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Why A Savings Account Is Important
If you earn income, you should have a savings bank account. Savings accounts provide security and stability, as well as serve as a resource in case of an emergency or a business opportunity. In addition, unlike checking accounts, savings accounts accrue interest. The longer a large amount of money sits the more money you will have in your account. There are a multitude of advantages to opening a savings account.
Emergencies are always unanticipated and often require some financial solution. A car repair or broken major appliance can put a severe strain on your budget. Even if you have insurance coverage on all possible emergencies (auto, home, medical), you most likely have deductibles on those policies. In addition, insurance companies may require you to pay up front and wait for reimbursement. A car accident, medical emergency or illness, or fire at your home can call for substantial expenses. These kinds of unforeseen events can seriously damage any disciplined budget. A savings account can help you in these times of financial strain by giving you a buffer between economic comfort and hardship.
A few thousand dollars in the bank can offer you peace of mind and emotional stability, as well as financial stability. It is no secret that most personal stress is caused by insufficient funds. Many circumstances that may arise can put an awful strain on your wallet: you are laid off, your business is unsuccessful, or you are suddenly widowed. In these events, a savings accounts is money set aside to cover your bills and give you time to plan and recover.
Of course, a savings account isn’t only about serious occurrences and emergencies, it can also be a way for you to save for some luxury you may want. Over the course of a year, you may save enough to take your family on a weekend getaway or upgrade your vacation hotel to a five star. Perhaps, you want to renovate your kitchen and upgrade your home appliances. Maybe you want to buy a new entertainment system. A savings account is an easy way to pay for these without using credit. When you buy something on credit, you pay for the privilege of being able to have the item immediately, even if you don’t have the cash on hand to buy it. Credit cards can have some steep interest rates and you may find yourself paying more than you had anticipated. Accumulating savings allows you to avoid borrowing and using credit.
If you seek a mortgage or should need a loan, however, a savings account can help you acquire one. A healthy savings account can improve your chances of obtaining one. They demonstrate financial stability and economic discipline to lenders.
Finally, like a checking account, the funds you deposit in a savings account are secured by FDIC insurance. This ensures that in the event of your banks folding, the government will replace a portion of your funds.
Earn From Your Savings Account
There’s no ideal savings account, however it is certainly possible to find one that suits your specific financial goals and needs. Prior to opening an savings account at the nearest and most convenient bank, research and familiarize yourself with the features of these types of accounts.
The most important feature to evaluate is the Annual Percentage Yield or APY because it determines how much your deposit will earn over the course of a year. It is generally offered with a high-yield savings account. Obviously, you will want to seek out the highest APY available to guarantee high gains. APY also takes consideration of compounding interest, interest you earn on the interest your investment has already earned. In other words, compounding allows your initial deposit or investment to earn and grow exponentially. Be sure to ask any institutions how often they compound; the more often it occurs the more your account will grow.
You may find it confusing to differentiate between APY and APR or Annual Percentage Rate. The main difference is in the rules of compounding interest. APR is a measure of how much interest will be on an annual basis without taking into account compound interest. APY, is the same interest rate measure, but accounts for compound interest—a better measure of how much interest you will actually pay. Banks and credit card issuers often express credit card interest rates in APR, in order to better hide just how much interest would cost. When you are shopping around for your account be sure to compare APY to APY and not APY to APR.
When you open a savings account you will asked for a minimum deposit. Quite simply this is the lowest amount the bank requires you to open an account; this amount will vary by institution. In addition, some banks require that you keep a minimum amount of money in your account at all times. If you should drop below this minimum, a fee will be charged to your account. Also, some accounts only allow limited number of transactions per month. Therefore, it is imperative to research the minimum balance and maximum number of transactions allowed without a fee. Even though the two biggest fees associated with savings accounts are minimum balance requirement and transaction fees, there are often other fees waiting in your contract. If you are aware of them, you can easily avoid paying unnecessarily. For example, some banks will waive monthly fees if you have a higher minimum balance.
Another fee to aware and wary of is the early withdrawal fee. They are the charged to your account for withdrawing cash before the conclusion, or maturity, of the agreement you signed. These fees are present to dissuade customers from cashing in various savings accounts on an impulse. You could possibly lose some of the interest your account has already earned. Investigate the costs and consider your financial options before cashing in your savings.
When researching for a savings account it most important to compare fees and APY. In avoiding expensive fees and earning the highest interest you can watch your investment earn money quite quickly.
Savings Accounts 101
Opening a savings account is extremely easy and may even be easier to open than a checking account. If you already have a checking account consult your bank and see what their savings options, services and features are. It is extremely convenient to have your accounts linked at the same bank. For example, many banks offer safeguards against overdraft by drawing directly from your savings should your checking have insufficient funds. With this security, you avoid annoying and costly fees.
However if you are not opening with a familiar institution, be properly prepared; when you go to a bank for consultation, bring your driver’s license and your social security number. Choosing the right bank is much like choosing any other service. Shop around and search for the institution that offers the right combination of services to meet your individual financial needs. Currently, the competition of rates can allow to ensure that your money earning as much interest as possible.
Banking has become an essential facet of day-to-day life, so choose an accessible bank. Choosing a bank that has a bank branch near where you live and work will make using and maintaining your savings account much more convenient.
While opening a savings account may be easy, the part that is most time consuming is the research. Before applying, you will need to decide what type of savings account to open. Banks offer several different types of savings accounts each requiring certain minimum balances and offer different interest rates. Once you have decided you will need to complete an application. The application will typically require the applicant’s full name, Social Security number, date of birth and mailing address. Along with this info, you will be asked to provide acceptable forms of state issued ID or driver’s license. Students, or those under 18, are able to offer alternative forms of ID, such as a birth certificate or school ID card.
It is also important to be aware that many banks will submit your identification information to credit report system and run a credit check to appraise your banking and credit history. A bank has the opportunity to refuse a customer’s application because of a poor credit and banking history. However, some banks have special accounts designed for those customers who have had trouble opening up a bank account elsewhere, or have a less than desirable credit history.
Finally, if your application has been approved, all banks require a minimum initial deposit to open the savings account. Deposit amounts vary according to the account type and individual institutions. In addition, most accounts will require a minimum balance and limit your activity on the account, so be sure you have the funds to open a savings account.