When it comes to financial goals, seeking out smart, flexible savings tools can help you make progress and easily access your funds. In other words, the benefits of savings accounts make them worthwhile.
Account requirements and terms can vary by bank, but all savings accounts share some basic characteristics. Perhaps the most important commonality of savings accounts is that they are a safe place to keep your money. But a few less obvious benefits of savings accounts are worth exploring as well.
Whether you're considering opening your first savings account or just one that's new to you, here's a closer look at the key advantages of savings accounts and how they can help you in your financial journey.
Though savings accounts don’t earn as big of returns as other investment vehicles, any amount of money you place in a savings account will still gain interest over time. This puts extra dollars in your pocket, and every dollar counts when you’re saving for something important. Savings account interest rates vary from bank to bank and can fluctuate over time. If a higher interest rate is important to you, you can explore high-yield savings accounts, some of which may require a minimum deposit or minimum balance amounts.
The good thing about earning interest in savings accounts is that it’s always yours to keep. Unless you make a withdrawal, you don’t ever have to worry about losing money or your balance decreasing.
Federally insured funds
Savings accounts are a low-risk investment if you choose a bank insured by the Federal Deposit Insurance Corporation (FDIC). Then any money you put into a savings account is insured up to $250,000 per depositor, per account. That means even if the bank goes out of business, your money is protected up to the applicable limit. Also, FDIC insurance coverage applies per depositor, per insured bank — and for each account ownership category. In other words, if you want to invest more than $250,000, all you’d have to do is open another savings account at a different bank, or a different type of account ownership category at the same bank, and you can rest easy knowing your money is safe, insured and secure.
Manually making a deposit or a transfer into a savings account is probably the biggest reason some people fall behind in their savings goals. After all, paying yourself often is your priority as bills and life's expenses get in the way. A key benefit of savings accounts is that most offer an option to set up direct deposits. Many people choose to set up their transfer payment on the same day they get their paycheck or once per month, but the amount and frequency are up to you. Taking advantage of automatic payments is a no-brainer: you can make consistent progress toward your financial goals without having to think about them. And once your automated savings amount becomes a regular line item in your budget, you won’t feel the impact.
Easy access to funds
Unlike certificates of deposits (CDs), which are also popular deposit accounts, savings account funds are quickly available if you need to make a withdrawal. Some banks do offer withdrawal penalties, but, at the time of this article's publication, the Federal Reserve has indefinitely suspended the regulation limiting transfers from savings accounts to six a month. Many people refer to their savings accounts as “emergency funds" or “rainy day funds." No matter how much financial planning you do, situations may arise in which unforeseen expenses pop up. Having convenient access to your money can help you cover surprise expenses (without having to fall back on debt products like credit cards). Then, once you’re ready to get back on track with your savings plan, you can replenish the funds at your convenience.
Less temptation to withdraw
While having easy access to savings in emergency situations is important, a hidden benefit of savings accounts is that in most cases, you won't have an ATM or debit card to make transactions. Therefore, you'll be less inclined to use your savings for an impulse purchase and your reserves can remain intact.
Should I open a savings account?
Just about every person in any financial scenario can maximize the advantages of a savings account. Simply put, savings accounts provide a risk-free, interest-earning and FDIC-insured option for safeguarding and growing your money.
If you’re considering opening a new savings account, take some time to learn about the different types of savings accounts to decide which is right for your financial needs.