It’s been said time and time again how important it is to establish a savings account, but are all savings vehicles equal?
The easy answer is an obvious no – traditional savings accounts at banks are clearly different from piggy bank savings, savings bonds, or savings accounts dedicated to specific future financial needs (such as 401k, IRA and 529 plans).
However, the differences aren’t that cut and dry even within those categories. Not all traditional savings accounts carry the same benefits, and it is prudent to look closer before haphazardly using the savings account connected to a checking account out of sheer convenience.
Don’t Be A Rookie
Looking specifically at emergency savings — savings dedicated to building a financial cushion in case of unanticipated life events — it is worth the time and energy to do your research.
It’s a rookie mistake to not look at various savings account options at your home bank and beyond. Specifically, looking at the interest rates offered on savings accounts can send your savings from drab to fab over time.
Fortunately for those who have not done their research, any amount set aside for savings in any form is better than no money set aside. Unfortunately, not seeking out high interest rates on traditional savings accounts can leave you with less money than what could have been available and constantly growing.
Not All Bank Savings Accounts Are The Same
Different institutions provide different interest rates; the benefits may seem inconsequential at face value, but over a longer period they can quickly become apparent in very tangible ways.
A frequently overlooked advantage of looking for the highest interest rate is that some banks offer substantially higher interest rates than others. There are banks that still offer zero or near-zero interest rates on savings accounts — which, in terms of financial gain, is essentially the same as stashing cash under your mattress or in a piggy bank.
The Power Of Interest
Accrued interest may not seem like much over a short amount of time; 0.25 percent APY may only add a handful of quarters over the course of a year if the account isn’t larger than triple digits.
However, if a savings account is not depleted, the initial amount invested as an emergency fund can quickly grow without you ever having to deposit more into the account.
Because savings accounts are so often established as funds for unanticipated life events such as medical emergencies or job losses, having the most available with the least amount of work will inevitably benefit you and your family.
Investopedia’s Stephanie Barton commented, “It’s difficult to predict financial emergencies, which is why you need to be prepared.” And, the simplest way to be prepared is to set aside money that accrues interest, is readily available and is dedicated entirely toward specific goals.
Setting money aside for specific purposes and only touching it when the need arises allows the money to remain in a growing account if no emergency or unanticipated event occurs; you only need to set up an emergency fund once and refurbish it if the funds are touched.
By setting up a savings account with a high interest rate and letting it mature until it’s needed, you can easily prepare for life’s uncertainties. Watch the rewards of financial literacy multiply and reap the benefits of financial readiness. Use the assets available to your advantage and take control over your financial portrait.