Why keep cash in a savings account instead of a checking account? Walk into your nearest bank branch and ask about their savings accounts. They’ll probably advertise the fact that you’ll earn interest on your savings. The thing is, most of these rates are something like 0.1%. Not even a percent! $1000 would net you maybe a buck.
Now that doesn’t mean that savings accounts aren’t worth it. There are multiple benefits to having a savings account:
1. Interest – Consider a savings account with Ally bank, as of writing they offer 2.2% APY. Now, $100 will only net you $2.20. But over years and years of consistently adding a few hundred or even a thousand into an account like this will start netting you real money. At least, it’s going to beat inflation. Otherwise, your cash loses value over time.
2. Safety – Anyone who’s invested in the stock market will tell you that 2.2% is pretty low. That’s basically the bond market. Average returns of the S&P 500 are something like 10%. But understand that that comes with a lot of “chop” – ups and downs, sometimes very big and very long. The conservative rate of a savings account comes with knowing that your investments will be ready for you when you need them, the perfect place for your emergency fund.
3. Out of Sight – This benefit might be a stretch, and those who properly budget understand it’s not very necessary, but for some – this is a big benefit. By moving cash out of your checking quickly to savings, you limit your own spending in a way. If you don’t budget and just check your account balance before spending (which is dangerous), this is a great way to keep yourself in check.
We use savings accounts along with our checking and investment accounts to make nice rounded out portfolio. One that performs and is also safe and sound and ready for emergencies. I highly recommend you open a savings along with your checking and investments and reap the benefits they offer.