Understanding and using banks

Savings accounts

Many people have savings accounts, but not all people. Banks used to issue you a passbook showing deposits, withdrawals, and interest earned. Passbook accounts are still around these days, but many savings accounts currently issue a monthly statement and do not use the older styled passbooks.

The main advantage of a passbook is that you get your account updated at the time you make a withdrawal or deposit. The main disadvantage is that you have to remember to take your passbook with you to the bank each and every time you create a transaction there. If you use your savings as a place to deposit money directly from your paycheck, you will not know the status of your account until you make a trip to the bank and have your passbook updated. It seems a bit antiquated in this day and age.

If you do not have a savings account, you will want to seriously consider opening one. A savings account is best used to hold money you have no plans to spend fro months at a time. A savings account is also the best place for the money you will pay for your car insurance in six months or you holiday gifts or other non-monthly bills. A savings account can also be used to hold your primary emergency fund. You know the money you will use first when an unplanned major expense arises in your financial life. You will be able to access this money easily at any time by making cash withdrawals or asking for a money order or certified bank check.

Just as they do for checking accounts, credit unions also have a different set of terminology that is used for their savings accounts. A regular bank calls it a savings account; a credit union calls it a share account. Again, it does not mean anything different; it is just the term the credit union uses. Some credit unions no do even use the term anymore, but many do nonetheless.

How they work

Quite simply, you give money to the bank and the bank puts it into a savings account that you have set up with them. You get a deposit receipt that states the amount deposited and which account it went into. Just like a checking account, you can go back to the bank and ask to take cash back out. The bank will make you fill out a withdrawal slip that you must sign. You will also need identification to make cash withdrawals from your savings account.

Having a savings account means that you do not have to hide cash in your home under the mattress any longer for future purchases or emergency funds. Savings accounts pay higher interest rates than checking accounts (and certainly higher than you mattress pays) and it is always a good idea to have your money safely protected away from you home and generating interest at the same time. Employers, social security, and many government agencies are set up to make direct deposits into savings accounts.

To open a savings account, typically you need to make a minimum deposit of about $100. Some banks will charge you a low monthly fee if your account has less than a certain amount of money in it. Most banks will forfeit this charge fro the first few months if you already bank with them in some other capacity. Most banks will not pay any interest on your account when it contains less than a certain amount of money too. Most banks pay somewhere between 2-5% interest rate on savings accounts. Be sure to shop for the best rates and fees before opening any savings account. Remember, you want your hard earned savings to make money for you.

If you are not using a savings account right now, think about whether having one would make your financial life a bit easier. Spend a bit of time checking into several banks to see what savings account provisions they can provide you with. You will find that the more money you put into a savings account, the better the provisions and obviously the more interest you will generate.

If you do already have a savings account, think about whether you are getting the best services provided to you by your bank. Be certain that you are getting the best interest rates and services available. Is your current bank competitive? If they want to keep you as a valued customer, they will. Be certain you are saving with the proper bank. If you are the little guy, be sure your bank caters to the little guy.

Also, just like checking accounts, you will find that it is very common to have more than one savings account. People use different savings account for making different payments they know are impending, like property taxes and such. If you do open more than one savings account, be structured and use each accordingly. For instance, you would not want to withdraw savings from an account that needs to maintain a high level of money in it. Keep this type of account around for payments you make once a year such as taxes and the like. Just be certain your savings is generating interest at its best for you.

Just be sure that you never use your emergency money to cover shortfalls in your other accounts. It typically helps to make the funds difficult to access. For instance, do not get an ATM card for your emergency fund savings account. That is just begging for a withdrawal for something unnecessary.

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