Savings Account Advantages and Disadvantages
There are several savings account advantages and disadvantages. Three advantages of savings accounts are the potential to earn interest, it’s easy to open and access, and FDIC insurance and security. Three disadvantages of savings accounts are minimum balance requirements, lower interest rates than other accounts/investments, and federal limits on saving withdrawal. Review the best savings account options for you:
Common Savings Account Advantages and Disadvantages
Savings accounts are usually the first bank account that anyone opens. It’s a method of putting aside money for the future in order to create or preserve wealth. Children could open a savings account with a parent to develop a culture of saving. Teenagers open savings accounts to keep cash earned from home chores or their first job. A savings account is an excellent way to keep emergency cash. The opening of a savings account also signals the commencement of the relationship between you and a financial institution. For instance, when you join a credit union, your membership is established by your “share” or savings account. Online savings accounts offer the highest interest and charge the least fees. To grow your savings account, you can keep a lump sum of cash in your account or set up an automatic deposit into your account every month. Many people ignore savings accounts due to the relatively low long-term interest rates offered by savings accounts in comparison to the expected rates of other long-term investments. A savings account typically offers a rate that is below inflation. Here is a look at some savings account advantages and disadvantages. Compare savings account interest rates:
Savings Account Advantages
Potential to Earn Interest
There are various savings account advantages and disadvantages. One advantage of opening a savings account is the potential to earn a modest interest while saving your money in banks, instead of keeping it at home. The interest rates of savings account will depend on the bank and their offers, but the national average savings account interest rate is about 0.09 percent, with high-yield interest rates of up to 2.05%.
Easy to Open and Access
Another one of savings account advantages is its ease of access and availability, plus it’s also easy to open. You can withdraw and deposit anytime with savings accounts (within federal limits), unlike other accounts such as long-term investment accounts.
Secured and FDIC-Insured
A third savings account advantage is that it is a secure way of saving your money, and money you don’t want to take risks with, like your emergency fund. When you deposit on a savings account of banks that are members of FDIC, the Federal Deposit Insurance Corporation (FDIC) insures your money for up to the maximum amount of $250,000.
This interactive list provides the most comprehensive comparisons of savings accounts in all 50 states. You enter your deposit amount and your ZIP code and it gives you a list of the best savings accounts and rates in real time based on your location.
Savings Account Disadvantages
Minimum Balance Requirements
When addressing savings account advantages and disadvantages, it is important to address some of the negatives associated with owning a savings account. One of the savings account disadvantages is the fact that most savings accounts have minimum balance requirements or monthly maintenance fees. This means that if the money you have in your savings account falls below the minimum balance requirement, the bank will deduct and charge from your account, negating from interests you earned.
Lower Interest Rates than Other Accounts/Investments
Another one of savings account disadvantages is the lower interest rates it offers compared to other types of accounts or investments, such as money market or certificate of deposits (CD).
Saving Withdrawal Federal Limits
A third savings accounts disadvantage is that savings accounts have federal limits when withdrawing funds, which is the limit of six times per month to take money out of your savings. The banks will charge you with a fee if ever you exceed the federal limits, or they can change your account from savings to checking accounts if you continue on withdrawing more than 6 times per month.
This savings calculator computes your savings grow over time. Using this growth calculator, you can set a target and determine the amount you need to save monthly to hit the mark.