There are many ways to save your money, so know the difference between different ways to save. This can help you make an informed decision on what to do with your money.
What is a savings account?
A savings account is a type of bank account designed for saving money. You use this account to put money into that you don’t plan on spending right away. Like a checking account a savings account allows you to withdraw money as needed. With a savings account, you can earn compounding interest. (CD’s usually have a time frame that the money is being “held” and is not as easy to access)
The compounding interest will vary depending on the type of savings account you have.
There are many ways to save money, some have better returns than others. It is best to do your research and decide which type of account fits your financial plan best.
Here are a few types of accounts:
- Standard or Traditional Savings Account
- High Yield Savings Account (HYS)
- Money Market Account
- Certificates of Deposit (CDs)
In this blog we are going to talk about the Standard or Traditional Savings Account.
How does a Standard or Traditional Savings Account work?
Having a savings account helps you put money away for emergencies, specific future purchases, and financial goals. A standard or traditional savings account are great for people looking to separate their cash they want to save from their everyday spending. That way you can see specifically how much money you are saving up over time for short-term goals, vacations, home renovations and more.
When can I withdraw my money?
When you are ready to use the money you can withdraw it from the savings account, but many banks or credit unions have limits on how many withdraws a month you can do, so it is important to be aware of this. A standard savings account through a bank or credit union usually offers a low interest rate for keeping your money in that account.
Are there fees I should be aware of?
It is also important to know if the bank or credit union you are using has any fees associated with the savings account. Some banks charge a monthly account fee to maintain the savings accounts. Some banks will waive that fee if certain conditions are met, such as, keeping a daily or monthly minimum balance in the account. Before opening the account, you will want to make sure you have all this information from them, so you can make the best decision on which account would be best for you.
What are the pros and cons of a standard or traditional savings account?
Here are four benefits of a standard or traditional Savings account:
- Earn Interest – Deposit money and earning interest without doing anything extra. They do tend to have a lower average savings interest rate than other types of savings’ accounts.
- Flexibility – being able to access our money when you need it
- Save Risk Free – Many accounts are insured by FDIC at banks, or NCUA at credit unions.
- Great for emergency funds or short-term savings goals. – Great place to put money aside for emergencies and or large purchase that will be happening the short distant future.
Here are three things to be aware of with a standard or traditional savings account:
- Lower interest rate earnings – A standard or traditional savings account often offer lower interest rates compared to other types of investments or savings accounts.
- Limited transactions – Some banks will limit the number of withdrawals or transfers that can be done each month from the account. If you exceed the limit, you may have to pay a fee.
- Lack of features – A standard or traditional saving accounts don’t usually come with additional features, benefits, or rewards.
What do I need to open a standard or traditional savings account?
Research different banks and decide if you want a brick-and-mortar bank or if you want an online account. When you do this, you are comparing features of interest rates, fees, minimum balance requirements and customer service.
Once you have decided on your bank or credit union, you will need to have a few documents to open the account. You will be filling out an application either with a banker or online. You will need some basic information, including:
- Your full name
- Address and phone number
- Date of birth
- Social Security number
- Email address
- Initial funds to open the account
- Photo ID
If you are opening a joint account the joint account holder will need to provide this same information.
How much should I keep in my standard or traditional savings account?
It depends on what your savings goals are. If you are using the account for emergency funds, you may want three to six months’ worth of expenses. You can increase that to nine or even 12 months if you choose.
If you are saving for a future purchase or renovation you may choose to use this account for those funds as well.
There is no magic number, you can determine the amount you want in your savings account based on your savings goals.
A traditional or standard savings account isn’t the only type of account you can use to save money. In the upcoming blogs I will share more information on High Yield Savings accounts, Money Market accounts as well as Certificate of deposit accounts.
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