Many people believe that banks are simply lending institutions that provide a means to gain short-term credit. Although that is true, banks also play other roles in the market, including playing a pivotal role in determining the price of bonds. Savings accounts are not just for saving money! If you’re looking to achieve your financial goals, paying attention to both your long-term and short-term goals and identifying what type of savings account will best suit them is essential. This article will help guide you in the right direction when choosing the right savings to account for your personal needs.
How to Choose the Right Savings Account for Your Goals
1. Set Your Budget
When choosing a savings account, clearly defining what you are saving for is essential. Although there are not many things you can keep outside of specific goals, the good news is that there are several short-term goals for that you can put money aside for daily expenses. For example, if you’re looking to save money to buy a new car or start a new business, this is where savings accounts come into play. You cannot put money aside in an interest-bearing account if you have no idea how long the funds will last. With this knowledge, you will determine how much you need to save each month from reaching your goals.
If you want cash readily available and need specific savings goals, it’s worth considering a checking account. A traditional savings account might be ideal if you’re looking to save money for a rainy day instead of saving up for one specific item.
2. Know Your Needs
Suppose you’re interested in earning interest on your money and have yet to make plans of withdrawing the funds for some time. In that case, it is recommended that you choose an interest-bearing account that requires a higher minimum deposit. The reason why it’s essential to have a higher minimum is that these accounts usually come with a longer minimum term (usually six months to 1 year) and require you to maintain an account balance of at least $10,000. These types of accounts also provide higher interest rates than traditional savings accounts.
If you’re looking for cash readily available, then a traditional savings account might be ideal. Since funds are readily available here, it’s the perfect place to keep emergency funds. It comes with a lower interest rate and no withdrawal penalty within the first six days of the month. Most traditional savings accounts require a low minimum balance or no minimum balance at all.
3. Consider Checking/Interest Bearing Accounts
If you want to earn interest and have immediate access to your funds, then a checking/interest-bearing account is an excellent place to consider. These accounts offer the option to take money out of the report at any given time and pay no interest on withdrawals made outside the grace period. However, this type of account is best reserved for people planning on making more significant purchases, such as a car or house shortly.
There’s little difference between checking and interest-bearing accounts, so it would be better to find an account that encompasses both benefits instead of choosing between them. It would help if you looked at a money market account to have immediate access to funds while earning interest.
4. Consider Savings Certificates
Certificates are a good alternative for people who can only save small amounts of money each month. Although the interest rate is usually lower than traditional accounts, this type of account comes with a lower minimum deposit requirement and a shorter term length. However, it does not come with any flexibility, as there are no withdrawals apart from the grace period. Another disadvantage is that you only earn interest on your balance rather than on any new deposits made into the account.
5. Consider Simplicity
As mentioned above, there is much to consider when choosing the right type of savings to account for your goals. The interest rate and fees associated with different accounts vary greatly and can easily make your head spin if you need to be more careful. As mentioned earlier, it’s best to be fully informed about your options so that you don’t lock yourself into an account with fees or interest rates that are less than ideal for an extended period.
Tips for Consumers
1. Keep a Watchful Eye
If you’re looking to earn interest on your savings and want the option to withdraw funds at any time, then a traditional savings account might be best for you. These accounts usually offer the most flexibility and are typically the most secure. However, keep a close eye on your balance to avoid accidentally running through your daily limit.
2. Make Online Banking Accessible
When it comes to banking, it’s often better to have too much convenience rather than insufficient! For example, having access to online banking from work, home, and even from another location outside your bank account (e.g., your mobile phone) will make your life much easier when checking your account balances. Just check all these accounts regularly so you don’t get overdrawn.
3. Maintain a Solid Budget
Although personal finance is a daunting topic, it’s essential to establish a budget so that you know exactly how much money is going in and out at any given time. This way, you can set aside money for the things that matter most to you and quickly say no to those impulse purchases.
4. Consider a Credit Union
When deciding which bank to choose, it’s essential to consider all of your options. For example, did you know there are over 7,000 credit unions in the United States alone? These institutions tend to be smaller than traditional banks, which is often ideal for people wanting more personalized attention. Also, do credit unions offer some of the same services as banks, such as checking and savings accounts, without fees? The biggest drawback of these institutions is that they usually have different online resources (such as online banking or bill pay) that larger banks provide.
5. Don’t Forget the Basics
Banking is a practical application of basic mathematics, and simply knowing about fractions and percentages is integral to managing your money. For example, if you have $100 in your savings account and decide to spend $100 on a new dress from a store that charges 3% in sales tax, you will be left with only $97. To compensate for this loss, consider making more frequent purchases at other stores or working more hours so that your salary exceeds the amount you spent on your purchase.
6. Don’t Underestimate Your Bank
Some people believe that their bank is a full-service franchise that can do no wrong, but in the end, it’s still just a business. For example, they might have off-hour tellers or drive you to a location. The only way to protect yourself from any mistakes made by your bank is to make sure that you do your research and recognize the signs of bad banking behavior!
If you want to save money, a savings account can be one of the best options available. Just make sure you keep track of your goals and the amount of money you’re saving. Remember to revisit your budget every once in a while to stay on track with your savings goals!
