If you have decided to open a savings account but you are undecided about where to save your money, you have come to the right place.
A savings account is a deposit account designed to hold the money you don’t plan to spend immediately. In many ways, it is different from a current or any other kind of bank account.
Savings accounts help you stash money away for specific purposes and goals.
Types of Savings Accounts
If you are yet to make up your mind about where to save your money, here is a guide to the different types of savings accounts and how they work.
1. Traditional savings accounts
Standard or traditional savings accounts are the most commonly offered savings option. You can find these at your conventional banks and credit unions.
With this type of account, the Annual Percentage Yield (APY) or interest rate is 0.33%.
2. High-Yield Savings Accounts
As the name suggests, high-yield savings accounts are accounts that offer an above-average APY. This is a good fit for you if making profits on savings is your goal.
You’re more likely to find high-yield savings accounts on online banks, although traditional banks and credit unions can also offer them.
In addition to providing higher yields, online banks may charge fewer fees for high-yield savings accounts due to their lower overhead.
3. Money Market Accounts
Money market accounts combine the features of a savings account with those of a current account. This means with your money market account; you can earn interest on your balance and write cheques.
Money market accounts may offer better rates than traditional savings accounts, although they may be subject to the limited withdrawals per month rule.
A money market account offers savers even more convenient access to their savings.
4. Student Savings Accounts
Kids and students are not left out of the savings action as many financial institutions have special children’s savings accounts designed just for them.
With these accounts, there is usually an age cut-off for saving. Student accounts, for example, are usually available only to those below 25.
Student savings accounts are designed to help children, teens and students learn how to get into a savings habit. These accounts are mostly found at traditional banks.
Though their APY may not be very high, they can still pay some interest while teaching kids the value of saving.
5. Specialised Savings Accounts
Some traditional banks offer special savings accounts that are designed for just one purpose.
With specialised savings accounts, you might be able to open a savings account just for Christmas savings or to save towards purchasing a car.
These accounts aren’t as common as other savings options and can sometimes come with restrictions like penalties if you withdraw before the set date.
With online banks, you can have one savings account with different targets tied to it.
6. Certificates of Deposits
Certificates of Deposit (CD) accounts are time deposits. This means you agree to leave your money in the account for a set period.
During that time, your money earns interest and, when the CD matures, you typically can withdraw your savings or roll it into a new CD. That sets these accounts apart from other types of savings' accounts since there’s a time factor to consider.
You can find CDs at traditional banks and online banks. Between the two, online banks tend to offer better interest rates.
CD terms typically range from as short as 30 days or as long as 60 months, with longer terms usually attracting higher rates.
They are best suited for the money you know you won’t immediately.
Benefits of opening a savings account
Yes, it makes sense to put your money in a savings account. Other than breaking free from the cycle of loans, opening and maintaining a savings account comes with many benefits.
● Interest yielding
Putting money into a savings account allows you to earn interest on your balance. Some current accounts pay interest, but many do not.
● Save not spend
Having a savings account can help you imbibe a savings culture instead of burning through your income without a plan.
A savings account may also help you avoid spending money that’s earmarked for a specific goal. Most target savings accounts have a penalty for withdrawing funds before the scheduled date.
This penalty serves as a deterrent for unnecessary spending.
Savings accounts can help with financial emergencies. Even if you don’t have a set savings goal, having a savings account can still make sense.
Putting money aside periodically can make it easier to pay bills and everyday expenses in case of an emergency; whether your electricity units run out or you run into a medical emergency.
This way, you do not have to resort to taking a loan and paying interest on it.
Know your money personality
What are money personalities? They are character traits individuals are known to display regarding money. In other words, your money personality is your attitude towards money.
Money personalities can be broken into specific groups. While there are those who identify with multiple money personality profiles, the key is to find the type that most closely matches your behaviour.
The major money personality profiles include:
● Big spenders
These are people with a spending personality. They are typically shoppers and can be identified with their love for nice cars, new gadgets, brand-name clothing and other flashy items.
They are comfortable spending money, don't fear debt, and often take big risks when investing.
Savers are the exact opposite of big spenders. They do anything to cut down on expenses. They shop only when necessary, and rarely make purchases with loans.
They generally have no debts and are not concerned about following the latest trends. They derive more satisfaction from reading the interest on a bank statement than from acquiring something new. Savers are conservative by nature and don't take big risks with their investments.
Shoppers often develop great emotional satisfaction from spending money. They can't resist spending, even if it's to buy items they don't need.
They are usually aware of their addiction and are even concerned about the debt that it creates. They look for bargains and are happy when they find them.
Debtors aren't trying to make a statement with their expenditures, and they don't shop to entertain or cheer themselves up.
Debtors typically spend more than they earn and are deeply in debt while not putting much thought into investing.
Investors are consciously aware of money. They understand their financial situations and try to put their money to work.
Their actions are driven by careful decision-making, and their investments reflect the need to take a certain amount of risk in pursuit of their goals.
For most people, their savings account is their primary mode for transacting with a financial institution, mostly with banks.
Knowing the different savings accounts available will serve as a guide to the best place to save your money.
Looking to open a savings account? Visit nairaCompare to compare interest rates on different savings accounts and find the one that best suits your needs.