Many people around the world have had a difficult time in the past few years keeping steadily paying jobs, paying their bills, and most of all, saving money. Owning a savings account gives you a place to keep your money safe as it earns a tiny amount of monthly interest. A low balance is usually required to be maintained, usually around $25 depending on your bank or financial institution.
The money you put in a savings account it likely to do you more good for two important reasons: if you are keeping your money at home and some disaster strikes, such a flooding or a fire, all your money could be wiped out. Banks and credit unions are superior places to keep your savings, since they maintain your money in a locked fireproof safe. Furthermore, banks insure your money through the Federal Deposit Insurance Corporation (or, the FDIC). That means if anything happens at the bank such as robbery, or a bank going out of business, the savings you had stored there will still be in tact.
How do banks and credit unions profit from savings accounts? How can they afford to pay you any interest at all on the money you deposit with them? When you get ready to start a savings account, here is how it will generally go:
- open your account at a bank or credit union.
- earn interest on the money that you deposit and leave in that account each month.
- the institution makes its money by loaning out your money to others at a higher interest rate
So, if they are paying you 1.25% monthly on your savings account deposits and charging those they lend to 4.5%, the difference in those two amounts is the money they make off of your money. That’s essentially how they profit.
If you are not saving any money because you feel you can’t trust banks and institutions, then you might want to consider giving it a try. You are less likely to spend money that you have allotted to your savings account, simply because it is not sitting there in your checking — or worse, in a shoe box underneath your bed. Saving money can be fun, and if you can leave what you are saving in the bank long enough, the interest will begin to add up. There are lots of ways you can cut your spending and save money. For example, take inventory of your bills and try to make cuts. When I decided to start saving, I looked at my utilities. I switched from cable to dish network dallas, and instantly saved money. I then started unplugging appliances I wasn’t using every day, and that cut my electric bill significantly. All that extra money went into my savings!
Of course, there is always the other side of the coin. Without any savings, unexpected expenses can be devastating. Consider your savings account the most important bill you pay each month — a dividend to yourself that is well deserved. Even if it’s only ten dollars a week, it will add up.
