In recent years, the interest rates of savings accounts have plummeted. Because of this, many people do not see the value of having a savings account as the rates are not as high as they used to be, so the possibility for taking in any interest income has diminished to nil. However, there are many pros and cons for keeping your money in a savings account.
Pros
Savings accounts are easy to open. Via online forms or within the branch, with some initial funds, it is possible to open a savings account quickly.
Many people like the fact that savings accounts are easily accessible. They can be linked to checking accounts and money can be transferred between the accounts quickly without any additional fees. Some of the banks – such as Chase – have such low interest rates, that you don’t even receive any interest for keeping your money in the account.
In addition to being accessible, savings accounts are flexible. Account owners are able to determine how much they want to put in, and when they want to deposit the funds. Some accounts do require a higher balance amount in order to receive a higher interest rate, but for the majority of accounts, you do not have a balance or funding requirement.
Cons
Savings accounts aren’t worth the effort. Many people are turned off by the fact that they can earn just as much interest by storing their money under their mattress. People also consider CDs, which have higher interest rates but means that the money is locked in for a period of time – usually six months, a year or several years – so it is impossible to reach it if you need it.
An alternative to savings accounts are money market accounts, which are a tad bit riskier but have bigger returns as they often receive double or triple the interest rates as saving accounts today.
What to do?
Consumers who are interested in finding a way to save their money but that need accessibility and flexibility should choose a savings account. While some banks don’t have significant interest rates, there are several others that do have rates over one percent. ING, Ally and SmartyPig are great options. In addition, local credit unions tend to have higher interest rates than traditional banks.
If consumers don’t need immediate access to their accounts, CDs are great options to consider as rates are much higher. However, it is best to have an emergency fund or an account that has funds put aside to access in case something unpredictable comes up. For that reason, a savings account is a good asset to have.