Saving money is one of the most important things you can do for your financial situation. Opening a deposit account of some type is important to your financial situation. Learning to manage your money wisely will provide you with an effective way to be prepared for emergency needs. Using the right deposit accounts will help you to grow your money in a timely manner based on the interest rate.
What Is A Deposit Account?
Deposit accounts typically refer to money market accounts, CD accounts, and savings accounts. Compare rates often in order to find the best interest rates on the different deposit accounts in order to save money effectively. Current rates are set by the Federal Reserve. It is important to compare rates often to figure out which banks offer the best rates and continue to provide a steady track record to their customers. Investing your money with the bank typically provides you with returns but there are some banks that will charge you fees to hold your money. It is important to understand the difference between the various accounts and which banks are the best to work with.
Different Types Of Deposit Accounts
Understanding the different types of deposit accounts will help you to understand which one you need to use to save your money.
- Checking Account – This is considered a deposit account because many checking accounts will pay you interest. A checking account is opened with a bank or credit union. Most individuals will deposit their monthly paychecks to the checking account and will pay bills and move money around from this account. In fact most employers require you to have a checking account in order to pay you with direct deposit. The checking account allows you to have access to your money on demand. This helps to make them one of the best options to manage your money.
- Savings Account – Many banks will provide you with a savings account when you open a checking account. The interest rate found at banks is typically lower from the interest rate you may find online. However it still provides you with a convenient way to save your money as you can transfer funds back and forth between your checking account.
- Money Market – A money market account provides you with a higher interest rate from most savings accounts. You have limitations on use of the funds and some accounts will require a minimum deposit amount. Money market accounts usually have a 6 withdrawal limitation on the account each month. To gain the highest interest rate, look for accounts that have a balance requirement. The Federal Reserve is in charge of setting the rate. This means your interest rate can rise at any time, allowing you to earn generous returns for your investment.
- Certificate of Deposit – CDs are used to earn interest on money that you would like to save for a set time period. In most cases CD accounts will earn a much higher interest rate from savings. Current CD rates are lower than the past, making them comparable to money market rates. The best CD rates will come with long-term accounts. Usually locking up your money for at least 3 to 5 years will provide you with the best interest rates. Some CD accounts do require a minimum balance, which is where you also can earn a higher interest rate. Once the money is locked into a CD, it must remain in the account until the term is up. If you pull the money out sooner, you will face fees and other penalties.
How To Choose A Deposit Account
Now that you know the differences between the savings accounts, you may be wondering how to choose the right one for your situation. There are many different factors to consider when you are comparing deposit accounts to find the right one. Rates tend to fluctuate often thanks to the Fed, which is why you need to set out a savings goal to know the reason why you are opening the account. It is also important to determine when you want to start saving and when you want the money. For example if you are saving for a rainy day, it is best to use a money market or online savings account versus a CD account since the money can get locked into the account and you have to pay fees and penalties to pull it out early.
When comparing rates and banks, it is important to consider the following:
- Introductory Bonus – Many banks will provide you with an incentive to bring you on board as a customer. Some banks will provide you with a cash incentive such as an extra $50 toward your savings account. Others will provide you with a higher interest rate for a set period. Look at the introductory bonus to determine if it is worthwhile and if you will have to sign up to have your money locked into something for a certain time period.
- Withdrawal Limitations – When selecting the right deposit account to save your money, look at the withdrawal limitations. As we talked about earlier, many savings accounts will require you to maintain a minimum balance and they may penalize you for pulling the money out of your account before a specific date. Some accounts will allow a lower amount of withdrawals to be taken out monthly or yearly. Other accounts will not allow any withdrawals until the maturity date. Knowing this information can help you if you want a liquid account for emergencies.
Are You A Saver?
One other thing to consider when you look into deposit accounts is your discipline in saving money. Some people have an easy time saving where others will struggle with it. You need to know which type of account will work best based on your ability to save. The CD accounts may be great if you struggle to save and are tempted to spend extra money. This way the money is locked away so you cannot touch it. Another thing to consider is to set up direct deposits or automatic transfers to your savings account. This feature will take care of the savings for you so you don’t have to remember to move over the money.
Since interest rates on savings accounts will fluctuate often, it is important to compare rates before applying for an account. Consider moving to a different bank if you are being hit with a lot of account fees and you find it is hard to save your money due to other financial needs that are pressing. Deposit accounts are a great addition to any financial portfolio! Compare rates today and start saving your money!