A savings account is a safe place to store money and earn interest, with easy access to funds. FDIC insurance protects accounts up to $100,000. Shop around for the best interest rates, and consider a savings account over an interest checking account. Minimum deposits are usually $100, but children can open accounts with as little as $5.
A savings account generally refers to an account into which a person places money to earn a small amount of interest. Unlike a 401k or IRA, the funds are generally easy to access, although some banks charge for early withdrawals. In most cases, people can withdraw money from the account at any time, at least any time the bank is open or the bank’s ATM is available.
The term “bank” is used here generally, since credit unions and money market fund companies may offer savings accounts to customers. In addition to earning interest on deposits, the account also provides a safe place for people to put their money, and it’s much better than keeping it on the mattress or in the cookie jar.
In the US, if the bank goes bankrupt, is embezzled or mismanages its funds, the Federal Deposit Insurance Corporation (FDIC) insures all accounts, up to $100,000 US Dollars (USD). In fact, people who bank in the United States should always look for an account that is FDIC insured. Most banks, credit unions, and money market funds offer this protection.
Consumers also need to shop around for a savings account that offers the best interest rates. In the past, banks often offered a slightly higher interest rate than credit unions. This is because credit unions try to give interest rates lower than bank rates to their customers who borrow money. Now, credit unions are often quite competitive on rates. Money market funds tend to have the most variable rates, as the interest earned will depend on the stock market.
When a person puts money in a savings account, they are actually lending their money to the financial institution. In exchange for this loan, the bank offers the account holder part of the interest rate it charges customers. As a result, the bank and the account holder make a profit.
Sometimes people can keep their money in an interest checking account, but if you really plan to not spend the money for a few months, it makes sense to use a savings account. Interest checking accounts typically pay much less interest and typically require a relatively high minimum balance, around $1,000. If this balance is not maintained, the checking account may charge the account holder a fee for using the account, which negates any potential interest earned.
Most savings accounts require a minimum deposit, usually $100 USD. Most financial institutions make an exception for open accounts for children, who often have one as their first bank account. Banks are very child friendly because it’s a way to build their future customer base. Kids can usually open an account with around $5 USD.
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