Savings Basics: How to Get Started with Savings Accounts
One of the keys to financial freedom is developing a habit of saving. It sounds really basic, but many people have trouble with this, and many just don’t know how to start. Here is an overview of how you can get started with savings accounts. The article will cover types of savings accounts, how to open one, and various alternatives that you can choose from.
Photo via Wikimedia Commons
Types of Savings Accounts
There are different kinds of savings accounts. One of the main considerations is the yield you can get on your money. The bank pays you interest — expressed as annual percentage yield (APY) — since the money you deposit is used to fund loans out to others. Rates are influenced by the Fed Funds Rate, and right now, most cash products have low yields, since the Fed rate remains incredibly low. When the Fed begins raising rates, yields on savings accounts should head higher as well. Of course, the bank loans out the money at a significantly higher rate than you are earning, so it makes a profit.
The type of account you choose can influence the returns you get for your money. The main types of savings accounts are as follows:
- Traditional Savings Account: For the most part, this is the account you will get when you go to a brick and mortar bank and ask to open a savings account. This type of account generally offers the lowest yields, less than 1% in most cases right now. However, there are rarely minimum account balance requirements, and often no fees are charged.
- Money Market Savings: You can usually get a better rate than a traditional account if you consider a money market savings account. Unlike traditional accounts, some money market accounts will allow you to write checks from the account. However, you are likely to have a minimum balance requirement in order to avoid a fee.
- Online Savings Accounts: Technology has made it possible for many banks to operate almost entirely online. Many of these banks offer higher yields (around 1.5% to 2% at this time). Additionally, many brick and mortar banks have online accounts that offer better yields than their more traditional offerings. It might be worth it to consider one of these from the standpoint that it might be a little more difficult to access ...
Related Articles
