We all know quite well that savings play a pivotal role in our lives. When we earn money, we don’t just spend all of it, but rather save a part of it. And, what can be a better way than having a savings account in a bank to keep the money safe.
Savings accounts enable people to deposit money and receive interest on it at the same time. So, it won’t be wrong to say that a savings account can be a superior option for putting money aside for future needs and objectives. One can get a savings account opened in any reputable bank.
If someone wants to open a savings account, there are a few things that they should know.
What Is A Savings Account?
A savings account is a deposit account that pays interest and is held with a bank or some other financial organization. Despite the low-interest rates, these accounts are an ideal alternative for saving assets because of their protection and cohesion.
It is true that savings accounts have some restrictions on how frequently one can withdraw money, but they generally provide excellent flexibility, making them a good option for creating an emergency fund, saving for a short-term goal, or some other purpose.
Some Features of Savings Account
- One can get a zero balance saving account opened in a bank. This means that account holders do not have to maintain an average monthly balance in their account
- In some savings accounts, there’s a minimum balance requirement so that you can avoid monthly fees or earn the highest reported rate, while in others, there’s no such requirement. In order to avoid having the earnings diluted by fees, it is good to get familiarized with the restrictions of a specific account.
- One can transfer money into or out of their savings account at an ATM, a branch, via e-transfer, or through direct deposit. Transfers are normally arranged over the phone. Some banks limit customers to six withdrawals each month. If someone makes more than six withdrawals in a row, the bank may charge them a fee or even terminate their account.
How Does A Savings Account Work?
Banks use savings and other types of accounts as major sources of funding for loans. As a result, savings accounts are available at almost every bank or financial institution, whether they are traditional physical establishments or only function online. Savings accounts are also available at several investing and brokerage organizations.
Savings account interest rates vary, and banks may adjust their rates at any moment, except for promotions that promise a set rate until a specific date. Banks may vary their deposit rates in response to changes in the bank or repo rate etc.
Advantages Of Savings Accounts
Savings accounts provide a safe haven for cash that is separated from the regular banking demands. Here are some of the major benefits of having a savings account.-
- It helps people to save money for some small goal or set aside funds for a large savings goal.
- Aside from that, the bank’s security procedures, together with the Federal Deposit Insurance Corporation’s guarantee against bank failures, will keep the cash better than it would be under the pillow or in the closet.
- Savings accounts also provide interest in addition to keeping the money safe. So, rather than amassing cash in a bank account, where it would likely yield little or nothing, store any extra funds in a savings account.
- At the same time, unlike certificates of deposit, which levy a substantial penalty if one removes their funds too soon, the exposure to funds in a savings account will stay extremely liquid.
One should also know that having a savings account at the same bank as their main checking account can provide various advantages in terms of ease and effectiveness. Payments or transactions to your savings account from your bank account will take effect immediately because transfers between accounts at the same institution are mostly instantaneous.
This makes it simple to transfer money from the checking account to the savings account and collect interest right away, or the other way around if one needs to cover a hefty checking transaction.
Disadvantages Of Saving Accounts
There are positives and negatives to everything. The same goes for the savings accounts as well. Let’s have a look at some of the primary drawbacks of saving accounts:
- A savings account does not pay enough interest compared to other accounts such as FDs etc. If one’s time horizon is long enough, one can make a better return by investing in certificates of deposit or Treasury securities or by engaging in stocks and bonds. As a result, if employed for long-term savings, savings accounts entail an opportunity cost.
- Also, while a savings account’s liquidity is one of its major benefits, it may be a disadvantage because the rapid availability of funds may entice people to spend what they’ve saved. Cashing in a bond, withdrawing funds from a retirement account, or selling a stock, on the other hand, is far more complicated than taking money out of the savings account, especially if it is tied to the checking account.
- Savings accounts are also unsuitable for funds that need to be accessed often. Since withdrawal transactions were previously limited to six per month, whether transfers or outright withdrawals at a branch or ATM, a savings account was not necessarily the best option for these monies. The funds are now more available, thanks to the removal of these restrictions.
The Bottom Line
Overall, we can say that savings accounts can be used for a variety of purposes. Or, in simple terms, it won’t be wrong to say that it’s the best place to secure money. Even though the savings account interest rate is not much, it’s still better than keeping money at home. Moreover, it helps in the organization of finances.