Maintaining a bank account dedicated to just savings is a part of good financial planning. These accounts can be used to hold money that is not intended for daily expenses and normal living costs. They also have a few other benefits. There are several reasons why everyone needs a savings account today.
Earn Some Interest
One reason to always have a savings account is that the money inside will earn interest. A checking account does not usually pay any significant amount of interest. Interest is the amount the bank will pay the account holder for the use of the money in savings. This can earn a small amount of money every year for doing nothing more than keeping a certain balance in the account.
Overdrafts are usually accompanied by large fees and other penalties. Having an account for savings can protect against overdrafts. Most banks will withdraw any money needed for purchase from the savings portion of the account automatically if there is not enough in the checking account. This can prevent unexpected fees.
Make Saving Simpler
A separate account makes saving money simpler over time. It is possible to automatically transfer money from a checking account to savings every time a deposit is made. There is no need to withdraw and then redeposit the money. The money saved in the account is not always readily accessible. It does not show up on all balance inquiries. This separation of finances makes it easier to save for the future.
Keep Money for an Emergency
Savings in a dedicated account can form the basis for an emergency fund. The fund is a financial cushion that can help when an emergency occurs. The emergency could be medical bills, car repairs or even the loss of a job. The emergency fund can contain a few months of living expenses held safely in the account. Emergency funds are an important part of financial planning.
A savings account helps to protect money against disasters or unexpected events. Not using this type of account could mean money is kept physically in a home or apartment. It could be in a questionable type of account with an employer. Real accounts for savings are usually guaranteed by the government. The money in the account is protected if the bank is robbed. It is also protected if the bank becomes insolvent. These accounts are the best place to keep money when building long-term savings.