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Myths vs. Facts About Savings Account Interest Rates

Myths vs. Facts About Savings Account Interest Rates Blog image
Affinity FCU Blog
By: AffinityFCU

A savings account provides a safe way to grow your money over time while having easy access to it when you need it. Unfortunately, several myths discourage people from opening savings accounts. Below, we address some of the most common myths and set the record straight about savings accounts..

Myth: I won’t earn much with a savings account.

Fact: You may have been discouraged from putting your money in a savings account because potential returns have been meager in recent years, but things have changed. Some high-yield savings accounts currently offer annual percentage yields (APY) over 4%, making this a great time to open a savings account. APYs are affected by rates set by the Federal Reserve. When the Fed raises rates (as they’ve done many times in the past year), you may see APYs increase. Learn more.

Myth: I’m too young to save.

Fact: The opposite is true. Time is on your side, so the earlier you start saving, the more money you can build through compound interest. (This refers to earning interest on the money you’ve saved AND on the interest your money has earned.) If you keep adding to your original deposit and increase the amount of money earning interest, your money will grow faster. As a result, saving while you’re young could help you reach your financial goals a lot faster.

Myth: I don’t earn enough to save.

Fact: It can be challenging to save on a tight budget, but even small contributions can add up over time. Try this: set aside any spare change you receive during the week. At the end of every week, deposit the change into your savings account, even if it’s just a few dollars. You will not only be building your savings account, but perhaps more importantly, you will be developing healthy financial habits.

Myth: A healthy savings account won’t make me feel financially secure.

Fact: A strong savings account can help people feel better about their financial prospects. According to a Consumer Finance Protection Bureau report:

  • People with liquid savings (money they can easily access) feel more secure than those who don’t.
  • The more people save, the stronger their feelings of financial well-being.
  • Feelings of financial security increase when people know they have enough in savings to pay unexpected expenses.

Myth: Banks and credit unions are risky. I’m better off keeping my money at home.

Fact: Many people were justifiably concerned after the collapse of some regional banks recently, so they may feel hesitant about putting their money in a bank. The fact is banks and credit unions are very safe places to keep your money. Just be sure your bank is insured by the FDIC, or that your credit union is insured by the National Credit Union Share Insurance Fund. Deposits at these banks and credit unions are insured up to $250,000. So, putting your money in a savings account at an insured bank or credit union – especially one with a strong interest rate – will usually be better than leaving it in your house. And unless you’re a seasoned investor, a savings account might even be a safer option than investing in the stock market.

Myth: Your money will be stuck in a savings account.

Fact: The opposite is true. With few exceptions, one of the main perks of a savings account is the ease with which you can access your money. Savings accounts keep your funds liquid, which means you can access your money anytime. Even as your money grows in a savings account, you can withdraw from the account as needed.

Just try not to make a lot of transactions each month. Many banks and credit unions may limit savings account withdrawals or transfers to 6 per month. Check with your financial institution to make sure you don’t violate their rules.