A small amount of money each month can add up to significant savings over time.
The money in your savings account earns interest. Interest can be thought of as the bank paying you rent for the use of your money. They pay you a small percentage of your account balance. How and when interest is added to your account may vary from bank to bank and by type of account. When you speak with a bank representative, make sure they explain the process and the schedule clearly for each type of account.
Three main types of savings accounts:
- Regular Savings Accounts: You can withdraw your money whenever you want from a regular savings account. Your money earns a steady but small amount of interest. Minimum balances are usually required.
- Certificates of Deposit (CDs): CDs usually pays a higher interest rate than regular savings accounts. You lock in the rate for a specific term, and if you withdraw your money before the end of the term, you forfeit some or all of the interest.
- Money market accounts (MMAs): MMAs usually pay a higher interest rate than regular savings accounts and allow you to write a limited number of checks or make a limited number of transfers each month. The minimum balance required on an MMA is generally higher than for a regular savings account, and interest may be withheld or fees imposed when the balance drops below the required amount.