Take Advantage of Your Bank to Save Money
A savings account is a simple tool you can use to make your financial situation more secure. It allows you to set aside money for luxury purchases or emergencies, while also providing a venue for more straightforward investments.
Take a closer look at how you can use your bank’s savings account to help you save money.
How Your Bank Helps You Save
Having money in the bank to handle emergencies is one of the most reliable financial strategies you can have. One of the easiest ways to make this happen is with a savings account.
This type of deposit account allows you to earn a small amount of interest on the money you place inside. It Is not the same as a checking account; they do not have a checkbook or debit card tied up. If you want to use the money in your savings account, you will need to initiate a transfer from this tool to your checking account.
How Does a Savings Account Work?
Opening an account is the first step into using this tool. Each bank has its requirements for savings accounts, but normally it will require a minimum deposit. Take that amount to your bank or credit union, or open an account online.
All saving accounts allow you to earn interest. Typically, the higher the interest rate, the better, unless other fees offset it. These fees include opening account and maintenance fees. If it has a daily or monthly minimum balance and your balance falls below it, you may incur a monthly fee.
Types of Savings Accounts
There are two main types: traditional and high-yield:
- Traditional has low minimum balances of just a few hundred dollars, but they also have low-interest rates of less than 1%.
- High-yield has higher minimum balances but also have higher interest rates.
If you are saving for emergencies, you will want an account that is easily accessible and has low fees, The Balance says. On the other hand, if your goal is a big vacation or future purchase, a high-yield account may work well. These accounts have interest rates that are sometimes 20 to 25 times higher than traditional ones, Investopedia says, so they also work well for investing. If you are using savings as part of your pension planning, again, high-interest rates are essential.
Though the interest rates tend to be lower on savings accounts, they can still be helpful tools for your financial situation. They help you plan for emergencies, curb unforeseen spending, and set money aside where it is not as easily accessed for day-to-day expenditures, credit consulting firm Advantage recommends.
One of the easiest ways to make the most out of your savings account is to automatize the deposits. Determine how much you need to save each week or month, then have that amount automatically transferred each month from your checking account.
Top Bank Saving Programs in the US
Every bank in the United States has multiple savings programs. To find the best one for you, look for an account that offers automated savings, higher-than-average interest, and low fees. Check out the following programs:
- Bank of America’s Keep the Change — This program ties a Bank of America checking account to a savings account. When you make a debit card purchase, it rounds to the nearest dollar and deposits the “spare change” into the savings account automatically.
- Wells Fargo Way2Save — This savings account offers several automatic savings options. In addition to electronic transfers, you can also use Save As You Go transfers, which move $1 to your savings account every time you make a debit card transaction or use the Wells Fargo online bill-paying options.
Differences Between Physical and Online Savings Accounts
As you look for alternatives, consider the difference between physical and online options, the Motley Fool says. In general, online savings accounts have higher interest rates because they have less overhead expenses (a physical account requires more paperwork sometimes). In 2018, their average APR was 0.08%, but online accounts were at 1.85%. Online accounts may have fewer fees, while physical accounts may be more accessible when you need money in a crunch.
A Savings Account Dos and Don’ts
If you want to make the most out of your account, consider these tips:
- Use it as a budgeting tool. Save up money for more substantial expenses, like your annual property tax bill.
- Make sure you keep the minimum balance in your account to avoid fees.
- Learn how to get higher yields. Allow interest to accrue over time to maximize your investment.
Make sure to avoid these common mistakes:
- Dipping into it for non-emergency reasons.
- Failing to use automated savings options.
- Not meeting the minimum balance requirements.
What Other Bank Tools Help You to Save Money?
While the savings account may be the most common tool to help you save, there are other options including:
- A certificate of deposit provides a higher interest rate but requires you to keep the money in your account for a set period, according to Investopedia.
- Money market accounts are savings accounts with a checkbook or debit card from which you can make a limited number of transactions. It typically has a higher interest rate than a savings account but also has a higher minimum balance requirement, Nerd Wallet informs.
- Special individual accounts that are hybrids of these or fulfill a specific savings requirement.
Start Saving Today!
This type of deposit account is one of the most straightforward financial tools to use to get on track financially. If you do not have one, we recommend that you look into the benefits of automated savings as you seek to improve your financial situation. Start one now!