The Best Uses for a Savings Account

A savings account is one of the most basic accounts offered by banks, giving you a safe place to keep your money and allowing you to access it easily. Most savings accounts pay a small amount of interest of your balance, and minimum balance requirements are usually relatively low.

If you don't have a savings account, you might be doing one of two things:

Keeping your extra funds in your checking account OR
Keeping your cash in a secret place at home.

Letting your extra money sit in your checking account can make it harder to know how much you've actually saved. If you're using a financial management platform, like Mint, you'll have an easier time earmarking savings funds. But a savings account helps you keep savings completely separate.

Keeping cash under a mattress or in a jar on top of the fridge leaves it vulnerable to damage and theft. A house fire, for example, could destroy your savings in an instant.

When you put your money in a bank savings account, your deposits are insured by the FDIC for up to $250,000 per depositor, per bank. Not only does the bank offer physical protection for your money, but the FDIC protects your money in the event your bank goes under.

What are the best uses for a savings account?

Staying on track for long term goals.
When you're first building an emergency fund, or saving for a large expense, it can be tempting to dip into what you've saved. It's easier to get off track if your money is readily available in your checking account.

For some, it's much easier to save money when it's outside of your checking account. It somehow feels less available for everyday spending, and it's easier to see how much you've saved.

Keeping your savings separate can help you avoid overspending and stay on track with your goals.

Saving for short term expenses.
Whether it's a family vacation, replacing a major appliance, or braces for the kids, a savings account is a great place to put money away. Little by little, you can make progress toward your goals while keeping your money safe.

If you are saving for something specific, you could try setting up an automatic transfer that moves money from your checking account to your savings account. This helps you get used to that money being moved and you might find you don't even miss having it available for spending.

Earning interest.
When you put your money in a savings account, the bank is able to turn around and offer loans to other customers, so the bank pays you interest as a sort of thank you.

The amount of interest you earn varies by bank and often depends on your account balance, but even a small amount of interest is better than zero.

Teaching kids about money.
Help kids learn the value of saving by helping them bank a portion of money they receive as gifts or allowance. You can even offer to match a portion of every dollar saved to encourage kids to save more. This is similar to how an employer encourages employees to contribute to a 401(k).

Most banks have low minimum deposits and will allow you to open savings accounts specific for children. Try this strategy and foster a lifelong joy of saving in your child.

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