The Best Five Benefits of Keeping a Savings Account
It is simple to undervalue the importance of maintaining a savings account. Your savings account is your most crucial financial asset. It’s likely that the checking account you have is linked to your accounts for direct deposits, automatic bill payment, and bank cards. You might think that investing money in assets that will appreciate over time is the wisest use of your money.
However, there are a lot of reasons to keep money in a savings account even in spite of this. As rivalry from internet-based businesses drives interest rates up and forces banks to offer new, more convenient services, these considerations will only become more crucial.
If you haven’t already, these are some of the most convincing justifications for opening a savings account.
Main Points
It will be simpler for you to resist the need to spend because the funds in the savings account won’t be able to transfer to your checking account.
It’s convenient to keep money in your savings account for unforeseen costs.
Savings accounts are insured by the Federal Deposit Insurance Corporation up to a total of $250,000 per depositor. This implies that your funds in your savings account are always secure.
Compared to other types of savings, a savings account gives you easier means of accessing your money.
Saving money won’t make you richer, and over time, inflation may even make your money less valuable.
Reduce your tendency to go out and make purchases.
You must save a specific quantity of money in a savings account apart from the cash you need for regular expenses. Just by doing that, you can prevent yourself from falling in to the want to spend money you would rather save. One method to adhere to the monthly spending budget and avoid debt is to erect barriers to stop impulsive spending.
It’s possible that you won’t even consider how much a new video game costs until you next check your bank account if buying it only requires a swipe of your credit card. However, if you have to make an effort to move money from your savings account to a checking account before you complete a purchase, you are more inclined to be aware of the cost and the impact it will have on your overall finances.
Be ready for unforeseen circumstances.
It is best to keep the money you have put aside for unforeseen costs in a savings account. Everyone should strive to save a sizable amount of funds in case of unforeseen events. You’ll never be able to predict when your garage door will stop working, your water heater, your roofing system, or the company you work for may go out of business. You also won’t be able to predict when your garage door will break. Having a reserve for emergencies in your savings account could make going back on your feet a lot easier if something like that happened. Despite the possibility of stress, you’ll be able to maintain your composure.
In order to make ends meet, you might be forced to take on more debt, sell your things, or make additional private compromises that put your life or safety in danger if you do not have the necessary funds for unforeseen costs.
Maintain Your Funds’ Security.
Putting part of your money away in a secure location is a must when you’ve got more cash than you need right away. Although it is common knowledge that investments carry risk, having cash on hand also presents a distinct set of difficulties.
If you keep the cash in its tangible form, there is always a chance that it could be stolen, lost in a natural calamity like a fire or a flood, or that you would eventually forget where you had hidden any more assets.
A financial establishment like a credit union or bank is the safest place to keep additional money. Your money is physically protected in banks, and FDIC-insured banks (NCUSIF-insured credit unions) also manage the risk of bank failures such identity theft, fraud, and banking mistakes. FDIC insurance is not available to credit unions. The US government will provide protection up to a total of $250,000 per client and per institution. Federal regulations protect you from some types of bank account fraud and mistakes, but you must keep an eye on your accounts and act quickly if anything goes wrong.
Goal-oriented saving
Opening and keeping a savings account makes it easier to make long-term plans and forces you to keep your monetary affairs in order. However, it could be challenging to exactly quantify how much you have set aside over time if you keep all of the funds in a checking account. Even if you already started to make preparations for the future, this is still true. Search for savings accounts online that permit you to create a large number of subaccounts. This will keep the costs down and assist you in maintaining organization.
It could be a good idea to open a single savings account that is specifically designated for each of your long-term financial objectives. For example, you might have three different accounts set up: one for saving in case of an emergency, one for a vacation fund, and one for a down payment on a home. To better track your goals and finally achieve them, you would put any additional money into these accounts.
You have access to your money.
Savings accounts are one of the more liquid options when it comes to ways to store your money. If there is a need for spending money, it is easy to transfer money from the savings account into an account for checking (transfers within a single bank are practically instantaneous). You can use an ATM to take money from your account just as quickly. However, certain kinds of accounts, such investments stored in a brokerage account or certificates of deposit (CDs), may restrict your ability to transfer money easily into and out of those accounts.
Most of the banks do not allow customers to withdraw funds from savings accounts quickly and easily using debit cards or checks. Normally, the sole option for quick withdrawals is a checking account.
