Personal Finance
August 6, 2018

Why Using a Traditional Savings Account Isn’t Such a Bad Thing

Written By Mary Beth Eastman
Last updated August 6, 2018

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A traditional savings account may seem boring. The interest rates are relatively tame, and your money accrues slowly and steadily. There isn’t much excitement involved—but that’s actually a good reason to use traditional savings accounts. Sure, they’re not flashy like stock market or real estate investments, but they’re a way for you to build some solid cash at virtually no risk.

You can end up with a mountain of cash with some types of investments, but you could also end up throwing your money down a deep hole. In general, the higher the potential return of an investment, the riskier it is.

The Federal Deposit Insurance Corp. insures savings accounts up to $250,000 (although single accounts you hold at a bank such as CDs, savings and checking are added together toward that limit).

In any case, you’re extremely unlikely to lose any money you put into a savings account—let’s go ahead and put the risk at 0 percent. However, do always check that the places you are considering are FDIC-insured (most, if not all, should be).

It’s tempting to put the huge majority of your cash in potentially lucrative, long-term investments or even low-risk ones such as CDs. However, if an emergency occurs and you need cash immediately, can you get it without a penalty? With savings accounts, you can. CDs, for example, may tie up your money for several years, and you stand to lose the interest you have accrued if you withdraw the money early.

In other words, a savings account lets you build the amount of your savings by a little bit while keeping it liquid and accessible.

You could end up losing all of your money if it’s funneled into vehicles such as stocks or real estate. Savings accounts are one way to balance that risk. A diverse portfolio is often a healthy portfolio, and you can have savings accounts along with laddered CD accounts.

Savings account rates can seem dismally low at brick-and-mortar banks. If you’d like to see a little more bang for your buck, you have the option of using online banks such as Ally, American Express National Bank or Synchrony Bank (there are many!). They’re able to offer higher rates because of the money they save on not having a physical banking infrastructure.

When you’re looking at the different options for savings accounts, whether online or at physical banks, consider any required minimum balances to open or maintain an account, fees, fee amounts, and if they’re important to you, mobile-friendliness and types of customer service.

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