Usually when people talk about investing, they are referring to the stock market, real estate, bonds or even crypto-currencies. They often overlook another important component of an investment plan – the savings account.
While this tool won’t give a high return, it also avoids potentially high risks. As such, it allows for wealth preservation.
Savings accounts are typically FDIC insured. Even if a bank goes out of business, its savings account holders will be reimbursed up to $250,000 (Credit Unions tend to have insurance closer to $250,000) by the United States government. No other type of investment has this guarantee.
This makes a savings account the best low-risk investment. It is the only option for money an investor absolutely can’t afford to lose.
Savings Accounts Are Stable:
There is also no volatility associated with savings accounts. While crypto-currencies and even blue chips might lose a high percentage of their value overnight, a savings account only grows in worth.
They are also a very liquid form of investment. Even if a bank is closed, most accounts can be accessed via an ATM. This is a huge advantage over other investment options, such as real estate, which may take months or even years to sell.
Because of these advantages, many people use a savings account to store money for an emergency. If they face an unexpected medical bill or their car breaks down, the funds in the account allow them to easily manage the situation.
Low Initial Investment Requirement:
Another advantage to a savings account is that the initial investment is low. Most banks allow a savings account to be opened with as little as $25 and there is often no minimum balance required.
The disadvantage to a savings account is the low return on investment. However, there are high interest savings accounts available. The best rates are typically offered by online institutions. The interest rates for these high interest accounts can be as much as 25 times what you will get at your local bank.
Savings Accounts Have Options:
If you want to take advantage of the higher interest rates offered by online institutions, you may choose to have your savings account at a different bank than the one where you have your checking account. This means that you will have to do an electronic transfer from one institution to the other when you want to deposit or withdraw money between accounts.
While typically this is only a minor inconvenience, it may take a couple of business days for the funds to transfer. This is something to be aware of when you choose the best savings account for your needs.
Another type of savings account that is quite popular is a no fee account. While you need very little to open a savings account, most banks do charge a low monthly fee; however, you can avoid these charges if you keep a minimum balance in a no fee account.
Note that when you have a high interest savings account the minimum balance required to avoid paying fees is typically higher than it is in other types of accounts.
If you decide to open a savings account, keep your eyes open for bank account sign up bonuses. These promotions consist of cash bonuses deposited directly into your new account. Typically you will need to set up direct deposit with the bank to qualify for the bonus as well as keeping the account open for at least a few months.
Because of the differences in potential bonuses, interest rates and fees, it is a good idea to carefully research savings accounts before you invest your money. Once you do, you will find that such an account is a valuable tool in your overall investment strategy. For a more detailed overview of savings accounts, as well as links to institutions with great new account benefits, you can check out Money.usanews.com