To have money for a rainy day and avoid spending it on unnecessary things, you should consider putting it into a savings accounts. These accounts can help you to grow your money and keep it safe for when you do need it. Listed below are a few of the pros and cons of savings accounts.
Here are the three biggest benefits:
- Earns Interest
The biggest advantage of having a savings account is that your money will grow or earn interest over time. These accounts are good for saving that little extra you might have at the end of each month for that trip you always wanted to take or just for a rainy day. Interest rates vary among banks so you can choose the bank that offers the best interest rates and terms to suit your needs.
- Easy to Open
A savings account is so easy to open that all you need is the bank application form, an ID proof, an address proof and any other documents as required by your bank. The amount required to open the account can range from $1 to $25 depending on the bank you choose.
- Easy to Operate
You can also easily deposit and withdraw money from these types of accounts easily through a bank branch when compared to other long term investments. Some banks also allow you to link your checking and savings accounts to allow you to transfer money easily between accounts without any charges or fees.
- Number of Withdrawals
When discussing the pros and cons of savings accounts, one of the drawbacks that needs to be pointed out is the number of withdrawals. According to federal law, only six withdrawals per month are allowed from savings accounts. If you exceed this limit you would need to pay a fee or penalty.
- Minimum Balance
Most financial institutions would require you to maintain a minimum balance, and if your account falls below this amount, you might lose out on the interest negotiated.
- Interest Rates Can Change
Another drawback on the list of pros and cons of savings accounts is changing interest rates. Financial institutions can change rates when they want. However, the rates of high interest savings accounts are dependent on the federal rate changes.
- Access to Funds Is too Easy
Since you can withdraw money from these accounts quite easily it can be a temptation to dip into your savings as and when required. This can lead to overspending and your account on accruing the interest it should. Also, as mentioned above, if your account falls below the required amount, you would end up paying penalty fees and charges.
In addition to going through the pros and cons of savings accounts, you can also check the terms and interest rates of various banks and financial institutions and choose the best one for you.