The Pros and Cons of Putting Money in a Savings Account

Probably the most common (and maybe old fashioned) type of bank account after a checking account is a savings account. Savings accounts allow you to earn a small amount of interest on money while it is held in the bank. The money in a savings account is locked in a fireproof safe and is insured up to one hundred thousand dollars through the Federal Deposit Insurance Corporation. Even if the bank closes for some reason, savings account deposits will be in tact. Credit unions insure savings deposits at their institutions as well. It is a good idea to compare what different banks have to offer as far as savings accounts, checking accounts, etc. to get the best interest rate, find out the minimum balance requirements, and find out about any fees or service charges for their accounts. It is also best not to get a debit card when opening a savings account so that the money will more likely stay in the account. Once the initial deposit is made, a good way to build up the money in the account is to have a portion of paychecks deposited directly into the account.

There are two types of savings accounts: the basic or passbook savings account, and the money market account. The difference between the two is that the money market account pays more interest than a basic savings account, but more money is required for the minimum balance in the money market account. Money market savings accounts are usually insured up to $250,000.00 by the Federal Deposit Insurance Corporation, but a minimum balance of $5,000.00 must be maintained. If the account balance goes below $5,000.00, fees will be charged. These types of savings accounts are considered very liquid compared to certificates of deposit and fixed deposits which have a maturity date attached to them, making the money unaccessible until the maturity date. Some basic savings accounts as well as money market accounts allow a person to make only a certain number of withdrawals and/or write a certain number of checks each month. The more money deposited into both types of savings accounts, the bigger return is realized in interest payments.

Online savings accounts pay more interest than savings accounts at a regular banking institution. These accounts are very easy to open and everything is done online. Some online savings accounts have no fees or minimum balance requirements, and the money can be accessed at any time with an ATM card. On the other hand, since there are no physical branch locations, an 800 number is the only way to speak to a representative of the bank. Also, fees will be charged if money is withdrawn from the account. In some cases, it could take up to several days to transfer money between an online checking and savings account. Depositing a check into an online bank account requires a person to deposit the check first into a physical bank, then transfer the money to the online account.

Some banks offer automatic savings plans where a person can decide on a specific amount of money that he or she would be willing to transfer from a checking account to a savings account on a certain day of every month. Creating a monthly budget can help with this decision. The good thing is that once the dollar amount to be saved each month is determined, everything else is done by the bank.

big footer image investing jason skepyan