Questions on Savings Accounts
Savings accounts are held by more than 65% of Americans. As one of the most popular kinds of banking products on the market, these accounts are designed to provide consumers with a safe place to store their excess funds. Despite their prevalence, savings accounts still draw large numbers of questions from account holders. This article will look at the three most common questions about savings accounts and explore the answers to those questions.
Where’s the interest on this account?
A core feature of savings accounts is that they earn interest. Part of the motivation for saving with a bank instead of stuffing the money into a mattress or burying it in the backyard is this interest. However, in recent years, many savers have been looking at their accounts and wondering where their interest has gone.
It has not disappeared completely. According to the regulations that govern types of deposit accounts, savings accounts still earn a rate of return. The difference between the present and the past lies in the interest rate on the account.
In 2009, interest rates on basic savings accounts were less than one percent. In some cases, accounts earned between .025 % and .01%. The net effect to a savers eyes was a disappearance of their interest, since the return on their savings could now be counted in pennies.
This represents a sharp change from even ten years ago, when basic savings accounts commanded interest rates of 5% or more. The difference, of course, is the economy. Over and above the economy, however, has been the governmental response to the economic situation.
Government bodies, like the Federal Reserve, have dramatically lowered interest rates to keep capital moving in the marketplace. This has a negative impact on savers, which is intentional as the government wants consumers to be out there spending and reviving the economy instead of saving. This policy, known as monetary easing, is designed to keep dramatic hardships from taking place across the market.
Fortunately, just like the economy, interest levels are cyclical. While savings account holders may be wondering where their interest has gone in the present market environment, the next swing of the economic cycle is likely to bring a return of higher interest rates for savings accounts.
What are these fees?
Most consumers associate savings accounts with interest, not fees. However, the fine print of most savings accounts typically details fees that are associated with the account. These fees typically fall into the following main types:
- Account maintenance fees. These fees are assessed on a monthly or annual basis to offset the bank’s costs of hosting the account for you. In many cases these fees are waved if the account balance is above a certain point.
- Service charges. Service charges are incurred as a result of an action on the part of the account owner. For example, a savings account may come with three free withdrawals per month. Additional withdrawals are permitted only with a service charge of $2.
- Penalties. Penalties occur when you do something in violation of the account policies. This may include letting your balance drop below a certain level, making excessive withdrawals, or overdrawing the account.
Many, if not all, savings account fees can be avoided by shopping around between financial institutions and reading account covenants carefully.
How can I get more from my savings efforts?
Faced with low interest rates and dearth of positive returns in the stock markets, many consumers are asking how they can get better returns out of their savings efforts. Instead of parking their dollars to collect pennies, they want to get higher rates of interest or better benefits from their savings accounts. Several options have sprung up in response to this demand from consumers:
- Matching programs. Save a certain amount, or save in a specific way, and banks will match funds, increasing overall account yields.
- Bonus programs. Complete a certain number of account related activities, and banks will pay bonus deposits.
- Online programs. Online savings accounts cost banks less to offer consumers, allowing these savings accounts to offer higher interest rates to consumers willing to adopt a non-traditional banking model.
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