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Purpose of savings account
Personal Finance, Savings Account

Purpose of Savings Account: A Personal Investment That Safeguards Your Future

September 19, 2023
Filife Team
Contents

    Saving money is the frugal individual’s virtue of personal financial growth and stability. By saving money, you can easily achieve your financial goals. Anyone can save money by regularly setting aside a portion of their income.

    The previous year saw great economic declines in many countries. Many businesses that quickly adapted to the situation had dipped into their savings accounts for their new plan’s resources. Therefore, if you have a personal savings account, you can quickly adapt to any emergency.

    Your first time opening a savings account won’t be challenging because you can use this guide to learn more about them. Plus, we have a complete set of steps to help you open your very first savings account with your chosen bank or credit union. Let’s get started.

    What is a Savings Account?

    Savings accounts work just like your piggy bank. However, a savings account offers you the best protection against any economic recession because it gives you a goal and inflation-defending interest rates.

    Your account guarantees stability rather than growth. This trait makes these accounts perfect places to park your cash for short-term goals, such as owning a car or paying a property’s down payment. Plus, some savings accounts in the market offer great annual percentage yields (APY) that thoroughly preserve your cash’s value.

    A savings account can grow your money with its taxable modest interest rates. This growth is enough to maintain your cash’s value despite any possible economic downturns. Alternatively, a simple piggybank has no means to maintain your cash’s value.

    How Much Should I Keep in My Saving Account

    Here are a few pointers to know how much to keep in your savings account:

    • Identify Your Goal: Some account owners use this service as a financial buffer. Alternatively, some use it to save up for car or house down payments. With a goal, savers can determine the total amount to save.
    • Six Months of Savings: Savers who want to have enough cash to safeguard themselves can follow the six-month savings rule of thumb. A capable savings account should have a minimum of six months of your monthly salary.
    • Insurance: Most FDIC and NCUA insurances provide at least $250,000 maximum savings account insurances. All new accounts qualify for these insurance policies. Therefore, don’t save anything above the insurer’s stipulations. Instead, open a new account or reinvest your extra cash elsewhere.

    The Purpose of Savings Account

    Frequent buyers and investors can easily maximize their checking account benefits. On the other hand, savers effectively use their bank account benefits during the following situations.

    1. Financial Emergencies 

    Any saver with six months of their existing salary will have zero issues in case of financial emergencies. Your on-hand cash from fully accessible savings accounts makes your life easy in many financial emergencies.

    For example, you can pay the hospital’s minimum fees with your savings account cash. Then, your insurance policy can reimburse your savings account expenses in the future. You can apply this convenience if you get unemployed, an appliance breaks down at home, and more.

    2. College Fund

    Saving money helps you offset the costs of emergencies. Alternatively, you can use six months of your salary to pay for your child’s college fees. In doing so, you can help your children avoid hefty student loans in the future.

    College fees continuously increase in the country. Financing education will take enormous dedication for any household to achieve. Therefore, you can offset education expenses by saving early and using your saving account’s benefits.

    3. Real Estate Purchases

    You can pay off a huge chunk of your real estate down payment and value by depositing money in a bank account. Your savings account might not have the highest interest rate. However, it can help you have enough cash value to reduce your mortgage payments.

    Alternatively, most credit unions offer real-estate-oriented savings accounts. These have moderate to higher interest rates that retain your cash’s value over time. However, savers must fulfill all the credit union requirements before using these services.

    4. A Fund For Future Investments

    With enough cash, you can fund your children’s college education. Alternatively, you can make real estate purchases in the future. Therefore, saving enough money can help you grow it to new heights.

    Users will find it beneficial to open savings accounts with financial institutions dedicated to investment banking. Many of their dedicated savings account features make it easy to access top-performing stocks and bonds.

    Plus, money market accounts allow you to access foreign exchange markets to diversify your portfolio.

    5. Inflation Defense

    Credit unions and financial institutions successfully maintain their saver’s cash value through thoughtful investments and developments. Therefore, any saver will have cash on hand that can adapt to any situation by using compatible savings account for their needs.

    Alternatively, savers can use their checking accounts and invest their money in active trading. They can issue amounts from their checking accounts and possibly get enormous returns on a trading day.

    However, savers must keep in mind that using their checking account to invest money puts their cash in peril of extremely high or low returns. Alternatively, many savers solely use savings accounts to offset currency inflation and deflation.

    Related: Checking vs Savings Accounts

    Coins stacked on wooden table

    Opening Your Very First Savings Account

    1. Savers must effectively compare bank rates, maintenance fees, and other requirements. In doing so, savers can get the best deal and most compatible savings account for their needs.
    2. Check your credit union eligibility. Trade unions offer savings accounts completely suitable for your professional needs. For example, a seaman’s credit union can give you excellent add-on payment protection and life insurance policies.
    3. Prepare all documentation you need to open your savings account. Your bank’s representative can provide this for you. Banks will ask for a government ID, social security number, and mailing address in most cases.
    4. You can apply through phone, mail, or the Internet. Many banks today have online application options.
    5. Wait for your savings account application results. Then, fund your new savings account with the bank-required initial deposit.

    Don’t Put Your Money In Bad Situations.

    A savings account is the most conservative investment anyone can make because of its solid foundation and low interest rates. However, savers can still lose money in small but costly ways.

    For example, you’ve used your savings account as an emergency fund. However, you’ve been hit by a huge withdrawal fee after withdrawing everything in full.

