With inflation an ongoing concern, knowing where to safely store your hard-earned money seems more important than ever. That’s why one core component of financial planning is saving, and why many people choose savings account as a means to securely manage funds for future purposes while earning interest.
While any money management account can come with a level of risk, opening a savings account provides numerous benefits, from peace of mind to making progress toward longer-term financial goals.
Let’s talk about more about why this type of account may be beneficial for you.
What Is a Savings Account?
A savings account is a bank account where you can store money while earning interest at a rate set by your financial institution. These accounts offer easy access to your funds, though some banks may limit the number of withdrawals per month.
There are minimal requirements for opening a savings account: the account holder typically must be 18 or older, provide required documents, and provide an initial deposit (for instance, at SouthEast Bank, many savings accounts have a minimum opening deposit of $50).
Interest rates on savings accounts vary by financial institution and account type. Savings account may have fixed interest rates or variable rates, which means that rates may decrease but can also increase, allowing account holders to earn more over time.
Popular savings accounts and related products include:
- Simple savings accounts
- High-Yield Savings accounts
- Money Market accounts
- Health Savings accounts
- Certificates of Deposit
Learn More: What Is the 50/30/20 Budgeting Method?
Why Keep Money in a Savings Account?
In addition to saving money, savings accounts can be helpful when budgeting toward a particular goal. Some common reasons to put money aside in a savings account include:
- Emergency funds
- Needed procedures or unexpected medical bills
- Moving Expenses
- Home repairs or appliance replacement
- Getting a new or more recent used car
- Vacations
- Family milestones, such as weddings or having children
Many financial experts recommend keeping at least three to six months’ worth of essential expenses in savings. However, the exact amount you should aim for depends on your income, expenses, and financial goals. Consulting with a financial advisor can help determine the right savings strategy for you.
Learn More: Financially Healthy: What Does It Mean For You?
Benefits of a Savings Account
Having a savings account is a crucial step in managing your money. While you may be tempted to keep everything in a checking account, having an additional savings account allows you to put money aside that can also earn some interest over time.
Although some savings accounts may not accrue high-interest earnings, there are still plenty of benefits and reasons why having a savings account is important to your overall financial health.
Easy To Open and Maintain
Some accounts feel like you need a degree to get started, but savings accounts can be easy to open. Most banks, like SouthEast Bank, can help you with the paperwork and set one up in no time, either in person or online, with the correct documentation.
Savings accounts are also relatively inexpensive to get started, requiring a minimal deposit to open and minor balance to maintain good standing in your account.
Future Financial Planning
Having a savings account allows you to keep some of your money separate from your checking account and away from accidentally using it to get that take-out.
With a savings account, you can easily put money aside for emergencies, vacations, or whatever else you are working towards in the future. They are also more easily accessible, allowing you transfer funds between deposit accounts or withdraw funds without penalty, so long as you’re within the withdrawal limits, if any, set by your bank.
Compounding Savings
One of the best reasons to have a savings account alongside a checking account is the ability to transfer savings from your checking account to your savings. You may explore options to portion money directly from your paycheck or checking account to be transferred to savings automatically. Even if it’s only a few dollars, it’s money that will add up over time with interest and help you reach your financial goals without even thinking about it.
Many savings accounts also allow you to earn interest on the funds you accrue over time, or compound interest. Depending on which bank you use, the interest may compound monthly, daily, quarterly, or annually.
Your Money Is Better Protected
Some of our first lessons of savings came in the form of piggie banks. While it’s common to hide away a few spare dollars around the house, maybe in a sock drawer or an old book, keeping large amounts of cash on hand can be risky. There’s not much you can do if that bundle of cash falls into the wrong hands.
Individual accounts such as savings accounts at federally insured banks benefit from FDIC insurance as well as certain fraud protection measures offered by your institution. In other words, your bank can often mitigate more risks to your money when it is saved in an account rather than kept in cash.
Drawbacks to a Savings Account
Putting money into a savings account is almost always worth it, but there can be some downsides to a savings account if you don’t find the right one.
For example, most banks require a minimum balance or monthly fees to keep the savings account. If your account falls below the minimum, it may charge fees against your account.
Other disadvantages to savings accounts include:
- Low-Interest Rates – Traditionally, savings accounts have relatively low interest rates, meaning you won’t build a lot of money over time.
- Changing Interest Rates – If you choose a variable over a fixed-rate savings account, your interest rate may fluctuate.
- Withdrawal Limits – Financial institutions typically have withdrawal limits on savings account, meaning you can only take out money so many times per month or be charged a fee for exceeding a transaction threshold.
Is a Savings Account Worth It?
A well-rounded financial plan typically includes a savings account. Even if you also choose to pursue alternative savings or more complex investment options, a savings account remains a valuable everyday tool for managing money you wish to set aside. This type of account can be easy to open, provides financial security and certain insurance protections, keeps your funds relatively accessible, and helps you make progress toward your goals.
At SouthEast Bank, we care about meeting you where you are and helping you toward where you want to go. If you’re interested in learning more about SouthEast Bank’s savings account options, explore our website or visit us at your nearest branch.
Note: Links to other websites or references to services or applications are provided as a convenience only. A link does not imply SouthEast Bank’s sponsorship or approval of any other site, service or application. SouthEast Bank does not control the content of these sites, services or applications.
Information contained in this blog is for educational and informational purposes only. Nothing contained in this blog should be construed as legal or tax advice. An attorney or tax advisor should be consulted for advice on specific issues.
