Your first experience with money was probably a piggy bank. You may have been a good little saver until high school or college, when you discovered mom and dad’s credit card, or even got your own. Spending was probably fun for a while, until reality hit. Having debt and no savings is not a good way to live. If you want to return to your saving roots, there are better ways than a piggy bank.
Back in the days before telephone banking, online banking and ATMs, everyone who opened a savings account got a passbook savings account. Some banks still offer them, but usually for older customers. With a passbook savings account, people go into the bank with passbook in hand and wait in line to see a teller who takes the deposit or gives you the money you want to withdraw, enters the deposit or withdrawal amount into the passbook and then stamps and initials it. Passbooks really are old-fashioned today; statement savings accounts are the norm.
Statement Savings Account
With a statement savings account, you receive a statement every month in the mail that details all of your transactions. You can also find out the status of your account at any time through telephone banking or by going online. The Federal Deposit Insurance Corporation, or FDIC, insures your deposits in a savings account at a bank for up to $250,000, per depositor, per bank. The NCUIF, the National Credit Union Share Insurance Fund, insures deposits in a savings account at a credit union for up to $250,000 per depositor, per credit union. To be safe, ask whether the FDIC or the NCUIF insures your money.
When you open a regular savings account at a bank or credit union, your money is "liquid," meaning that you can withdraw it any time you like. Some financial institutions have particular rules about how many times you can make a withdrawal per month without a fee, so find out whether your bank or credit union has certain rules. Also, while you can usually open a savings account for a little as $1, or maybe $25, some financial institutions charge you a monthly maintenance fee if your balance falls below a certain minimum, so find out about that, too.
You earn interest on the money you keep in a savings account each month. Typically, though, the interest you earn on a regular savings account is very little, usually .25 percent. With a money market account, another type of savings account that you can open at your financial institution or online, you can earn more interest, but you typically need a larger balance to open one than you do for a regular savings account. Also, money market accounts restrict you to no more than six withdrawals per month. A certificate of deposit, or CD, is another way to save money. You usually earn more interest with a CD than you would with a money market account, but CDs are not liquid. You stick your money in a CD for a certain term, and you can’t withdraw it until the term is up.
A good rule of thumb is to keep money equal to three to six months of your monthly expenses in savings, so that if an emergency does arise, like the loss of a job, you don’t have to go into debt.
Laura Agadoni has been writing professionally since 1983. Her feature stories on area businesses, human interest and health and fitness appear in her local newspaper. She has also written and edited for a grassroots outreach effort and has been published in "Clean Eating" magazine and in "Dimensions" magazine, a CUNA Mutual publication. Agadoni has a Bachelor of Arts in communications from California State University-Fullerton.