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    this is the name to a type of bank account used by a person who wants to safely store their money but have immediate access to it for purchases.

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    Savings Account Definition

    A savings account is a deposit account held at a financial institution that provides principal security and a modest interest rate.

    What Is a Savings Account?

    A savings account is an interest-bearing deposit account held at a bank or other financial institution. Though these accounts typically pay a modest interest rate, their safety and reliability make them a great option for parking cash you want available for short-term needs.

    KEY TAKEAWAYS

    Because savings accounts pay interest while keep your funds easily accessible, they’re a good option for emergency or short-term cash.

    In exchange for the ease and liquidity that savings accounts offer, you’ll earn a lower rate than that paid by more restrictive savings instruments and investments.

    The amount you can withdraw from a savings account is generally unlimited.12

    The interest you earn on a savings account is considered taxable income.

    Savings accounts have some limitations on how often you can withdraw funds, but generally offer exceptional flexibility that’s ideal for building an emergency fund, saving for a short-term goal like buying a car or going on vacation, or simply sweeping surplus cash you don’t need in your checking account so it can earn more interest.

    If you're ready to shop for a new savings account, we maintain a list of the best savings account rates we can find.

    How Savings Accounts Work

    Savings and other deposit accounts are important sources of funds that financial institutions use for loans. For that reason, you can find savings accounts at virtually every bank or credit union, whether they are traditional brick and mortar institutions or operate exclusively online. In addition, you can find savings accounts at some investment and brokerage firms.

    Savings account interest rates vary. With the exception of promotions promising a fixed rate until a certain date, banks and credit unions might change their rates at any time. Typically, the more competitive the rate, the more likely it is to fluctuate.

    Changes in the federal funds rate can trigger institutions to adjust their deposit rates. Some institutions offer high-yield savings accounts, which may be worth investigating.

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    Savings Account

    Some savings accounts require a minimum balance in order to avoid monthly fees or earn the highest published rate, while others have no balance requirement. Know the rules of your particular account to ensure you avoid diluting your earnings with fees.

    Money can be transferred in or out of your savings account online, at a branch or ATM, by electronic transfer, or direct deposit. Transfers can usually be arranged by phone, as well.

    Some banks limit withdrawals to six per month, after the Federal Reserve set that limit only to withdraw it in April, 2020. Exceed six withdrawals, and a bank might impose a fee, close your account, or convert it to a checking account. The amount that can be withdrawn is limited only to how much is in the account.2

    Just as with the interest earned on a money market, certificate of deposit, or checking account, the interest earned on savings accounts is taxable income. The financial institution where you hold your account will send a 1099-INT form at tax time whenever you earn more than $10 in interest income. The tax you’ll pay will depend on your marginal tax rate.3

    Savings Account Advantages

    Savings accounts offer you a place to put your money that is separate from your everyday banking needs, allowing you to stash money for a rainy day or earmark funds to achieve a big savings goal. What’s more, the bank’s security measures, along with federal protection against bank failures provided by the Federal Deposit Insurance Corporation (FDIC), will keep your money safer than it would be under your mattress or in your sock drawer.4

    Beyond keeping your funds safe, savings accounts also earn interest, so it pays to keep any unneeded funds in a savings account instead of accumulating cash in your checking account, where it will likely earn little or nothing. At the same time, your access to funds in a savings account will remain extremely liquid, unlike certificates of deposit, which impose a hefty penalty if you withdraw your funds too soon.

    Holding a savings account at the same institution as your primary checking account can offer several convenience and efficiency benefits. Since transfers between accounts at the same institution are usually instantaneous, deposits or withdrawals to your savings account from your checking account will take effect right away. This makes it easy to transfer excess cash from your checking account and have it immediately earn interest—or transfer money the other way if you need to cover a large checking transaction.

    Many institutions allow you to open more than one savings account, which can be handy if you want to keep track of your savings progress on multiple goals. For instance, you could have one savings account to save for a big trip while a separate one holds surplus cash from your checking account.

    Savings Account Disadvantages

    The trade-off for a savings account’s easy access and reliable safety is that it won’t pay as much as other savings instruments. For instance, you can earn a higher return with certificates of deposit or Treasury bills, or by investing in stocks and bonds if your time horizon is long enough. As a result, savings accounts present an opportunity cost if used for long-term savings.

