A savings account is one of the most basic forms of accounts offered by banks to its patrons. Since this is the most common one in the market out there, do we know everything about savings account and if it is wise to put our investment money in them?
Most people’s first bank account will most likely be a type of savings account. This will help us keep track of our money and keep it in a safe place. In return, we will have a small portion of our return on investments depending on the interest rates imposed by our local banks.
These types of accounts usually have maintaining balances. However, there are others that don’t require minimum balances but at the expense of not earning interest rates when they reached the flooring amount.
Another reason why we really need a savings account is the included insurance for our money. This will keep our savings safe and sound without any fear of losing them because of unfortunate events such as robberies and in case of fire.
Most bank insurance allows our money to have insurance for up to $100,000 through the FDIC (Federal Deposit Insurance Corporation). This will also help us in any case that our bank is susceptible to financial struggles and on the verge of bankruptcy. In any case, we found that our bank filled a report, our money will still be safe.
How Banks Earn Through Our Savings Accounts
Banks also need money to keep the gas burning and so they have to earn something. That’s where our money kicks in. Whenever we open a savings account or any bank accounts, we will draw interest. On the other hand, banks will use our cash for their finances, such as funding loans to other people.
The interest rate earned by those loans will be the profit of our local banks and that’s how they keep their supplies running.
Financial Institutions, Credit Unions, and Savings Accounts
Most people know that interest rates are not created equally. Banks and other financial institutions have different rates offered to their clients, depending on the type of account they opted for.
Credit Unions, on the other hand, are typically under a non-profit cooperative organization. They are usually funded by groups of people working in a specific industry. A prime example of this would be the State Employees Credit Union which mainly consists of state employees.
Loans from credit unions are less expensive compared to banks but interest rates with their savings account programs are a little bit on the low side. It is also worth mentioning that few credit unions offer higher interest rates compared to most banks, so be on the lookout for that.
Types of Bank Savings Account
There are two common types of savings accounts offered by banks to their clients. We can either opt-in for a basic savings account or a money market account. Let’s discuss the two and see what are the difference between them.
- Basic Savings Account –Basic savings account or usually called a passbook savings account is the most common type of service offered by our local bank. It has low flooring when it comes to minimum balance and some banks even offer no maintaining balance at all.
Our money will not grow as fast since it has relatively low-interest rates. However, it offers a more convenient way of banking since we can withdraw from our accounts anytime.
- Money Market Account – Unlike basic savings accounts, money market accounts give us a higher return on our investments thanks to higher interest rates offered by financial institutions. However, it lacks the flexibility that can be found in the former because of the limited transactions associated with the program.
We covered all the basics about savings accounts and you should have enough knowledge to shop around the market and find the best one that suits your needs.