We never expect an emergency situation to fall on us. When we work hard and live our life honestly we expect, wish and live as if everything would be good in life. But, however bitter it may sound, an emergency can strike any time unannounced. You might live in the best home, take the utmost care of your health, practice the maximum carefulness in your business but still, financial need can arise anytime.
Therefore along with earning money, it is equally important that you open a savings account that has your emergency money to fall back on.
What is a savings account?
A savings account is a bank account wherein you can deposit your savings to earn interest on them. A savings account is different from a regular checking account in the following ways —
- You earn significantly higher interest rates on your savings account as compared to a checking account. These rates are never fixed and can vary according to the bank and government policies, the current economic conditions and the amount you deposit.
- Secondly, in a savings account, there is a limit on the number of transactions you can do. These transactions include transferring money between accounts, withdrawing money, availing overdraft facility etc. If you exceed the stipulated limit the bank may charge you a fee for your transactions. Moreover, they might convert your account to a checking account as well.
Why is saving account important?
You might wonder why you need a savings account when you have a checking account. The answer is to fight inflations.
The basic difference between savings and investing is the power to fight inflations. You might save thousands of money and keep it in safe custody with you. But there are chances that they might not be of any use to you when the need arises due to the inflation. A checking account helps you fight inflation by earning returns on your savings.
Maintaining a savings account also helps you curb your overspending as it has a restriction on the number of transactions you can do. You are more likely to be careful while spending lest you will have to incur extra charges.
Opening a savings account
You can easily open a savings account in either of the following-
- Online banks
- Actual banks
- Credit unions
There are different procedure for opening an account in every bank. However, on a general note, they ask you to fill an application form and give your details. After processing the representatives might contact you and open the account.
The best way to utilize the savings account is to set a target for the monthly savings. Another effective way to utilize your savings account is to automate your savings. Every month set up a system manually or through the bank wherein a specific amount of money will be automatically transferred to your savings account before you spend a single penny from it.