Why do you need a savings account?
Checking accounts are great for every day purchases, but when you’re planning for the future, a savings account is the best choice. A savings account is a deposit account held securely at a banking institution and typically earns interest. Rather than keeping large sums of money at home where it could be lost, stolen, or spent easily, a savings account provides a safe space for your money to grow. But, there are things to consider beforehand, so ask yourself the 4 questions below when opening a savings account:
Is the institution federally insured?
- If you leave money under your mattress or in your top drawer, what are the chances of replacing it if it’s stolen? Unfortunately, pretty low. When you open an account with an FDIC-insured bank or NCUA-insured credit union, your money is safe, even if the bank fails. These government institutions insure up to $250,000 per customer.
Is the savings account free?
- Most savings accounts are free to open, but there can be maintenance fees, paper statement fees and transaction limits. Banks typically offer ways to avoid such fees, like enrolling in e-statements, maintaining a minimum daily balance or registering for direct deposits. You also could be charged for more than six transactions per month, which is a requirement set by the Federal Reserve’s Regulation D to ensure banks maintain enough on-hand reserves. Although the Fed removed this limit in April 2020 due to the COVID-19 pandemic, banks are not required to enforce that change. It’s important to read the fine print and speak with a bank representative to clarify account requirements.
Is the interest rate competitive?
- Savings accounts help your money make money through compound interest. Interest is the cost of borrowing money, so by depositing your funds with a bank, the bank will pay you for borrowing (holding) those funds. As your balance grows each month, so does the amount of interest you earn . Generally, savings accounts offer monthly interest rates of 0.01% APY to .05% APY and some online banks even offer up to 1.00% APY.
Still a bit confused? Watch this short video for more about interest.
Is the account accessible?
- Have you heard the saying “out of sight, out of mind”? That’s how you’ll want to think of your savings account. Unlike checking accounts, savings accounts are not liquid. You will want to have mobile, online, and ATM access, but the goal of a savings account is to save. Plan a routine transfer from your checking to your savings account to begin building a 3-6-month emergency fund, a short-term savings, and a long-term reserve. Your future self will thank you later!
It’s a lot to think about, but remember to celebrate as you hit each savings target, taking you closer to your financial goals! Ready to get started? Check out our First Savings Plus account or visit a banking center to learn more.