For the most part, a savings account is not seen as a complicated banking tool. You open an account, add some money, then watch it earn interest.
There’s actually a bit more to savings accounts than people might think — everything from the different types of savings accounts available to added ways to grow your money. So if you really want to get the most out of your savings, take some time to examine the five things you didn’t know about savings accounts.
What Is a Savings Account?
First, let’s tackle the obvious question: What exactly is a savings account?
A savings account is a deposit product that allows customers to safely store their money and earn interest. Savings account deposits are generally pretty easy to access, but funds still aren’t as liquid as they are with checking products. In many cases, money can only be withdrawn a maximum of six times per month from a bank teller or ATM. The required minimum deposit and interest rate will vary depending on the type of savings account you choose.
Depending on where you bank, you’ll also have the advantage of federal insurance from either the NCUA (for credit unions) or the FDIC (for banks).
5 Facts You Didn’t Know About Your Savings Account
There are certain tricks to maintaining a savings account that could help boost your savings even more — and if you’re not taking advantage of them, you’re letting free money pass you by. Below are five facts you might not know about your own savings account.
1. Yes, Banks Still Offer High-Interest Rate Savings Accounts
Traditional savings rates are expected to keep dropping, Dan Geller, executive vice president at Market Rates Insight, said last year. In fact, Geller expects rates to near zero percent.
For this reason, it’s a good idea to consider a high-interest rate savings account. Many depositors are unaware of these great savings vehicles, which offer a higher rate in exchange for a deeper financial commitment with the institution.
While you might find a traditional savings rate at around 0.25% APY, some institutions offer higher-yield rates (2.00% APY or 3.00% APY, say). The catch is that you might be required to make an additional commitment, such as enroll in a health plan through the bank or use another of the bank’s products.
2. A “Money Market Account” Is a Type of Savings Account
A money market account is a savings product that doubles as a checking account. Customers deposit funds into a money market with the promise of earning nearly double the interest rate of a traditional savings account; however, the minimum opening deposit is usually higher — often in the ballpark of $1,000.
Offering flexibility similar to a traditional or high-interest savings account, money market accounts allow savers to make withdrawals anywhere — usually with a cap of three to six times per month.
Also, like savings accounts, money market accounts are federally insured, meaning money will be protected by the FDIC or NCUA at most financial institutions for up to $250,000.
3. Online-Only Savings Accounts Offer the Best Interest Rates
A lot of online-only savings accounts have been cropping up, allowing you to open and manage an account completely over the internet, without ever entering a financial institution.
Online-only accounts actually tend to offer better rates, because the financial institution isn’t dealing with the same overhead costs as traditional banks — and these savings are passed on to the customer.
For instance, Third Federal in Ohio introduced an online account in 2007. Jennifer Rosa, a spokeswoman for the bank, confirmed that the online-only savings account “has traditionally had a slightly higher rate.”
4. You Can Use Your Savings as an Overdraft Account
There continues to be a huge debate about the pros and cons of banking overdraft options. Some say overdraft protection spares customers the fees and embarrassment that come with bounced checks. On the other hand, according to a study released last year by Moebs $ervices, consumers were hit with a whopping $31.5 billion in overdraft fees by banks in 2011 alone.
One way depositors can avoid these fees, however, is by using their savings product as an overdraft account. So rather than having the bank cover overdrafts, anytime your checking account goes over, the funds will automatically be pulled from your savings.
The benefit of using your savings account for this purpose is tremendous, which is why many depositors choose this option.
5. Savings Account Promotions Can Actually be Pretty Lucrative
When cash is tight, many savers consider switching accounts or institutions altogether to get a better deal. According to a 2012 study by J.D. Power and Associates, nearly 10 out of every 100 customers made a change with their primary account in the past year.
The good news for those customers is that a lot of financial institutions have been waiting for them with open arms, offering fantastic savings account promotions to lure them in. In fact, banks and credit unions have been known to offer some pretty impressive deals using bank account promotions, from front-row seat concert tickets to a brand-spanking new Mercedes.
If you’ve been thinking about switching banks, it’s a great idea to check around to see what promotions are available. You might find an attractive deal and some cool freebies.
Savings accounts are far more multidimensional than most depositors assume. The more you discover about these great deposit accounts, the better your chances of growing your savings substantially.
Photo source: Chris Potter