From Standard Accounts to Other Options That Are Similar to Savings
A savings account is an excellent location to put the money you do not intend to spend immediately since you can earn interest. In addition to keeping your money secure and making it simple for you to withdraw it, it also gives you little interest. There are numerous distinct types of savings accounts available, in addition to other alternatives that function in a manner that is analogous mainly. Because the characteristics offered by various banks and kinds of accounts are distinct from one another, you must comprehend all of your choices.
Key Takeaways
- When selecting a savings account, it is essential to consider both the interest you will receive and the fees you will pay.
- Even though many traditional banks now offer online features, it's possible that having an internet savings account will earn you a higher rate of interest.
- You could choose a student account if you're eligible.
- Other options are available to you for saving, such as money market accounts, checking accounts that earn interest, and certificates of deposit.
How to Evaluate Different Types of Savings Accounts
When evaluating the merits of various savings accounts, you should focus on two primary aspects: the rate of return on your investment and the costs associated with maintaining the account.
Obtaining Interest
Consider the interest rate, which is sometimes expressed as an annual percentage yield (APY), so that you can choose the most suitable account while evaluating the many possibilities. Every savings account awards interest, allowing your money to accumulate over time. On the other hand, the typical interest rate on savings accounts is less than one percent, which means that growth will be moderate at best.
However, you don't need to select the account that offers the highest interest rate. Be sure that the rate you get is reasonable in comparison to others. Other aspects of the account, like its liquidity and its fees, are of greater significance than the interest rate, which is especially true for accounts with lower balances.
Avoiding Fees
Your savings account's health will suffer if you continue to incur fees. Any fees might potentially wipe out your annual gains or even lead your account balance to drop over time. This is because interest rates are now relatively low. Before you deposit any money, you should thoroughly review the fee statement provided by your bank.
Accounts for Basic Savings
At its most fundamental level, a savings account is nothing more than a repository for one's financial assets. You make deposits into the account, earn interest on those deposits, and withdraw money from the account whenever you require it. You are free to make additions to the account whenever you see fit. In the past, banks placed restrictions on how frequently a person may withdraw or transfer money without physically appearing at the location. But beginning in April 2020, such rules will be suspended by the Federal Reserve in order to make things more comfortable for account holders.
There is nothing wrong with utilizing a standard savings account for your financial needs. If your requirements aren't too complicated, you can usually get away with opening a savings account at a bank that you already do business with and calling it a day.
Accounts for saving money online
Some of the most notable features of online bank accounts are as follows:
- A high rate of return on your savings deposits.
- Low or even nonexistent monthly fees
- No minimum balance requirements
- Innovative and cutting-edge technology
These kinds of accounts were initially made available by banks that were only accessible online. These days, the majority of conventional, in-person banks also offer digital banking services, such as remote deposits and online bill payments.
Outside of the geographic region in which they have a network of bank branches, some traditional banks may conduct their business more in the manner of an online-only bank. This comes in handy in circumstances in which you need to withdraw cash, but there is no bank branch in the immediate area. For instance, Capital One provides a multitude of places at which it is possible to withdraw cash free of charge. You can use the ATMs of other banks without incurring additional fees, and some financial institutions, like PNC, will reimburse you for those fees up to a certain maximum each month.
Self-Service
Customers who are financially independent and comfortable with technology are the ideal candidates for online savings accounts. You won't be able to seek assistance from a teller if you go into a branch because most of your banking will be done online by yourself. Managing your account, on the other hand, is not difficult, and if you need assistance, you can always phone customer support. You are able to fulfill the majority of requests on your own, whenever and wherever it is most convenient for you.
Accounts That Are Linked
To utilize an online bank account, you will typically also require a traditional bank account at a physical location. This is the account linked to your profile, and it is most likely the account you will use to make your first deposit. When your online account is up and running, you will have the ability to make deposits from a variety of different sources. You can even deposit checks into the account using your mobile phone if you choose to do so.
Spending One's Money
You might be wondering, in the event that there is no physical branch, how you can obtain cash immediately in an emergency. If you need to move the money to your local bank account, the transfer will typically take a few business days to complete. The majority of online banks also provide online checking accounts, which enable customers to write checks, pay bills online, make purchases and cash withdrawals using debit cards, and pay bills online. In addition, some online banks give you the option to order cashier's checks that are delivered through the mail.
Different kinds of savings accounts also exist
There are various types of savings accounts, each of which pays interest and provides extra benefits in addition to the regular savings account (or online savings account).
