making any kind of financial decision. Compare several savings account options — including high-yield accounts — and be sure to read the fine print before deciding whether a savings account is right for you.
