You may already have a checking account to deposit your paychecks, pay for groceries, and do other day-to-day activities. However, for emergency money, savings, or to earn more interest, a savings account is an excellent option for anyone with these goals.
Sometimes, it can be easier to set up a savings account with the financial institution where you already have your checking account. Since different savings accounts offer various features, it is best to shop around.
Savings accounts are insured, just like checking accounts, to protect you if your bank or credit union ever fails. The Federal Deposit Insurance Corporation (FDIC) for banks and the National Credit Union Association for credit unions insure up to $250,000. As you shop around, verify that the financial institutions you are researching have this insurance.
Determine Your Savings Goal
If you are saving money for a specific purpose, you must decide how long it will take to reach your goal. For instance, you might be looking to save up for a down payment on a house that you want to buy in two years. Alternatively, you may want to have money for a vacation that’s six months down the road. Or maybe you want a certain amount of money saved by a specific time. If this is the case, you can have regular automatic transfers made to your savings.
Compare the Interest Rates
Different types of savings accounts could offer different interest rates. Sometimes, you may have to keep a minimum balance or potentially pay an account fee. For other savings accounts, you may have little to no access to your money for some time.
Look at these interest rates and ensure you understand what you need to do to receive the interest. Some accounts may offer a higher interest rate for a high monthly balance. However, as soon as you drop below their minimum monthly balance requirement, the interest could be substantially reduced.
Get the Right Type of Savings Account
Whatever your savings goal is, you should pick an account type that fits your goals and your financial lifestyle. Three different types of savings accounts have distinct features and benefits. Here are the most common types of savings accounts:
Regular Savings Account—Most financial institutions and online-only banks typically offer these savings accounts. They allow you to make up to six transfers or withdrawals per month without a fee. You can usually open a regular savings account with only a little money to start. The interest rate is generally lower than other savings account options, although it is generally higher than an interest-bearing checking account.
Money Market Accounts – MMDAs are similar to a regular savings account in many ways. They also have transaction limitations. The difference is that you earn more interest on these accounts. Some money market accounts also give you access to checking functions, such as check-writing and ATM access for cash withdrawals. You typically carry a higher balance to receive a higher interest rate. There could be account fees or a loss of interest if you fall below the minimum balance. MMDAs should be an option only if you know you can maintain the high balance requirement.
Certificate of Deposit – CDs usually offer the highest interest rates among savings accounts. Your funds are held longer, set aside for a pre-determined period known as the term. This term could be a few months up to several years. If you are considering a CD, be sure you can part with your money for an extended period. Withdrawing the money before the term ends will result in paying a penalty or forgoing part of your interest. If you are considering a CD, be sure you can part with your money for an extended period.
If you are ready to open a savings account, NASB has options. You can also call us at 800-677-6272 with questions or to get started.
