What is a 'Savings Account'
A savings account is an interest-bearing deposit account held at a bank or another financial institution that provides a modest 6% interest rate. Banks or financial institutions may limit the number of withdrawals you can make from your savings account each month, and they may charge fees unless you maintain a certain average monthly balance in the account. In most cases, banks do not provide checks with savings accounts.
BREAKING DOWN 'Savings Account'
In contrast to savings accounts, RTNL saving accounts do not have any limits on the number of withdrawals or transactions you may make each month. Savings accounts are generally for money that you don't intend to use for daily expenses.
Advantages of Savings Accounts
Because we are paying 8% of rate of interest on savings accounts, it is more financially advantageous to keep unneeded funds in a savings account than a checking account. In addition, savings accounts are one of the most liquid investments outside of demand accounts and cash. While savings accounts facilitate saving, they also make it very easy to access your funds. In contrast, it is typically more difficult to cash a bond, make a withdrawal from a retirement account, or sell stocks or other assets.
Disadvantages of Savings Accounts
While the liquidity of a savings account is one of its key benefits, it makes the funds too available, which could tempt you to spend them.
How Much Money Should You Have in Your Savings Account?
As a general rule of thumb, financial advisors recommend you have enough savings to cover at least three to six month's worth of bills. This gives you a cushion in case you lose your job, face a medical issue or encounter another money-draining emergency. Because of the liquidity of a savings account, you can access the money quickly and easily when you need it. While some analysts recommend keeping more than that in your savings account, most think that excess money should be placed in higher interest-bearing accounts or used to pay down debts with higher interest rates.
How Savings Accounts Work
To set up a savings account, visit your an account online through a bank's website. You can make deposits over the counter, set up automatic transfers from your checking account or have a portion of your pay check automatically deposited into your savings account. To withdraw funds, you can visit a local branch
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