If you don’t have a savings account, you need to get one … now! The purpose of a savings account is to give you a place to stash your emergency funds and the money you are saving for things you plan to buy in the next 12 months. By putting money in a savings account, you make it easier to hang on to the money instead of blowing it on something that isn’t essential or important.
Since your savings account will hold money you may need to get your hands on quickly, you should open your savings account with an institution that is insured by the Federal Deposit Insurance Corporation (FDIC). The FDIC insures your personal accounts at a particular bank up to $250,000. So, if the bank fails, the FDIC will give you back all the money in your savings account, checking account and certificates of deposit (CDs) up to the maximum amount of $250,000. If you have money in more than one FDIC-insured bank, your personal accounts are insured up to $250,000 per bank.
It’s easy to tell whether a company has FDIC insurance because it usually promotes that very heavily on its website and in its offices and advertisements. Look for the FDIC logo. For more information about FDIC insurance, click here: http://www.fdic.gov/consumers/banking/facts/index.html.
There are lots and lots of FDIC-insured institutions so how do you choose one for your savings account? A simple solution is to open your savings account with the same company that has your checking account IF that company is FDIC-insured. This allows you to manage all of your accounts online from the website of a single bank. This will also help your savings program by making it easier for you to automatically move money from your checking account to your savings account. (I will show you how to do this in a future post.)
Another solution is to open your savings account in a different FDIC-insured institution. This has at least two benefits: (1) You might get a better interest rate on your savings account; and (2) You will reduce the temptation to “raid” your savings account because it is with a different bank than your checking account. There is a fairly simple way to create an automatic savings program even when your checking and savings accounts are at different banks and I will show you how to do that in a future post.
When you open your savings account, DO NOT: (1) accept an ATM card that is linked to your savings account, (2) let the bank link your checking account ATM to your savings account or (3) accept a debit card that is linked to your savings account. These things make it too easy for you to blow your savings. When you really, really need to use your savings, transfer the money from your savings to your checking account using your bank’s online system. If your savings account is in a different bank, there is a simple way to transfer money from that account to your checking account which I will show you in a future post.