Are savings accounts useless? Do you keep money in your savings account to stash away as much cash as possible, or do you use your savings account as an occasional place to park extra cash? Understanding the point of a savings account helps to look at what it does. This article will explore how it’s different from other bank accounts and why you should have one — even if you don’t think you need one.
Checking Account vs. Savings Account: What’s the Difference?
The main difference between them is that your savings account earns more interest. According to experts at SoFi, “Interest rates for savings accounts vary, from a current average of 0.06% APY (compared to a current average of 0.03% APY for checking accounts).”
Store Your Money Safely
To protect your savings, store them in an FDIC-insured bank account. This way, you can easily access and use your money whenever necessary. For example, the maximum FDIC insurance is $250,000 per depositor.
Teach Yourself About Money Management
It’s easy to think that you don’t have enough money to start saving. But if you save even just $5 per week, you’ll have a nice amount in no time.
Build Up an Emergency Fund
First and foremost, you should always have an emergency fund. The purpose of an emergency fund is to set aside money in savings to use to pay for emergencies such as a car repair or hospital visits.
Save for Short-Term Goals
A savings account can help save for short-term goals, like vacations or home improvement projects. If you’re saving up for something, in particular, keeping your money in an account with a low-interest rate that won’t change much over time may make sense.
Save Up for Vacations
Having a large sum of money in your savings account is best to save up for larger purchases, such as vacations. However, you will not be tempted to spend it on more minor things like eating out or shopping. Having a vacation fund in place will also ensure that you do not go into debt while having fun on vacation.
Holidays, Gifts, And Parties
You can also save up for special occasions such as holidays and birthdays. In addition, many people use their savings accounts to plan for major purchases in advance. This can help prevent you from going into debt If you’re planning to give gifts.
Save Up for Your Future Home
To prepare for your future, it’s important to start saving money today. To help you get started on your journey toward homeownership, you can save money in preparation.
Is There A Limit On Savings Account Withdrawals?
If you’re a regular saver, you may feel limited by your bank account’s monthly transfer and withdrawal limits. For example, you can only have six convenient transfers or withdrawals from a savings account in one month.
Saving money is an integral part of financial planning, but understanding how to use your savings accounts is just as crucial. You want to ensure that your money is protected and get some return on it. Your money can receive the best protection at SoFI Invest (SoFi Bank).