Benefits of a Savings Account

Savings accounts manage your money as you set short and long-term goals for the future. Take a closer look at their importance below:

• Savings accounts earn interest. When you place money into a savings account, they earn more interest than traditional checking accounts. Savings accounts can vary with interest rates depending on your specific financial goals but letting your money sit in a checking account that has zero to very little interest can hinder your savings goals and plans.
• Savings accounts prevent poor spending habits. Savings account funds are not as readily available to use which makes it difficult to make large and impulsive purchases. You can create a strict budget and stick to it easier when you put money aside into a savings account.
• Savings accounts can support you during financial emergencies. Many financial agencies and banks report that over 50% of Americans are unable to cover $1,000 in emergency expenses. This is why a savings account is so important. You can build an emergency fund for 3-6 months worth of bills to prevent emergencies from obstructing your long-term savings goals.
• Savings accounts keep your money safe. Protecting your finances can be difficult if you aren't using the right institution - or any institution at all - to hold your money. Banking with institutions that are insured by the Federal Deposit Insurance Corporation (FDIC) or National Credit Union Administration (NCUA) is a sure way to protect your savings.

Types of Savings Accounts

Choose your savings account with confidence by having all of the information in front of you. Whether you choose a traditional savings account, a high-yield savings account, a money market account, or a specialty savings account it's essential to be educated on each of their purposes.

• Traditional Savings Account - Traditional savings accounts are what most people already have with their banking institutions and where many people keep their money. These savings accounts often have low interest rates. However, it's important to have money in this account so you can have quick and easy access to extra funds whenever you need.
• High-Yield Savings Account - High-yield savings accounts grow your money like a traditional savings account but with a higher annual percentage yield (APY). These savings accounts can range from 0.5% to 2% APY compared to your traditional savings account at 0.6% APY. They're a great option to hold your emergency fund in so you can make money off it while you're not actively using it.
• Money Market Accounts - Money market accounts (MMAs) are similar to high-yield savings accounts since they offer high APY but you can also have debit card access and the ability to write checks with them. Unlike HYS accounts, MMAs can be done through your normal bank, not just an online banking system.
• Specialty Savings Accounts - Specialty savings accounts vary in purpose but are a great way to plan ahead. From retirement funds, FSAs, and college savings, specialty savings accounts allow you to reach your goal for all your big milestones.
  1. College Savings: As a parent or caretaker, you can open a 529 savings account for a child who is planning to go to college. You can contribute money into one of these accounts when the child is young up until they are ready for college. By placing money into this type of high APY account, you're naturally investing into that child's future and growing their college savings each year. However, it's important to remember that you can be penalized for using this money for non-college-related expenses.
  2. Roth Individual Retirement Accounts (IRAs): Roth IRAs are a great way to save for retirement. These types of savings accounts are very popular because you can withdraw your money tax-free once you hit 59.5 years of age. Roth IRAs have a maximum contribution of $6,000 per year which is why they are often used alongside 401k accounts.
  3. IRA CDs: IRA CDs are a combination of two popular savings accounts. You'll use the retirement account funds in a traditional IRA and use it like a certificate of deposits so you can't touch the money for a certain amount of time in exchange for a high interest rate. This is a great option for people who are close to retirement and want to make quick(er) money from your retirement fund.
  4. Healthcare Savings: When it comes to healthcare savings, you can choose between a Flexible Spending Account (FSA) and a Health Savings Account (HSA) to pay for your healthcare needs, and sometimes more. By contributing to these savings accounts, you can be better prepared when you need to pay for health expenses and use the tax advantages these accounts have to offer to get the most out of your money.

When choosing a savings plan, each institution will offer its own interest rate, which means you should always shop around to find the best option.