First thing’s first. SAVINGS. With putting money aside being taken into consideration, having a savings account does have countless pros over cons. Before deciding on where to bank your money, however, first, take a deeper understanding of what a savings account is and how it benefits you.
What is a Savings Account for?
Keep in mind that savings accounts exist for you to be able to place your cash with interest. With that being said, you’d be able to earn at least 2% interest just by putting your money on the bank. Contrary to investment accounts, savings accounts offer security where banks can cover your loss if they’d fail.
Is it Important?
Savings accounts are essential mainly because they help you with money management. Being able to have a savings account allows you to have a distance between your daily expenses while some parts of your money are placed on checking for future use.
For you to get a better understanding, take this comparison as an example of savings account on a brick-and-mortar as well as online banks. Online accounts usually offer interest rates, which is higher. It often ends up with a steep average amount of 0.08%. Most of which also provides 24/7 customer service both for email and phone support.
What You Need to Know
A savings account can play a significant impact in helping your money grow, just by being placed on your bank account. Not much effort is needed. Allowing the bank to loan your money prompts them to pay the interest.
These interest rates may be correct for all banks, but those who’d have online banks get to have bigger interests. These banks are not required to support high rates of brick and mortar branches, which allows them to have more competitive pay. Having savings accounts on online banks also requires a minimal or low initial deposit, which is practical for students.
NOTE: In using your savings account, keep in mind that the money used is not easily accessible. That being said, your money management skills are much needed on this. Also, keep in mind that federal law places a limit on the number of transfers being done. This goes the same with withdrawals being made as well.
How Much Should be in the Savings Account?
Now that you’ve understood the basics, it’s time for you to consider how much you need to allot for your savings account. If you’re considering placing your investment money here, set a specific timeframe on how long it should stay with such. One of the most accessible patterns to follow when it comes to setting up a savings account is putting in 3-6 months’ worth of salary. After you’ve done so, you can leave it as it is; that way, it can serve as your emergency fund.
Savings Account Alternative
If you’re still unsure about opening a savings account or not, other alternatives can help you as you decide. You might want to consider having a certificate of deposit, or the CD. It’s like a time deposit, which holds your money for a certain amount of time. It usually ranges from 6 months to a couple of years. This alternative offers a competitive percentage yield, which means the longer you’d use the service, the bigger investments will build up.
If you’d opt to skip the certificate of deposits, you might want to take a look at CMAs or cash management accounts. Nonbank financial service providers would usually choose to pitch this service. Aside from higher interests. This also works well if the user has investments account with the same company.