A savings account is defined as “an account at a bank which accumulates interest”. It is not very popular among investors due to its low returns. People generally deposit money (that they do not intend to use for daily expenses) into their savings account. Banks allow anyone with a valid identify proof to open a savings account.
There are many pros and cons of having a savings account. Here is a brief description of some of them.
Advantages of having a savings account
Liquidity is one of the main advantages of a savings account. Savings account enables you to withdraw cash any time. You need not be a millionaire to have a savings account. You may start with as little as $25 (depends on the bank) or even less. However, some financial institutes require you to maintain a minimum balance. They charge a fee if you don not maintain that balance.
Opening a savings account is a secure way of investing your hard earned money. Savings accounts are insured (up to $250,000 per depositor per account) either by NCUSIF (National Credit Union Share Insurance Fund) or by FDIC (Federal Deposit Insurance). You will not lose your money even if your bank shuts down.
Some savings accounts also offer high-yield options for their customers. Savings accounts are ideal for children and the elderly. It is a great way to encourage your children to save money. It is an ideal investment option for the old people who are more likely to be concerned about the security of their funds.
“Auto withdrawal” facility offered by many savings accounts makes your life easier. You may use this facility to fulfill your monthly (utility or phone bills), quarterly or annual (insurance premium) financial commitments without wasting your precious time standing in long queues. Savings account is ideal for salaried employees. Your employer can directly deposit your salary into your savings account every month. Banks generally offer many benefits for salary account holders.
Disadvantages of having a savings account
Interest rates (usually less than four percent) offered by savings accounts are very low. If you invest all your money in various savings accounts, you are more likely to lose in the long run. If you want higher return on your investment, you should not go for this option.
Your savings account enables you to manage your funds more efficiently and should definitely be a part of your overall financial planning.