A savings account is a deposit in a bank that earns a nominal rate of interest. Bonds and stocks are good options to invest in when looking for long term returns and when open to taking risks. However, a savings account can be a more suitable investment for some people due to some of the benefits offered.
- Less risk One does not lose any money when they put their money into a savings account. On the other hand, there is some loss of money over time with other investments. Whenever there is some kind of fluctuation in the markets, a savings account remains unaffected. If one does not want to face any loss in the value of one’s investment in the immediate future, a savings account is a great option. For example, there was a 40 percent drop in the value of S&P 500 index in 2008, but the value of savings accounts remained the same.
- Availability of money Another advantage of having a savings account is that one always has access to the funds in their account. One can easily withdraw funds from any ATM. This isn’t possible with other types of investments and it usually takes many days for the money to come into one’s account. Due to this, a savings account can often serve as a fund for emergencies or for when cash might be required. With other kinds of investments, it will take more time before one can access their funds.
- Deposits insured by FDIC A savings account is FDIC insured, which means that the Federal Deposit Insurance Corporation insures the initial $250,000 put into the account, if the bank fails. This way, one knows that the money is safe even if the bank is in financial trouble. A new account might be opened with a different bank while maintaining the old balance or money, which will be given directly to the account holder. With many other investments like bonds or stocks, one does not get any money back if the company runs into financial trouble. Unlike a savings account, one does not have any protections while investing elsewhere.
- No big investment needed With other investments like mutual funds and real estate, one needs to have a substantial amount to invest initially. However, the minimum balance required for a savings account is fairly low. One can usually deposit the amount they have. Some banks might offer high rates of interest if the sum deposited is large, but all you need is a minimum balance to have an account.
- Earning a return One can earn some returns on the money deposited in a savings account. The rates, however, are as low as 2 percent at some banks. When compared to stock markets, this might not seem like a large amount of return, but it is more reliable and steady. One will earn through returns regularly without any decline. In recent times, there has also been in a rise in the rates for a savings account.
