One of the jobs of a parent is to teach their children how to save money; quite often, this involves household chores and a piggy bank. While this is a good primer on instilling financially wise habits, for some reason, many parents neglect to continue this financial tutelage as their child grows into a teenager and then adulthood. As a result, far too many people enter their adult years without a savings account or a significant amount of money in the account they do have.
It should go without saying that stuffing your earnings in a sock or hiding it beneath the mattress is foolhardy. Such an action leaves money on the table that could otherwise be growing in a regular savings account or other long-term investments. Not only are saving accounts easy to open, but they are also low-risk and secure.
Below, we’ll discuss the various reasons why you should consider opening a savings account.
What’s a Savings Account?
Savings accounts are financial tools that people use to store money in a credit union. A person puts their cash savings in the union and it, in return, securely stores the money and pays that person a small dividends percentage on it.
But why do credit unions do this? Simply put, it’s how they make money.
- The credit union receives capital from depositors who want a secure place for their savings.
- The credit union incentivizes them to do so by giving dividends on the deposit.
- The credit union then takes that cash-on-hand to give out loans.
- The dividends on the credit union’s loans far exceeds the dividends paid on the deposited money.
- This process is repeated over and over again, creating profit for the credit union over time.
Types of Savings Accounts
At the core of any savings account is the concept that your money and account can earn dividends over time. In addition, you receive an ATM card that allows you to withdrawal money from an ATM or a brick and mortar location whenever you need it.
Since credit unions are contending with each other to store your money, they may try to win you over by providing different perks or types of savings accounts that have a larger annual percentage yield (APY) dividends. Typically, there are two primary alternatives to your standard savings account, they are:
- Money Market – A larger amount of money is deposited in order to receive a better APY. A minimum balance must be upheld, or else penalty fees will be instated. With a MM, you may receive additional benefits such as a checkbook and/or debit card.
- Term Certificates – You put your money away for a fixed period of time, typically 3 to 5 years in exchange for a larger, locked-in APY. If you withdraw your money before maturity you would have to pay a harsh penalty.
Benefits of a Savings Account
- No barrier to entry – Perhaps you’re worried that you don’t have enough money to open up a savings account. The good news for you is that you don’t need tens of thousands of dollars to get started like you would with other types of investments. In fact, the vast majority of credit unions allow you to open up a savings account without a minimum figure. Some will, however, offer a higher dividend rate if the account balance reaches a certain threshold. Regardless, there is practically no barrier to entry.
- Links to your checking account – These days, most credit unions or financial institutions allow you to link your savings account to your checking account, which makes moving funds fast and simple, especially for those who need to transfer money to their checking accounts to make up for a low account balance or running out of funds. This allows you to prevent shortfalls or overdraft fees that might otherwise occur.
- Auto deposits – Do you have trouble saving on your own? When you open an account, it lets you automatically set a weekly or monthly deposit from your checking account directly into your savings. Doing so helps you build up a windfall or emergency savings fund without having to remember. It also takes some of the pain out of putting money away by automatically deciding on your behalf. What’s left of your check after the percentage has been taken is yours to freely do with what you will.
- Dividends on savings – As mentioned, your money doesn’t become more valuable sitting tucked away in your wallet. In fact, it depreciates over time due to inflation. Even a small APY dividend through a savings account is better than nothing at all. Depending on where it’s kept, your money becomes more or less valuable. With a savings account, the name of the game is preservation of capital. So, if you still have access to it, then why wouldn’t you store it in the place where it could gain the most value, especially when you don’t have to physically do anything for that value to grow?
- Liquidity – The vast majority of savings accounts can be accessed whenever, wherever. If you encounter an emergency, simply find an ATM and withdraw the necessary funds. If a larger amount is needed, you can either visit a physical location to obtain the money, or transfer the funds by linking your savings account to another.
- That said, government regulation states that you max out at 6 electronic transfers per month.
- This ease of access makes having a savings account a hassle-free, no-brainer, especially when compared to other financial decisions and investments such as stocks, bonds, and CDs.
- No Risk – A savings account is likely the safest investment you can make since it carries practically no risk. The National Credit Union Insurance Fund (NCUIF) provides insurance on any savings account up to $250,000, which promises that your money can’t be lost, misused, stolen, or appropriated without your express consent. Even if the credit union goes under, your money is secure. In addition, a savings account gives you the ability to invest that money elsewhere should you so choose. For example, if you want to put a down payment on a house, you can simply use your savings account funds to cover that.
- Gives you a windfall – Inevitably, life has its unexpected costs and surprises. A medical bill, a totaled car, these types of unplanned expenses can be financially crippling if you’re not prepared. Having a savings account gives you a financial keep to withdraw when the palisades of your financial life have fallen. Such stockpiles could be the difference between a rocky road and bankruptcy.
