What Is a Savings Account?

Opening a savings account is one of the best ways to protect your money and teach your children financial literacy. That’s the one thing anyone can open up about at any age. As black families begin to educate themselves about money, they are starting to show interest in saving more than ever. 

A savings account is an interest-bearing deposit account held at a bank or other financial institution. Though these accounts typically pay a modest interest rate, their safety and reliability make them a great option for parking cash you want available for short-term needs. 

Savings accounts have some limitations on how often you can withdraw funds, but generally offer exceptional flexibility that’s ideal for building an emergency fund, saving for a short-term goal like buying a car or going on vacation, or simply sweeping surplus cash you don’t need in your checking account so it can earn more interest elsewhere.

How Savings Accounts Work

Savings and other deposit accounts are important sources of funds that financial institutions can turn around and lend to others. For that reason, you can find savings accounts at virtually every bank or credit union, whether they are traditional brick-and-mortar institutions or operate exclusively online. In addition, you can find savings accounts at some investment and brokerage firms. The trick is finding a financial institution where you can get the most for your money when you deposit it into an account because most banks pay interest on the funds that you give them in a savings account.

What a Savings Account offers

Having a savings account keeps your funds easy to access, they’re a good option for parking cash you’ll want in the short term or to cover an emergency. In exchange for the ease and liquidity that savings account offer, you’ll earn a lower rate than more restrictive savings instruments and investments might pay. The amount you can withdraw from a savings account is generally unlimited. But until April 2020 the number of withdrawal transactions you could make in a month was federally capped at six. 1. It is not clear if the change is permanent. 2. The interest you earn on a savings account is considered taxable income.

Pros

• • Fast and easy to set up, and to move money to and from
  • Can be conveniently linked to your primary checking account
  • Up to your full balance can be withdrawn at any time
  • Up to $250,000 is federally insured against bank failure

Cons

• • Pays less than you can earn with certificates of deposit, Treasury bills, or investments
  • Easy access can make withdrawals tempting
  • Only six withdrawals permitted per month

There are several types of savings accounts that can be used to store your money.

Individual Development Account (IDA)

What Is an Individual Development Account (IDA)?

An individual development account (IDA) is a type of savings account designed to help low-income individuals build assets and achieve financial stability and long-term self-sufficiency. People use IDAs to save money to start a business, pay for education, or buy a home.

Linked Savings Accounts

What Is a Linked Savings Account?

A linked savings account is a savings account connected to another such as a checking or negotiable order of withdrawal (NOW) account. Generally, linked savings accounts are held at the same bank as the customer’s other accounts, making it easier to transfer funds between accounts.

Christmas Club

What Is a Christmas Club?

A Christmas club, also called a holiday club account, is a type of savings account in which people make routine deposits throughout the year. The accumulated savings are then withdrawn before the holiday season to provide funds for holiday shopping and other expenses, like travel.

High Yield Savings Account

What Is a High-Yield Savings Account?

A high-yield savings account is a type of savings account that typically pays 20 to 25 times the national average of a standard savings account. Traditionally, people have held a savings account at the same bank where they hold their checking account, making transfers between the two easy and quick. But with the advent of internet-only banks, as well as traditional banks that have opened their doors to customers across the country using online account opening, the competition on savings rates have skyrocketed, creating a new category of “high-yield savings accounts.”

All of these types of savings accounts can open the door to financial freedom if used correctly within the black community.

Child Saving Plan 529

In this day and age, any and everything that has something to do with money usually leaves black people behind. We know how to save it, but most never think about the future of their children or even themselves. Most black parents think that their child, especially when it comes to sports, will either get a full scholarship to school or just get a job and work through life. How scary that is because NOW due to so much lack of advantages that kids that are not black have, setting a black up for success is imperative. That is why it’s important to consider creating a savings account for your child’s education as soon as or even before they are born. 

“One of the best ways to help a child financially while limiting your own tax liability is to use a 529 college plan,” says Sam Davis, partner/financial advisor with TBH Global Asset Management. A 529 plan is a tax-advantaged investment plan that lets families save for the future college costs of a beneficiary.