Although you can withdraw money from a savings account whenever you like, there are withdrawal restrictions that you should be aware of. There might be a limit on the quantity of withdrawal or transfers you can make from your savings account each month. In the past, Regulation D of the Federal Reserve was responsible for enforcing this law. This cap, nevertheless, differs from bank to bank. The cap was removed in April 2020 as a result of the Federal Reserve lowering the minimum amount of reserve held by depositories to zero. However, determined by their own internal rules, financial institutions can still apply limitations. Check to determine if your bank has transactions restrictions on savings accounts as a result.
Accounts are often cost-free.
Why wouldn’t you have an account for savings when so many are readily available to you absolutely free? For instance, internet banks allow you to open an account with no minimum balance requirement and without incurring any ongoing costs.
Keeping a savings account almost never causes a loss of any real importance. Free savings accounts are typically available at credit unions and smaller, neighborhood banks. You may even come across a promotion that pays you money just for making an account and signing up for the service; however, these offers typically call for you to have a minimum balance in your account for a predetermined period of time.
The Negative Effects of Savings Accounts
Savings accounts have very few drawbacks, but it is still important to be mindful of them. The major disadvantage of keeping money in savings accounts is the relatively low rate of interest that you receive. This is intentional; they are meant to take the place of stashing cash under a bed or in a can of coffee in the backyard.
Even if you desire to keep the account open, you might not be able to access all of your money because certain savings accounts have restrictions for maintaining a specific minimum value.
The earnings from interest are typically far from maintaining the pace of inflation. Because of this, your ability to buy things will gradually decline as time goes on because the worth of your money won’t rise proportionately to an increase in prices. For example, one hundred dollars now invested in savings can be utilized to buy a specific number of things. Even if you did not add interest to the initial $100 and put it in a bank account for a year, it wouldn’t be enough to buy the same number of products because costs tend to rise annually.
Customers can borrow money by using their savings accounts. Your bank gives you money that had been saved in different accounts when you take out a loan from the company. Other borrowers are also receiving loans from money that you have stored up. Due to the banking method’s contribution to the economy’s ongoing expansion, you get paid interest. Because of this, most banks won’t let you withdraw all of the cash at once. Because the available funds may be dedicated to paying off debts made to other customers, the financial institution often has to take out a loan through another financial institution in order to permit a consumer to terminate an account.
These reasons make it possible for you to have too much money in a savings account. The question is, how much cash should you save?
What Amount Qualifies as Excessive?
Maintaining whatever you might need in a savings account for specific scenarios is in your best interest. Add up all the expenses you anticipate incurring in the future to figure out how much cash you should have set aside in savings.
There are several expenses for which you ought to think about setting money aside after confirming that you can cover your daily expenses:
immediate needs for travel
medical expenses
maintenance on autos
Renovating the home Replacement of appliances
Vacations
loss of employment
Additional costs that could occur during the following six months
The amount of money you may have in savings that you can use to unwind should also be taken into account. For instance, you might only require $20,000 in savings based on projections for the emergency fund and between three and nine months’ worth of expenses. However, how you live and your financial condition also have a significant impact on this. 4, On the other hand, you could be uncomfortable with only having $20,000 in savings and would like to have $30,000 rather, just in case. Since it also gives you the benefit of peace of mind, there is simply nothing bad with doing this.
Just remember that the more cash you are making work for you, the less labor you have to do to earn money. Markets have a history of constantly rebounding better as long as the economy is creating. Less effort is required to earn money if you have additional funds working for you.
Questions and Answers
Do you believe keeping your money in an account for savings is a smart idea?
Savings accounts are a safe place to keep cash that you won’t need for a few months but will still be accessible in an emergency. If you have enough stashed up to cover three to nine months’ worth of bills and emergencies, or more, you are missing the chance to use the money in the savings account to generate more money through adding to your savings.
Which is preferable, having cash on hand or money in savings?
You should have enough cash on hand to cover expenses for a few days as well as enough savings to cover all expenses, including potential emergency costs, for a period of three to nine months or more. Anything over that will just sit in the savings account, exposed to inflation and losing purchasing power. It is beneficial to look for assets or accounts that you feel comfortable utilizing when seeking a place to put your cash that offers better returns.
Is $50,000 in savings a lot to have?
If you follow the common advice to save three to nine months’ worth of expenses plus emergency cash and decide that $50,000 is the right amount for you, that sum is not too high. The ideal amount also depends on your level of comfort or how much you desire to have in saving in order to feel comfortable; contrary to popular belief, if you only need $25,000, it can be too much.
