What are 'Savings'

Savings, according to Keynesian economics, are what a person has left over when the cost of his or her consumer expenditure is subtracted from the amount of disposable income earned 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 used to increase income through investing in different investment vehicles.

BREAKING DOWN 'Savings'

Savings comprise 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, a $450 car payment, a $500 student loan payment, a $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 $3,050, Sasha has $1,950 left over. If Sasha saves her excess income and faces an emergency, she has 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 pf 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 by 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, mail or at a bank branch or ATM. Interest rates are higher than on checking accounts.

A money market account requires a higher minimum balance, pays more interest than other bank accounts and allows few monthly withdrawals through check-writing privileges or debit card use.

A certificate of deposit (CD) limits access to cash for a certain period in exchange of 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, so it is best to keep the money in the CD for the entire term.

RELATED TERMS
  1. Bank Deposits

    Bank deposits are money placed into a deposit accounts at a banking ...
  2. National Savings Rate

    An estimate known as the national savings rate gauges the amount ...
  3. Checking Account

    A checking account is a deposit account at a financial institution ...
  4. Call Deposit Account

    A call deposit account is a bank account for investment funds ...
  5. Automatic Transfer Service (ATS)

    An automatic transfer service (ATS) is a banking service that ...
  6. Debit Card

    A debit is a payment card that deducts money directly from a ...
Related Articles
  1. Personal Finance

    Banking 101

    Do you really need a bank account? A quick survey of banking and how a relationship with a bank can organize your financial life.
  2. Personal Finance

    Handling High-Yield Savings Accounts

    Is a high-yield savings account right for you? Read on to find out what they have to offer.
  3. Investing

    Money Market Accounts with the Highest Interest Rates

    Money market savings accounts can offer higher interest rates than regular or even high-yield bank savings accounts – and perks like these.
  4. IPF - Banking

    Protect Your Savings From Their Greatest Threat - You

    Watch your savings magically grow as you make withdrawals a headache and deposits a breeze.
  5. Personal Finance

    The 5 Best Alternatives to Bank Savings Accounts

    Find out about some of the most profitable available alternatives to depositing money in a traditional bank passbook savings account.
  6. Personal Finance

    Tips to Teach Your Daughter How to Manage Finances

    The earlier your daughter learns how to properly handle money, the better off financially she will be in life.
  7. Personal Finance

    What Else Banks Can Help With (Besides Banking)

    As competition increases and technology advances, banks, credit unions and savings institutions are offering more services intended to attract customers.
  8. Personal Finance

    Pay Down Student Loans or Save for Retirement?

    There are many things to consider when deciding whether to use extra money to pay off student loans faster or save for retirement.
  9. Personal Finance

    Bank Account Tips For Young People

    If you’re just getting started with managing your own bank account, these tips will show you how to do it right.
RELATED FAQS
  1. Why choose a money market account instead of a savings account?

    Learn how money market and savings accounts differ and why a depositor would choose a money market over a savings account. Read Answer >>
  2. What economic factors affect savings account rates?

    Find out how supply, demand and central bank policy all affect savings account rates offered by banks for extra deposits ... Read Answer >>
Trading Center