It is an interest-bearing deposit account used to save money for the future. You can earn a certain amount of interest on your available funds in the bank.

It is a very popular type of checking accounts. Although they pay a low amount of interest but their safety features for your money make them reliable. There are some limitations in a savings account like you can make limited withdrawals of cash. They are flexible in other ways like you can have emergency funds in it which you can use at any time. You can use this account for short or long-term goals in the future.

How does it work?

It is a very famous and important source of funds for an individual which a financial institution provides. It is the facility that almost every bank or financial institution provides you and a very popular method for you to save your funds with some extra earning on interest. It is slow but in the long run, you will find it very helpful to achieve your goals. People who use their funds more often and their daily transactions are way more than usual cannot bear a savings account. They should open a checking or a current account. Many other financial institutions like brick and mortar or credit union are providing this facility.

The rate varies from different institutions. Some of them offer high yield rates and some offer low rates with other perks. You can choose from different plans according to your needs.

Some of the savings accounts are required a minimum balance to avoid monthly fees and others required no minimum balance and monthly charges. First of all, you have to research about how it works and what are your needs. Then you have to look for an authentic and well-reputed bank to open a savings account. At the time of opening your account, you should be aware of all the rules and regulations or policies of the bank to avoid any miscommunication.

You can move or withdraw your money via online banking or ATM or you can transfer your money via phone call. You can even transfer your money by using a bank’s app or website. There is a thing to be noted that now there is no withdrawal limit on your savings account as per new regulations by the US government and at some point, you can even empty your account. But some banks still impose withdrawal limits according to their policies.

Advantages

The biggest advantage of a savings account is you can put aside your money from the everyday use funds. To plan and achieve your goals you can have some extra money other than your daily banking needs. You can securely put aside your money without any second thought and earn interest on it is a plus point.

There are other multiple advantages of a savings account like you can switch between savings to a checking account at any time. It is the most liquid type of account that you can use at any time anywhere in the world without any hassle. You can open more than one savings account as many institutions allow you. It is the best approach for the individual who has multiple life goals. For example, you can open a savings account for your world tour and the other one is for the education of your children.

Disadvantages

Although, there are many advantages of a savings account but there are some limitations too. For example, there is a time limit to earn the interest and you have to wait for it. You can earn more than this by investing your funds in stocks[i] or other trading options and you can double up your money. If you can wait a little longer than usual then you should invest in bonds instead of a savings account because there are high chances of earning a huge amount.

The high liquidity of a savings account is very beneficial for you but it can be a curse for you to be tempted at any time to use your funds. Further, if you need your funds frequently then it will be a poor choice to open a savings account. Some of the restrictions are lifted from the savings accounts by the government so they become more vulnerable to be used as it was before.

Pros and Cons

  • PROS: They are fast and very easy to set up and you can move money from one account to another without any problem. it can be directly linked to your checking or current account at any time. There is a handsome amount of almost &260,000 is insured by the federal government in case of a bank failure.
  • CONS: It pays less interest than you can earn by investing in other plans and somehow lock your funds for later use. It will be very tempting for you that you can withdraw your money at any time. If there will be a minimum balance requirement then it will be very difficult for you to maintain.

Different types of a Savings Account

There are many types of savings accounts depending on your needs and where you want to open them but we will talk about a few of them. Some of them are given below:

  • Traditional Savings Account: A standard or traditional savings account is the most common type that you can easily find at brick-and-mortar[ii] In this type of account, you will be earning low rates on the amount you have deposited. You may require to maintain a minimum balance or a monthly fee will be charged.
  • High-Yield Accounts: They are just how they sound. They provide you with high-interest rates and you can find these accounts at online banks. Traditional or credit union also provide higher interest rates but their terms and conditions are very strict to follow.
  • Kids or Student Savings Accounts: Kids and students can also have their savings account because many banks are now providing these services to them.

[i] https://www.investopedia.com/terms/s/stock.asp

[ii] https://en.wikipedia.org/wiki/Brick_and_mortar