The Limitations of Basic Savings Accounts
- April 21, 2023
You have a basic, run-of-the-mill savings account. It was quick and easy to open. It keeps your savings liquid so that you can access your funds when you need them most. It also comes with a limited number of withdrawals and transfers per month, which encourages you to leave your savings untouched — unless absolutely necessary.
It’s a fine place to store your personal savings, but it’s not your best option. Find out the major limitations that come with basic savings accounts and which accounts you should consider instead.
A basic savings account will come with an interest rate that can potentially help your balance grow over time. But that interest rate is so small that you’re not likely to see much passive growth. After all, the typical annual percentage yield (APY) you can expect to witness from this type of account is under 1%. It could be as low as 0.01%. It will barely budge with interest, even when you make consistent contributions.
There are savings accounts that come with higher interest offerings! A high-yield savings account is an option that typically comes with an APY between 2%-5%. In comparison to the basic savings account, that’s a significant jump in compounding interest over the course of a year.
This is a good time to swap savings accounts for the sake of interest. Why? The Federal Reserve has recently raised interest rates to discourage citizens from spending and encourage them toward saving. This means some banks are offering higher interest rates than usual for savings accounts. It could be the right time to jump on the bandwagon and get a more rewarding account.
Your basic savings account is only a little accessible. You can technically transfer your savings into your checking account. And if you’re lucky enough to have an ATM card with your savings account, you can make cash withdrawals via an ATM or bank. But far too many savings accounts don’t come with ATM cards and leave you with a small number of ways of getting to your funds.
A Money Market Account could be a better option for you. A Money Market Account is a specialized savings account that comes with an APY between 2%-5%. It also has features similar to a checking account. Account holders will have access to a debit card and a chequebook.
An MMA would be extremely useful for storing an emergency fund. With this type of account, you could manage an emergency expense at a moment’s notice. You could use your debit card, a check, a cash withdrawal, or an app transfer to pay it off immediately.
A Basic Savings Account is Better Than Nothing
The benefits of a basic savings account are few, but having one is better than having no savings account at all. Without a savings account, you might not have a secure spot to collect and preserve your savings.
Living without a savings account is a terrible idea. Without it, you might not have a way to feasibly handle emergency expenses that fall directly into your lap. You’ll have to look to an alternative payment method like a credit card to resolve the urgent expense in time. Another option is to go to a website like CreditFresh and see whether you can apply for a small personal loan. With an approved small personal loan, you could use borrowed funds to recover from your emergency quickly. After the expense is taken care of, you could tackle a simple loan repayment plan and put the problem behind you.
Get the most out of your savings. Stop settling for less and find the right account for you!