Starting a Savings Account

One of my goals for 2014 was to start saving.  I was never a fan of savings accounts because I thought they were silly.  Most of them generate returns of only .01%, which amounts to pennies (literally), and that seemed pointless to me.  More and more, however, I realize that I have little self-control, and if I see the money in my checking account, I'll spend it.  The only real advantage of having a savings account is that it forces you to save.

When I was looking into different types of accounts, I realized that there are quite a few different kinds from different banks that you can choose from.  Here are the 3 most common types that you can choose that I found:

Regular Savings: These are basic savings accounts that usually have rates of .01% per year.  This means for every $100 you have in your savings account, you'll get a return of half a penny. Yes, 0.5 cents.  (It's nothing, I know, but again, remember that the purpose of a savings account is to force you to save, not necessarily making money off of it.) Regular savings accounts often have smaller dollar requirements for you to open and maintain, often $200-$300 depending on the bank.  They will also charge fees if you don't maintain that amount or if you don't have a reoccurring deposit in the account each month, somewhere around $20-$30, again depending on the bank.

Regular Savings on Steroids:  These accounts are just like regular savings accounts, but generate higher returns for higher balances.  Different banks will call them different names, like "Platinum Savings" or "Plus Savings".  These often require you to open and maintain at least $1,000 and will charge fees if you don't maintain that amount or don't have the reoccurring deposit.

Certificates of Deposits (CDs): These are different from savings accounts because they have specific and fixed terms with fixed interest rates. They are also virtually risk free and have rates higher than a regular savings account.  The downside of this account is that you need to start and maintain a higher dollar requirement - almost always $1,000 minimum.  Depending on the timeline that you choose, you will get a greater return.  So say you buy a 3 year CD of $1000, you will generate a higher return, maybe in the range of .13%-.17%, as opposed to a 3 month CD, where you will probably get .02%.  The caveat is that when you put the money in, you cannot take it out until your time is completed.  This is a good account to have if you have thousands of dollars just sitting in your account that you plan not to spend for a while.

Like I said before, I think savings accounts are more to force you to save rather than to generate a return.  Keep in mind that the interest rates don't really matter that much if you think about how much you're putting in.  If you put $1,000 in, you'll get 5 cents instead of 1 cent with a CD rather than a regular savings.  Woah! 4 cent difference!!  It would only really matter if you have more than a few thousand dollars sitting in your account, in which case you probably don't need to read this at all.

Cheers!

Ali