July 1, 2022
You may have heard this old Ben Franklin adage: “If you would be wealthy, think of saving as well as getting.”
While savings accounts aren’t known as the best way to build wealth anymore — investments usually have significantly higher returns — Franklin makes an important point.
A savings account is an important tool for everyday financial health and stability, even if it doesn’t yield you big returns.
Why Have a Savings Account?
A savings account offers flexibility, convenience, and security in a world full of surprises. Even the most careful budgeter will sometimes have to adapt to unexpected events, and it makes all the difference to have a little extra put away where you can retrieve it quickly. Below are eight reasons why a savings account is worth it. Savings accounts:
- Make saving easier
- Help avoid unexpected debt
- Offer easy access to your money
- Keep your money secure
- Earn more
- Help you reach your financial goals
- Improve your cash flow
- Are often free
- Make Saving Easier
Savings accounts make saving easier. Putting money in an account separate from your checking ensures you don’t accidently spend what you’re trying to save, plus it can be great motivation to watch your savings balance grow over time.
Many savings accounts also have tools to help you automate saving so you don’t even have to think about it. For example, automatic transfers and round-up programs (or apps that transfer the difference between a purchase and the nearest dollar to your savings) can help you hit your goals faster, but more importantly, easier.
- Help Avoid Unexpected Debt
When unforeseen expenses crop up, it’s better to pull from your savings than use a credit card. Credit cards are convenient but expensive, and the price of big emergencies like hospital visits or home repairs can balloon when you add interest payments and other fees. Pulling money from an emergency fund instead can save you hundreds of dollars.
- Get Easy Access to Your Money
There are other savings tools that offer better returns — like money market accounts and certificates. The downside is they make it hard to access your money when you need it. Savings accounts, on the other hand, are always available. In fact, many banks and credit unions can transfer money from your savings to your checking instantly.
- Keep Your Money Secure
The stock market can offer bigger returns on your investments than a savings account, but it carries the potential for big losses too. Savings accounts are insured by the FDIC (for banks) or NCUA (for credit unions) up to $250,000, so you know your money will be there whenever you need it.
- Earn More
Yes, you can put your money in a piggy bank or hide it in your sock drawer. But even with a low annual percentage yield, a savings account will grow your money faster than the coziest socks ever will.
Say you put $100 into savings and every month you add another $50 at an interest rate of 0.06% annual percentage yield. Your interest is compounded monthly, meaning the interest is calculated and added to your principle at the end of each month. In five years, you’d have $3,104.73.
- Reach Your Financial Goals
Savings accounts are great for setting and reaching goals. For instance, say you need to replace your current car. You can open a savings account and make deposits into it each month until you have money for a down payment. Tracking your progress toward that new car will be as easy as checking your mobile banking app.
You can also use this same strategy to get into other types of investments. For instance, certificates usually offer much better interest rates than savings accounts, but many banks and credit unions require $1,000 to open this kind of account. Maybe you don’t have $1,000 right now, but you can put money in savings until you do and then move the money into a certificate for better returns.
- Improve Your Cash Flow
If you’re a fan of the envelope budgeting strategy, you might find it useful to have multiple savings accounts for different purposes. For example, you might have one account for holiday shopping and another for family vacations. Many people also like to keep an account of “mad money” they can dip into for small, spontaneous purchases or nights out with friends.
By breaking up your money this way, you can better track long-term spending goals and add flexibility to your budget.
- Savings Accounts Are Often Free
The stock market can earn a big return on your investment, but there are a lot of fees associated with stocks that can eat into your profits. There are also fees for money market accounts. But, oftentimes, savings accounts at many banks and credit unions are free.
Savings accounts are useful tools for building financial stability. They’re not as flashy as other investments, but they can offer the foundation you need to start investing in higher-yield options while protecting what you already have.