Most individuals look at the products and services offered by banks and only see them as solutions to momentary issues. This is true when it comes to personal loans, mortgages, payday advances, and credit cards; however, these are not the only things that banks have to offer. Savings accounts are often neglected by people because they need to be constantly fed money. For many, this is the opposite of what they need from a bank; however, these accounts are some of the best tools for securing an individual’s future. Almost every lender offers savings accounts as part of their products portfolios, which means that it is easy to shop around until you find one that has terms and conditions that suit your needs.
What to Keep in Mind When Opening a Savings Account?
Generally speaking, a savings account is only as useful as its terms and conditions. If you intend to open one, make sure that it has a high interest rate and that it does not have a mandatory monthly contribution. Furthermore, read the agreement thoroughly and ensure that you can withdraw money from it without any penalties or additional charges. This having been said, savings accounts work like piggybanks. Once you deposit the money in the account, you should not withdraw it unless you absolutely need the funds.
A Bit of Discipline Will Go a Long Way
The main advantage of a savings account is the fact that you can use compound interest to make your money work for you. In the long run, it is possible to increase the amount of money in the account to the point where an individual can live off of the interest rate alone. However, this requires a bit of discipline.
It is not enough to make an initial deposit and then wait to receive interest every year. While this will increase the amount of money in the account it will only do so by a small percentage. On the other hand, if you make regular deposits, preferably every month, the funds stored in the account will grow faster and so will the compound interest rate. It is a common practice for many individuals to add money to their savings accounts regularly and to only withdraw the interest, once per year.
Financial advisors have estimated that if an individual opens a savings account and deposits £100 each month, it would be possible to live off of the interest rate after 20 years.
Savings Account Raise Credit Ratings
Most individuals are not aware of the fact that having an active savings account can also increase their credit rating. Lenders will not only establish that you can efficiently manage your finances but also agree to give you larger loans. In some cases, it may even be possible to use the savings account as collateral for a secured personal loan.
Savings Accounts Can be Better than a Retirement Pension
As the global economy becomes less stable with each passing month, more and more individuals have started looking for alternatives to the regular retirement pension. The banks that offer retirement funds are multinational private companies and, by definition, tend to be much more stable than most local economies. Opening a savings account and contributing to it regularly can increase its interest rate over the current basic state pension of £134.25 per week.
Savings accounts are some of the most useful financial tools that banks have to offer, but using them effectively requires careful planning and discipline. Furthermore, they are not useful in the short term. Once you open an account, you should contribute to it at least 3-4 years before withdrawing money from it.