Financial organizations are increasingly offering clients savings accounts: savings of up to 1.4 million dollars are insured by the state, and funds can be withdrawn at any time specified by the agreement.
What is difference between checking (CD) and savings?
A bank deposit (deposit, CD) is a certain amount of the depositor’s funds temporarily transferred to the bank for the purpose of storing and receiving interest income.
A savings account is a bank account to which you can deposit and withdraw money at any time, as well as get passive income due to interest.
Here are the differences between a savings account and CD:
- the savings account rate can be changed at the bank’s discretion. The interest rate on the deposit is fixed for the entire investment period.
- the savings account is not limited in time. The term of the deposit is determined by the agreement.
- the savings account is replenished at any time. Some deposits cannot be replenished.
- you can withdraw money from the savings account at any time. It is impossible to withdraw cash from most deposits without losing the accrued interest.
- it is recommended to open deposits for long-term purposes for a period of one year or more. A savings account is opened for shorter-term purposes, based on the terms for withdrawing funds.
Interest on the savings account is calculated in one of the following ways:
- interest on the minimum account balance during the month / quarter.
- interest on a certain balance under the terms of the agreement.
- interest on the minimum daily balance that was fixed on the account during the day.
When is a savings account beneficial?
The savings account is beneficial to those citizens who need to save a large amount for an indefinite period. For example, you are planning to buy a country house. You are looking at different options and waiting for a suitable offer. In such a situation, money may be required at any second, but keeping it at home is unsafe and unprofitable. For such a case, a saving account is better suited than a deposit that is opened for a certain period and the withdrawal of funds early from which threatens to lose all accumulated interest.
For those who expect to use money in the near future and are not sure about their future financial condition, a savings account is also beneficial.
For maximum income from a long-term investment, a deposit is better suited, interest rates on them may be higher than on a savings account.
What are the pitfalls of savings accounts?
First of all – the accrual of interest. Banks charge interest on a minimum amount for a certain period, for example, a month.
Let’s say that at the beginning of the month there is $100,000 on the savings account, in the middle of the month you withdraw $50,000, and two days later you return this amount. Interest for this month is charged only for the amount of $50,000. The same scheme applies to the first and last month of the account.
When opening a savings account, the billing period starts from the next day. That is, if you deposit money the next day after opening, then no interest will be charged for the first month.
If the account is closed or the entire amount is withdrawn at the end of the month, no interest will be charged for that month.
For an increased interest on the account balance, banks often offer extra terms: to issue a paid card; make purchases for a certain amount per month; maintain a minimum balance for the entire duration of the savings account. If the terms are not met, interest is not charged. Also, a high rate can only be valid for a certain period of time.
The savings account usually works like a current account, which means that you can make purchases on the Internet or withdraw cash. But in some banks there is a ban on these operations and there is only the possibility of transferring to the client’s current account.
Also, some banks charge interest for cash withdrawals. Especially if the money was originally deposited by bank transfer.