Savings Accounts

Savings Account 101 – An Introduction for Beginners

A savings account is perhaps the safest and most convenient option for investing. Defined, this type of account is basically a balance of funds, kept in a depository or financial institution in order for the funds to accumulate interest and grow. This is already a fool-proof type of account since it has been tested since time immemorial. Savings rate have a set rate of interest which the bank will guarantee to pay out, which is why they are so appealing - there is no risk involved (unless the bank goes bankrupt of course).

How a Savings Account Work

When you open a savings account, you will be asked to deposit a certain amount of money. When this money stays in a bank, it will earn interest. The reason for why the bank pays interest when you keep your money in the bank is so that they will be able to loan money to other people. This is how banks stay in business. Do not be worried, however, that all your money will be lost to loans. When the bank gives out loans to other people, they charge a slightly higher interest rate. Your money will be kept intact and the bank stays in business.

The Different Types of Savings Account

You can benefit from more than one type of savings account. There are different types of savings accounts that cater to the varying needs of different people. Here are the basic types:

Long Term Savings Accounts – these are generally savings account but involve longer-term investments. If you plan on keeping your money in a bank for a long period of time, these will be put in fixed deposits or equities. This type of savings account yields higher interest rates.

Time Deposit Account – this is a type of savings account wherein the amount of cash deposited will only be kept for a certain time duration. You will be allowed to withdraw time deposited accounts only when given a notice to do so or when your account has incurred a loss of interest. When a time deposit account stays dormant, it will continue to earn interest but only for a specific period of time.

Passbook Savings Account – this is another type of savings account that involves the use of a depositor’s passbook. Each time a transaction is made with this type of account, it will be documented in the passbook.

Other Types – other types of savings accounts include government budget surplus and corporate retained earnings.

How to Choose the Right Savings Account

Now that you know the different types of savings account out there, the next step involved is to decide which one is best for you. When looking for the right savings account, two factors need to be considered: interest rate and minimum balance.

If you do choose a savings account, you need to choose one that offers the highest interest rates compared to other banks or other types. It’s exactly the opposite when you’re looking for a loan, because with a loan, you need to choose one that offers the lowest interest rate as possible. You want your money to earn as much as it possibly can while it is kept in a bank, so choose a savings account that offers a high interest rate.

The second factor is the minimum balance needed to keep a savings account charge free. Most, if not all banks, charge a certain fee if you go below the minimum balance. When choosing a savings account, make sure to choose one that has the lowest minimum balance being offered. This way, when you need a large portion of the money you saved, you can still withdraw them without being charged.