Savings Accounts

A savings account is a bank account where your money can earn interest. They differ from the 401k and the IRA because the funds are more easily accessible, though at some banks there are penalties for an early withdrawal. In most cases, you can withdraw money at any time you wish (when the bank is open, or where you have access to an ATM). Savings accounts aren't only offered by banks; money market funds and credit unions also offer them. Not only will you earn interest on your deposits, the savings account gives you a secure place to hold your money.

Savings accounts are more secure because they are FDIC insured. If your bank is an embezzlement target, or if it declares bankruptcy, the FDIC will reimburse you, up to $100,000. When you're looking for a savings account, make sure you choose one that's insured by the FDIC. If your account is not insured by the Federal Deposit Insurance Corporation, you may not be able to recover your money if the bank runs into trouble. However, most credit unions, banks and money market funds are FDIC insured.

When you're looking for a savings account, you should choose the one that offers the best interest rate. In past years, banks often had a higher interest rate than credit unions. Now, interest rates are relatively even. The most flexible rates are found with money market funds, because the rate you earn depends on the performance of the stock market.

A lot of people wonder just how a savings account works, and how the bank or credit union manages to profit from them. Simply put, when you put your money into a savings account, you're actually lending it to the bank. In exchange for the loan of your money, the bank offers you a portion of the interest that it gets from its customers. The bank profits, and so do you.

Some people choose interest checking accounts instead of a traditional savings account. If you plan not to spend for a while, you should choose a savings account. An interest checking account usually pays less interest than a savings account does, and they usually come with a high minimum balance requirement (on average, about $1,000). If you go below this balance, you'll be hit with fees, which will negate the interest you earn. Most savings accounts need a minimum deposit, which is usually about $100. However, children can have a savings account opened with as little as $5. Banks tend to do this because it's a way to attract future customers.

Banks are all competing for your business, and they all want you to lend them your money. You should shop around before you choose a savings account, because a lot of companies are offering great incentives. If you want to keep your money in one place for a long time and watch it grow, then a savings account is the choice for you.