Monday, 6 May 2019
Given the wide range of lucrative options for socking away cash, you may wonder whether the simple savings account has a place in your financial picture.
While you may find higher interest rates and market-beating investment gains in other financial instruments, a bank savings account offers a number of advantages worth considering.
Savings accounts are easy to open, allowing you to start putting away money with a low minimum deposit. They're a relatively hassle-free way to work toward goals and secure your financial position, save for rainy days and happy milestones.
And unlike time-restricted deposit accounts and various investment vehicles, a straightforward savings account offers quick, penalty-free access to your cash — although there are regulatory and possibly bank specific limitations on the number of withdrawals allowed per month.
In addition to these advantages, you may be able to link your savings and checking accounts to avoid inadvertent and costly overdrafts.
Because of its simplicity, a savings account offers an ideal place to keep emergency funds, which experts recommend should amount to anywhere from three to eight months of living expenses. Easily accessible cash reserves not only serve as a buffer against job loss and other major financial blows, but also allow savers to handle smaller, urgent costs.
As of 2017, the Federal Reserve reported 40 percent of adults faced with a $400 emergency expense would either have to borrow money or sell something to pay for it. Even small, regular deposits into a savings account will help prepare for expenses that might otherwise pose a hardship.
A savings account is also a great spot to park cash you're amassing for specific near- or medium-term goals: a vacation, a car, a wedding, household renovations, summer camp, a down payment on a home.
Unlike most checking accounts used for everyday expenses, a savings account pays interest, allowing your money to grow as you build up your cash reserves. Consumers who set aside enough cash to maintain a large minimum deposit should be able to earn higher-than-average interest rates in certain savings accounts.
A savings account is one of the lowest-risk places to keep your funds in terms of preserving cash. While other financial vehicles may be better choices for long-term gains, the balance on a traditional savings account won't dip based on daily market dynamics, making this type of account an ideal place to set aside money for emergencies or a new car .
Like certificates of deposit and traditional checking accounts, savings accounts are protected by the Federal Deposit Insurance Corp., a government agency that insures up to $250,000 per depositor per insured bank.
Keep in mind that no savings or investment option is completely risk-free. Over the long term, inflation that outpaces a bank's interest rate may dilute the value of your savings, even if the balance itself doesn't fall. Savers also should explore account terms to make sure they meet the requirements necessary to avoid bank fees.
Overall, a savings account is considered a secure option. While stocks, bonds and other investments often yield greater returns over long periods, consumers looking for the right savings and investment mix, or with specific cash needs, may be more comfortable with this type of account.
Even for consumers who invest in equities, bonds and mutual funds to build wealth over the years, a savings account can prove to be an important strategic choice, offering a convenient, safe tool for integrating stability and liquidity into your financial portfolio.
The content provided is for informational purposes only. Neither BBVA Compass, nor any of its affiliates, is providing legal, tax, or investment advice. You should consult your legal, tax, or financial advisor about your personal situation. Opinions expressed are those of the author(s) and do not necessarily represent the opinions of BBVA Compass or any of its affiliates.
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