A Complete Guide on Savings Account For Christian Millennials.

Estimated reading time: 11 minutes

Now that we looked at emergency funds last time, I figured we might as well talk about a savings account. Do you have a savings account? Do you even know the benefits of having one? Well, today we will look at everything to do with a savings account.

Savings Account definition.
How does a savings account work?
Factors to consider before opening a savings account.
Types of a Savings Account
Benefits
How to maximize earnings from a savings account
Conclusion

Savings Account definition.

It is a financial product that gives you the opportunity to deposit money and earn interest from your deposits. A savings account is a deposit account designed to hold the money you don’t plan to spend immediately. It’s different from a checking account ( meant for everyday spending, allowing you to write checks or make purchases and ATM withdrawals using a debit card.)

Savings accounts help you stash money away for specific purposes and goals. And even when you don’t have a specific use for the money, knowing that you have some cash stashed away is essential. Especially in the world where we live in today.

How does a savings account work?

You simply open an account with a bank or a credit union. And then deposit money in that account.. Once you have done that, you can start earning interest from the amount deposited. What you need to open a savings account includes:

Your name
Address and phone number
Date of birth
Social Security number
Phone number and email address

This applies when it is an individual account, but if it is joint, you will also need to provide the same details of your joint account holder. Some ways you can use to add money to your account include:

Cash or check deposits at the ATM
Cash or check deposits at a branch
ACH transfers from a linked bank account
Wire transfers from another bank account
Mobile check deposit
Direct deposit

The factors that influence the interest earned on your savings account include:

Your savings account APY (The annual percentage yield (APY) is the real rate of return earned on an investment, considering the effect of compounding interest. Unlike simple interest, compounding interest is calculated periodically, and the amount is immediately added to the balance. With each passing period, the account balance increases, so the interest paid on the balance increases too.
the amount of money you deposit. The more money the higher the interest.
how long you keep money in your account. The longer you leave your money in the account, the more interest you earn.

So, assume you open a savings account with $1,000. You deposit $50 a month into your account and the bank pays an APY of 1.00%. After one year, your balance would be approximately $1803. The higher your APY, the more you deposit, and the longer you save, the more your money can grow over time.

N.B There are banks that offer 5% APY. ( Check out this post to learn more about the banks with the highest APY right now.) Therefore, do your research or ask a financial advisor to help you decide based on your particular situation.

Factors to consider before opening a savings account.

Interest rate- What interest is the bank or credit union offer? And if higher than average, what are the risks involved? Always look at the fine print and not just the attractive offer. You never know, it could be a trap. Remember, it is always best to use wisdom when dealing with your personal finances. If you don’t know what to look for, then ask for professional help.
Minimum cash balance– Public banks have a low or nill minimum cash balance, while private banks have a higher cash balance. When selecting, ensure that you go for the offer that does not lock in a substantial amount of your funds.
Network of the bank– Does your bank have multiple branches? Is it easily accessible? While most transactions can be done online, there are transactions that require you to visit the physical bank. In the event of that, can you easily access it?
Doorstep banking services– Can your bank offer certain doorstep services in the event you are busy or cannot visit their physical location? Services such as delivery or pickup of your documentation, and cash./cheque pickups or even demand drafts. The goal is to ensure that you also know the service fee charged for these services before you open an account.
Service charges: Every bank has different service charges for their Savings account. Knowing these service charges is vital before opening an account. Some banks may have a monthly service charge, while others may have a per-transaction fee. It is essential to find out what these fees are so you can be prepared to pay them.
Term length: if you aim to earn interest on your savings, you need an account with a longer maturity period like a money market savings account. Factor in your objectives before making your decision.
Withdrawal limit: How many times can you make withdrawals when you need to? You should look at all these factors to ensure that you get the right savings account for you. After all, you need to access the money when you need it.

