The importance of having a savings account cannot be stressed enough. It helps to have money set aside for your needs. The money you saved can be used for holiday trips, to pay for college tuition or to be spent on your wedding. Other expenses such as car payments and home purchases can also be paid using your savings but it can also be argued that these are also payable through loans. So if expenses can be paid through loans, is there still a need for savings accounts? Here’s a look at the pros and cons:
List of Pros of a Savings Account
1. It accrues interest over time.
There’s a huge difference in saving money into a piggy bank and putting that money into a savings account. Money in a piggy bank just stays there – it doesn’t grow. On the other hand, the money you put into a savings account will grow over time, and as your savings increases so does the interest it accrues.
2. It provides security.
While we can surely rely on credit cards when we lack cash, those amount to debt when you are not careful with how you use it. You spend money you don’t have then bawl over when you finally receive a bill showing how careless you’ve been with plastic. And when you get hit by an unfortunate situation, a credit card won’t do you any good.
For instance, suppose you lost your job. How are you going to pay for basic needs with a credit card? Sure you can still swipe it but you do need to pay that money back at a certain point. You can’t expect to get a job the next day after losing it – luck doesn’t always work that way. With money saved up, you can plan your next steps a bit better.
3. It is available 24/7.
Modern banking and the internet allows you to access your money at any time of the day wherever you may be. Yes, the same thing can be said for credit cards but you also need to come up with the money to pay for the debt when it is due.
List of Cons of a Savings Account
1. It offers low interest.
Yes, you earn interest when keeping a savings account but the rate you earn is much lesser compared to others. A savings account earns you lower interest compared to certificates of deposit and other higher-interest bank products.
2. It is limited in terms of withdrawal amounts and it requires a minimum balance.
Banks require a certain minimum deposit when opening up a savings account. Sometimes, it may take a while for people to hit that certain mark or worse, they end up spending the money they have saved to open an account. And while transferring funds is pretty simple using a savings account, banks impose a limit on the amount and the types of withdrawals you can perform. Also, some banks collect fees on their savings accounts like charging a monthly maintenance fee.
