A savings account is a typical account at a bank or a credit union that allows an individual to deposit, secure, or withdraw money when the need arises. A savings account usually pays some interest on deposits, although the rate is quite low.
As of 2019, an average account pays slightly below 1% annually. There are savings accounts that offer higher rates, which allow customers to increase their savings more quickly while keeping money in a safe place.
Why Open a Savings Account?
In general, it is advisable to own a savings account. Opening one is free, and most banks and credit unions allow customers to register and transact online.
1. Offers safety
A savings account is the safest place to save money. Rather than carrying a lot of cash around or hiding it at home, the money can be kept in the bank. Cash on hand or at home can get lost very easily. It is possible for cash to disappear from the house or be burnt by a fire. However, when it is kept at the bank, the federal government insures it so that it can be recovered if something terrible happens.
2. Helps achieve personal finance goals
Cash in hand makes it very easy for an individual to spend on things not budgeted for. A savings account helps people set some money aside so that they can achieve their financial goals.
Also, banks help customers function well in their day-to-day activities. An individual can get by without a bank account; however, owning one helps one avoid impulse buying.
In addition, banks make it easy for customers to reach their funds. So, once an individual feels the need to access funds, all he needs to do is go to the bank and make a withdrawal or transfer funds from the savings account to a checking account. While there are restrictions on funds transfers, an unlimited number of cash withdrawals can be made through a cash dispenser or over the counter.
Interest on Savings Accounts
Most savings accounts accumulate a small amount of interest. In other words, banks make small additions to their customers’ savings, usually on a monthly basis. Nevertheless, the interest rate is dependent on the state of the economy, as well as the bank’s competitiveness. While rates offered by banks are usually slightly above inflation, there is a minimal risk of loss because the money is well insured. Also, a little interest is better than no interest at all.
To make comparisons between the rates at different banks, refer to the annual percentage rate (APR) of each account together with other essential factors such as fees and required deposit amount.
How to Open a Savings Account?
The process of opening an account does not take more than one hour. In most cases, it only takes a few minutes, and the customer is set for a couple of years. For customers who don’t want to visit a bank, but still want an account, the other option is to do it online on a laptop or mobile phone. Here is the procedure to follow when opening a savings account.
1. Compare banks
Compare different banks by checking fees, rates, and minimum balance requirements. Savings account don’t generate much interest, so all the charges will disappear into the money deposited.
2. Check eligibility (of credit unions)
For customers who prefer a credit union, the first thing is to check for eligibility. The relevant information can be found online or by speaking to a credit union customer agent.
3. Gather all personal documents
Before an account is opened, it is best for a customer to gather up all the data that will be needed by the bank, such as Social Security number, driver’s license, or military identification.
Opening an account requires the customer to be above the age of 18. However, the requirements vary from one bank to another, so it is best to inquire from the customer service representative.
4. Open and fund the account
Once the right credit union or bank is found, open an account that is easy to manage or make deposits into. Accounts with a higher interest rate suit customers who make considerably huge deposits.
After the account is all set up, the last step is usually to fund it with some money. It can be done immediately, or at a time when the customer is able to do it.
Customers who own substantial assets can talk to the customer service representative to find out what the bank can offer. The bank’s president might be around the corner, and usually, such an encounter ends up in a good deal. If the bank of choice sounds a little unfamiliar, it is always best to look them up and find out if they are insured.
A savings account is a good idea, especially for individuals with financial goals. With a savings account, it is easy to stash away cash that is not needed immediately. Banks or credit unions provide individuals with a safe place to keep their money.