A savings account is just one way to save your hard-earned cash in a safe and secure place. You can open a savings account locally with a bank, credit union, savings and loan association or online, and they offer savers a convenient way to set aside funds for a dream vacation, new car or other future expense.
Purpose
The purpose of a savings account is to allow you to set aside funds in a secure place to be used at a later date while earning a certain percentage of interest each month. You may use a savings account to save for a future purchase, to save for unexpected expenses or to keep your money secure while you consider your other investment options.
Types
There are generally two types of savings account: a passbook account or a high-yield savings account. With a passbook account, the bank gives you a booklet in which you record all deposits, withdrawals and accrued interest. This type of account generally has a lower interest rate and requires only a small deposit to open. A high-yield savings account carries a higher interest rate than a passbook account, and some banks may require a higher minimum balance to open an account.
Features
Depending on the type of account you choose and the bank you do business with, your savings account may have many different features. Some banks offer automatic deposits or withdrawals, online banking access, debit card access and check-writing capabilities, and your bank may or may not charge a fee for maintaining the account.
Benefits
The primary benefit of a savings account is that your money is protected by the Federal Deposit Insurance Corporation up to $250,000. You don't need a large sum of money to start a savings account, and most banks will allow you to link them to your checking account so that you may set up regular automatic deposits. A savings account is also generally more accessible than funds held in stocks, mutual funds, bonds or certificates of deposit.
Considerations
While savings accounts are a secure place to keep your money, the interest rate they offer is often much lower than the rate you might receive by investing your money in another type of savings vehicle, such as a brokerage account or certificate of deposit. Additionally, the Federal Reserve's Regulation D limits the number of withdrawals and transfers you may make from a savings account to six transactions per month.
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