Savings accounts are a vehicle to save your money in a place where you can make some money on it. Think about the alternatives:
- Keeping your money at home. You could do that. However, you risk being robbed if you do. You also will have to have a place to actually put the cash which will take up space in your home.
- Keep your money in a safe-deposit box. You won’t be robbed if you do that. However, you will have to pay a small fee to rent the box. So, you are actually losing money on what you put on the safe-deposit box even though it may be only $50 per year for a box rental.
So, a savings account of some type may be the best place to keep your money.
The Way Savings Accounts Operate
When you open up a savings account this is what occurs:
- You complete an application which will include your social security number and other personal and financial information.
- You deposit money into the bank.
- Depending on the type of account you open up, you will earn interest on the money deposited in the account. For example, if you deposit $1,000 in the account that has an interest rate of 1.30 per year and you keep the money in the account for one year, you will have a balance of $1,013 in the account.
What the bank does with your money is loan it out to other individuals. To make money, they charge the borrowers more interest than the amount they are paying you.
As an example of this, let’s say your bank makes car loans. The interest rate on that loan might be 3.20%. In this case, the bank would make about $19 on your $1,000. Obviously, if you do multiples of this one instance you can see how savers make money on savings accounts and the banks make money on the savings account deposits.
Finding a Savings Account That’s Right for You
Shop around for a savings account. There are many different financial institutions offering different types of savings vehicles. For example, there are online banks, brick and mortar banks, savings and loans and credit unions to choose from.
Savings accounts to select from include fixed rate regular basic savings accounts, online savings accounts, certificates of deposit, individual retirement accounts, holiday accounts, money market accounts and variations of all of these.
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