What is a Savings Account?
By Space Coast Daily // October 7, 2021
A savings account, which is a basic type of bank deposit product, allows customers to deposit money and keep it safe. They can also withdraw funds from the account while the balance earns a small amount of interest. Savings accounts you can find at banks, credit unions and other financial institutions usually have FDIC insurance coverage. They also pay interest on deposits.
As we near the middle of 2019, the interest rates have fallen over the years. It now pays less than 2 per cent annually. You can still find savings accounts that offer a higher rate of interest than other accounts.
Savings accounts can be compared to time deposits due to their technical nature. The bank may ask the depositor to notify them before withdrawing funds. They can also charge a penalty if the account holder withdraws money prior to a specific date.
Although banks don’t usually have this right, some institutions limit the amount of transactions that a depositor can make to and from a savings account. The average account balance that an account holder has in his account will also be subject to fees. As a rule, banks do not offer checks for savings accounts.
Transferring funds from and to a savings account is easy, but depositors must be aware of the federal restrictions on how many and what types of withdrawals they can make each statement cycle.
Deposits are unlimited and you can make as many as your heart desires. However, the law limits some types of electronic and telephone withdrawals (excluded ATM withdrawals) as well as transfers to six per statement cycle.
Pros of Savings Accounts
Savings accounts offer a few great benefits. Here are the key facts:
Savings accounts allow you to earn interest on the money you have in your account. Your bank will add small amounts to your account each month. The economic conditions in your area and the aggressiveness of your bank relative to other banks will influence the interest rate that the bank pays.
The interest rate is usually very low, and can even be lower than the inflation rate. Your funds are insured by the FDIC, which is a plus.
Online access to your funds is available at most banks and credit unions 24 hours a days, seven days per week. You can also link multiple accounts to make it easier to transfer funds and avoid withdrawal fees. You can transfer money between accounts at your convenience even when you are not in the office.
Automatic Savings Plan
This feature automatically transfers a pre-specified amount from your paycheck to your savings account every time you pay your employee. This feature applies the principle of “paying your self first” and encourages you to develop a force-saving habit.
A savings account has one main feature: it keeps your money safe – in the vault of your bank or credit union, or a reserve bank.
Keep your cash safe from thieves, fire, and insects. FDIC insurance is available to save your money in a savings account. This protects you from losing it if the bank or credit union loses its security or closes down. Credit unions are insured through NCUSIF, while banks insure with FDIC. Credit unions often refer to savings accounts as share accounts. You don’t need a large initial deposit.
You can open a savings account for as little as $25 A savings account can be opened for as low as $25 Some institutions may have a lower minimum requirement, so you could open an account for as little as $1. This is a great way to save money and you don’t have to spend a lot to get started.
You can open a savings account together with your partner to save together.
Cons of Savings Account
Low return rates
Although you will get a higher return in savings accounts than you would in a many free checking accounts, it is still not as good as other types of accounts.
The average savings account rate was only 1.8% as of July 2019. If you have excess funds you don’t need for a while, you can put them in a certificate deposit to earn more. You can also invest in stocks, bonds and mutual funds to increase your chances of a higher return over the long-term. These instruments come with risks, so you need to weigh the benefits and drawbacks.
Limits on withdrawals from a savings account
Technology has made it possible to transfer money between accounts. However, it is important to remember the law. Federal law has imposed a limit on how many and what types of withdrawals can be made per statement cycle. Regulation D permits you to make a maximum of six withdrawals or transfers from any savings or money market account in a calendar month.
Minimum balance and fees
Some banks have minimum balance requirements or charge a monthly fee. You may have to pay a monthly fee if your savings account is not open if you don’t maintain a sufficient balance. The monthly fee you pay for your savings account will often be higher than the interest you earn.
There are no tax savings
You may have already paid income tax on the money you put in a traditional savings account. When you earn interest, the IRS may demand that you pay the full rate. These features make them less attractive than other investment options such as IRAs and Keogh accounts, which provide tax relief and deferment.
Limits on insurance
You would likely ignore insurance limits if your bank account balance is less than $5,000. If you have a net worth greater than $250,000, it is important to consider where you can save your money. You want to make sure that your family has 100% coverage.