What is a Savings Account?
If you've set yourself a savings goal or you're trying to grow a rainy day fund, it might be time to invest in a savings account. By regularly depositing money into a savings account, you can start to grow your savings and set yourself up for the future.
To break it down, a savings account:
· Is a type of bank account to help you build your savings
· Accrues interest on the money deposited
· Can sometimes come with rewards such as a higher interest rate
Typically your savings account has a higher interest rate compared to your transaction accounts. So it's beneficial to invest any money you're not using into a savings account where it can accrue interest.
When would you use a savings account?
To make the most of your money, it’s wise to invest in a savings account as soon as possible. Many people set themselves a savings target to work towards. Others simply save to be ready in case of emergencies. Some common reasons to put money into your savings are:
· Planning to have a child
· Saving a deposit for a home
· Buying a car
· Paying for further education
· Going on a holiday
· Saving for retirement
Although many savings accounts can be linked to your regular transaction account, others may not be. To prevent you from dipping into your savings on a regular basis, some accounts can't be linked to any others. Fortunately, the longer you leave your money untouched, the more interest you can earn.
For those who need to access their savings more frequently, choosing an account that earns compound interest can grow savings faster.
What is compound interest?
Think of compound interest as the interest earned on the total amount in your savings account, not just the amount you have deposited. This means you can earn interest on interest you've already earned.
Let's say you put $100 a month into a savings account with a 5.00% per annum interest rate paid monthly. At the end of the first year you'll have saved $1200, plus earned $33 in interest. At the end of the second year, you'll have earned interest on the $1233 already in your account, plus the additional $1200 you saved during the second year. This brings your total amount to $2529, including $129 interest.
Work out how much interest you could earn using our compound interest calculator.
What are the different types of savings accounts?
There are a number of different savings accounts available. These include but are not limited to:
· Online savings account
· Cash management accounts
· Introductory rate savings account
· Bonus saver account
· Kids savings account
How can you choose the right account?
When it comes to comparing savings accounts, it's important to consider the following features before making your decision:
· Minimum and maximum account balances
· How often you’ll receive interest and how long any introductory interest rates will apply
· Whether you need a linked transaction account
· Rewards you receive for depositing money regularly
· What interest you lose for withdrawing money
· Account fees.
Make sure you read up on key savings account terminology so you know exactly what you're getting, or not getting, out of your account. If your existing account isn't offering you any incentives, such as bonus saving rates or no fees, then prehaps it's time to consider switching to an account with more money-saving perks.
InfoChoice makes switching accounts easy by comparing your options and presenting you with the top picks so you can make an informed decision about wher you invest your money.
Find out which savings account can offer you the best interest rates by comparing today.