A savings account usually refers to an account where one places cash to earn a percentage interest on it. Unlike an IRA or a 401k plan, the savings account funds are generally easily accessible, even though some financial institutions do charge for taking out money early. In the majority of cases, people can withdraw money from thier savings account at any time; either through the bank (when its open) or by accessing the bank’s ATM.
The term “bank” is used here as a general term for any bank account issuing institution. Not only banks, but also money market fund companies and credit unions cmay offer a savings account to their customers. In addition to earning interest on your money, a savings account also provides a safer place to hold your money, much more secure than stowing it under the mattress or at the bottom of the cookie jar.
An online savings account is an increasingly popular option. There are advantage and disadvantages to keeing your savings account with an online-only bank. Here are a few of the important points to keep in mind:
- Fees. The costs to maintain an online bank are sometimes much lower than the cost to operate a traditional bank. This can translate to lower fees for the bank’s clients (although this is not always the case for all online banks).
- Savings interest rates. For the same reason, you can sometimes find better interest rates with online banks. You will want to compare savings interest rates online to find the highest rate.
- Transferring money. When you use an online savings account, it can take a day or two to transfer funds to other accounts. While this is inconvenient in some ways, it also helps to prevent impulse spending. This makes saving easier!