Everyone has a checking account, however, not everyone has a savings account.
A savings account is a deposit account, usually has a higher interest rate than a checking account. In exchange of the relatively high interest rate and safety, money in a savings account doesn’t have good liquidity. However, a savings account is a good option for saving cash for short-term needs.
In general, the number of withdrawal transactions you can make in a month is six. Banks may charge you extra fees if you exceed the limits. However, the amount you can withdraw from a savings account is unlimited.
A savings account often requires monthly fees. The amount of monthly fees varies accordingly. Some banks or financial institutions may require a minimum balance in order to avoid monthly fees, while others don’t. It’s up to you. So, it’s important for you to understand the rules of the account you want.
Advantages of a Savings Account
Keeping your funds safe. When you make a payment by a debit card, the money you spend is from your checking account. If your card is stolen, others can not have access to your money in the savings account.
Earning interest. You can earn interest from a savings account. At the same time, it is easy to withdraw your money, unlike other restricted deposit, which may impose a hefty penalty if you take out your money too soon.
Easy transaction. If you hold a savings account and a checking account at the same institution, the transfer between them are instantaneous. Deposit or withdrawals will be highly effective.
Disadvantages of a Savings Account
Less return. The interest rate of a savings account is relatively low compared with other saving instrument or investments, for example, stocks and bonds if your time horizon is long enough. It’s not a good choice to earn interests.
Less liquidity. If you need withdrawal transactions more than six times per month, you will be charged a penalty fee.
A savings account has both advantages and disadvantages. Not everyone needs a savings account. It is up to you to make the decision. If you have better investment method, a savings account is not an option for you. If you want to have an emergency funds of easy access, then a savings account may be the right one.