As history has shown, a bank account isn’t always the best way to build a nest egg. Inflation and sub-par banking practices have forced many to adopt other mediums of finance such as cryptocurrencies. Many, however, still believe that their bank account is a secure medium for saving. To maximize the benefits of maintaining a bank account, several methodologies (albeit unconventional) must be adopted.
Savings Accounts
A savings account serves as a great way to protect yourself from yourself. You can use multiple savings accounts to help you with different savings goals. With multiple accounts, you can monitor your progress in a more engaging way that makes you want to save even more. In order to avoid the difficulties of monitoring too many accounts, it helps to consider using money-saving applications.
Savings accounts can be set up online at zero costs. With online banking, checks can be deposited through a phone, allowing for quicker deposits of funds to the savings account.
It’s not unusual to have cold feet about opening a savings account. Sometimes, the rates may not seem as attractive as other investment options. Factors to consider when deciding on whether to open a savings account includes the inter-bank interest rate and the discount rate, which is used to borrow money from the Federal Reserve. Competitive banks may offer savings accounts rates that are equal to or higher than the rate which they are charged for borrowing from other banks.
Money-saving Applications
Not only can money-saving applications help to make mobile payments and deposit checks, they can also be used to monitor savings. Money-saving applications can also provide free credit scores which reflect your money-saving habits. With money-saving applications, automatic transfers can be set to deduct savings from your bank account.
You may link multiple savings accounts with your money-saving applications. Text messages can be sent to your phone by the money savings applications. This saves time that would have spent trying to access multiple accounts.
Taxation
While many do not consider a savings account to be an investment vehicle, it is considered as an interest-bearing financial instrument by the IRS – making it taxable. The IRS taxes interest earned on a savings account with more than $10. Savings account holders may be taxed at a marginal rate (based on their tax bracket). Cash incentives received from a bank may also be subject to taxation. The IRS may require you to pay a penalty if you fail to pay taxes on interest earned.
There are a few scenarios whereby a savings account does not have to be taxed. Individual retirement account (IRA) holders do not have to report interest earnings on their savings account. Savings can be tax-deferred. Taxes are paid when money is withdrawn from the account. This gives leeway for savings to build up returns quicker.
Paying close attention to fees and interest rates can make all the difference in the returns earned from a savings account. In contrast to treasury bills and certificates of deposit, savings accounts may not offer the best returns but they do help a lot to foster a habit of saving.
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Calvin Ebun-Amu is passionate about finance and technology. While studying his bachelor’s degree, he found himself using his spare time to research and write about finance. Calvin is particularly fascinated by economics and risk management. When he’s not writing, he’s reading a book or article on risk and uncertainty by his favourite non-fiction author, Nassim Nicholas Taleb. Calvin has a bachelors degree in law and a post-graduate diploma in business.