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Understanding Savings Accounts: Key Terms and Concepts
Opening a savings account allows you to set aside a portion of your income, keeping it secure until you need it. This is a beneficial step for your financial future. Familiarizing yourself with the key terms associated with savings accounts will help you manage your money more effectively and achieve your savings goals faster.
1. Account Balance
The account balance is the net amount of funds available in your savings account after all credits and debits have been posted, but before any pending charges. You can check your balance by visiting your bank, using an online app, or contacting your bank by phone or email.
2. ACH Transfer
An ACH transfer is an electronic payment or deposit made through the Automated Clearing House network. Financial institutions use ACH transfers to deposit funds into or withdraw funds from an account, such as for tax refunds or bill payments.
3. Annual Percentage Yield (APY)
The annual percentage yield (APY) is the rate you earn on your savings account over a year, considering compound interest. APY rates can change with the federal funds rate, so your savings account’s APY may increase or decrease accordingly.
4. ATM Network
Automated teller machines (ATMs) allow you to perform most banking transactions, such as deposits, withdrawals, and transfers, without visiting a branch. Using an out-of-network ATM may incur a fee.
5. Compounding Interest
Compounding interest means earning interest on both the principal amount you deposit and the interest that money earns. The more frequently interest is compounded, the faster your savings can grow.
6. Early Withdrawal Penalty
Withdrawing money from a time-deposit savings account, like a certificate of deposit (CD), before its maturity date may result in a penalty. This penalty can be as much as one year’s worth of interest.
7. FDIC Insurance
The Federal Deposit Insurance Corporation (FDIC) insures deposits up to $250,000 per account holder in the event of a bank failure. This insurance is automatic for any deposit account at an FDIC-insured bank.
8. NCUA Insurance
Similar to FDIC insurance, the National Credit Union Share Insurance Fund protects deposits at federally insured credit unions up to $250,000 per individual depositor, per institution.
9. High-Yield Account
A high-yield savings account offers a higher APY compared to a standard savings account, allowing your money to grow faster. The APY on high-yield accounts can fluctuate with the federal funds rate.
10. Maturity Date
The maturity date on a time deposit account, such as a CD, is when the term ends, and you can withdraw your funds without a penalty. The amount you receive includes your initial deposit plus any interest earned.
11. Minimum Balance
The minimum balance is the amount required to open or maintain your savings account without incurring a fee. Falling below this amount may result in a fee, though not all accounts have this requirement.
12. Savings Account
A savings account is a place to set aside money for future expenses, often earning interest. Types of savings accounts include traditional savings accounts, high-yield savings accounts, CDs, and more. The best option depends on your individual needs and preferences.
13. Wire Transfer
Wire transfers move money from one bank account to another, typically handled manually by a bank employee. They can be domestic or international and usually cost between $0 to $50. International transfers can take up to five days.
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