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. Savings Rate

    Savings rate is the percentage of money take from personal income ...
  2. Money Market Account

    A money market account is an interest-bearing account that typically ...
  3. Automatic Savings Plan

    An automatic savings plan is a type of personal savings system ...
  4. Call Deposit Account

    A call deposit account is a bank account for investment funds ...
  5. Time Deposit

    A time deposit is a savings account or certificate of deposit ...
  6. Linked Savings Account

    A linked savings account is a savings account that is connected ...
Related Articles
  1. Investing

    Money Market Accounts vs. Savings Accounts

    An interest-bearing account that pays a higher interest rate than a savings account and gives the account holder limited check-writing ability.
  2. IPF - Banking

    4 Savings Accounts for Investors

    Curious about the best saving accounts and which ones suit investors?
  3. IPF - Banking

    Handling High-Yield Savings Accounts

    Is this the savings route for you? Read on to find out what these accounts have to offer.
  4. 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.
  5. IPF - Banking

    These Savings Accounts Have the Highest Interest Rates

    Don't expect interest from a bank savings account to make you rich. You can do better, however, than the paltry 0.08% average paid in 2015.
  6. Investing

    Where to Invest Money You'll Need Within Five Years

    There are better places to invest money you'll need in five years than the stock market.
  7. IPF - Banking

    The 5 Best Alternatives to Bank Saving Accounts

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

    Money Market Mutual Funds: A Better Savings Account

    A good alternative to the traditional savings account is the money market mutual fund. It's easy, safe and has better returns. Learn more today.
  9. Retirement

    Saving vs. Investing: Understanding the Key Differences

    The terms saving and investing are sometimes used interchangeably, but they are very different and extremely important to understand in order to achieve security and prosperity.
RELATED FAQS
  1. Why would you keep funds in a money market account and not a savings account?

    Read about the differences between money market accounts and savings accounts, and see why a depositor would elect a money ... 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