What do you need to know about savings accounts? Are you a new college grad or a young adult who is ready to start saving? Whether you've only had checking accounts in the past or you're completely new to banking, take a look at what you need to know about opening a savings account.
Are All Savings Accounts the Same?
Simply stated, no. All savings accounts are not the same. But this doesn't mean that you will find dramatic differences between each banking service. As the name implies, a savings account is a bank account that helps you to save money. Even though different accounts offer different benefits and/or come with different risks, they all have the same goal—to help you build a financial cushion.
How Are Savings Accounts Different?
The differences start with the type of saving you plan to do—short or long-term. A short-term savings account can help you to put away money for immediate spending goals or potential emergencies. These could include saving for a vacation or holiday spending. You may also want to save money in case your car breaks down, your home needs repairs, or you have a medical emergency. If you need a short-term savings account, make sure that it is easy to access and withdraw money from.
A long-term savings account may have a higher interest rate yield and isn't always as easy to access. Instead of withdrawing money at any time or often, you will keep your savings in this account for the foreseeable future. You may need the savings to put a downpayment on a house (in the future) or retire. Unlike investment accounts (long-term savings accounts such as IRAs or 401(k)s), a traditional long-term savings account won't come with tax benefits.
Along with short versus long-term savings, accounts vary in the percentage of interest earned and the benefits or penalties or minimum deposits. Contact individual banks or financial institutions to learn more about your options and find the best match for your needs.
Are There Special Savings Accounts?
Yes, some accounts serve a special purpose or come with specific benefits and rules. A 529 is an educational savings account. These accounts allow you or a qualified family member (such as a parent or grandparent) to deposit money tax-free into the account. You can also withdraw the money without paying taxes on the interest—provided you use it for specific educational expenses, such as college tuition.
Other specialized savings accounts include IRAs (individual retirement accounts) and 401(k)s (employer-sponsored retirement accounts). Again, these are long-term savings accounts that you wouldn't use to save for a vacation or to buy holiday presents for your family.
For more info about banking, contact a local bank.Share