Savings accounts are vital, especially in today’s world where unemployment is on the rise and employees as well as business owners face uncertain futures. If you lose your job tomorrow, how will you pay your bills? Do you have a safety net in place that will allow you to cover your monthly living expenses, your home, your healthcare, etc.? If you do not have any savings in place to last you at least a few months if you end up losing your job and your income, you will face being foreclosed, being evicted, and getting into credit card debt. Savings accounts are also necessary in the event that your checking account runs of out of enough funds and you need to transfer money from one account to another in order to pay off your credit card bills.
Standard Savings Accounts
Standard savings accounts are available at every bank, whether it is a brick and mortar bank or a strictly online bank. Interest rates often accompany savings accounts, which means that, each month, you will earn a percentage of earnings on the amount of money you have invested into that savings account.
Most basic savings accounts do not offer very high interest rates, especially these days when interest rates have sunk so low that many banks do not even offer a full 1% on regular savings accounts. You may, however, find a bank, such as a community bank rather than a big bank, which is able to provide you with higher interest earnings.
Also, some banks offer interest rates that go up as the balance in the account increases. In this way, you are rewarded for investing in that bank, and as you continue adding to savings, you are increasing your interest rate at the same time, which means more monthly earnings. This translates to your money growing with ease.
Certificates of Deposit
Certificates of deposit, or “CDs” for short, are able to offer you higher interest rates than standard savings accounts, but you need to be prepared to lock your money into that account for a specified amount of time, such as 3 months, 6 months, 9 months, or even a year or more. Depending on how long you lock in your money, you will earn different interest rates, so it is entirely up to you to decide what you feel comfortable with. If you feel that you will not need to access the money for a long time, then go for a longer term plan if it offers a higher interest rate that makes sense to you. If, however, you are worried that you may need to access that money at some point, and you want to rest assured that it will be available to you sooner than later, go for the shortest possible term. The reason for this is because you will pay a penalty fee if you need to take out the money before the CD has expired, or come to term.
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When you are ready to get a credit card, just remember that a line of credit comes with a lot of responsibility, so be sure to save up enough money in an emergency savings account, budget appropriately so that you do not end up overspending and so you do not end up in debt because you are unable to pay off those credit card bills.