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Savings accounts are designed to help consumers save some of their assets for a future goal they may have. Brick and mortar banks as well as online banks offer savings accounts. Credit unions also offer savings accounts but many credit unions call them share accounts.
Why Should Customers Use Savings Accounts
Customers often wonder why they should even be interested in using a savings account. However, a savings account has a number of benefits that most customers do not pay close attention to. First, customers with savings accounts are able to earn higher interest on their deposits. Some banks refuse to pay interest on checking account deposits. Individuals who know they do not have an immediate need for their funds but wish to keep them somewhat liquid can make deposits into a savings account. Once funds have been deposited into a savings account they will earn interest immediately. Some banks compound interest daily while other banks will compound interest monthly. Check with your individual bank for more information about how interest is calculated.
Restrictions on Savings Accounts
Some savings accounts have restrictions that are placed upon them. For example, all savings accounts have transfers out of the account restricted. Account holders may only have six transfers per month under federal regulations. Any account holder who violates this rule may have to pay a fine or may have their savings account changed into a traditional checking account. Individuals who have their accounts terminated or are assessed service fees will be contacted by their bank.
Some banks choose to limit the amount of withdrawals that individuals can make from their savings account. These limits must be explained to depositors in the account agreement. Make sure to read the entire account agreement when opening a savings account with any bank and ask any questions that you may have as soon as possible. Other restrictions on savings accounts include the savings account not being allowed to have an automated withdrawal such as through ACH. Most consumers pay their bills online through an online bill payment program. This program may be offered by the bank that the consumer banks with or it may be offered by a company. Companies such as credit card companies, utility companies and others accept online banking payments. Customers who do make a payment through ACH or another automated transfer method may have the payment denied or receive a letter from their bank. Continuing these types of actions can cause the account to be transformed into a traditional checking account.
Savings accounts generally have few service fees. Few banks charge consumers a fee to open a savings account and make deposits in it. The banks which do charge a fee for opening and maintaining a savings account generally charge the fee to individuals who do not carry a minimum balance in the account. Make sure to read over the account agreement to understand the minimum balance of the account. Violating the minimum balance requirement may have a fee or may result in the account being closed entirely. This is at the discretion of the bank. Some banks also charge a service fee for savings account holders to interact with tellers or make withdrawals at the ATM machine. All of these fees are disclosed in the account agreement that account owners receive when opening their savings account.
Regulation D Limits
Regulation D is a federal restriction placed upon most savings accounts. The restrictions that are placed by this legislation include limits on the amount of withdrawals/transfers allowed each month as well as the limits that banks may place on check, debt and draft transactions. These restrictions are fully explained as well as other requirements in the account agreement.
Benefits of Online Savings Accounts
Online savings accounts have a number of benefits when compared to savings accounts offered at traditional brick and mortar banks. Online banks often offer higher interest rates on accounts due to their low overhead costs. Also, online savings accounts are easily opened by most individuals who have a valid social security number as well as other personal information. Often, there are no limits on the minimum balance at a bank that offers online savings accounts. Online savings accounts may also compound interest daily as well as offer other benefits that are determined by the individual bank.
Savings accounts are one of the best methods to manage liquid assets. Many individuals may want to save a small portion of their paycheck towards a goal. Other times, savings accounts can serve as an emergency fund in case someone loses their job or needs to access a large amount of cash quickly. Whatever the need, a savings account can help individuals live a well balanced financial life. Every individual should own at least one savings account to help them reach their highest fiscal potential!