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Benefits of Having a Savings Account

Money saved for emergencies or major purchases could technically stay in your checking account (or under a mattress), but savings accounts are a better place to park cash for such needs. Savings accounts offer numerous perks, including interest and deposit insurance, while still allowing you to access your money when needed. Below, we list four benefits of having a savings account.

1. Earn Interest on Deposits

Savings accounts typically offer a higher interest rate than checking accounts, allowing you to earn a better return on funds set aside for financial goals and emergencies. For instance, the average interest rate on savings accounts is 0.37%, compared to 0.06% for interest checking accounts. Some high-yield savings accounts offer an annual percentage yield (APY) of 4% or more. If you have $5,000 in an account earning a 4% APY and deposit $200 each month for a year, your balance would be $7,652 at the end of the year, with $252 from interest earnings. In contrast, a checking account might yield no interest or a much lower sum.

2. Your Money Is Insured

During economic volatility, savings accounts are a low-risk place to stash money. If your money is in a federally insured account, $250,000 is guaranteed by the Federal Deposit Insurance Corporation (FDIC) or National Credit Union Association (NCUA). For joint accounts, up to $250,000 is guaranteed per account owner. This federal deposit insurance provides peace of mind that your deposits will be accessible even if a bank or credit union fails.

3. Quick Deposits and Withdrawals

Financial institutions often offer linked checking and savings accounts, allowing instant money transfers. This feature makes it easier to schedule regular deposits and transfer money out of the account in emergencies. Some savings accounts also come with an ATM card. However, note that some banks limit you to six savings account withdrawals each month and may charge a fee if you exceed this limit. Planning your transfers can help you avoid these fees.

4. Separate Money for Different Goals

Savings accounts are easy to open, and having multiple accounts can help you organize your cash by goals. For example, you might have savings for emergencies, a trip, or a new car. Separating money can help you visualize progress toward each goal. In some cases, making money less accessible by choosing a savings account without a debit card and not linked to your checking account can be beneficial. One strategy is to link your checking and emergency savings accounts for easy access, while opening a separate high-yield savings account at another bank for other goals. This way, you can’t easily draw from savings at an ATM, making it less tempting to spend cash set aside for significant expenses like a house down payment, wedding, or car.

How to Open a Savings Account

If you’re in the market for a savings account, follow these steps:

1. Determine what you have to deposit: Many savings accounts don’t require an initial deposit, but minimum deposits vary. Review your budget to see what money you have available, and then compare minimum requirements with different financial institutions.
2. Compare rates: APYs vary by account, and reviewing multiple options can help you determine where you might earn the highest return on your savings.
3. Check fees: Savings accounts can have monthly maintenance fees, overdraft fees, excessive transfer fees, and more. Compare fees for different accounts and check what conditions you have to meet to have fees waived. In some cases, maintaining a certain balance can qualify you for a fee waiver.
4. Apply for the account: When you apply, account applications typically ask for your name, address, driver’s license or state ID number, and Social Security number or tax identification number, so have that information handy. The financial institution may also give you directions on how to make your first deposit during the application process.

The Bottom Line

Opening a savings account is a good way to keep savings easily accessible while earning a higher interest rate than checking accounts provide. However, for longer-term savings goals, consider that savings account interest earned may not be enough to keep up with inflation, and your balance could become less valuable over time as prices rise. Therefore, a savings account is generally not the best place to put money you won’t need for a while. For example, savings for retirement or your child’s college education might earn a better return when invested in the market.

If you decide a savings account is what you need, shopping around to compare APYs, account fees, and features can help you choose the right savings account to meet your goals.

For any mortgage-related needs, call O1ne Mortgage at 213-732-3074. We’re here to help you with confidence and expertise.

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