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7 mistakes to avoid with savings accounts

7 mistakes to avoid with savings accounts

Savings accounts are a type of bank account that allow people to save their money in the simplest way possible. The money in the account also generates interest, which is additional money for the account holder. Opening a savings account is also fairly easy, and so is the process of withdrawing from it when required. Despite that, mistakes in opening and maintaining a savings account can prevent one from getting the most out of it.

1. Choosing a low-interest account
One of the biggest benefits of a savings account is that the account holder earns interest on a predecided basis for the amount they have deposited. Now, most banks offer low interest rates or annual percentage yields (APYs) on savings accounts, usually between 0.01% and 0.5%. While with a savings account, the goal is to save money rather than earn high returns, it is still better to choose a high-yield savings account. High-yield savings accounts, as the name suggests, offer comparatively better annual interest rates, usually in the range of 4–5%. So, just by depositing money into one of these high-yield savings accounts, one can earn substantial passive income.

2. Not comparing options
Every bank offers a different interest rate on savings accounts. So, before deciding upon a bank and opening a savings account, it is better to compare all options. One can look up interest rates offered by different banks and shortlist the ones offering the highest rates. The comparison shouldn’t end there. One should also check the terms and conditions of the bank while opening the savings account, including the minimum balance policy. Also, as banks keep changing their interest rates, one should keep comparing rates from time to time and consider switching to a new bank if they are getting a better deal. Before making the switch, however, it is important to review the terms to see if one is eligible for the advertised interest rate.

3. Only focusing on the interest rate
Interest rate is a major factor when opening a savings account, but it must not be the only consideration. In addition to the interest rate, one must review other factors like the minimum account balance required to avoid penalties, customer support, maintenance fees of the account, and withdrawal terms. One must also consider choosing a bank that has a good network of ATMs across the country and offers online banking services. This can make it easy to access funds anywhere, even while traveling. So, before deciding upon a bank and a savings account, one must review all the terms.

4. Using it like a checking account
Another common mistake to avoid with a savings account is using it like a checking account. This means that one must avoid making regular payments and covering monthly bills using their savings account. That is what a checking account is for! Savings accounts should ideally only be used for saving money and earning an interest on the amount deposited. Making frequent payments using a savings account will eventually deplete savings and not help one earn as much interest as they should.

5. Having only one savings account
Multiple investment sources and savings tools might be required to meet future financial needs. In such a case, having just one savings account might be a mistake, as one would not be able to clearly allocate enough money toward different goals. Also, at the time of withdrawal, with just one savings account, one may be tempted to withdraw more funds than originally planned. As a lot of money could have been saved in the account, but it has to be used for various purposes, withdrawing more money than intended can leave one with insufficient funds for other financial goals. To avoid that, it is better to have multiple savings accounts, each for a specific financial goal, like buying an asset (home, car, etc.) or organizing an event.

6. Overutilizing checking accounts
Another mistake to avoid with savings accounts is not depositing enough money there. Instead, one may be tempted to deposit most of their money into their checking account, thinking they would require it for monthly expenses. But, it is better to transfer the remaining money, i.e., the portion that will not be required to cover expenses, to a savings account. By not doing so and keeping all the funds in a checking account, one is losing out on the interest that they could have earned via the savings account.

7. Not automating deposits
If one wants to make the most of their high-yielding savings accounts, they should consider regularly depositing funds into those accounts. Not only will this help the savings grow over time, but it will also instill some financial discipline. To ensure that one does not forget to regularly transfer funds into savings accounts, it is better to set up automatic deposits. Then, a specified amount of money will be automatically transferred from the checking account to their savings account every month. It is also beneficial to save more as one earns more. Setting reminders to make deposits can also help one regularly increase the amount they deposit into the savings account.

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