A savings account is an important situation for young people to get involved in, middle age, as well as seniors. All age categories should have money put away for a rainy day.
There’s many times that you know you have your income and you’re on a regular basis, but emergencies do happen. Unexpected emergencies do come up, and it’s important for you to tuck money away for those unexpected times.
An unfortunate fact in America is that there is a negative savings rate at this time and, in fact, people are relying on credit to pay their overall bills and responsibilities.
You don’t have to be part of this situation because you can live within a budget, and make sure that you put your money away for an unforeseen event, as well as for your financial future, and in doing so; you can set up a savings account. It is recommended to use the financial planning business that you have at least six months in emergency funds to last you over as a normal benchmark.
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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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Getting the most for your money is an economic necessity. If you want to be able to have a comfortable cushion on a rainy day or retire before you have both feet in the grave, you need to maximize the return on your savings accounts. You don’t want that money just sitting around when it could be working for you.
To get the best savings accounts in the market, there are several things to consider. However, rather than getting bogged down in options, there are three main tips that will help you get the best savings accounts no matter what your personal financial situation is at the moment. These tips may seem simple, but they can make quite a difference on your bottom line.
Tip #1: Know Your Savings Style
Many consumers looking to make changes to their savings account only look at the account features without taking their personal financial habits into account. It is absolutely vital that you not ignore your own personal style when choosing a savings account. This will help you get the account that gives you the best fit and the best return on your money.
For example, you should be able to identify if you are a seasonal saver or a steady saver. Steady savers make regular deposits into their savings accounts, and often have these deposits transferred over directly from their paychecks or other regular monthly income. Seasonal savers tend to deposit chunks of money now and again, without a regular savings plan in place.
Now, there is no “right” way to save . . .but there are wrong ways to manage your money. If you open a savings account that rewards regular deposits, but you only put money in it once a year, you don’t have the best savings account for your needs, no matter what the special features of the account may be. By matching up styles to savings accounts, you will ensure that you get the most out of promotions, special features, and core regulations of your savings account. Don’t be lured in by flashy promotions or other gimmicks for features that don’t mesh with your personal style, and you’ll be much more likely to have a successful long term relationship with your savings account.
Tip #2: Check The Fine Print
Savings accounts have their own regulations, and each bank or credit union typically tops those regulations with rules and guidelines of their own. Ignoring the fine print not only contributes to overlooking rewards that you could be earning, but it also contributes to the incurrence of maintenance fees, service charges, and account penalties. Reading the fine print and being aware of its impact on you is the only way to ensure you get the best savings account possible.
Poring over the fine print is also the only way to reasonably compare apples to apples when it comes to savings plans. You need to understand annual fees, annual percentage yields, and any relevant top up or rewards programs on the accounts. Balance all of the benefits against both the overall account costs and the potential personal costs of having accounts at multiple institutions. When you have all of the details straight as they apply to your personal situation, you’ll be able to choose the best savings account.
Tip #3: Think Outside The Bank
As technology has improved and made it possible to live more of life virtually, there are now savings account options that have no brick and mortar presence at all. These online only financial service firms offer both traditional and non-traditional banking products. Although it is not the first place that many consumers think to look for a savings account, remembering to think outside the bank model can help uncover online savings programs.
Looking online helps overcome regional availability challenges for savings programs, and can help you earn higher interest rates on your account balances. Of course, there are trade offs in terms of ease of funds transfer and the ability to talk to a real person about any account issues. However, by including online and non-traditional savings account providers in your evaluation of your account options, you may find the best account for your needs in an unexpected location.
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With the economy continuing to shuffle along like a geriatric marathon runner, money matters are at the forefront of people’s minds for 2010. Typically, financial discussions focus on the markets, which have been foundering. However, there are also other developments in the banking industry that you need to know to make smart financial decision. This is particularly true when it comes to savings accounts.
Savings accounts are often viewed as the old tried-and-true alternatives to socking money away in a stock market fund or retirement account. With the sharp market downturn of the last two years, savers actually came out ahead. Their returns may not have been outstanding, but at least they were positive.
This trend led many individuals to start redirecting funds back into previously neglected savings accounts. As a result of renewed consumer interest in savings accounts, this old traditional monetary hideaway has been subject to a number of changes and innovations. Understanding the latest news and developments on the savings front is important for continuing to protect your personal wealth.
FDIC Changes
One of the biggest news items of the last 24 months was the change to the FDIC limits on personal deposit accounts. In the past, accounts were insured against losses of up to $100,000. As a result of market uncertainty and economic free fall, the FDIC protection was expanded to protect deposits against losses up to $250,000. Essentially, this means that even if your local depositary institution has been making poor choices and goes bust, your personal funds are safe and may be transferred intact to another institution.
Obama Administration Regulations
Other major developments around savings accounts are pending regulatory implementation. In June of 2009, the Wall Street Journal reported on the Obama Administrations efforts to increase responsible financial behavior among the American public. Bundled in with the changes to credit card regulations were new rules creating savings accounts for those whose employers did not offer retirement accounts.
