Use these savings account tips to better understand how to manage a savings account.
Deciding how to save
Having a savings account in a bank or other financial institution allows you to keep your money in a safe place and earn interest on it.
It's recommended that you save 10 percent of your income each month. Before you decide how much to save, review your budget, financial goals, and objectives. (Look at your goals worksheet and budget from earlier in this tutorial.) Once you decide on a savings plan, consider the three main types of savings accounts:
- Basic savings or passbook accounts allow you to make a minimum deposit, beginning as low as $5. These types of plans earn low interest rates, but you can easily withdraw or deposit funds.
- Certificates of deposit (CD) accounts earn a higher interest rate than traditional savings accounts, but you must make a larger minimum deposit—between $1,000 and $5,000. And, you must keep your money in the CD for a specified period of time. There is a penalty for early withdrawal.
- Money market accounts earn a higher interest rate than traditional savings accounts, but you must make a larger minimum deposit—between $500 and $2,500. There is also a limit on the number of monthly withdrawals from this type of account.