    Source : www.investopedia.com

    Economics

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    Economics - Personal Finance

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    Automobile Insurance

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    - This is used as protection against financial loss in the event of an accident while driving, or theft.

    - Example: The consumer pays premiums in exchange for coverage, like liability or comprehensive.

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    Bond

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    - This is a contract to repay borrowed money, often issued by a company. This issues financial security for a debt.

    - Example: an IOU for a long-term debt, usually agreeing to pay interest

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    EOC glossary from USA Test Prep

    Terms in this set (53)

    Automobile Insurance

    - This is used as protection against financial loss in the event of an accident while driving, or theft.

    - Example: The consumer pays premiums in exchange for coverage, like liability or comprehensive.

    Bond

    - This is a contract to repay borrowed money, often issued by a company. This issues financial security for a debt.

    - Example: an IOU for a long-term debt, usually agreeing to pay interest

    Certificate of Deposit

    This type of investment account has a specific fixed term/length, fixed interest rate, is insured by the FDIC, and is very low risk to consumers.

    Compound Interest

    - This is a method of calculating interest in which the interest is added to the principal each period so that the principal continues to grow throughout the life of the loan or investment. The formula is A = C * (1 + r/100)n where A is the future value, C is the principal, r is the interest rate per period, and n is the number of periods.

    - Example: How much interest is earned if $8800 is placed in an account that pays 4.5% compounded monthly for 3.5 years. C = 8800, r = 4.5/12, n = 12(3.5) so A = 8800(1 + .375/100)42 therefore A = 10298.08 and the interest earned was 10928.08 - 8800 = 1498.08.

    Credit

    - Ability to obtain goods and services before payment, or money lent or made available, both with specific guidelines for repayment.

    - Example: Some people have ___________ cards in their wallet.

    Credit Union

    - A nonprofit cooperative that accepts deposits, makes loans, and provides other financial services

    - Example: operates like a bank but not-for-profit, and usually owned by its members

    Credit Worthiness

    This is a measurement as to the likelihood of whether or not a person will default on a loan provided to them by a lending institution.

    Current Yield

    The annual interest rate paid by a bond. It does not reflect the interest rate paid over the life of the bond.

    Debt

    This situation occurs when an entity- a person, business, or government- owes money to another entity.

    Deductible

    The dollar amount of expenses that must be paid out of pocket before an insurer will pay any expenses for loss or liability.

    Example: You wreck your car and do $1200 in damages. If you have a $500 deductible, you would pay the first $500 and your insurance would pay the $700.

    Disability Insurance

    - A type of insurance paid to an individual if he/she is injured and is unable to work for a specified length of time.

    - Example: AFLAC Disposable Income

    This is the economic term that refers to one's total income that is left following the payment of all required taxes.

    Dividend

    - This is a portion of corporate profits paid to stockholders.

    - Example: usually paid quarterly, one of the ways to profit from stock ownership

    Earnings

    This is a payment usually of money for labor or services usually according to contract and on an hourly basis.

    Excise Tax

    - This is a tax on production, transportation, sale or consumption of a certain good or service.

    - Example: gas tax, cigarette tax

    Health Insurance

    - This is used to pay for expenses related to maintaining the wellness of a person. Among countries, there are many varieties of government and privately-sponsored programs.

    - Example: Premiums, deductibles, and co-pays are associated with this term.

    Incentive

    - Any factor, usually financial, to influence one choice over another by an individual or business.

    - Example: The company offered the employee a $5000 signing bonus to work for the company.

    Income

    - This is money that is gained for goods or services by an individual or business.

    - Example: The minimum salary for a rookie in Major League Baseball is approximately $500,000.

    Income Tax

    This is a tax levied on net personal or business income.

    Inflation

    - A rise in the general level of prices.

    - Example: reduces the value of a dollar, usually measured by the Consumer Price Index

    Insurance

    - A form of risk management purchased by a business or individual against a possible financial loss paid in the form of a monthly or annual premium.

    - Example: Health, Auto, Disability

    Interest

    - This is a total charge that is applied to a person when they borrow money.

