Let's Talk: Savings Accounts

When you think of savings, you probably think back to happier times as a kid where you received a quarter and dropped it in the slot of your piggy bank. These days, kids probably get an e-transfer from their parents instead. Oh, how times have changed. Saving these days is hard and it isn't the most rewarding either. The interest rate you get from a savings account is close to 0%. It's not exactly encouraging to save when you only get between $0.50-$2.50 per year with a balance of $5,000. 

Why Use a Savings Account?

What's the point of saving then if we don't even get anything from it? There is a point though. It' for emergencies! You should always make sure you have an emergency fund in case you ever lose your source of income. This will help you for a while until you can replace your income. I'll discuss more about that in a later post.

For this post, I'm going to explain similar concepts from my 'Chequing Account' post. Some of the clients I've seen have been using their savings account as a chequing account. This is a big no-no! Saving accounts are designed for you to SAVE! You will be punished if you use it to withdraw directly from your savings account. If you need the funds, you should transfer them to a chequing account and then withdraw to avoid any fees.

Types of Savings Accounts

Generally, these are the different types of savings account available:

• Regular savings account - These are your typical saving accounts at the bank's lowest rates
• High-interest savings account - These saving accounts are usually tiered and you earn more based on how much you have in your account.
• E/Online only savings account - These are usually restricted to online or mobile transfers only. You will be penalized if you take funds out from these accounts at a branch or ATM.

Savings Account Features

Here are some important features you should be looking at for a savings account:

• Interest rates - How much is the account paying you to save?
• Minimum balance - How much do you need to maintain to earn interest or stay in a tier?
• Limit - How many withdrawals can you make without incurring fees? (I had a client who was charged close to $100 in fees because he wasn't aware of his limits, yikes!)
• Other - Are there any other restrictions or benefits on the account?

I also want to mention that most, if not all banks allow you to set up automatic contributions to your savings account. This is a useful feature if you have trouble with savings and want to start. You can set an amount of your paycheck to automatically go straight to your savings account and over time, you will have an amount saved up. I've always told my clients without a savings account to either start putting away $100 each month or $50 every 2 weeks. In a year, they will have over $1200 saved. The important message I wanted to tell them was to get started. The dollar amount matters but it's even more important to start putting away money instead of doing nothing. With the virus impacting everyone financially right now, having the extra funds to cover your expenses would relieve a lot of unnecessary financial stress. 

That's all for this time. Make sure you start saving!