The Back Pocket
The most traditional way of saving money is through a savings account at your local bank. There are two types of savings accounts: passbook and statement. You usually don't have a choice between the two, most banks offer one or the other. A passbook account comes with a little booklet that you use to keep track of your deposits, withdrawals and interest. You are responsible for all of the necessary math. With a statement account, you receive a monthly or quarterly statement that details the transactions.
Most savings accounts are insured up to $100,000 by the Federal Deposit Insurance Corporation (FDIC) or the Nation Credit Union Share Insurance Fund (NCUSIF). A savings account is a liquid savings, which means that you can withdraw your money at any time. Federal regulations only allow you six electronic, telephone or preauthorized transfers each month. No more than three of the transfers can be made by check, draft or debit card. But you can usually make unlimited withdrawals through the teller or ATM.
Certain savings accounts have a limit of, for example, three free withdrawals per month if your balance falls under a minimum amount. Make sure that you read and understand the savings policies before you open an account. Most savings accounts have very low balances to open an account - sometimes just a dollar is required. But they may charge a monthly maintenance fee on accounts that fall below a minimum balance, such as $100. The fee can often be as much as $10 a month, which will quickly eat up your account. If you are looking for a savings account for your children, there may be special accounts that waive or lessen the fee. There is a big difference in the amount of interest earned on savings accounts compared to other forms of savings. Most banks pay very little interest on savings as count, often as little as 0.25%. There are higher interest payments available through high-yield savings or money market accounts that are found online.
Many high-yield money market accounts allow you to write checks, though high-yield savings accounts usually won't offer that feature. There are some high-yield savings accounts that will allow you to link to your checking for faster and easier deposits and withdrawals. Online accounts are easy to open, but aren't for everyone. Many people are concerned about entering personal information online. You may feel more comfortable being able to walk into a local bank and talk to someone face-to-face if you have a problem with your account. You simply have to weigh the customer service of a local bank with the higher interest available through an online institution. It is highly recommended to keep an emergency fund in a savings account. You should have enough money in a savings account to pay all of your expenses for a three to six month period. You can also use the money for car repairs, insurance deductions and large appliance replacement. A savings account can often help to see you through a true emergency without ruining your financial stability.
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