Savings accounts are interest-bearing deposit accounts held at a financial institution or a bank. These accounts typically fetch you a modest interest rate. Their reliability and safety make them an excellent choice for parking cash required for short-term and long-term needs. Unlike other investment options, the savings accounts are federally insured. So, you will not lose money even if the bank fails. There are limitations on the withdrawals (up to six per month).

How does a savings account work?
Typically, you open a savings account with a credit union or a bank, in person or online. It is a straightforward process wherein you provide the institution with your details and deposit money into the account. After you have made a deposit, the money in the savings account starts bearing interest. But, the money you earn depends on factors like the money deposited, the APY, and the duration of the deposit. The banks may decide to compound interest monthly, daily, yearly, or quarterly. After the compounding period, the accrued interest gets deposited into your savings account. After the interest deposit, your account earns interest on this new balance. The APY in savings accounts is variable and may change at any time. Even though you can move the money out of your savings account anytime you like, Regulation D limits the maximum number of times you can do it in six months. 

Who should use a savings account?
Unfortunately, over fifty percent of citizens do not have a savings account, do not have any money in it, or maintain only a minimum balance. Another thirteen percent hold lesser than $1000 in their savings account. Having a savings account have many benefits. No matter the financial goal, opting for a savings account is always a good idea.

Why should you use a savings account?

Earn interest
It is one of the significant advantages associated with a savings account. The money deposited in the savings account accrues over time. Naturally, all the money you keep in your home safe or a non-interest earning bank account misses out on this interest-earning potential. Of course, the rate you earn depends on where you open an account and the terms of the account agreement.

No lock-in perioid
In contrast to Certificates of Deposits or CDs, in savings accounts, you do not have a locked-in rate when opening an account. It implies that the rate changes according to the market and the bank. Typically, online banks provide a higher rate than brick-and-mortar banks as they do not have any overhead costs for physical locations. So, they can pass on these extra savings in the form of better rates.

FDIC-insured service
It implies that the Federal Deposit Insurance Corporation shields you for the initial $250,000 in your savings account. So, your money will be safe if the bank fails or goes out of business. You will receive the funds directly, or you may get a new account opened with the same balance as earlier. This feature is absent in almost all other investments.

Automated bill payments
Several banks and financial institutions allow automatic bill payments via your savings account without subjecting you to the transfer laws and withdrawal. It can help you keep tabs on your bills and avoid the probability of missing payments or late fees. You can check for details with the lender or the financial institutions.

Immediate access
It is another one of the top benefits of a savings account. You have immediate access to your money. Regardless of how you budget your expenses, there is a probability that your financial plan may not always work out. For instance, a sudden health emergency or job loss may leave you wondering how you will pay for the next month’s bills. So, the ideal way to shield yourself against these situations is always to have an emergency fund. Saving at least six months’ worth of your income is an excellent way to manage unforeseen contingencies without landing yourself in debt. So, a savings account provides instant access to your money. Other investments usually do not give you easy access to your funds instantly.

Automatic saving option
Sometimes, it gets difficult to find surplus funds to set aside for savings. But, setting up automatic deposits into the savings account helps build the funds without much consideration. You can set up automatic transfers from the checking account to the savings account or decide to deposit a chunk of your paycheck every month. Married couples can also opt for a joint partnership to help them save for their long-term goals.