The convenience of a checking account or a credit card is obvious but why maintain a savings account in these tough economic times? The old advice of a three to six month financial cushion is even more important today than it was several years ago. Anyone can lose a job or be laid off. Life is precarious; washing machines break down, relationships change, spouses and children get sick, cars break down, and taxes get due.
How to Establish a Savings Account
- Many accounts can be established with $100 or less especially if another account is maintained in the same bank. Ideally, before the paycheck is in hand proportion a small amount, even $5, to a savings account.
- Substitute 1 drive-thru meal a week for a savings credit.
- A custodial savings account can be opened by adult for a child under 18.
- Some banks will link a debit card to a savings account and round out each dollar amount charged to the account.
- Sell items on Crags list or eBay and place payments in the savings account.
- Check eligibility for a credit union savings program that may offer more options.
Online versus Free Standing Bank Savings Accounts
Online savings usually pay a higher percentage interest. Most accounts otherwise have similar features with 24 hour Internet access for information and linking accounts. Most are FDIC insured. Virtual online banks have no physical address. Virtual banks will send money immediately upon request but physical banks can hand the money over in person upon request. Physical banks have Internet access and an address.
Credit Union versus Bank Account
Establishing a savings account takes into consideration personal preference. Although bank savings are more popular, credit unions savings definitely have a place. Banks have “customers” while credit unions have “members.” Different insurers protect them as well. A credit union often provides low interest loans with fewer restrictions than does a bank. For savings, the issue would be accessibility and interest and minimum requirements to establish and maintain.
Withdrawal and Fees
These are usually limited to six withdrawals within one month. This is a federal reserve regulation rule for financial calculations. In order to be classified as a savings account, the withdrawals must be limited.
The savings account should be considered untouchable money. Once six months of basic expenses are covered, (for example, rent or mortgage payment, food, gas, car, and electricity), extra money can be spent. Actually, once six months of basic expenses are accumulated, extra money should be placed in a higher interest account such as a CD or Money Market account.
Many savings accounts have a maintenance fee that is waived provided a pre-established minimum amount is maintained. Some amounts have special clauses for those over a certain age (e.g. over 50, 55 or 62yr) or under a certain age such as legal minors.
What Affects Which Savings Account Chosen
- Ultimately, accessibility
- Location, hours, fees, minimums
- Method of deposit whether direct from paycheck, wire, internet, or walk in, other services available or needed
- Once protection guarantees (insurance) are validated, personal choice and convenience plays a primary role.
- Most important is setting up the account now.