A savings account is where you put money away to do with it just as it sounds: save. There are a variety of savings accounts, each with different requirements, however, the basic premises of these account types are all that you put money into them, and you earn some type of interest.
Despite the averagely low interest rates over the last few years, the fact is that even with small percentages of interest, you are still making more money than you would with some other account types. Savings accounts are important and highly recommended as they give you the ability to grow your funds and to access “emergency cash” if you need it. For example, if a $1,000 auto repair comes up out of nowhere, having access to saved money will give you the flexibility to resolve this quickly. By having a savings account, you can mitigate some of the risk in your world. You simply put your money in to the account, let it grow, and continue to add to it. The bottom line is, savings accounts are relatively straightforward; simply compounding your money over the longer-term.
Checking accounts give you the ability to store money in a bank, and to write a check, or perhaps to use a debit card, to make purchases or payments. With a checking account, your funds are secured in the bank, and even insured against loss. If you plan on doing any type of electronic purchases or transactions, you will almost certainly have to have a checking account.
Checking accounts are used by the majority of people. They allow you to store your cash in a safe place, while also giving you instant access to it via ATMs, check cards, debit cards, and, of course, checks themselves. You also have the flexibility to walk into the bank and withdraw money from your account during business hours.
Should you wish to open a checking account, it is important to check the details of this account type. Pay attention to any unnecessary fees, or unusually high minimum balance requirements as well as maintenance fees. Select a checking account that does not cost much in the way of fees or is overly restrictive in terms of minimum balances, deposits and withdrawals.
Certificates of Deposit
A Certificate of Deposit, or CD, is much like a savings account, insomuch as you deposit money into the bank, expecting to earn interest. However, the typical CD has a lockup of a certain amount of money. You open up the account, and you agree not to withdraw the funds until the maturity date, which can be anywhere from a few months to several years. At the end of the time frame, you get the original deposit amount plus a previously agreed-upon interest payment.
While it is possible to withdraw your money ahead of the maturity date, there are usually significant penalties involved in doing so. CDs are typically excellent investment vehicles for the long term, but for short-term situations, they fall far short. This is not an account type where you make numerous deposits, rather an account where you make a one-time deposit and are guaranteed a certain return by a fixed date. Lack of accessibility can be a problem with CDs, but if it’s money you know you won’t need, it typically pays more interest than most savings accounts.
Knowing Your Needs
At the very least, one should have a checking account. To function in the modern economy, it’s all but a necessity. Granted, while some checking accounts are more expensive than others, and great care should be taken in comparing them before depositing into one, they do offer ease of financial transactions. Having a savings account is also highly recommended. We should be saving money for emergencies, unexpected expenses, and even to pay for larger purchases as opposed to financing them.
As far as CDs are concerned, this makes sense for a portion of your investment capital, but as a savings vehicle, it isn’t as flexible as a standard savings account. With these limitations, this account type might be a lot less attractive for the average person. However, for those who have built up a bit of a nest egg, it can be a secure place to store some of your money. At the end of the day, the choice is yours, so take the time to understand your financial needs before opening your bank account.