Whenever you think of keeping your money safe to utilize it to pay your utility bills, and for several other reasons, the first thing that comes to your mind is a bank. Simultaneously, when you want to save money for future requirements, your go-to solution is a savings account. It allows you to save money and provides you the opportunity to earn interest from it. All financial institutions offer the facility of opening such an account. If you want to save a higher amount of money for the long term and earn reasonable interest rates out of it, you can go for a premium savings account.
These types of accounts are preferred because they are safe and reliable for keeping your money. In the sections below, we will look closely at what a savings account is, its types and benefits, and how they work. So, without wasting much time, let us proceed to take a look at them.
What Is A Savings Account?
It is mainly a deposit account that will keep your money safe, which you do not require for immediate use in a financial institution. A savings account is primarily designed for parking cash for specific goals. You also earn modest interest rates from your savings along with safekeeping. These accounts are trustworthy and safe.
Although there are certain minimal limitations on the withdrawal of money, you can utilize a savings account as an emergency fund owing to its flexibility. You can also stash cash for short-term goals such as buying a car, or saving for a vacation, or merely storing extra funds, to earn interests out of it.
You can withdraw or transfer money using an ATM or various internet banking services, such as IMPS, NEFT RTGS, etc., or can visit your bank branch to do the same. However, due to recent changes, the unlimited withdrawal limit from a savings account has been changed to six per month. Also, the interest that you gain on the funds in a savings account falls under the radar of taxable income.
How Does It Work?
The process of savings accounts is not that complicated. You open one at any financial institution of your choice and deposit your cash in the account. Consequently, the bank starts paying you interest on the balance stored in your account. You can keep on adding money whenever you require through the methods mentioned below:
- Depositing cash or check at your home branch
- Depositing amount at the ATM
- ACH transfers
- Wire transfers
- Mobile deposit
- Direct deposit
Benefits Of A Savings Account
Let us take a look at the ways how opening a savings account can be beneficial for you.
- Earning Interests
The first and the most significant benefit is that you gain interest from the funds you deposit in your savings account. You gain more than you put away, and the best part you do not have to do anything for it.
Having such an account offers convenience and more liquidity than many other saving options available. It is appropriate to be used as an emergency fund and one for various short-term goals.
Parking your cash into a savings account is a much safer option to grow your money for future use. It will offer you a consistent return rate without putting your deposit amount at risk of losing it.
Types Of Savings Account
Now that you have a fair idea about such an account let us know a little better about its various types. There are different variants of it and serve multiple purposes and will benefit you in different ways. Let us take a brief look at them.
- Traditional Or Standard Savings Account
These are the standard type of savings accounts and the most basic kind of saving options. Such types usually offer lesser interest rates than other variants of a savings account. You may have to pay a minimum balance fee or, in some cases, a monthly maintenance fee.
- High-yield Savings Account
This type of savings account will provide you with a higher annual percentage yield. Such an account is a common feature of most online banks; however, many traditional financial institutions also offer high-yield savings accounts. Along with providing higher returns, banks also charge fewer fees for such accounts.
- Money Market Accounts
This type of account is an amalgamation of a savings and a checking account. With money market accounts, you can earn interests, write checks, withdraw money, or use a debit card to purchase. These accounts offer better return rates than standard ones. It provides convenient access to your funds.
- Kids’ And Student Savings Account
This account is specially designed for those below the age of 25. Such an account imbibes the habit of saving in children. This type offers interest to children, teens, and students and may or may not impose charges depending on the financial institution. These accounts are more common in brick and mortar banks than online banks.
- Specialized Savings Account
A specialized savings account is designed for only one goal. You can choose such an account to deposit money for any short-term goal. These are quite common and may come with some limitations as per your purpose of depositing your funds. For example, if you want to save money for your Christmas, you will only be able to withdraw the funds only once a year, that too, before the festival.
A savings account is a one-stop solution for your funds’ safekeeping needs without much risk involved. You can park your money and earn a considerable amount of interest rates from your account amount. Although these rates will differ as per the account type, the financial institution you chose to put your cash into, and the market rates, you gain it without doing anything. You can select any of its variants based on your needs and requirements. We hope we have painted a clear picture of a savings account and all you need to know about it.