Are Savings Accounts Worth it?

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Contributor, Benzinga
June 19, 2023

A savings account can be a good choice if you want to keep your money safe and earn interest from it. It is a low-risk account, insured against bank issues. You can use the account for financial emergencies or to save for short-term goals. Are savings accounts worth it? Read more on how savings accounts work, their benefits and potential drawbacks.

What Are Saving Accounts? 

A savings account is a bank account where you can deposit money and earn interest. You can open a savings account for emergencies or short-term goals like going on a vacation or down payment for a house. Whether or not you have a reliable source of income, you can open a savings account to save for future uncertainties. 

Savings accounts are insured so you don’t have to worry about losing your money, up to a limit. However, the interest rate may be lower compared to other investment options like stocks and bonds. There may also be restrictions from the bank on the number of withdrawals you can make within a specific period.

How Does a Saving Account Work? 

It is easy to open a savings account because you only need to fill out a few forms and provide basic information. Once your account is open, you can deposit money into it whenever you want. The money you put in stays safe and secure in your account, and you can earn interest from the savings. 

A federal regulation used to restrict the number of withdrawals allowed per month, but that limitation has been lifted. Depending on the bank, however, some savings accounts may charge a fee if you withdraw money often. These restrictions can encourage you to save more and achieve your financial goals rather than withdrawing the money prematurely.

Reasons to Keep Money in a Savings Account

A savings account can be beneficial in the following ways.

1. Emergency Fund

A savings account is a safe and easy way to keep your emergency fund. You can use the money for unexpected expenses like car repairs and medical bills instead of taking expensive loans. The account can give you peace of mind knowing that you have funds readily available when you need them the most.

2. Security

When you open a savings account at a trusted bank, your deposits are usually insured by the government. In the United States, the Federal Deposit Insurance Corporation (FDIC) protects your deposits up to $250,000 per account type. Even if something happens to the bank, you can still get your money back.

3. Liquidity

Savings accounts offer high liquidity, which means you can access your money easily and quickly. Banks don’t impose penalties for taking money out of your savings account. It is a reliable choice if you want to maintain financial security during difficult situations.

4. Minimal Risk

Savings accounts may not have high returns, but they carry lower risk than high-interest investments like stocks and bonds. Unlike riskier investments, savings accounts are safe from market fluctuations and investment failures. Your initial deposit stays secure and won't be affected by any sudden drops in value.

5. Goal-Oriented Savings

Savings accounts help you save money to achieve a specific financial goal. You can use the money to go on a vacation, buy an important appliance or pay for emergencies. Decide how much money you want to put aside from your paycheck and directly deposit it into your savings account. Having a separate account for your savings also helps you resist the temptation of spending that money on things you don't really need.

6. Easy Access for Planned Expenses

Savings accounts make it easy to access your money when you have planned expenses coming up. You can withdraw the money you need when the time comes and use it for the intended purpose. The account provides a convenient place to accumulate funds while earning interest.

7. Regular Income

Although the interest rates on savings accounts are usually low, you can still count on getting regular income through interest as long as you keep saving. The bank calculates the interest you've earned and adds it to your account every month or quarter. While the return may not be substantial, it can slowly grow your savings over time.

8. Financial Discipline

When you open a savings account, you're making a commitment to save a portion of your income regularly. With time, you will develop a habit of saving instead of spending your money on unnecessary purchases. Witnessing your savings account balance grow over time can motivate you to save even more.

9. Peace of Mind

Life can be full of surprises – you may face an unexpected job loss or need to pay for medical emergencies. Putting money in a savings account can help you handle these surprises without getting into debt. You can feel more confident about your financial future regardless of what life throws your way.

Potential Drawback of Savings Account 

As much as you can earn interest from a savings account, the returns are usually lower compared to other investment choices like stocks and bonds. Some savings accounts also charge fees for maintaining your account or not keeping a minimum balance which can eat into your savings. Any restrictions on withdrawals may also hinder your ability to access your funds freely, especially in case of emergencies.

The Gateway to Brighter a Financial Future

A savings account is a helpful tool to save money for your goals and handle unexpected situations. All you need to do is create a plan that works for you and stick to it. With a little patience and discipline, you can build a strong financial foundation and pave the way for a more financially secure future.

Frequently Asked Questions

Q

Is opening a savings account worth it?

A

Opening a savings account is worth it as you can save money and earn interest.

Q

How much interest can I expect to earn from a savings account?

A

The amount of interest you can expect to earn from a savings account varies depending on factors, such as the amount you save and the interest rates offered by your bank.

Q

Are savings accounts insured?

A

Savings accounts are insured by the Federal Deposit Insurance Corporation (FDIC) or the National Credit Union Administration (NCUA) in the United States.

About Alison Plaut

Alison Plaut is a personal finance writer with a sustainable MBA, passionate about helping people learn more about financial basics for wealth building and financial freedom. She has more than 17 years of writing experience, focused on real estate and mortgage, business, personal finance, and investing. Her work has been published in The Motley Fool, MoneyLion, and she is a regular contributor for Benzinga.