August 7, 2020

The Basics of Investing Money in Savings Accounts

Savings AccountA savings account is a type of account that individuals open in a bank or credit union and deposit their funds. Banks and similar institutions also offer incentives for people other than just keeping their money safe, such as compounding interest rates that add extra funds to the account in intervals. Savings accounts are a great place for people to keep their money secure while at the same time building interest. Another great benefit is that all savings accounts are secured by the Federal Deposit Insurance Corp for up to $250,000.

Restrictions and Requirements

There are some restrictions that come with the account, such as a minimum deposit amount and being required to maintain a minimum balance, but they differ from lender to lender. Some accounts don’t have any minimum requirements but their rates are very low. On the other hand some accounts have much higher interest rates but the minimum requirements go up accordingly. There is no limit to how many times one may deposit money into a savings account, but most banks set limitations on how often you can withdraw and how much.

The Different Kinds of Savings Accounts

There are many different kinds of savings accounts. Most people have heard of the traditional kind, but many may have heard of other kinds and not even realized they were types of savings account. Here are the top three savings accounts:

  • Basic Savings Account – This traditional savings account is also called a regular savings account or even a passbook account. This is the most common kind of account and it offers individuals easy access to their money. Most have a very low minimum balance requirement, and some do not have one at all. The interest rates are very low on this type of account, so if you are wanting higher returns than you might want to look into a more nontraditional option.
  • Money Market Account – Here is a savings account that offers decently high rates of interest. The downside is that it comes with higher minimum requirements. Of course if you have a lot of money, or if you are a shrewd investor, then these will not be a problem. Just know that there will be a penalty if your balance drops below the minimum. Money market accounts also give you the flexibility of being able to write checks, but there is a limit to how many you can write a month.
  • Certificate of Deposit – Otherwise known as CDs, certificates of deposit are a little different because you lock up your money in an account for a certain amount of time and you cannot access it until the term ends. The benefits of CDs are their higher rates of interest and the variety of term length options. CD terms range anywhere from three months to thirty years, so it is up to the investor to pick the most beneficial one. There is a penalty that comes with withdrawing your funds early, which can be bad if you really need the money or good if it keeps you from spending money you don’t need to spend.

Conclusion

Types of Savings AccountsSo there you have the fundamental aspects of savings account and their various types. If you are in need of an expense account, or a place where you can pay the bills and handle monthly expenses, then a basic savings account will be your best option. But if you want an account that you don’t have to dip into frequently and that can earn you interest then a money market account or certificate of deposit may be the right choice for you. Be sure you review your budget, income, and financial goals before making any decisions.