A Beginner’s Guide To A Savings Account


You may think a savings account is just a place you store money so you aren’t tempted to spend it, but there’s a lot more to it. A savings account is very different from a checking account, and it has a very specific purpose. Don’t just go with your bank’s savings account; do the research and find one that has the best benefits you can get. Here’s everything you need to know about savings accounts:

What Is A Savings Account?

A savings account is an account where you securely store money that’s quickly available if you need it. It usually earns you a small return rate with little risk. The federal government insures savings accounts, so up to $250,000 is covered if the bank fails. The annual percentage yield (APY) grows your money over time with compounded interest. Your APY rate will vary depending on the bank, with the national average being 0.09%.

A savings account is slightly less accessible than a checking account.  Federal law limits the number of monthly transfers to six a month, with additional transfers costing you a fee. These transfer limits may help prevent you from regularly taking money out of your account.  This creates a positive distance between your everyday spending money and your savings.

How Much Do I Put In A Savings Account?

These accounts are meant to keep a small amount for emergencies, usually three to six month’s living expenses. If you’re just starting out, try putting in $500 and building it up. This will cover you for minor financial needs until you’re able to save enough to cover bigger emergencies.

Once you’ve reached six month’s living expenses, it’s time to put your money elsewhere. Any additional money would be better spent as an investment, as it will yield you a much higher rate of return. Interest rates are notoriously low for savings accounts, and it’s a waste to let too much money sit there not accruing interest.

Where Do I Get A Savings Account?

You should shop around to find a bank with the best interest rates.  The bank that your checking account is in is usually not the best choice, as they typically have very low-interest rates. Online banks will offer APYs as high as 2%, which is usually much greater than brick-and-mortar banks. Even though you’re not putting money in a savings account primarily for the interest, it doesn’t hurt to choose one that earns you slightly more than you would otherwise.

You’ll want to find an online savings account that doesn’t charge a monthly maintenance fee. Many online banks also don’t require a minimum balance to keep the account open, which can be helpful if you’re just starting out. You’ll also get access 24/7 with an online bank. Even though many physical banks can be accessed online, online banks have more specialized tools to help you navigate them more easily.

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