Savings Accounts Explained

One of the first introductions into the banking system for most people is through the opening of a savings account. Establishing a savings account is one of the first steps in building wealth. A savings account differs from a checking account in that money in a savings account usually includes a limit for withdrawals and limited accessibility geared toward helping you build up your cash reserves. This allows for interest to accumulate, which can greatly add to the amount that is already within the account.

This differs from that of a checking account, as a checking account allows withdrawals at any given time and usually has no limit on how much can be spent or withdrawn from the account. Savings accounts allow interest to grow, making small additions to the money within and growing your investment. Building up your savings is also a good practice in order to have an emergency fund – something that can be used when an unexpected expense occurs.

Many people use the money that is within a savings account to purchase large items, such as a car or that of a house. This money can also be used for other purchases, such as jewelry (for an engagement) or even for saving up for college tuition. It is also important for small business owners to maintain a savings account to act as a safety net during times when sales are low or new equipment is needed.

Savings accounts can usually be opened along with a checking account; in fact many bank representatives will ask if a person would like to add a savings account when they set up their checking account. This is a good idea should you ever need funding for a new business or a personal loan as it shows the bank you are financial stable and more likely to pay back the loan. Having the two tied together means that a person can transfer money from the checking account to that of the savings account or can have a certain amount transferred automatically on a certain date.

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