These new retirement savings accounts would be automatically created unless you made a conscious decision to opt out of the program. The Obama Administration was quoted as saying that they wanted to replicate the success of the 401(k) opt out program, where participation rates shot up when one had to make the choice to opt out. If the final legislation is implemented, it would mean a large number of new savings accounts for banks to manage, which could impact customer service levels and promotions for voluntary savings programs.
Account Feature Innovations
In response to renewed interest in savings plans from both the government and individual savers, new generations of savings accounts are being developed that have more features to offer consumers. In addition to interest rates and protections against loss, these new savings accounts may offer bonus payments or member discounts to account holders at participating retailers or vender partners.
These bonus and partner discounts in many ways resemble the shopping partnerships that have long been a feature of airline frequent flyer programs and credit card covenants. However, they are new in the savings account space. As a result, few savings account holders are aware of the additional benefits that they earn from their account. It is well worth the time to investigate new promotions and account offers, even from the institutions with which you currently have an account.
Concluding Thoughts
Though financial news rarely focuses on the unglamorous savings account market, there is no doubt that savings accounts are an area of financial services where new innovations and regulatory developments merit careful attention. As savings becomes more popular and you find that you need market alternatives to stock funds, understanding the ins and outs of savings accounts helps make every dollar go farther. There are new benefits being created monthly for savings account holders.
There is no reason to be left behind with new savings account developments. Monitor ongoing promotions at your favorite financial institutions, and keep an eye on the financial press. New announcements and legal changes could present you with opportunities that didn’t exist in the past. The banking industry is currently in a state of flux, much like the rest of the economy. Ensure that you are on top of all changes, and give yourself the security of a safe financial future with savings accounts.
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Every year, millions of Americans vow to save more money. Using savings accounts, they carefully tuck away their extra earnings. However, while savings accounts may be the nation’s number one place to keep extra cash, there are many elements of savings accounts that are not well understood. Learning about the basic features, history, major types, special features, and modern developments around savings account can help you save smarter and get more out of your savings account relationships.
Basic Features of Savings Accounts
Savings accounts are deposit accounts that bear interest. The amount on deposit in the account earns a rate of return that is deposited by the bank into the account monthly or quarterly, depending on the financial institution.
Retail banks, credit unions, and online banks all offer savings accounts. Money can be added and withdrawn from the account through deposits, transfers, and standard withdrawals. Savings accounts are not designed for heavy in and out traffic, but rather to serve as a longer-term storage solution for extra funds.
Deposits in savings accounts at retail banks are insured through the FDIC for up to $250,000. The safety of the money in the savings account is another of the key features of the accounts.
Some financial institutions charge fees for savings accounts, and others require certain minimum balances to keep the account. In many cases, maintaining a certain balance will cause fees to be waved. It is important to read all of the details of the features of a savings account before committing to a banking relationship.
History of Savings Accounts
Savings accounts came into a rudimentary existence quite early in history. Some scholars argue that savings accounts actually predate money, as the basic idea—storing up an item of value for a rainy day—worked with grain and goods storage sites.
Once earnest money came into existence, savings accounts were managed primarily through temples and traders. Rates of interest and the ability to draw money varied wildly from country to country, with systems not formalizing until the1600’s in the London financial markets. Modern savings accounts are therefore a relatively new invention in the world of global finance, but they have been adopted by more than 65% of Americans.
Major Types of Savings Accounts
Savings accounts have many different features that can be varied by a financial institution, but they fall into just two main types. These two main types of savings accounts are the Money Market Account, and the Passbook Savings Account. Depending on your regional nomenclature, these may also be called Ready Reserve Accounts and Basic Savings Accounts, respectively. Understanding the differences between the two account types will help you find the best place to keep your money.
Passbook savings accounts have very low or non-existent minimum required balances. Money can be added or withdrawn without restriction. Interest is paid on the average total balance. Interest rates on passbook savings accounts are usually relatively low, but the account does offer you easy access to your funds.
Money market savings accounts offer higher rates of interest on the balance in the account, but often carry additional restrictions about account usage in exchange for this higher interest rate. Typically, there will be relatively high minimum balance requirement, and there will be restrictions on the number of withdrawals that can be made to the account in a given month.
Special Features of Savings Accounts
Modern savings accounts have some special features that go above and beyond the basic savings account model. For example, depending on the banking institution providing the account, some Money Market Accounts can have checking features. Alternatively, Passbook savings accounts can be designated for specific items, such as health savings or retirement funds, and earn tax incentives as a result.
Modern Developments Around Savings Accounts
Over the years, banking has gotten more creative to try and satisfy consumer desires. This has also happened in the banking arena. For savings accounts, modern developments have been primarily centered around added flexibility and functionality on the accounts. Newer savings accounts typically have fewer restrictions on withdrawals and transfers than older accounts.
Additionally, special savings programs for savings accounts have been made possible thanks to technology. Micro deposits from rounding up to the dollar on associated debit or credit card transactions can be used to build balances. Banks are also more likely now than in the past to offer matching funds and other incentives to keep consumers from moving their savings accounts to other banks.
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