What Is a Savings Account and How Do They Work?
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- čas přidán 28. 07. 2024
- In this video by The Ascent, we're going to explain what a savings account is, how they work, and how to decide if one of these accounts is right for you.
To learn more and compare top high-yield savings accounts visit www.fool.com/the-ascent/banks...
A savings account is an interest-bearing account commonly offered by banks and credit unions.
You put money in and your bank uses your funds to provide loans to other customers.
Then, your bank pays you some of the interest it's earning every month as a thank you.
Because banks count on a steady supply of deposits to do business, they can't have customers taking money out too often.
That’s why they normally don’t issue debit cards or checkbooks with savings accounts.
Alright, so how much money can you actually make with a savings account? That depends on how much you keep in your account and what its annual percentage yield is.
Annual percentage yield, or APY, tells you the return you can expect on your money after it's been in your account for one year.
Say you put $10,000 in a savings account and it earns a 1% APY. That means that after one year, your balance would increase by 1%, or $100.
But what's really cool about savings accounts is your interest compounds year after year so you'll start earning interest on top of your interest.
Now you have a balance of $10,100 and you'll earn another 1% APY in the second year.
But this time, that 1% nets you $101 because you're earning interest on your initial $10,000 deposit and the $100 you earned last year.
In year three, you'd earn 1% on your new balance of $10,201, and it just keeps building from there.
Your savings account's APY depends on which bank you choose.
Online banks can usually offer much higher APYs than brick-and-mortar banks because they don't have the expense of running a huge branch network.
This is the way to go if you're trying to earn the most on your savings.
Now, it might seem like a good idea to put as much money as you can in your savings account, but there are a few rules you should keep in mind.
First, your savings account isn't a great place for money you plan to use to pay your bills, rent, groceries, or any other recurring expenses. Keep that money in a checking account where you can access it easily without worrying about penalties.
A savings account also isn't a good place to store money you don't plan to spend for decades. The interest you earn in a savings account is nice, but you can do a lot better over the long term by investing your money in, for example, stocks and shares.
And whatever you do, never keep more than $250,000 in a savings account. Most bank accounts are insured by the Federal Deposit Insurance Corporation, or FDIC.
If your bank goes under, the FDIC will reimburse you up to $250,000 for the money in your account, but no more.
If you have more than $250,000 in savings, spread it around between different banks or invest some of it to help it grow faster.
Use your savings account to house your emergency fund and any money you're saving for a financial goal you hope to fulfill in the next three to five years. I
f you're planning a vacation or saving up to put a down payment on a home or car, that's money you should keep in your savings account.
So now you know what a savings account is for, you're probably wondering how to choose the right one for you. There are a few key things you should look for.
First, always make sure the savings account you're considering is FDIC-insured.
You'll probably never have to worry about your bank closing for good, but you still don't want to put all your hard-earned cash at risk.
Next, look for an account that offers a competitive APY. What's considered competitive changes over time.
Get the lay of the land by researching savings account APYs from several top banks, or head over to The Ascent's website to compare some of our top picks.
This video taught me more stuff in 5 minutes than school in 7 hours
Oh this is really needed info
Awesome explanation!
this was suuuuper useful and well presented
No doubts , A good way of growing and saving your money is through investing . You don't need to have much before you can invest. "That little money you have now can make you millions if you invest it wisely". I wasnt financial free until my 40’s and I’m still in my 40’s, bought my second house already, earn on a monthly through passive income and got 4 out of 5 goals, just hope it encourages someone that it doesn’t matter if you don’t have any of them right now, you can start TODAY regardless your age INVEST and change your future! Investing is a grand choice I made
Not quite long I started investing. I'm very curious and need help on how to enhance and increase my returns. Any good investment tips would be appreciated
@@Alexedmartin Generally, investing requires higher knowledge. For this reason, It's important to have a solid support structure (financial consultant) to guide you through especially in asset picking. I operate with (Regina Louise Collaro) an investment advisor who partners with a licensed wealth management firm. For the record, the experience has been the best for my finance.She is quite popular for her services so you might have heard of her.
She made me financially stable investing through her help, now I earn on a monthly basis through her passive income strategy... So I’ll advise you do get a good Investment advisor for yourself.
@@eadad4371 That’s great , your investment advisor must be really good,I have seen testimonies of people using the help of investment advisors in making them more financial stable. Do you mind sharing more info on this person?
@@Alexedmartin look her up on the internet and leave her a message she's quite popular for her services as she was recently featured on cnn. She can work with anyone irrespective of where their located
@@eadad4371 I have had the intentions of starting investing. But I always thought it was late and I think I need to stop procrastinating. I will definitely 🔍 Regina Louise Collaro and see what she can advise .Thanks a lot . This was of so much help to me .
man i only got 1000 in my savings account lol but i havent touched it and i want it to grow i hope i can reach 10grand im sorry its hard to save for me i wish i could save more ive been trying but just this month i had a tooth broke on me and my insurance didnt cover anything so i had to pay 3500 to fix my tooth implant .. wich is cheap i heard cuz my mom had it done and she had to pay almost 6g so i guess i got some kinda luck but still 3500 is alot of money for me to pay i wish i can make it to 10 gs in savings account life is hard
I must say, this is quite underrated. You deserve more views.
I agree
right
Agreed
i am 15 and i just opened my first account so this is good info
That's dope I am 17 and open it
Build you're credit
They teach me in school about some molecular science bullshit.
And yet this is something that everyone should know but has to learn the hard way after school. I’m 20 and I don’t even know how a savings account works. It’s embarrassing this school system.
this is fucking true man!
How can an industrialized nation like Canada lack the confidence to teach its citizens the benefit of a Savings Account since 2011
@@purplemarsmotionpictures Bro, what does math have anything to do with having a savings account??
@@purplemarsmotionpictures where did you go to school? I mean like what country
@@purplemarsmotionpictures If you are from anywhere but the U.S. I am not talking to you.
thank you making this sutff for every one im a ower of the youtube
bro i just wanna save my money into another account why so complicated
Wow thats helpful thanks
Can you withdraw some money out from your saving account?
do not buy a life ins policy put mony in a bank account to save you do the math ???
Thank Youu so much for this Video☺️ Very well explained it’s crazy how I learned all that in 4 minutes!
I have $3k in my savings account. It takes about a month for me to make $2k. Should I just keep it in there since it’s no risk or should I put it all in BTC?
Don't put all of it in BTC put half or less
never put all your eggs in one basket
Savings account have been around for a long time but the biggest problem is that one gets interest for keeping the money for at least to 12 Months within thy Bank selectivity.
In most countries Savings Account are boring instruments for a particular Savings Bank from 2020 to 2022
I don’t think my bank has ever given me money like that. All I see they do is transfer from my checkings a few bucks into my savings
❤️
What if you had 1 dollar in your savings
this needs to be taught at school
We couldn't agree more.
True
It is being thought in school that’s why I’m here a day before my exam 😔
Agreed. In a way, CZcams is remote learning for me. ❤
It's taught in school in commerce..