One of the basic pieces of advice is to make sure that your money is working for you.  And of course you want that work to yield maximum returns.  Finding good investments at low cost is a perfect example of a way to make this happen.  While you definitely want to make your money work for you, don’t get carried away.  See, some people fall into the belief that every single dollar has to make money.  While this would be nice in a perfect world, it isn’t always possible.  This is no more true than with a savings account.

The Savings Account: Then And Now

Until the recession that started around 10 years ago, a savings account was a great way to earn a little money.  You could stash money away, risk free, and still earn some interest.  It wasn’t a whole lot, but it was generally enough to keep up with inflation.

Then, the recession hit.  In order to spark the economy, interest rates fell to all time lows.  This was great for borrowers, but for savers it meant that interest rates on savings accounts fell to zero, or pretty darn near that level.  While interest rates have creeped up a tad, they still remain at practically historic lows.  Again, it’s great if your borrowing, but not so much for savers.

Should You Ditch The Savings Account?

With savings accounts paying nothing or close to it, the money you keep there isn’t earning you anything.  In fact, when you factor in inflation, a savings account could actually be costing you money.

So the logical question becomes whether it is time to get rid of the savings account.

To that, I say, take a deep breath, relax, and hold on to your savings account.

In short, no.  Don’t get rid of the savings account.

Why A Savings Account Matters

The fact is that a savings account still holds value in the personal finance world, and should be part of almost every household.  The value, however, isn’t in the interest it pays.  Savings accounts provide value in the easy access to money and the security in knowing that you have money available quickly.

Think of some of these possible scenarios:

  • What if your credit cards get stolen and you need to pay for stuff before new ones come up?
  • What if you have a natural disaster strike and cash becomes the only way to get goods?
  • How about if an unexpected bill comes your way?

In many cases, the window for getting access to money held in different types of accounts is shortening.  Without a savings account, you could theoretically sell an investment in a brokerage account, and transfer the money over within a day or two.

That’s all and good, but that’s still an entire day or two that you have to wait.  Is that a matter of life and death?  I certainly hope not!

Keep A Nominal Amount In Savings

The smartest strategy is to keep a small amount in your savings account.  If you have $100,000 in savings, chances are you won’t need access to that amount, and the potential lost earnings is meaningful.

But $2,000.  That’s certainly manageable.   And if that costs you, say, 2% a year, that amounts to $40.  I think that little bit of lost income is worth the peace of mind of knowing that you have quick access and are covered for anything that comes about that might require up to $2,000.

Don’t you?

Readers, what do you think?  Do you think savings accounts are obsolete?  Do they still hold value?  What is your strategy with a savings account?  Let me know in the comments below.  Thanks so much for reading!