Savings Accounts: Types, Importance, and Future Security

Written by: Seth Rogers


A savings account is the first thing most children receive when learning about banking. Teaching them about the importance of saving is something thing need to learn for the security of their future as an adult. Today, adults or children should have at least one savings account.

The best types of savings accounts have high-interest rates with low or no fees at all. All banks, credit unions, and financial investment firms offer multiple types of savings accounts that offer online and in-person features that make these accounts stand out.

What to Look for in a Savings Account

When you are looking for a way to save and help your money to grow, there are several factors to consider when preparing to open one:

  • Interest Rates

Interest rates are artificially low as the recession winds up. They were set into place to encourage more active participation in the stock market after the recession rocked it. While many banks and other institutions still are keeping the rates low as per the decreed of the Federal Government; others are offering more to encourage saving.

Check the banks in your local area for their current rates, with the understanding that they change daily. There are some offering savings accounts as high as 2% APY (Annual Percent Yield). The initial amount required to deposit into them is low, and maintenance fees are non-existent.

Online-only banks are an option that may gain higher interest rates. These can range above 2% though they carry more risks. Many people stay with their current banks and credit unions because the online-only banks are relatively new establishments without the proven history and reliability found in “brick and mortar” establishments. There are many legitimate institutions online that are quality establishments, and it takes time and research to figure out which one works best for your needs.

  • Added Fees

When you are opening your account, you will want to know about any added fees that come with the account. These fees include withdrawal fees, minimum balance fees, and penalty fees for overdrawing on the account. A high-quality institution will provide you with few to no fees for having a savings account, but you will need to verify this at the time you open the account.

You will also need to watch them be aware of any account and policy changes. They can always add fees, but with the right bank, many can be waved or managed because of high account balances or the number of accounts you have with a particular institution.

  • Penalties for Transfers

Federal Laws limit transfers out of savings accounts to six a month, any more and fees result. Money can still be withdrawn at an ATM or through a bank teller without incurring fees. These fees are in place to keep people from accidentally draining their savings.

The fees are also there because accounts earn interest through the agreements with a bank when they are opened. Banks and other financial institutions use savings in Certificates of Deposit and Savings accounts as ways to loan out to people requesting funds. These loans are returned with interest in using the money.

How Much Should you have in your savings account?

There is no set limit on how much or little money you should have in your savings account. The right amount should cover up to six months’ worth of living expenses, emergencies, and the possibility of job loss. A good number to start with is $500 and add to it from there.

Building a cushion for your future extends beyond emergencies. It includes saving for things you want and need for your future, including your home, improvement to your home, a new car, and repairs to your car. The list goes on to whatever you feel the need to accomplish in life.

Retirement Savings

Saving for retirement is a different type of savings account. Even if you are not adding much every month to this account, it is needed for your quality of life after you are done with your working life.

  • IRAs (Individual Retirement Account)

An IRA is a good place to start saving for retirement after you have a traditional savings account set up. There are two different kinds to start based on the tax structure. You can contribute $6,000 a year to your account if you are under the age of 50. If you are over the age of 50, you can contribute up to $6,500.

o Traditional IRA

A traditional IRA allows you to contribute to your account tax-free until you start withdrawing at the age of 59 1/2 or beyond. Even when you do withdraw, you may fall into a different tax bracket allowing for you to take home more money from your investment.

o Roth IRA

A Roth IRA is the reverse of a traditional IRA. Any money added to the account is taxed as it goes into the account. The money will not be taxed when the money is withdrawn and will grow tax-free once it has had the taxes taken out.

Alternative Savings Accounts

  • CD (Certificate of Deposit)

A Certificate of Deposit (CD) is a loan to the bank. You loan the bank your month for a specified time, and at the end of the time, you have earned an agreed-upon amount of interest. When the specified time is up, you are allowed to withdraw the money, add more money, or change the account type or length.

Saving for everyday expenses, job loss, emergency funds, and retirement is extremely important for future health and wellbeing. There are easy small accounts to start with through your local bank. They will let you know what is available and the types of rates you can get.

Saving money is not always easy as bills go up, and everything gets more expensive. Setting aside $20 a month might seem difficult, but it is a place to start. It is never too late to start saving, and it is one of the best things you can do for yourself and your family.


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