A savings account is an important aspect that is easily overlooked. A checking account is the primary tool in your financing. Your direct deposits, bank cards, and automatically paid bill accounts are usually linked to your checking account. You may feel that it’s better to put savings into investments where they can grow over time.
Restraining the Desire to Spend
A savings account forces you to separate a portion of your money from the cash you spend daily. This alone can help eliminate the urge to spend money you might prefer to save. Creating barriers to limit impulsive spending can help in sticking to monthly budgets and avoiding debt.
Preparing for Surprises
A savings account is an excellent place to keep emergency savings. Everyone should strive to stash away a significant amount of cash in case of an emergency. You can never predict when your water heater or roof will need replacing, or when your garage door might stop working; your car may need major repairs, or your employer may shut down. When something like this happens, having an emergency fund in your savings account makes it easier to deal with. It may be a painful event, but you’ll be able to handle it with ease.
Keeping Your Money Safe
When you have more money than you need to spend right away, it’s essential to keep that money safe. There are obvious risks with investments, but holding cash comes with its own risks as well.
Saving to Achieve Goals
Opening and managing a savings account forces you to organize your finances and makes it easy to plan for the future. However, even if you are already planning for the future, it can be challenging to track your savings progress if you keep all your money in a checking account. To help you organize and reduce fees, look for online savings accounts that allow you to set up multiple sub-accounts.
Easy Access to Your Money
Savings accounts are among the most liquid options for storing your money. If you need to spend money, it’s easy to transfer funds to your checking account (transfers within the same bank are almost instantaneous). ATMs will allow you to withdraw cash from your account just as quickly. In contrast, other types of accounts like certificates of deposit (CDs) or investments in a brokerage account may restrict the ability to move money quickly.
Accounts Are Usually Free
With the number of free accounts available, why not have a savings account? Online banks, in particular, allow you to open an account with no minimum balance and don’t charge monthly fees.
Disadvantages of Savings Accounts
There are very few disadvantages to savings accounts, but it is essential to understand them. The primary drawback of savings accounts is that your money earns relatively low interest rates. This is by design—it is intended to be an alternative to a coffee can buried in the backyard or cash under the mattress.
How Much Is Considered Too Much in a Savings Account?
It is best to keep what you might need for specific purposes in your savings account. To determine how much you should keep in savings, tally all the expenses you think you may need to cover.
You should also consider how much you are comfortable having in your savings account. For example, you might only need $20,000 in savings based on your emergency fund calculations and three to nine months of expenses, depending on your financial and living circumstances. However, you may not feel comfortable having just $20,000 in savings and want to have $30,000 set aside just for emergencies. There is nothing wrong with that, as it also provides you with mental security.
Make sure
Just a reminder that more money working for you means less work you need to do to earn money – even when the market is down, it has historically always bounced back strongly as long as the economy is producing.
Frequently Asked Questions
Is it worth keeping money in a savings account?
Savings accounts are meant for money you won’t need in the next few months, but keep it available in case you need it. If you have enough to cover three to nine months or more of expenses and emergencies in a savings account, you’re missing the opportunity to use that money to earn more by adding it to your savings account.
Should you keep money in a savings account or cash?
You should keep enough cash to cover a few days’ expenses and keep money in a savings account to cover three to nine months or more of expenses and emergencies. Any amount beyond that is just sitting in your savings account, leading to a loss of purchasing power due to inflation. It’s beneficial to find accounts or investments you feel comfortable with that yield higher returns for storing your money.
Is $50,000 a lot of money in a savings account?
If you follow the general guideline of keeping three to nine months of expenses and emergencies in your savings account, and $50,000 is the right number for you, then it’s not too much. On the other hand, if you only need $25,000, it may be too much – the right number also depends on your comfort level or how much money you like to have in your savings account to feel secure.
Source: https://www.thebalancemoney.com/best-reasons-to-keep-your-savings-account-4307372
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