You may already have a checking account that’s used for depositing your paychecks, paying for groceries, and other day-to-day activities. However, for emergency money, savings, or to earn more interest, a savings account is an excellent option for anyone with these goals.
Sometimes it can be easier to set up a savings account with the financial institution where you already have your checking account. Since there are different types of savings accounts that offer a variety of various features, it is best to shop around.
Savings accounts are insured, just like checking accounts to protect you if your bank or credit union ever fails. Up to $250,000 is insured by the Federal Deposit Insurance Corporation (FDIC) for banks and the National Credit Union Association for credit unions. As you shop around, verify that the financial institutions you are researching have this insurance.
Determine Your Savings Goal
If you are saving money for a specific purpose, you need to decide how long you have to reach your goal. For instance, you might be looking to save up for a down payment on a house that you want to buy in two years. Alternatively, you may want to have money for a vacation that’s six months down the road. Or maybe you just want to have a certain amount of money saved by a specific time. If this is the case, you can have regular automatic transfers made to your savings.
Compare the Interest Rates
Different types of savings accounts could offer different interest rates. Sometimes you may have to keep a minimum balance amount, or potentially pay an account fee. For other types of savings accounts, you may have little to no access to your money for a certain amount of time.
Look at these interest rates and make sure you understand what you need to do to receive the interest. Some types of accounts may offer a larger interest rate for a high monthly balance. As soon as you drop below their minimum monthly balance requirement, the interest could be reduced substantially.
Get the Right Type of Savings Account
Whatever your savings goal is, you should pick an account type that fits with the goals and your financial lifestyle. Three different types of savings account have distinct features and benefits. Here are the most common types of savings accounts:
Regular Savings Account – Most financial institutions and online-only banks typically offer these savings accounts. They allow you to make up to six transfers or withdrawals per month without a fee. Usually, you can open a regular saving account with only a little bit of money to start. The interest rate is generally lower than other savings account options, although generally higher than an interest-bearing checking account.
Money Market Accounts – Also called MMDAs, these are similar to a regular saving account in many ways. They also have transaction limitations. The difference is that you earn more interest on these accounts. Some money market accounts also give you access to some checking functions such as check-writing and ATM access for withdrawing cash. To receive a higher interest rate, you typically have to carry a higher balance. There could be account fees or a loss of interest-earning if you fall below the minimum balance. MMDAs should be an option only if you know you can maintain the high balance requirement.
Certificate of Deposit – CDs usually offer the highest interest rates among savings accounts. Your funds are held longer, set aside for a pre-determined period known as the term. This term could be a few months, all the way up to several years. If you are considering a CD, be sure you can part with your money for an extended period. Withdrawing the money before the term ends will result in having to pay a penalty or forgo part of your interest-earning. If you are considering a CD, be sure you can part with your money for an extended period.
If you are ready to open a savings account, NASB has options for you. You can also call us at 800-677-6272 with your questions or to get started.