Savings Accounts
Developing the habit of saving regularly is one of the best ways to get in control of your finances. The amount that is saved is not as important as developing the habit. If your budget is tight and you cannot afford to save at the recommended levels, save something, even if it is just a few dollars out of each paycheck. If you can have the self-discipline to leave the money in an account except for a true emergency, you will see it grow until you have a true “nest egg.”
Savings accounts are offered by all banks, credit unions, and savings and loans. They encourage these accounts because you are giving them your money to invest. They will pay you interest to borrow your money. These accounts are usually federally insured and are considered to be a safe place to keep your money while it earns a return–or grows. This money is also easy to get back if you need it, unlike a CD with early withdrawal penalties or a real estate investment or stocks that need to be held until the right time to sell for a profit. You can usually start a savings account for a small amount of money.
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Shop around for the best interest rate you can get. Sometimes, your regular bank will offer a special deal for you to have both your checking account and your savings account at the same place. You may also be eligible for membership in a credit union through your employer. These entities frequently have better terms for savings accounts than you could find elsewhere. In addition, shop for other terms–for instance, what are the handling fees you will have to pay to keep the account open? Some financial companies will expect you to have a minimum balance in the account in order to offer you a service-charge-free account. Others will expect you to open your account with a minimum balance. If you don’t shop around, you may find your savings balance being eaten away by the charges even though your money is earning interest.
The ideal amount of savings to keep on hand is six times the amount of your monthly income. Having that much cash in a place that is easy to access in an emergency will get most families through the loss of a job, large and unexpected medical bills, costly house repairs, or any other sudden and expensive financial crisis. Paying cash for one-time expenses allows you to avoid the high interest rates added to loans. Also, when your savings balance grows, you will be able to pay off other high interest rate loans and credit card balances.
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