Types of a Savings Account

Regular Savings account- This is the traditional savings account at a bank or a credit union. This type of account offers easy access to your cash when you need it.The federal government mostly regulates them and, sometimes, your finances are insured. You can make up to 6 withdrawals, not including over-the-counter withdrawals. The drawback, however, is that the interest rates are usually low compared to other savings accounts.
Online savings account– Online banks provide an easy, accessible way to manage your money from anywhere in the world on your smartphone or computer. They offer higher yields too. Their withdrawals are limited to 6 in a payment cycle. (Check with your bank. )
High-yield savings accounts– They are similar to traditional savings accounts, the only difference is that they offer a higher interest which translates to a higher yield. When shopping around for high-yield savings accounts, ensure that you choose those that are insured so that you can protect your hard-earned money. Also, check for liquidity. How fast can you access your funds when you need it?
Student savings account– Another savings account option is one specifically for students. Student savings accounts have features that make banking easier for young people with modest financial means. You can find accounts with no minimum opening deposits and no monthly service fees. The downside is that options are somewhat limited. Many banks and credit unions offer student checking accounts, but student savings accounts are less common.
Certificate of Deposits (CD) – A certificate of deposit, or CD, is another type of savings’ account. CDs typically pay a higher yield than traditional savings accounts because you agree to let the bank keep your money locked up for a specific term that could range from three months to five years or longer. However, you should note that with this type of savings account you could incur a penalty should you want to withdraw your funds before maturity. And not only that there is reduced liquidity as you cannot access your funds when you need them. If your goal is to save for a longer period of time, then this is a great option especially because of the higher yield. Just ensure that the bank insures your finances to ensure your hard-earned money is protected.
Cash management accounts– Cash management accounts (CMA) are a little different from other savings vehicles. They are not available at banks and credit unions. These accounts are offered by non-bank financial institutions, such as brokerages and robo-advisor platforms. Many CMAs place your funds with partner banks, which is good for big depositors because by spreading your money around. CMAs do pay interest, but rates typically are lower than APYs on high-yield savings accounts.

Benefits

Some advantages of include:

Safety: Money kept in an insured bank guarantees safety. Always ensure that you confirm if your bank is insured before depositing your money there.
Growth: You will earn interest on the money you put in your savings accounts
Liquidity: Though savings accounts provide a place to stash money that is separate from your daily banking needs, they still let you make up to six withdrawals or transfers per statement cycle.
Organization: Having savings in an account separate from your spending money makes it easier to track the progress of your savings, hinder overspending and get a better view of your overall finances. You also get to have a better idea of your financial health and what you can or cannot purchase.

Some disadvantages of savings accounts include:

Opportunity cost: The major downside is that interest rates on savings accounts may be lower than other financial products, though other investments may come with greater risk.
Not easily accessible: Withdrawals and transfers are mostly limited to six per payment cycle, which can be bad, especially in the event of an emergency and when you don’t have an emergency fund.
Loss of purchasing power over time: If your savings account yield is lower than the inflation rate, you will lose purchasing power over time. This is because when inflation goes up, you tend to spend more on the same purchases than in the prior period.

How to maximize earnings from a savings account

The average interest rate on a savings account is low. Fortunately, there are a few ways to boost your earnings:

Check out the community and online banks: Big brick-and-mortar banks rarely offer the returns of these smaller institutions. Online, challenger banks — sometimes called neo banks — offer the best yields. They don’t have the costs associated with brick-and-mortar banks and pass those savings on to their customers.
Get a sign-up bonus: Some banks offer cash bonuses when you sign up for a new savings account. These bonuses can range in hundreds of dollars. It’s worth monitoring the best bank account bonuses and signing up for an account with a great bonus and a great rate.
Shop at credit unions: A credit union may offer you a better yield than you can find elsewhere. Members own the not-for-profit organizations and the rates are lower while yields are higher.
Rely on the power of compound interest: Savings accounts offer liquidity, but your money will grow faster the less you touch it. You can use a compound interest calculator to see how small deposits into a savings account quickly add up over time. So leave your money for longer periods to enjoy the benefit of a savings account.
Watch out for fees: Some savings accounts advertise an attractive rate, but they come with fees that can eat into your interest rate. Do what you can to avoid incurring fees in your savings account. Better yet, shop for an account with very few fees. Read the fine- print and where you don’t understand, seek professional help.

Conclusion

A savings account is great as it helps you stash money for a rainy day. You should, however, keep in mind that a savings account should come after an emergency fund. To learn more about emergency funds, check out this blog post. The priority is having an emergency fund before having a savings account. The emergency fund will ensure that you are able to meet your obligations in the event of a job loss or a medical emergency.

It is vital that you learn how to manage your finances and practice a lifestyle of savings. Remember a wise person stores up their choice food and olive oil for the future, but fools eat it all up at once. And to show you what the Bible says about saving, let me leave you with these scriptures to digest.

Proverbs 6:6-8:

“Go to the ant, O sluggard; consider her ways, and be wise. Without having any chief, officer, or ruler, she prepares her bread in summer and gathers her food in harvest.”