Photo: B Tal/Flickr
For the most part, a savings account is not deemed a complicated banking tool. You open an account, add some money then watch it earn interest.But there is a bit more to savings accounts than people might think, including different types of savings accounts available and added ways to grow money. So if you really want to be “in the know,” take time to examine the five things you didn’t know about savings accounts.
What is a Savings Account?
A savings account is a bank deposit account that allows customers to save money while earning interest. Savings account funds are generally easy to access; however, banks don’t allow for the tremendous amount of liquidity available with checking accounts. In many cases, funds can only be withdrawn a maximum of six times per month from a bank teller or via an ATM machine.
Depending on the type of savings account you opt for, you may be able to deposit as little as $0 or may be required to open with and maintain an amount of $5,000 or more. Also, the interest you will be paid for your savings will depend on the financial establishment you work with and how much it offers based on industry rates, the type of account you’ve opened and how much you’re saving.
Savings accounts are not just available at banks; credit unions also offer them. And at most establishments, funds deposited into a savings account are federally insured, either by the Federal Deposit Insurance Corporation (FDIC) or National Credit Union Administration (NCUA).
5 Facts You Might Not Know About Savings Accounts
The savings account is an amazing tool for saving and growing your money. But there are aspects of this savings vehicle that could actually help boost your growth even more. Below are five facts you may not have known about a savings account that could indeed making a difference in your savings.
#1. Banks Still Offer High Interest Rate Savings Accounts
Traditional savings rates are expected to keep dropping, Dan Geller, executive vice president at Market Rates Insight said earlier this year. In fact, he expects rates to continue dropping closer to zero per cent.
For this reason it’s a good idea to consider a high interest rate savings account. Many depositors are unaware of these great savings accounts that offer a higher rate in exchange for a deeper financial commitment with the institution.
While traditional savings rates might rest at 0.25 per cent APY, you could find high interest rate savings accounts as high as 2.15 per cent APY, but you may also be required to make an additional commitment, such as enroll in a health plan through the bank.
#2. “Money Market Account” Is a Type of Savings Account
A money market account is one of the types of savings accounts available that actually doubles as a checking account. Customers deposit money into a money market with the promise of earning nearly double the rate of a traditional savings account, according to Suze Orman; however, the minimum opening deposit is usually higher — somewhere in the ballpark of $1,000.
Offering flexibility similar to a traditional or high-interest savings account, money market accounts allow savers to make withdrawals anywhere from three to six times per month. But instead of having to withdraw from a teller or ATM machine, depositors are offered checkbooks.
Also, like savings accounts, money market accounts are federally insured, meaning money will be protected by the FDIC or NCUA at most financial institutions for up to $250,000.
#3. Online-Only Savings Accounts Offer the Best Interest Rates
A lot of savings accounts are cropping up that function as online-only accounts. In other words, you can open your account online and manage it completely without ever entering a financial institution. Some brick-and-mortar banks are offering their versions of online-only savings accounts, while other institutions are creating online-only branches to manage savings and other deposit accounts.
Online-only accounts tend to offer better rates because the financial institution does not deal with the same overhead costs as traditional banks, and generally pass the savings on to the customer.
For instance, Third Federal in Ohio introduced an online account in 2007. Jennifer Rosa, a spokeswoman for the bank confirmed that the online-only savings account “has traditionally had a slightly higher rate.”
#4. You Can Use Your Savings as an Overdraft Account
There has been a huge debate about the pros and cons of banking overdraft options. Some say having the bank protect the account by covering overdrafts in checking accounts spares consumers fees associated with bounced checks along with other issues that could arise as a result.
On the other hand, according to a study released earlier this year by Moebs Services, consumers were hit with $31.5 billion in overdraft fees by banks in 2011, making this a potentially less desirable choice.
One way depositors can avoid the fees, however, is to use their savings account as an overdraft account. So rather than having the bank cover overdrafts, anytime your checking account goes over, the funds will automatically be pulled from your savings.
The benefit of using your savings account for this purpose is tremendous, which is why many depositors are choosing this option.
#5. Savings Account Promotions Can be Pretty Amazing
Many bank depositors over the past few years have decided that switching financial institutions is a good move for them. According to a 2012 study by J.D. Power and Associates, nearly 10 out of every 100 customers made a change with their primary account in the past year.
The good news for those customers is that a lot of financial institutions have been waiting for them with open arms, offering fantastic savings account promotions to lure them in. In fact, banks and credit unions have been known to offer some amazing deals using bank account promotions, from front-row seat concert tickets to a brand-spanking new Mercedes.
If you’ve been thinking about switching banks, it’s a great idea to check around to see what promotions are available. You might find a deal that may seem too good to be true.
Savings accounts are far more multidimensional than most bank depositors assume, so the more you discover about these great deposit accounts, the better your chances of growing savings substantially will be.
Business Insider Emails & Alerts
Site highlights each day to your inbox.