Do I Need a Savings Account?
When it comes to saving money, you have an abundance of options to pick from, such as traditional savings accounts, certificates of deposit, money market accounts, individual retirement accounts and 401(k)s. Even if you already have a savings vehicle for retirement, having a traditional savings account can give you a financial boost when you need it — without dipping into your retirement funds or busting your monthly budget. Here’s a look at why having a savings account is still a good idea.
What Is the Point of a Savings Account?
Your paycheck is likely automatically deposited into your checking account on a regular basis. From there, you can move some of that money into a savings account to plan for future expenses.
A savings account is a secure place to hold your money, so you don’t immediately spend it. You’ll then earn a small amount of interest on the money you save. Plus, your savings is federally insured for up to $250,000, so you can’t lose it.
Keep in Mind
Depending on the type of savings account you open, you may have to pay some additional fees. For instance, some banks will require you to maintain a minimum balance to avoid paying a monthly maintenance fee. And some savings accounts have overdraft fees. If you choose to open a savings account through an online bank, however, you can usually avoid many of these extra fees.
Savings Account vs. Checking Account: What’s the Difference?
Even though checking and savings accounts are both deposit accounts, they do have their differences.
Here’s a quick look at how the two types of accounts compare:
|Checking Account vs. Savings Account|
|Checking Account||Savings Account|
|Definition||Bank account used for daily financial transactions||Bank account used for long-term savings|
|Benefits||Comes with features like a debit card and automatic bill pay||Can provide overdraft protection for a checking account|
|Interest||Generates little interest — if any||Interest paid on deposits|
|Restrictions||No restrictions on deposits or withdrawals||Limits on number of monthly withdrawals generally apply|
Who Is a Checking Account Best For?
A checking account is a good choice for anyone who wants the following:
- An account to use for everyday purchases
- The flexibility to write checks, use a debit card or withdraw from an ATM
- The ability to set up automatic bill pay
Who Is a Savings Account Best For?
A savings account is best for those who want the following:
- An account to use for long-term savings goals
- The ability to earn a small amount of interest on deposits
- Overdraft protection for a checking account
Can I Have a Savings Account With a Debit Card?
Savings accounts don’t normally come with debit cards. Many banks restrict the number of withdrawals you can make from your savings account each month to six occurrences, so a debit card isn’t really necessary.
Why You Need a Savings Account
It’s easy to overlook the importance of a savings account since you probably already spend time managing your checking account. But having a savings account is still beneficial for a number of reasons. Here’s a look at what a savings account can help you do.
Reach Your Financial Goals
Setting aside some money in your savings account every month can help you build a regular savings habit. A savings account can also make it easier for you to organize your finances, plan for the future and meet your financial goals faster.
Secure Overdraft Protection for Checking
Sometimes unexpected expenses come up or yearly charges you forgot about post to your checking account, which could result in an overdraft. If you tie your savings account to checking, however, you can use your savings as a form of overdraft protection and avoid paying a hefty fee.
Earn Higher Interest Rates
Even if you earn a small amount of interest with your checking account, it likely won’t add up to much if your balance is constantly ebbing and flowing. Opening a savings account is a good way to earn a little extra money in interest.
Have Funds for Unforeseen Expenses
Financial emergencies come up on occasion, so it’s a good idea to have savings to cover them. Otherwise, you may have to charge those expenses on a credit card or blow your monthly cash budget.
Avoid Costly Account Fees
If you shop around, you may be able to find a savings account that has a $0 monthly maintenance fee. Plus, online savings accounts typically feature a higher APY and may have more reasonable — or even $0 — fees compared to traditional savings accounts.
Keep Your Money Safe
An FDIC-insured account is one of the safest places you can put your money. It’s much safer than holding on to those funds in cash. And when you keep your money in a savings account, you never have to worry about the funds being lost or stolen.
Have Easily Accessible Funds
Some savings vehicles, such as IRAs and 401(k)s, don’t make it easy to access your funds — and rightly so because they are designed to help you build your retirement fund. A savings account, however, allows you to easily access the money in case of a financial emergency.
Get a Credit Card From Your Bank or Credit Union
Financial institutions often offer credit cards. If you have a savings account with the bank or credit union, your application might be more easily approved.
Have Funds on Hand for Your Business and Prove Your Creditworthiness
Having a business savings account can prove to lenders that you are financially responsible. It also can help you save funds for expenses like taxes.
Is a Savings Account Right for You?
The benefits of a savings account far outweigh any potential disadvantages. And if you’re wondering whether you can have a savings account without a checking account, keep in mind that having just a savings account may not be enough.
For example, a savings account can help you reach your long- and short-term savings targets, but a checking account can help you conveniently manage daily expenses. And together, the two accounts can complement each other and help you more easily meet your overall financial goals.
Before opening any new account at a financial institution, shop around so you can find the best rates, terms and benefits possible. Then, you can be confident that you’re getting the most out of your money — and your bank account.
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- Federal Deposit Insurance Corp. 2020. "Deposit Insurance FAQs."
- Ally. 2020. "Pros and Cons of Savings Accounts."
- North Shore Bank. "Six Top Reasons Why a Business Savings Account is Crucial to Your Future."