    - Example: You pay it when you use a credit card.

    Interest Rate

    - The percentage of a financial loan which is paid as a fee over a period of time.

    - Example: APR Investment

    - Although it has many definitions, this is generally the act of providing funds to a financial organization for the purposes of making that organization more profitable, while earning a personal profit at the same time.

    Source : quizlet.com

    Types of Bank Accounts

    Consider these terms and features before opening a bank account.

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    Types of bank accounts

    Learn the types of accounts that are available and how to determine which ones you need.

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    When you go to a bank to open a new account, you will have a variety of account types and features to choose from. Should you choose the basic checking option or an account that earns interest? Do you want the convenience of a bundled checking and savings account or the higher returns of a money market account?

    To make these decisions, it’s helpful to first understand the differences between the most common bank account types. Here are some definitions to help you navigate your banking needs:

    Checking account: A checking account offers easy access to your money for your daily transactional needs and helps keep your cash secure. Customers can typically use a debit card or checks to make purchases or pay bills. Accounts may have different options to help avoid the monthly service fee. To determine the most economical choice, compare the benefits of different checking accounts with the services you actually need.Savings account: A savings account allows you to accumulate interest on funds you've saved for future needs. Interest rates can be compounded on a daily, weekly, monthly, or annual basis. Savings accounts vary by monthly service fees, interest rates, and account features. Understanding the account’s terms and benefits will allow for a more informed decision on the account best suited for your needs.Certificate of Deposit (CD): Certificates of deposit or CD, allow you to save your money at a set interest rate for a pre-set period of time - which can range from a few months to several years. CDs often have higher interest rates than traditional savings accounts because the money you deposit is tied up for the terms of the CD. Be sure you will not need the funds before the end of the CD term, as early withdrawals may have financial penalties.Money market account: Money market accounts are similar to savings accounts, but they typically require you to maintain a higher balance to avoid a monthly service fee. Both savings and money market accounts have variable rates. Money market accounts can have tiered interest rates, providing more favorable rates based on higher balances. Some money market accounts also allow you to write checks against your funds, but may be on a more limited basis.Individual Retirement Accounts (IRAs): IRAs, or Individual Retirement Accounts, allow you to save independently for your retirement. These plans are useful if your employer doesn’t offer a 401(k) or other qualified employer sponsored retirement plan (QRP), including 403(b) and governmental 457(b), or you want to save more than your employer-sponsored plan allows. These accounts come in two types: the Traditional IRA and Roth IRA. The Roth IRA offers tax-free growth potential. Investment earnings are distributed tax-free in retirement, if the account was funded for more than five years and you are at least age 59½, or as a result of your death, disability, or using the first-time homebuyer exception. Traditional IRAs offers tax-deferred growth potential. You pay no taxes on any investment earnings until you withdraw or “distribute” the money from your account, presumably in retirement. Both types of IRAs offer investment flexibility, tax advantages, and the same contribution limits. You may want to discuss which type is best for you with your tax advisor before choosing your account.

    Footnote 1 1

    Once you understand the types of accounts most banks offer, you can begin to determine which option might be right for you.

    Tip

    Interest rates can be compounded on a daily, weekly, monthly, or annual basis.

    Related topics: Basic Finances, Managing Your Money

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    Wells Fargo Online® 1.

    Income tax will apply to Traditional IRA distributions that you have to include in gross income. Qualified Roth IRA distributions are not included in gross income. Roth IRA distributions are generally considered “qualified” provided a Roth IRA has been open for more than five years and the owner has reached age 59½ or meets other requirements. Both Traditional and Roth IRA distributions may be subject to an IRS 10% additional tax for early or pre-59 ½ distributions.Investment and Insurance Products are:Not Insured by the FDIC or Any Federal Government AgencyNot a Deposit or Other Obligation of, or Guaranteed by, the Bank or Any Bank AffiliateSubject to Investment Risks, Including Possible Loss of the Principal Amount Invested

    Investment products and services are offered through Wells Fargo Advisors. Wells Fargo Advisors is a trade name used by Wells Fargo Clearing Services, LLC (WFCS) and Wells Fargo Advisors Financial Network, LLC, Members SIPC

    Source : www.wellsfargo.com

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