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Six Reasons to Have a Savings Account

A recent survey conducted by the FDIC shows that 25% of American households lack a savings account. You can certainly save money outside a savings account – by stacking the cash in a safe place or by leaving it in a checking account - but having a savings account has several benefits that those without an account may not realize.

Your money is safer in certain savings accounts. If you’re saving money under a mattress and your money is stolen or your house burns, your savings is lost. But, if you keep your savings in an account insured by the Federal Deposit Insurance Corporation (FDIC) or National Credit Union Administration (NCUA), your funds are protected up to $250,000 in the event of bank failure. The insurance coverage limit is per person, per bank, depending on account ownership.

You can remove the temptation to spend. It’s much easier to spend money when you have it in cash than when it is in a savings account. Often, money in a savings account is even less accessible than in a checking account, especially if the savings doesn’t come with a debit card. Since you have to go through a little more trouble to spend money, you’re less likely to spend the money frivolously than if the funds were in cash or a checking account.

It’s easier to contribute from a checking account. With more employers offering direct deposit, it’s much easier to save when you have a savings account linked to your checking account. You may even be able to create an automatic monthly transfer from your checking to your savings account each month. Or, if your employer allows you to split your direct deposit, part of your pay could go to your savings and part to your checking.

Earn interest on your savings. Keeping your money in an envelope tucked between books on your bookshelf won’t help it grow. If you put your money in a savings account, you have the chance to earn interest on your savings. While traditional savings accounts don’t have the best interest rates, it’s better than nothing. A high-yield savings account will allow you to earn a little more money. Online savings accounts often offer better rates than those from brick-and-mortar banks.

Save for various goals. At any given time, you might have several different savings goals: holiday shopping, summer vacation, new furniture, retirement, college, to name a few. Having multiple savings accounts can make it easier to save up for these various goals because you can easily tell what you've saved up for each goal. ING Direct, an online bank currently owned by Capital One, allows you to create sub-accounts where you can break up your savings account balance into different “buckets.” The buckets would let you allocate funds to various savings goals.

Protect you from overdraft transactions. Linking your savings account to a checking account can save you from overdrafts – as long as you have enough money in the savings account to cover the transaction. When you make a transaction that exceeds your checking account balance, your bank would transfer money from your savings. There may be a small fee for this transaction, but it would be less than what you’d pay for an overdraft fee.

A savings account at the bank where you have your checking account is a good place to start. Make sure you read the terms of the account, learn the fees for the account and how you can avoid them, and know the best ways to deposit and withdraw money.
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Wednesday, 08 July 2020

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