The Advantages of Having a Traditional Savings Account
Here's Why You Still Need a Traditional Savings Account
Though traditional savings accounts don't get the attention they once did, they can be an important part of not only your day-to-day financial planning, but also your retirement planning. Savings accounts provide you with a risk-free way to put money aside, be it for tomorrow or for a retirement many years away.
Advantages of Savings Accounts
Savings accounts are perhaps one of the first types of bank accounts you will have.
Maybe even before a checking account. It is one of the simplest and most straightforward accounts you can own. A savings account allows you to store cash safely with an insured bank or credit union with as little as $25 to open.
Though the cash is a little less accessible from a savings account versus a checking account, it is still a liquid asset to which you have almost unbridled access. But the defining feature of a savings account is that you can earn some interest. Though the return is minimal, it is more than that money would be earning in your checking account and it is still more readily available than if it were invested in another vehicle like a Certificate of Deposit (CD) or other security like stocks.
Additionally, savings accounts are arguably one of the safest places to hold cash, as up to $250,000 per account per bank is FDIC insured. But in exchange for that extreme level of safety, you typically give up any opportunity for significant financial gain and instead receive a nominal rate of interest in your savings accounts.
Numerous banks offer high yield savings accounts which typically have competitive interest rates. With interest rates still historically at lower than average levels you still want to comparison shop to find the best account for your goals.
If you are looking for savings accounts to help you reach your emergency funding goals you can find reviews of some of the popular accounts through the pages linked below:
- Highest Savings Account Interest Rates
- Online Banking 101
- Banking Blogs and Communities
- Where to Open a Free Savings Account
- Deposit Accounts (research bank and credit union accounts)
Savings Accounts for Emergency Funds
Savings accounts retain their importance throughout all the phases of your life because it is always critical to have safe, easy to access money set aside for emergencies. Most financial planners recommend keeping at least 3 to 6 months' worth of basic living expenses in a separate account from your everyday checking. However, your comfort level for emergency savings may call for an emergency fund that exceeds this ballpark estimate. An emergency could occur for any one of a number of reasons including job loss, car accident (to pay the deductible), medical issue (there's that deductible again), or unexpected home repair. When you need money fast, you don't want to have to put the expense on a credit card. You also don't want to need to sell a stock or another volatile investment to come up with the necessary funds. After all, it's unlikely you were otherwise planning to sell the affected investment the day you sold.
Perhaps the most important aspect of having a fully stocked savings account before retirement is that the existence of an emergency fund in a savings account allows you to save other money more aggressively for retirement during your working career than you could otherwise.
Then when you are retired, savings accounts allow you to sleep better at night knowing that you are prepared for the unexpected.
Types of Savings Accounts
Today there are many types of savings accounts offered at banking institutions. You could have a savings account that is linked to your checking account or you could even have a savings account with a bank that solely operates online. We suggest reviewing your options to find what's best for you. Is it more important to you that your savings and checking accounts are held at the same bank to allow for seamless and instant transfers? Or would you be willing to give up the brick and mortar bank for an online option that offers a higher interest rate? The choice is yours.