    You have the right to withdraw your emergency fund completely. However, you failed to read the terms and conditions that stated the bank or credit union could charge a separate processing fee. Therefore, you can avoid the following situations by doing the following:

    • Assess Your Savings Account Fees Completely: Your savings and checking accounts have long terms and conditions. Make sure you read them. By doing so, you won’t get blindsided by high processing fees inclusive of guaranteed high savings or checking account interest rates.
    • Find The Best Interest Rates: The best interest rates in this context mean an excellent balance between inflation protection, processing fees, and general terms and conditions. For example, your high-interest checking account might have daily check issuance limitations that have a high penalty.

    10 Of The Best Personal Savings Accounts You Can Use in 2021

    Here’s a list of the best candidates we’ve found if you’re looking for the best personal accounts from credit unions and banks this year. Each of these can give you interest as high as 0.50% and have both Federal Deposit Insurance Corporation (FDIC) and National Credit Union Administration (NCUA) insurance policies.

    Related: Best Bank for Joint Savings Account

    BankAnnual Percentage Yield (APY)Monthly FeesMinimum Balance
    Marcus From Goldman Sachs0.50%NoneNone
    American Express High Yield0.40%NoneNone
    Varo Savings Account0.20% (3% if you meet requirements)NoneNone
    Barclays Online Savings Account0.40%NoneNone
    TIAA Bank Basic Savings0.50%$5 (none if you have $25 in your savings account)$25
    Ally Bank Online Savings Account0.50%NoneNone
    Live Oak Bank High-Yield Online Savings0.50%NoneNone
    PenFed Credit Union Premium Online Savings0.45%None$5
    Comenity Direct High Yield Savings Account0.55%None$100
    Axos Bank High-Yield Savings0.61%NoneNone

    Savings Account Alternatives

    Is opening a savings account worth it? 

    We greatly believe so because you are on your way to meet your financial objectives when you open a savings account. However, you can find alternatives rather than open a savings account.

    However, you’re going from a basic savings account, banks, and credit unions towards growth-oriented investments by using the following:

    CDs

    Certificates of Deposit (CDs) aren’t the most suitable place to deposit money for emergencies because of their hefty early withdrawal fees. However, they have higher interest and lower minimum balance requirements than bank accounts.

    CDs have a guaranteed payout amount, fixed interest, and a scheduled maturity date. Therefore, you can safely withdraw your cash without charges during the scheduled maturity date.

    CMAs

    You can open a cash management account (CMA) rather than open a savings account. All CMAs have higher annual percentage yields than your usual bank account. However, they’re accessible to Internet-savvy users, so older investors might need to brush up on their tech knowledge.

    Most CMAs are hybrid checking and savings accounts. They can issue debit cards for ATM access. However, most of them use contemporary financial technologies to fund accounts.

    P2P Funding

    You can think of p2p or peer-to-peer lending as crowdfunding with legitimate investors. Any person in a p2p funding platform is a potential angel investor. Savers who would rather than open a savings account can take advantage of the high returns p2p funding platforms can give them.

    Alternatively, borrowers get lower interest on their p2p financing than bank personal loans or savings accounts. However, p2p funding isn’t as liquid as its institutionalized competitors. Instead, you’ll receive your loan amount in installments.

    Online Savings Accounts

    These banks have no physical branches in any country because they use online facilities to manage your account. 

    Online savings accounts always have a higher annual percentage yield than traditional banks. However, they require you to have patience with online-based customer services.

    Most millennials use online banks because of their accessibility and light requirements. On the other hand, older investors will need to brush up on their tech skills to take advantage of the banks’ 10-20-times higher APY.

    Frequently Asked Questions

    1. Can You Lose Money on Your Savings Accounts? 

    Your savings are investments in an ultra-conservative bank account. Therefore, you won’t lose cash because of high interest rates. 

    However, you might lose cash due to penalties and fees.

    For example, you didn’t know your bank account charges a hefty processing fee if you decide to withdraw more than S $10,000 in one go. Repeatedly withdrawing in this manner can easily make you lose money on all your savings accounts.

    2. What’s a Good Savings Account APY?

    A rate of 0.50% is a realistically high savings account APY. You can consider any interest above this figure as an investment account. For example, CDs and CMAs are investment accounts with higher than 0.50% interest.

    You get potentially better gains with higher interest. However, investment accounts root their value on possibly volatile sources. So make sure you’ve researched the investment account before investing anything.

    3. Can I Grow Money With a Savings Account?

    Unfortunately, no, you can’t grow money with this account. The high interest of 0.50% is enough to insulate your money against possible future inflation. However, it’s not enough to give you investment-level profits.

    On the other hand, your account will retain the cash’s value before inflation. Therefore, any amount you save with banks or credit unions will not change because of economic inflation.

    4. What’s The Difference Between Investment Portfolios and Savings Accounts?

    An investment portfolio is a mix of assets you can acquire through a well-equipped account. On the other hand, a savings account safeguards your cash until you withdraw it.

    Investment accounts carry a great risk of loss. Alternatively, you will only encounter withdrawal penalties by using savings accounts. The reason for this is because banks reinvest small cash amounts you’ve deposited in your savings account to maintain its value.

    Final Points to Remember

    • A savings account stores your cash and its value like piggy banks. However, they protect it against inflation, which piggy banks cannot do.
    • Your savings account can have yearly fees and penalties that you’ll need to track.
    • Most accounts don’t require minimum maintaining balances. However, they might have other fees.
    • Every bank in the world has a savings account.
    • Savings and investment accounts have different goals.

    If you’d like to know more about the best bank accounts, personal loans, and other financial tips, stay tuned to FiLife’s latest blogs! 

    FiLife always has the hottest US financial news and savings tips to grow your money. Subscribe to our newsletter today!

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