Everyone knows that saving money is important, but not everyone knows how to start planning for the future. That's where your savings account comes in! What is a savings account, and why is it such a great way to build your future fortune? We're here to explain the benefits of savings in simple terms, so you can start collecting interest!
Why Should I Open a Savings Account?
Between checking accounts and retirement funds, you might feel like your paycheck is being split into a million pieces. So, why invest extra money into a savings account? Savings account interest typically pays more than a checking account, which means you get extra bang for your buck. The drawback is that you are limited in the number of transactions that you can perform every month, due to federal regulations. However, this can actually be a good thing for long-term savings. If you are building a rainy day fund, you'll feel less tempted to withdraw money for splurges with your funds in a savings account. And if you're trying to save money for a vacation or a downpayment, you can reach your goal faster from the higher interest accrued.
What is Interest?
When you open your bank account, you start earning interest - but what is it? Interest is the money that the bank gives you as an incentive to keep your money there. This is one way that different banks compete for your business, which is why it's such a good idea to shop around when deciding where to open your account. Additionally, there are two types of interest to consider: simple and compound. Simple interest is paid out based on the money that you originally had in the bank. Compound interest pays based on your original amount plus interest, which means you earn interest on your interest! Compound interest is more common, and also preferable if you want to earn money quickly.