What are 'Savings'
Savings, according to Keynesian economics, consists of the amount left over when the cost of a person's consumer expenditure is subtracted from the amount of disposable income he earns in a given period of time. For those who are financially prudent, the amount of money left over after personal expenses have been met can be positive; for those who tend to rely on credit and loans to make ends meet, there is no money left for savings. Savings can be turned into further increased income through investing in different investment vehicles.
BREAKING DOWN 'Savings'
Savings is the amount of money left over after spending. For example, Sasha’s monthly paycheck is $5,000. Her expenses include a $1,300 rent payment, $450 car payment, $500 student loan payment, $300 credit card payment, $250 for groceries, $75 for utilities, $75 for her cellphone and $100 for gas. Since her monthly income is $5,000 and her monthly expenses are $3,125, Sasha has $1,875 left. If Sasha saves her excess income and has an emergency, she has plenty of money to live on while resolving the issue. If Sasha does not save her extra money and her expenses exceed her income, she is living paycheck to paycheck. If she has an emergency, she does not have money to live on and must secure payments for her bills.
Examples of Bank Savings
Bank savings vehicles come with federal insurance up to $250,000 per depositor.
A checking account offers unrestricted access to money with low or no monthly fees. Money is transacted through online transfers, automated teller machines (ATMs), debit card purchases or writing personal checks. A checking account pays lower interest rates than other bank accounts.
A savings account pays interest on cash not needed for daily expenses but available for an emergency. Deposits and withdrawals are made by phone or mail or at a bank branch or ATM. Interest rates are higher than on checking accounts.
A certificate of deposit (CD) limits access to cash in exchange for a higher interest rate. Deposit terms range from three months to five years; the longer the term, the higher the interest rate. CDs have early-withdrawal penalties that can erase interest earned; it is best to keep the money in the CD for the entire term.