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The pros and cons of savings accounts: Maximizing your money

May 29, 2020 • 5 min read

What we'll cover

  • How money can grow more quickly in an interest-earning savings account

  • How savings accounts differ from certificates of deposits

  • Fees and withdrawal limits to keep in mind 

When you buy a new cell phone, you choose a brand, model, size, and color (rose gold, if you’re feeling fancy), while weighing the features against your needs. It can be exciting but also a bit overwhelming. (“What is 5G connection? And do I really need retina display?”) Opening a savings account can be a similarly difficult experience.

With so many aspects to consider, such as bank, type, interest, and terms, it can be challenging to weigh the pros and cons of a savings account before you choose to open one. If you’re curious about opening a savings account or you have one already, here are the advantages and disadvantages you’ll need to keep in mind.

Savings accounts at a glance.

Take a look at this list of considerations for when you're weighing your savings account options. Then, read on for more detail.

Savings Account Considerations
Savings Account Considerations
Pay interest on your deposits (rates vary from bank to bank)
Variable interest rate that may change
Are easy to open and access
Are subject to transaction limits
Are insured up to a certain amount (at FDIC member banks)
May charge fees (depending on your bank)

Savings accounts earn interest.

One of the biggest advantages of a savings account is that deposited funds accrue interest over time. Money kept in a non-interest earning bank account or in a home safe is missing out on valuable earning potential. Take note: The rate you earn depends on the terms of your account agreement and where you open it.

Savings account interest rates are not locked in.

Unlike Certificates of Deposits (CDs), savings accounts do not have a locked in rate at account opening, which means the rate could change depending on the market and the bank. Online banks usually offer higher interest rates than their brick-and-mortar counterparts. Because we don’t have the overhead costs of physical locations, we’re able to pass that savings onto you in the form of better rates across all types of accounts, including our Online Savings Account .

Savings accounts are easy to open and access.

You generally can open a savings account in just a few minutes, either online, over the phone, or in person. Plus, you can make regular deposits and withdrawals (within federal limits ⁠— more on this below) without committing to a term length or worrying about withdrawal penalties.

When you have an Online Savings Account, it’s simple to access your funds 24 hours a day, seven days a week from wherever you have an internet connection. You also can link your savings account to other accounts, like checking accounts and Money Market Accounts , and transfer funds between them.

Consider whether you should open a checking account and savings account together . Between your credit cards, debit cards, streaming subscriptions, online shopping, and more, things can become quite the financial jumble. When you open both a savings and checking together, both accounts are in one place one place, streamlining your finances.

Added bonus: Some banks even allow you to link your savings to your checking account as overdraft protection.

And with the ability to quickly move money between accounts at the same bank, you won’t need to worry about keeping larger sums of cash in a checking account with no-yield or low-yield interest. Instead, your money can accrue interest in a savings account that potentially earns more interest.

Transferring money between accounts at the same bank is instantaneous, but you’ll typically need at least one business day if you’re transferring money between your savings account and an account at a different bank.

Finally, if you really want to build your savings, consider setting up automated, recurring transfers. Often times, you spend before you can save. By activating recurring transfers, you can save even smarter. You decide how much and how often you want to automatically move to your Online Savings Account . Then, we’ll make it happen, so you don’t have to do any of the heavy lifting. A steady stream will trickle into your savings to help you accomplish your savings goals.

Your bank may have limits on savings account transactions.

While it’s easy to transfer funds to and from a savings account, there may be restrictions on the number and types of withdrawals allowed per statement cycle. You can make as many deposits as you wish, but your bank may limit certain types of telephone and electronic withdrawals (not including ATM withdrawals) and transfers per statement cycle, which can limit the mobility of your money.

You might consider a Money Market Account as another option that potentially allows easier access to your funds, while still keeping your money secure and out of the way. Plus, you also get check-writing and debit card access. And, unlike a CD, you can deposit and withdraw money whenever you like.

The number of withdrawals and transfers allowed and checks you can write per statement cycle are still limited with a Money Market Account. That can make a Money Market Account a good option for things like an emergency fund or saving for a house.

Savings accounts are a secure way to save.

Savings accounts can also be great for money you want to keep safe, like your emergency fund. If you’re practicing good financial health by saving a least six months or more of expenses in an emergency fund, you want to make sure that amount is secure (yet accessible) should you need it. And, when you deposit your money in a member-FDIC bank, the Federal Deposit Insurance Corporation ( FDIC ) insures it up to the maximum amount allowed by law.

Some banks charge fees on their savings accounts.

It goes without saying that you don’t want costly fees eating into your earnings. If you already have a savings account, it’s a good idea to review the terms periodically, as account rates and conditions can change over time. If you’re shopping around, be sure to compare and understand the terms of each account you consider. Look for banks that offer savings accounts with no minimum balance requirement to earn interest or monthly maintenance fees, like our Online Savings Account .

What are you looking for in a savings account?

Now that you’re savvier on the pros and cons of a savings account, you can give some thought to your specific needs. Here are two items to consider:

Joint savings accounts

Joint savings accounts aren’t just for partners. When sharing finances, having a join account can make your money management easier. Plus, a joint savings account can help you maximize your FDIC coverage since each account owner will receive the full amount of FDIC coverage. In simple terms, saving together may mean more protection for your money within a single account and increase your versatility.

Custodial savings accounts

Learning to save is important lesson to teach your children and opening a savings account for your child is an effective way to demonstrate the benefits of saving. And Custodial Savings Accounts have two things over the classic piggy bank: security and interest. In an FDIC-covered account, your children’s money is secure — and it will earn more interest than it would sitting on a bedroom shelf. Before opening a Custodial Savings Account, look into minimum balance requirements, account access, and potential fees along with interest rates.

Beyond the benefits and disadvantages, all of these choices can make savings accounts seem bewildering. Still, the prevalence of choice lets you customize how you stash your money, while optimizing your savings potential and unlocking the power of your money. Harnessing these accounts’ favorable interest rates, easy access, and security can pay dividends down-the-road.

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