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All About Savings Accounts

Savings accounts are one of the two major accounts every person should have, along with a checking account. As the name implies, savings accounts are used primarily to save money.

You can open a savings account at most financial institutions, from large banks to local credit unions. The purpose of a savings account is to simply hold cash, unlike other accounts that can be used to save and grow money by holding different assets.

Because savings accounts are meant to hold cash rather than investments, they are considered relatively liquid, as you can easily transfer money from a savings account into a checking account, and spend it. However, savings accounts are less liquid than checking accounts, and are not intended for everyday spending. So, for things like groceries or subscriptions, you wouldn't use a savings account.

You would use a savings account if you plan on making a large purchase that needs a lot of cash, like your first car. Another common use for a savings account is to hold emergency funds, so in the situation you need a large amount of money unexpectedly, like in case of a medical emergency, you have access to some cash to cover any immediate expenses.

By using a savings account, you can earn some interest (usually a very small amount). This is one of the advantages of storing money in savings rather than a checking account. You’ll also be less tempted to spend money from your savings account, as it isn’t directly convertible into cash.

A savings account is great because ideally, you don’t want to be spending every dollar that you earn. Using a savings account and a budget, you can differentiate between money that you are “allowed” to spend everyday, and money you shouldn’t touch unless you really need to. This will allow you to build up a nest egg over time, so you have the money to make a big purchase when the time is right.

In short, if you have some longer term financial goals, like saving for a car or house, a savings account is a great way to store cash safely. You can also save for emergencies and unexpected situations. A savings account allows you to access your money relatively easily, and you don't have to go through the hassle of liquidating assets/investments. However, it is not an account meant for everyday spending, so make sure you have enough money set aside for regular expenses.

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