Savings Accounts: Is Your Money Working For You?


I think it’s important for us as a culture to be mindful about our coins. As adults, if we become more intentional about financial literacy and how we handle money, it will be easier for us to train the younger generation, money management skills. So let’s start by talking about savings accounts.


If you are not saving your money, somewhere – where is all your money going? If you know me, you know I have a few different accounts, my money has a job, it has a mission, and I cannot afford to be off track, therefore I have various accounts.


Let’s start with the basics and talk about the importance of maintaining an account where you keep your savings.


What Is A Savings Account?


A savings account is an account that helps you put up or store money that you don’t need immediately. When you avoid withdrawing the money frequently, the account helps you keep your money unspent until you need to spend it.


When you open your savings account, you want to select one with no fees or service charges. You also want to select one that allows you to earn as much interest on your money as possible. If your savings account is not interest bearing, you may as well keep your money under your mattress because at that point what you have is essentially the same as a piggy bank. Usually on a savings account, you’ll earn a higher interest than a typical checking account.


What Is Interest?


Interest is the money the bank, credit union, or financial institution that pays into your account over time based on the interest rate offered for the account and also based on the balance in the account.


What Is Compound Interest?


Compound Interest is an additional amount of interest to the principal sum of a deposit. It can help the account grow more quickly. Compound Interest is interest on the interest; so at the end of every compounding period which is usually daily or monthly, additional interest is included in the balance. For example, if you had an account with a 3% annual interest rate and you deposited $1000 into the account, you would essentially earn $30 ($1,000 x .03) in interest the first year.


Now let’s talk about your Annual Percentage Yield (APY). You may be saying, what’s that?


The Annual Percentage Yield is the amount of compound interest earned by an account in a year. It’s calculated based on the account’s interest rate and the number of times interest is paid during the year. So if your savings account has a higher APY, it grows faster (that is as long as you haven’t frequently withdrawn large amounts). To find your monthly rate, you would simply take your APY and divide it by 12. It’s also sometimes called the effective annual rate (EAR).


Money Market Accounts and Certificates of Deposit


Finally while we’re defining accounts, maybe you have heard the term, Money Market Account (MMA). An MMA is a type of savings account that usually offers higher interest rates but requires a higher minimum deposit. Usually with a MMA the minimum deposit is $5,000 or more. One thing that is cool about the MMA is you can usually write checks from it. While the interest rates are usually higher with the MMA, they are usually even higher when you open a Certificate of Deposit (CD)


A CD is an account that can be used to save money for a specific amount of time. When you open a CD, you have to determine how long you want the money to remain in the CD account. It can be as short as a few months to longer than 5 years. The thing about a CD is if you open one, you must keep the money in the account until the appointed time or you will be charged a penalty fee. However, with the CD, you usually can get a higher interest rate, it’s usually fixed and will not fluctuate during the length of time the money is in the account. The down side to a CD is if you get it and the market rate goes up, you’re stuck with the lower rate.


Back To The Basics


When you are looking to deposit money into a savings account you want to look for a few things:

▪ As stated above, you want to avoid paying fees.

▪ You want an account with a high APY.

▪ Choose an account where it’s easy for you to make deposits and withdraws.


I hope this was helpful. If you have questions or comments, please leave them below. If you know someone who would benefit from this post, please forward it to them. If you enjoyed this post, we’ll be discussing money more frequently along with self-care and other topics for adult conversations. Stay connected to find out about our upcoming Self-Care Journal.


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