Unlock the Mystery of Savings Accounts: A Simple Guide to Understanding How They Work

Interested in saving money but still want to access your funds when you need them? If so, a savings account could be the perfect solution.

What exactly is a savings account?

A savings account is a convenient and secure method for saving money. Savings accounts are considered liquid, meaning you can easily withdraw your money whenever necessary. This makes them ideal for those who want to save money for short-term purposes, such as:

• If you require your money urgently, you can quickly and easily take it out from your account.

• Are savings accounts insured?

Accounts are insured for up to $250,000 per ownership category per bank (not per savings account opened). The FDIC (Federal Deposit Insurance Corporation) provides insurance for various account types/ownership categories. You may be able to receive more than $250,000 by adding beneficiaries, depending on the structure.

Do savings accounts earn interest?

Usually, the trade-off for liquidity is a lower interest rate. You will earn interest on your savings account balance, but the amount may not be as significant as with other investment options. In other words, you're probably not going to get rich or retire off the interest earned through a traditional savings account. Nonetheless, this is not the goal for short-term savings or keeping funds for emergencies.

It is still crucial to shop around for the best savings rates and savings accounts because most institutions offer a range of options to fit your needs. These options may include:

• Savings account interest rates
• Savings account minimum balance requirements
• Savings account fees

• Are there fees for savings accounts?

Savings account fees may include monthly service fees and transaction fees. Avoiding these fees is not just desirable but also possible. Regularly paying fees can consume any interest you earn and even some of your savings.

Monthly service fees are imposed simply for having an account, but you can eliminate these fees by being aware of your banking habits. Many financial institutions will waive these fees if you maintain a specific minimum balance in your account or participate in an automatic deposit program.

Plan your withdrawals wisely to prevent being charged ATM fees for exceeding a specific limit, and avoid using out-of-network ATMs to not be charged fees by the ATM owner and your bank. However, some banks may refund fees charged for using out-of-network ATMs.

Does the savings account balance make a difference?

Balance requirements are frequently correlated with interest rates. Several banks and credit unions will pay more interest if you maintain a higher minimum balance in your savings account. While this may appear reasonable, you need to ensure that you can maintain that higher balance. If you fall below the minimum amount at any point during the month, the monthly service fee may still be charged.

Moreover, if you have a substantial amount of money, a savings account may not be your best saving strategy. You might want to move some of your savings into a Certificate of Deposit (CD) or Money Market account that provides higher interest rates while still offering insurance protection. It may be beneficial to meet with a financial advisor to establish an investment plan.

As with any type of savings, it is best to deposit your money and leave it there. Small amounts of interest can accumulate over time when interest is compounded.