Accounts on the Money Market
A money market account, often known as an MMA, is quite similar to a savings account. The most notable distinction is that you will have less difficulty accessing your cash. You can typically write checks against the account, and it's possible that you can even use a debit card to make purchases with the money in the account. Although money market accounts (MMAs) often offer higher rates of interest than savings accounts, you are typically obliged to hold a greater balance in them. They are an excellent choice for savings in case of an emergency because you can continue to have access to your cash while still earning interest on it.
Certificates of Deposit
Certificates of deposit, often known as CDs, are pretty comparable to savings accounts, except the interest they accrue is typically higher. The trade-off is that you have to agree to put your money in the CD for a particular amount of time; for example, you could have to commit to leaving it there for six months or a year and a half. It is possible to withdraw funds early from a certificate of deposit (CD), but doing so will require you to pay the penalty. As a result, CDs should only be used to save money that you won't require in the near future.
Checking Accounts
Opening a checking account is something you should think about doing if you want the most convenient access to your money. There is either no interest paid on traditional checking accounts or a minimal amount of interest (0.01% annual percentage yield). However, some banks, such as Huntington National Bank, pay a little bit of interest — perhaps an APY of 0.15 percent — especially if you keep both your checking and savings accounts with the same bank. This is especially true if you keep both your checking and savings accounts with Huntington National Bank.
Rewards checking accounts may pay even more, but to earn a particular amount of interest on your money, you'll need to make a certain number of transactions in a given month. This is the catch with rewards checking accounts. For example, Axos Bank offers an annual percentage yield (APY) of 0.40% if you make a direct deposit of at least $1,500 and an additional 0.30% if you use your debit card 10 times. You can use your account to make your loan payment and earn 0.15 percent interest, in addition to the possibility of earning 0.20 percent for a minimum balance in a Managed Portfolios account and 0.20 percent for a minimum balance in a Self-Directed Trading account, for a total of 1.25 percent in interest if you use your account.
Personalized savings accounts for students
With the general exception of those offered by internet banks, savings accounts can be pretty pricey to maintain if there is not a significant sum in the account. Most of the time, banks will impose monthly maintenance fees and pay very little or no interest on accounts considered to be of a low balance. This is a challenge for students, who typically spend the majority of their time studying rather than working. Financial institutions provide students with the opportunity to save money without having to pay a monthly fee.
A student savings account will become a regular savings account after the account has been open for a specific number of years or the account user has reached a particular age. The account holder will then need to be aware of the fees associated with the traditional savings account.
Accounts Dedicated to Achieving Specific Goals
In a savings account, you can put money away for anything—including nothing in particular—but there are occasions when it's advantageous to designate specific funds for a particular goal. You might wish to save money, for instance, so that you can purchase a new car, buy your first home, go on vacation, or buy presents for the people you care about. Saving accounts are available at certain financial institutions that are tailored expressly to these objectives.
You won't make any extra money, but certain financial institutions, including banks and credit unions, do provide bonuses and other incentives to customers who save regularly. The primary advantage of these accounts is that you may have a better chance of reaching a savings goal if a particular account is related to something that is important to you or that you like. For instance, if you make a monthly deposit of $100 into your account at CIT Bank, you can earn an APY of up to 0.65 percent on your money.
Frequently Asked Questions (FAQs)
How many checking and savings accounts are you allowed to have?
No regulation places a cap on the number of savings accounts one can open. There is nothing that can prevent you from opening a savings account at a bank if the bank is ready to do so. It's possible that you can even open multiple savings accounts with the same financial organization if you want to.
How exactly do high-yield savings accounts produce their returns?
Interest rates on high-yield savings accounts are often higher than those offered by other types of savings accounts. There is often a trade-off between interest rates and safety in the bond market; however, high-yield savings accounts are just as safe as regular accounts as long as they are FDIC-insured. This is the case even if the interest rates are higher. High-yield savings account clients could be subject to monthly withdrawal caps, increased account minimums, or increased service fees rather than taking on additional risk.
What happens to savings accounts in the event that the Federal Reserve makes a change to the federal funds rate?
Your funds will remain unaffected by any external events, including any policy changes implemented by the Federal Reserve, so long as your bank maintains FDIC insurance. Despite this, your yield can go down if the Fed decides to cut the federal funds rate. To put it another way, you won't lose any of your money, but the interest rate on your deposits might be lower. On the other hand, if the Federal Reserve decides to increase the fed funds rate, your yield may eventually follow suit.
