Savings accounts are different from your everyday transaction accounts because a savings account cannot be accessed through your debit card or an ATM. True to its name, a savings account is made separate from the usual transaction account so that you will not be tempted to spend the money there.
In other words, your savings account is there for when you want to save up for anything, be it a gadget, your rent, a car or a trip abroad. It keeps the money separate from the account you use for everyday spending. It then becomes easier to track how much money you can set aside over a period time.
In a nutshell, a savings account is a good way to store money you intend to use for emergencies or purchases later on. Some call it their “rainy day” fund.
Types of savings accounts
Before choosing a type of savings account, have a savings plans first. Know what you want to save up for, whether it’s a new mobile phone, a new pair of shoes, a car or even a property deposit.
-Online savings accounts
Getting an online savings account will allow you to access your savings account from anywhere, at any time, as long as you have your mobile phone and the banking app. Online savings accounts usually have higher interest rates, little to no fees and, best of all, save you the trouble of personally going to a bank and waiting on the long queues.
-Bonus saver accounts
Some savings accounts will even give their customers bonus interest rates if they meet certain conditions. It could involve meeting a minimum monthly deposit or sticking to a monthly withdrawal limit. This is ideal for those who want to keep their savings goals on track and for those who want to become better in saving up. Even better, you will be rewarded for your efforts in saving.
-Introductory-rate savings account
An introductory-rate savings account offers an incentive many would be willing to sign up for, which is the introductory bonus rates. These bonus rates usually last for about four to six months upon signing up for the savings account. This appeals to people looking to switch savings accounts—and the introductory bonus rates offered rewards them for the switch.
After the specified time period has expired, the savings account will return to the standard interest rate. This is a good option for those with only a short-term savings goal or for those who simply want to have an account with a high interest rate (even if it’s only short-term).
-High-interest savings account
There are many competitive rates among various high-interest savings accounts in the market. The best part is that most of them don’t have account service fees. That means you’ll get a higher return on the money you deposit into this account and therefore meet your savings goals faster.
-Minimum-deposit savings account
A minimum-deposit savings account forces you to make a monthly deposit in order to be awarded its high interest rates. The good news is that this gives you an incentive to consistently contribute, which will in turn boost your savings in the long run. Just make sure you do make these regular payments because penalties and fees often apply if you fail to do so. Minimum-deposit savings accounts generally don’t allow you to make withdrawals either.
-Kids savings account
It might be good for you to introduce your children to a savings account, and there is a savings account specifically for children under 18 years old. A kids savings account is generally like a standard savings account with monthly interest. The interest rates also vary per bank and are competitive. Bonus interests are generally offered as well. The best part? Fees and charges are usually waived.
Take note, however, that monthly deposits are usually required and that there are also withdrawal restrictions you need to be made aware of.
Why you should consider getting a savings account
It’s always good to keep in mind that a savings account isn’t a one-size-fits-all deal. You’ll need to do a bit of your research and decide which kind of savings account best suits your savings plan.
If you want to get a better hold of how you manage your finances, want to carry out a savings plan or simply want to have a fund for emergencies, you might want to consider getting a savings account.
Although the specifics vary from one bank to another, a savings account generally has no monthly fee, a reasonable ongoing interest rate and withdrawal flexibility.
Savings accounts are also generally linked to an everyday transaction account, which are both usually under the same bank. Some banks might allow you to link your savings account to a transaction account.
While savings accounts generally have no fees, watch out for the fees in the everyday transaction accounts before you sign up for one.
What you need to know about savings accounts
A savings account also earns a certain amount of interest. The interest usually varies, but it’s very low-risk. It also serves as a small reward in your efforts to save up.
The way to access the money in the savings account is by logging onto your banking account and transferring the money from your savings account to your everyday transaction account. This also helps you manage your spending habits.
Take note that there is a difference between a product’s base interest rate and its maximum interest rate. As mentioned earlier, the base interest rate is the what you’ll definitely get paid. A maximum interest rate, on the other hand, requires that you meet certain conditions first, such as restricted amount of withdrawals and minimum monthly deposits (such as $500).
With some accounts, the gap between the base and maximum interest rates can be as high as two percentage points. Don’t sign up for any account with a gap unless you know exactly what you’d have to do to quality for the maximum interest rate.
Explore different savings scenarios
As part of your research, you might also want to crunch some numbers with RateCity’s savings accounts calculator. To use the calculator, all you need to do is input your deposit amount, deposit term and interest rate. The great thing about the calculator is that you can quickly and easily research different scenarios by changing the numbers.
For example, if you invested $10,000 for five years, here’s what balance you would finish with under different interest rate scenarios:
- 00% = $10,512
- 50% = $10,778
- 00% = $11,050
- 50% = $11,330
- 00% = $11,616
If you invested $10,000 at 3.00 per cent, here’s what balance you would finish with under different loan term scenarios:
- 1 year = $10,304
- 2 years = $10,617
- 3 years = $10,940
- 4 years = $11,273
- 5 years = $11,616
If you invested for five years at 3.00 per cent, here’s what balance you would finish with under different deposit scenarios:
- $2,000 = $2,323
- $4,000 = $4,646
- $6,000 = $6,969
- $8,000 = $9,293
- $10,000 = $11,616