- If you find yourself unemployed, it might take time to find new employment. As such, you should have at least 6 months of salary in your savings account.
- Helps you take control of your finances – Saving money isn’t easy, especially for those who weren’t taught how to budget and save from a young age. It takes discipline and sacrifice. Having a savings account helps you follow these wise financial practices. It teaches you how to:
- Set savings goals
- Set budgets
- Prepare for emergencies
- Live within your means
- By creating healthy habits, you turn saving from a chore to a routine. As that savings number grows and grows, your happiness and security grow alongside it.
- Pay for college – The cost of college continues to skyrocket. Are you financially prepared for it? If not, then the best time to start saving is now. By starting a college savings plan today, you get tax benefits and can save your children from having to take on student loan debt in the future. With auto-deposit, you can have the credit union take a set amount each month that will go directly into a school savings account. Over 18 years, $100 every month would likely be around $25,000 to $30,000, depending on your APY.
- Hit short- and long-term goals – Saving aimlessly isn’t intelligent financial planning. You always want to have a goal or purpose in mind. Your savings account could be:
- Emergency reserves
- Vacation fund
- College savings
- New car money
- Whatever your specific goal is, it’s important that you have one in mind. In one fell swoop, you seize control of your life, improve your financial health and security, and accomplish a task.
America’s Saving Problem
An unfortunate truth is that a significant number of Americans struggle at saving, budgeting, and preparing for the worst-case scenario. While it’s easy to blame financial woes on inadequate wages, a Bankrate Survey illustrates just how few people properly save for a rainy day, regardless of their income level. Bankrate’s January Financial Security Index survey reported the following:
- 30% of respondents reported that either they or an immediate family member experienced at least one major unexpected expense during the past year. Among those respondents, most people (36 percent) said the largest unexpected bill they received totaled $5,000 or more, according to the survey.
- Only 40% of respondents said that they’d pay an unexpected $1,000 expense, such as a car repair or emergency room visit, from savings. This figure is consistent with previous surveys conducted in the past five years.
- More than 33% would need to borrow money, either via credit card, personal loan, or some other means.
These figures perfectly illustrate how inadequate many adults’ savings and savings habits are. A financial emergency could happen to anyone at any time. Therefore, it’s critical that you’re prepared for the worst. If you put away just $5,000 then you are doing a better job financially protecting yourself than a plurality of people within the country. This gives you peace of mind, regardless of the cruel slings and arrows that life throws your way.
Setting Up a Savings Account with Mission Federal Credit Union
Whether you’re saving for college or a vacation, setting up a savings account through Mission Federal Credit Union won’t take much time. You can do it online or in person. Once you do, you’ll have:
- Online access to your savings 24/7 via Mission Fed Mobile Banking App
- Mobile deposit
- Competitive interest rates
- No monthly usage fees
- No minimum balance requirements
You can open up one of three types of savings accounts:
- Standard – Save any amount with a competitive rate.
- Summer or Holiday Saver – Aim for a goal with higher rates than standard savings.
- Youth – Teach your children under the age of 17 to start saving for their future.
To apply for a Mission Fed Savings Account, either go online, do it in person, or call their number to start the process. To begin, you’ll have to provide Mission Fed with the following information:
- Your Social Security Number
- Proof that you work, live, or attend school in San Diego County
- A valid government issued ID or Passport
- A minimal initial deposit:
- $1 for a Standard or Youth Savings Account
- $20-$500 for a Summer or Holiday Saver Account
Starting Your Savings Account
Setting up a savings account is a fantastic way to begin preparing for your financial future. It allows you to set goals and benchmarks. It gives you a barometer for both your present and future financial security. And it safeguards you should any unexpected expenses arise. With the startling number of people currently in debt, utilizing a savings account could quite literally change the course of your future.
Don’t let your money sit around simply depreciating. A savings account is a no-risk, high reward proposition. Interested? Give Mission Fed a call or visit them online to speak with one of their friendly staff about starting the path towards financial security.
The content provided consists of opinions and ideas and should be used for informational purposes only. Mission Federal Credit Union disclaims any liability for decisions you make based on the information provided. References to any specific commercial products, processes, or services, or the use of any trade, firm, or corporation name in this article does not constitute endorsement, control or warranty by Mission Federal Credit Union.
Investopedia. Savings Account.
Rose, J. Forbes. Make 20x More on Your Savings Account. Worth the Risk? (2019).
Garcia, A. Bankrate. Survey: Most Americans wouldn’t cover a $1K emergency with savings. (2019).