Guide to Savings Plans
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What Is a Savings Plan?
How Do Savings Plans Work?
Types of Savings Plans
Traditional Savings Account
High-yield Savings Account
Money Market Account
Certificate of Deposit (CD)
Pros and Cons of Savings Plans
Earns Interest Although APYs on savings accounts tend to be low, these accounts allow you to earn some money just by letting your money sit in the bank. Easy access While there may be limits on the number of withdrawals you make per month, you can access your money quickly and easily. Many institutions will let you link your savings account to other accounts, like a checking account, allowing you to quickly transfer funds from one account to another. Safety If you have a savings account at a bank or credit union that is a member of the FDIC or NCUA, you can’t lose your money (up to $250,000) even if the institution were to go out of business. Liquidity The money you keep in a savings account is cash, which means you don’t have to worry about selling investments or making other complicated moves to access your money. Low startup requirement Many savings accounts can be started for just $25. Some institutions allow an account to be opened for as little as $1, so you can begin saving with even a modest amount.
Minimum balance requirements Some savings accounts have minimum balance requirements in order to avoid monthly maintenance fees or to earn the promised APY. Relatively low interest rates Even high-yield savings accounts may not pay enough interest to outpace inflation, which means the money you put in today could be worth less a year from now. If you have a long-term goal like retirement and can handle some volatility, investments like stocks or mutual funds may be a better choice. Monthly withdrawal limits Though the federal rule on withdrawal limits has been lifted, many banks impose a fee if you exceed six withdrawals or electronic transfers per month. Easy access While this is listed as a pro, it is also a potential con. If you have trouble resisting temptation, being able to get to your savings easily could make saving more difficult.
How to Create a Savings Plan: 5 Steps
1. Determine How Much You Can Save
2. Set Some Savings Goals
3. Decide Where to Keep Your Savings
4. Automate Your Savings
5. Level Up Whenever You Can
Different Things to Save Money For
Emergency savings Vacation plans Wedding arrangements Honeymoon fund Buying a home Home repairs or improvements Laptop New phone Experiences Good mattress New (or used) car Furniture College courses Starting a business
Choosing the Right Savings Plan for You
Frequently Asked Questions
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