An interest bearing savings account is one way to earn interest on your money, but it has its limitations.
Of the many savings options available for growing your money, interest bearing savings accounts have the fewest advantages. Mutual funds, money market accounts, fixed rate savings, etc., all increase revenue at a better rate. However, there is one solid advantage to an interest bearing savings account — it is safe because the FDIC guarantees money in depositor accounts for up to $250,000. But then, so are many of the other savings opportunities offered by banks or credit unions.
Interest bearing savings accounts are essentially the same basic savings account we have all come to accept as the traditional way for safely saving money — and getting a little back for allowing the bank to use it. Unfortunately, because the rate of growth is so slow, and because of the fees that a bank may charge as part of its day-to-day business, the rate of return often lags behind inflation. If you are looking for better, but still conservative options for building your financial portfolio, a financial planner at your bank will work with you to develop the best plan for your situation.
Interest bearing savings accounts are not all gloom and doom, or a rat hole to pour your money down, but they also have some advantages. A savings account that pays interest is a good way to gain a little money while you decide on better investment products. Because it does draw interest, if you keep adding funds, the APY will naturally increase. And unlike CDs, fixed rate accounts, or limited checking money market accounts, the funds are always available for your use. Interest bearing savings accounts are also a good way to begin teaching children about money, how money and banking work, and the importance of saving and money management.
If an interest bearing savings account is opened when a depositor is young and that account is steadily fed, it can be used to the advantage of the depositor in a number of ways. It can be used to help build credit by serving as collateral for a loan or a secured credit card. Or, once the account is sufficiently grown, money from it can be used to invest in other products that provide a better interest rate. An interest bearing savings account is better than an account that does not pay anything. If you have not begun working to build your financial base, it is a good place to start.
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