It is an interest-bearing deposit account which is held at a bank or a financial institution. These types of accounts typically pay satisfactory interest rate.

They are a great option to lock your money because of their safety and reliability and these are reliable for short term needs as well. On the other hand, they have their own limitations like funds withdrawal limit but they also offer an exceptional flexibility to build your emergency funds. You can save for your short-term goals like buying a car, for vacations and other things you want to have.

How Savings Accounts Work:

These types of accounts are an important source of emergency funds. Many financial institutions and credit unions virtually provide savings account services. Services they provide depends on whether they are traditional brick and mortar1 or operate exclusively online. In fact, you can find savings account at brokerage and investment firms.

The rate you will get varies from bank to bank or financial institutions. It depends on which type of savings account you are holding. They promise a fix rate of interest but they can generally raise or lower it depending in the current financial situations.

To avoid monthly fees or to earn the highest possible rate you’ll have to maintain a minimum balance over the period. It is necessary for you to know the rules of your savings account to avoid the burden of fees.

Savings Account Advantages:

It offers you a place where you can put your money which will be separated from your daily banking needs. It will allow you to stash your funds for the future to embark on a journey to achieve your life goals. In addition to this, the bank’s security, along with FDIC protection against bank’s failure will be provided to keep your money safer than you put it under the mattress or in one of your socks.

If you are holding both savings account and checking account at the same institution then it will be very convenient for you. You will be offered several efficiency benefits. The transfers between checking account and savings account are instantaneous. The deposits and withdrawals between both accounts will take effect immediately. It will be convenient for you to transfer extra funds from checking accounts to savings account. You will get immediate interest boost.

You can open more than one savings account in an institution. It will be beneficial for you, if you have multiple life goals. For example, you can have one savings account for a trip and one for a car you need.

Savings Account Disadvantages:

Although savings account provides easy access and safety reliability, but it won’t pay as much as other savings instruments. For example, you can get higher rates in certificates of deposit or by investing in stocks or by Treasury bills2 and bonds if you have long period of time.

One of the key benefits of the savings account is its liquidity. It can also be a drawback because the ready availability of funds may tempt you to spend the funds more. On the other hand, it will be more difficult for you to cash a bond or to sell a stock for funds.

If you need funds frequently for any purpose then it is a poor choice for you. Because there are certain rules to withdraw money from the savings account per month.

How to open a Savings Account?

Normally the process of opening a savings account will not take more than one or two hours. In some case it might take few minutes and customer is set for years. For customers who don’t want to visit the bank can also apply for it online like on mobile or laptop. Below is the procedure to open a savings account but it may vary from bank to bank or some financial institutions:

  • Compare Banks: When opening a savings account, you should compare different banks by checking fees, minimum balance requirements and rates.
  • Check eligibility: You should check the eligibility criteria of different banks. You can get the relevant information online or by their customer agents.
  • Personal Documents: You should gather all your personal document or data before opening a savings account. It will ease the process to open the account. Document may be including Social Security Number, driver’s license or any military identification.
  • Fund the Account: After you will open the savings account, the last step is to fund it with some money and it can be done immediately

Types of Savings Accounts:

You can open different types of savings accounts.  A few of them are listed below:

  • Standard Savings Accounts: It is the most commonly offered savings account. You can find these at the credit union and brick and mortar banks.
  • High-Yield Savings Accounts: These are what they sound like. They offer above average rates. In online banking, you can find them easily. Credit unions and traditional banks also offer them.
  • Money Market Accounts: They are the combine features of savings and checking account. That means you can write checks, make withdrawals and make purchases using debit card and can earn interest at the same time. They usually offer better rates but at the same time they are subjected to make six withdrawals per month rule.
  • Student Savings Accounts: Students can also get savings account, and they are just designed for them to facilitate them in the future. They usually have a cut-off age factor for saving. It means that you cannot open student savings account if you are 25 or older than this. These are specially designed for teens and students so that they can understand the importance of savings and they can get into the habit of savings.
  • Specialized Savings Accounts: These are designed for just one purpose offered by many banks. For example, you can open it for your upcoming expenses or for Christmas savings or to save for down payment of your new home. These are not common as the other savings account. They may come with certain restrictions which you might not like.

 

1 https://www.investopedia.com/terms/b/brickandmortar.asp

2 https://www.investopedia.com/terms/t/treasurybill.asp