In most cases, a savings account is the first bank account of any person; it is opened in order to save money for the near or distant future. It is easy to set up, can yield interest on the amount saved, and allows you to use your money whenever you want. However, there are a few specific pros and cons of savings accounts. Let us discuss them below.
Pros
- Savings accounts earn interest
This is one of the most significant advantages of holding a savings bank account. As opposed to not keeping the money in the bank, savings bank account yield interest over a period of time and, hence, the amount keeps increasing. The rate of interest entirely depends on the amount that is saved and the bank chosen. - Saving bank accounts are hassle-free
Savings bank accounts can be opened within a few a few minutes, and this can even be done online. There is minimum paperwork involved with savings bank accounts and almost anyone can open an account. You only have to make deposits and withdrawals on a regular basis and the savings account will remain active. You can make the transactions at any stores, online, or at any ATM. - Savings accounts have no lock-in period
The savings bank account has no lock-in period; it can be closed, and you can open another at any point of time. When you take any such decision, the amount that is available in your savings bank account will be provided to you,, or you can withdraw or transfer it yourself. Hence, savings bank accounts are very convenient.
Cons
- Interest is compounded monthly or annually
Among the pros and cons of savings accounts, this is one point that should be noted. The interest is not calculated on a daily basis in most cases and, thus, you have to maintain an average monthly balance in order to earn interest on the amount. Thus, compared to the other avenues where you can invest, the absolute potential of your money cannot be realized. - There are often withdrawal limits
There are certain limitations that can seem frustrating at times. You feel you should have the right to use it anytime, anywhere. However, as per Regulation D, you cannot make more than six withdrawals from your bank account in a month. - Inflation
This is one disadvantage that we do not take into consideration in most cases. You might feel that the money in a savings bank account increases; it does not usually match with inflation. Thus, compared to the value of the money, you have lesser money than when you deposited the amount. Several other investment opportunities pay higher interest as compared to savings bank accounts. These ensure that your money grows proportionately with time.
These above-mentioned pros and cons of savings accounts will help you manage your finances better.
