Those investment vehicles can provide a wonderful long-term return on your money, but they come with disadvantages. They could carry quite a lot of risk. Often, there is a large sum of money required for a minimum investment. Sometimes it can be challenging to get your money from the investment. Those are all substantial disadvantages that are overlooked when folks get excited about the prospect of huge returns.
On the opposite side of the spectrum is your humble savings account. It is not glamorous. In actuality, it’s pretty dull — so dull that lots of folks don’t even qualify it as an investment, though like any other investment, it is a system of putting aside money for the future so as to make or preserve wealth. And it’s an investment option that takes care of any problem mentioned previously.
Lots of individuals overlook savings accounts due to the comparatively low long-term returns that you may expect from a savings account when compared with the expected returns of other long-term investments. Many times, savings accounts yield a rate below inflation. However, numerous other benefits of savings accounts compensate for this relatively low yield.
Let us take a close look.
It is FDIC-insured. You would be paid that money directly or, more likely, a new account could be opened for you at another bank with the same equilibrium as before.
This isn’t the case with other kinds of investments. If you have a stock, and the business you own stock in goes out of business, you are left with nothing. The exact same goes with a bond. Precious metal markets vary rapidly and cryptocurrencies often devalue all of the way to nothing. In those markets, there is nothing to protect you. You are not insured against catastrophe like you’re in a savings account.
Simply put, you are not likely to lose money on your savings account if a company fails. The exact same can’t be said of a number of other investments.
It is low-risk. Savings accounts, by their very nature, do not lose money. In many investments, you are going to lose money over the duration of individual days, weeks, months or even years. But using a savings account, your balance will not return. It is only going to go up.
This is a massive mark in a savings account’s favor in a downturn in the stock market, bond market or real estate marketplace. In 2008, when the S&P 500 dropped almost 40 percent of its value in one year, savings accounts anywhere held all their worth and even increased in value.
The benefit of savings accounts here is they’re protected from volatility. If it’s very important that you not shed value on your investment in the short term, then a savings account will accomplish that wonderfully. That won’t occur in a savings account.
If you can not afford to eliminate some of your money, a savings account is a superb place to put it. Most savings accounts may be accessed day or night at any ATM. Just slip on your debit card, hit a couple of buttons, and the money is in your hand.
That is not true for a number of other investments. The more liquid ones may take a few days to get money in your pocket (or, more correctly, into your checking account).
This is the reason why a lot of men and women use their savings accounts as an emergency fund. When an emergency comes, they are easily able to access those funds and instantly have the money they need to handle urgent life issues. That often does not work with other investments. Even though a savings account does not earn a large return, it can make a small one — just as much as 2%, depending on the lender.
That is not a massive flashy number just like you could earn in the stock exchange, but it is a stable and reliable number. You will make that return like clockwork, and it will not ever dip you (unless your lender notifies you that it has adjusted rates). In reality, lately, savings account rates have been climbing steadily. That’s much better than the alternative of simply stashing money in your mattress.
It does not need a massive initial investment. Most real estate investments are rather costly, often requiring a mortgage in order for most people to have the ability to afford them. You deposit what you have, and that is good enough. Some savings accounts do provide higher interest rates if your balance is sufficiently large, but there is almost never a minimum to just open and maintain an account.
You are not going to get rich from a savings account, but you are not going to lose your shirt, either. A savings account is a safe place to put your money when you can not afford to get rid of any or think you will need it in a crisis. It’s a great short-term option.
Do not overlook the merits of the normal savings account. It can and must be a part of your budget.