Making The Best Use Of Your Savings Account

Critical to everyone's financial portfolio, savings accounts afford a safe place to keep and increase money. At their most basic definition, savings accounts offer accessibility to cash. This is also known as keeping your cash liquid, meaning it can be withdrawn easily and quickly.

Generally, savings accounts pay out more interest than checking accounts. In other words, account holders are paid a rate of return on the money. A bank pays out an annual percentage yield to account holders for keeping their money at a particular bank. This is an especially attractive feature for those who don't have an immediate need or use for the money (unlike monies held in a checking account) because it is at least earning interest of some kind while deposited in the account.

Savings accounts are also attractive because they are a much safer place to keep money than storing cash at home. Those old references to keeping cash hidden under a mattress aren't far from the truth for many people generations ago. However, with savings accounts, banks now hold the responsibility for keeping money safe. It's a duty banks take very seriously. While homes are susceptible to fire, robbery, or other incidences which could put money at risk, banks represent a much more secure depository for cash. Besides, money cannot earn interest hiding under a mattress.

When deciding on the best type of savings account to use for maximum returns, a little bit of homework can actually provide better returns on your money.

The most important factors to consider when choosing a savings account are banks that pay a competitive APY, are safe and sound, and provide convenience for the account holder.

Many individuals are choosing savings accounts provided by online banks these days. Typically, they pay a higher APY because with less overhead to manage, these banks can offer higher yields. They also do not require a minimum balance, allowing clients to deposit as much or as little in their accounts as they choose. With no minimum balance to maintain, clients can continue to earn more on their money rather than paying bank fees.

Another feature of online accounts is that the money is less easy to access than a brick-and-mortar bank, which helps many control their temptation to spend. In addition, online banks will also offer clients promotional sales featuring an increase in interest rates for a limited time. It may be the only kind of sale where the client actually makes money.

Traditional savings accounts offered by brick-and-mortar banks may offer a variety of options for clients. For instance, some accounts feature different interest rate levels depending on the balance. Increases in a balance (for example $2,500, $5,000 or $10,000) earn higher interest rates, giving clients the ability to grow their money.

Operating similarly to a traditional savings account, money market accounts (MMA) vary in some significant ways. Firstly, a MMA typically requires a minimum balance to open an account, such as $1,500 or $2,000. Once established, the account is not permitted to fall below the required minimum. These accounts generally pay out higher interest rates as compared to traditional savings accounts. Since a MAA is not designed to serve as a vehicle for transactions, a limited amount of withdrawals are permitted per month but MMA holders are able to write several checks per month.

Another form of a savings account, certificate of deposits (CD) are also offered by banks, however they operate differently from savings and MMAs. CDs are purchased for a specific amount of money and represent a contract with a financial institution. The client agrees to keep a specific amount of money with the bank and in return receives a stated interest rate, typically higher than a savings account. They are unlike MMAs in that deposits and withdrawals cannot be made into a CD. Once a CD has reached a specific maturity date it can be cashed or reinvested.