I still remember when I opened my first savings account at age seven. It was a special event and one that meant something. I was earning money on my savings…free money! To a young lad, it was something that seemed almost too good to be true.
Fast forward nearly three decades and I’m probably earning less in interest now on my savings each month than I was as a seven year old. However, when I saw the article on MSN Money entitled, “Why you should close your savings account” I found myself having to read it. The piece noted the following reasons to ditch a savings account: low fed rates (poor returns on savings), money crunch (not having enough money to save), technological advancements (that make it more expensive for banks to offer and service savings accounts), and regulations (that have banks pushing checking rather than saving accounts).
While I agree with some of these points, I don’t altogether agree with the premise of closing a savings account because there can still be advantages to having such a fund.
Harder to siphon money from
In many cases, people are more likely to link outside payments to their checking rather than savings accounts. Utilities costs, subscriptions payments, automatic transfers, debit card payments, and much more could all come out of a checking account. With a savings account, savers would likely have to fill out withdrawal slip or at least do an online fund transfer, which might not sound like much work, but it could be enough to turn someone off making a withdrawal, thereby keeping those savings intact.
It seems that for many people these days, it’s becoming harder just sparing enough money to have a savings account. However, if you’re lucky enough to be able to do so, the savings themselves could be the reward, acting as emergency funds to cover a variety of unexpected and costly situations. From a car or home repair to health and medical bills or job loss, a savings account can come in handy as a reserve fund from which to draw upon in an emergency.
Savings is savings
While you might not be earning much if anything in interest, and inflation could be slowly chewing away at your savings, this money – if left alone – likely isn’t going anywhere either. It’s protected by FDIC, and hopefully out of sight and out of mind when it comes to discretionary spending. Once you put the money in your account, it may sit untouched for months or even years, which can be a benefit in itself. Unlike the stock market where funds can sometimes grow or decline rapidly, while this money may not be doing much growing, it’s relatively safe and sound and will be there and relatively accessible and with few restrictions – tax, time or otherwise – when you need it.
I already mentioned the FDIC as a protectorate of savings accounts, but there are other reasons such accounts might be considered safer than the standard checking account. Savings accounts aren’t as like to be linked to things like direct deposit, debit cards, PayPal, automated bill pay systems, automated tax refund systems, or overdraft protection. This means that the associated account and routing numbers aren’t as likely floating around and hopefully have a lesser chance of falling into the wrong hands. While such things don’t mean that a saving account is completely protected against theft or fraud, they could at least make savings somewhat safer than checking accounts.
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The author is not a licensed financial or banking industry professional. This article is for informational purposes only and does not constitute advice of any kind. Any action taken by the reader due to the information provided in this article is solely at the reader’s discretion.