subject: How Saving Accounts Works [print this page] How Saving Accounts Works How Saving Accounts Works
There are many different types of savings accounts and each one has its particular advantages and disadvantages. Some important factors for account holders to consider such as accessibility, length of time and taxes must be considered in order to find the right account for the situation.
One form of savings account is sometimes called an instant access account. This is the most basic form of savings account. The advantage of this type of account is that you can withdraw your money at any time without incurring penalties. This makes the account a good choice to use as an emergency funds source. Customers usually receive an ATM card so they have access to their money at any time, with withdrawal limits. The cash is also available at any of the banks other branches. The down side to these accounts is that they usually pay the lowest interest rate of any savings account.
Another type of savings account is called a notice account. Like the name implies, withdrawals can only be made with previous notice to the bank. Different accounts have various requirements on the amount of notice that must be given. The money can be withdrawn with less notice, but the account holder will have to pay a penalty. Usually, the longer the notice required the better the interest rate will be.
Certain accounts offer tax free interest. These accounts have limits set by the government as to how much may be deposited in a single year. The relative low interest rate paid is somewhat offset by the fact that taxes are not paid.
Banks often offer special savings accounts to loyal customers that pay a higher than normal rate of interest. Certain accounts even offer annual bonuses if certain deposit levels are reached. Often a customer must have a direct deposit set up with the account and must make a minimum monthly deposit to be eligible for the bonus.
Though small, community banks often offer higher interest rates than large national banks, the advantage of convenience makes the big banks with thousands of branches the best choice for many people. These are especially convenient for people who find themselves travelling often and want to be able to conduct business anywhere they find themselves.
Overall, savings accounts offer a fairly low interest rate and thus are not as competitive as other investments such as stocks. However, the advantage is in their convenience and security. As long as your account holds no more than $250,000, you can never lose money in a U.S. bank. Amounts up to this point are covered by the federal government through the FDIC. This, together with easy access to funds, make savings accounts the first choice of most Americans.
