I’ve spent so much time searching for the best online bank account, that I missed out on starting an interesting discussion. There’s a whole other side to the issue of savings accounts here. That’s the side against a savings account. I was too busy praising savings accounts that I forgot about the possibility of not even holding a savings account. I didn’t even consider that some readers don’t even want to bother with a savings account.
When I wrote about chasing interest rates, an unattractive reader (and friend of ten years), Vincent wrote in with his views on savings accounts.
I prefer to have a non-interest bearing account with no fees. The money you make on interest has to be claimed on your tax return and since the amount is so small I prefer not to deal with that. Truthfully I try to keep a very small amount of money in the bank and keep my life more private.
This comment leads to the obvious question. Should you even bother with signing up for an online savings account? For some of you reading this the answer is clearly in favor of a savings account because you want your money to be secure at all times. Then there’s the flip side that feels that there are way better options for your money than keeping it in a savings account. I wanted to briefly look at both sides to the argument.
Why should you not bother with an online savings account?
I’ve covered the best online savings accounts here in the past. While writing up about different bank accounts I was totally transparent and told you guys that the interest rates are not impressive with savings accounts these days. The truth is that a savings account comes with no risk, which means that the reward aspect is also low. You’re not going to earn much money on your money with a savings. To an aggressive investor this is a huge turn off.
A savings account is also a boring way to invest money for those reading this that want to see instant results. With real estate you deal with tenants, with stocks you can buy and sell at any given time, and with your own business you see many swings in revenue and growth. With a savings account your money just sits there and earns a tiny percentage.
Why should you bother with a savings account?
There are many benefits to a savings account. I’ve covered savings accounts here many times, so I’ll just skim over the main benefits:
- Security. With a savings account your money is FDIC insurance up until a pretty high amount and there’s no risk involved. You’re not investing your money in a company or a property that you’re praying will appreciate in value. Your money is locked up and safe.
- Passive investing. You don’t have to do anything once you place your money in a savings account. This means that your investing is passive and you can focus on other areas of your life.
- Liquid money. You can always access your money in your savings account. It might take a few days to physically get the money, but your money is always fairly liquid and available to you in case you really need to access it.
I’ll summarize by saying that a savings account won’t give you the best return for your money, but at the end of the day you’ll know that your money is always safe. For some of us that feeling is priceless.
You have the information that you need and now the decision lays in your hands if you want to keep your money in a savings account. The great news is that you don’t have to go all or nothing. If you want to be more aggressive with your money, you can always keep your emergency fund money in a savings account.
I think savings accounts are a convenient and safe way to put aside money for short and even medium-term financial goals. It’s more secure than sticking it under the mattress, for example. I have several different savings accounts at an online bank, all of which are linked to my checking account. I can easily transfer money in and out as needed. People who are looking to invest for the longer term, or those looking for a better return on their money, shouldn’t consider savings accounts. Convenience is the biggest draw of savings accounts in my view.
I’ve always held Ryan’s view as well.
Even once I’ve got the emergency fund fully funded, I don’t plan on leaving that in savings. $12k is an awful lot of money to just be sitting there earning 0.05%, or even 1% (the highest online savings account rate I’ve seen). That and it’s TOO accessible. Too easy to turn to for a craving. I read one post with the idea of setting up a series of CD’s so that in any given time, only 1/5th of his fund would be accessible. But if an emergency happened, by the time he used up that portion, another CD would come to term.