For many credit union members, a savings account is a formality. While they know, that saving is important, other savings options that come with higher rates, such as IRAs or 401(k) accounts, took priority and that initial deposit was quickly forgotten.
If you want your money to be there when you need it, no matter when “it” is, now might be the time to take another look at the humble savings account. Even if it’s not your primary savings vehicle, a savings account can offer tremendous benefits. Let’s look at some ways to get the most out of it!
Dividend rate isn’t the only consideration
Many experts shun savings accounts, citing low interest or dividend rates as their chief concern. If you’re looking to maximize your returns, putting all your money in a savings account isn’t the smartest plan, but savings accounts offer unique benefits. Savings accounts are NCUA insured up to $250,000. If something unthinkable happens, you’re promised to be reimbursed for your losses. That’s quite a lot of security for your hard-earned cash!
Another benefit of savings accounts is their liquidity. If you need the money in your savings account tomorrow, you could get it. You can withdraw cash in person, at a branch, or from an ATM. You also have access by using our online banking or mobile banking to transfer funds to another account to make payments on a loan, or transfer funds to your checking account to conveniently use your debit card without worries of over-drafting.
Automate, automate, automate
Decision fatigue is a real problem; making a commitment to something takes willpower and energy, and you’ve only got so much in your tank. That’s why waiting until the end of the month to decide what to do with your household surplus can encourage splurging.
But with your savings account, you can automate where that extra cash goes. You can set up automatic transfers between your draft account and your savings account or even make it part of your employer direct deposit. Make that decision once and then never have to think about it again.
You need an emergency fund
Even if you have a high-paying job, you’ve only got as much security as the economy allows. Your company could succumb to competition, your position could get eliminated, or a loved one could get sick, requiring you to leave your job or cut back to fewer hours. Not to mention ther emergencies could happen, like your car could break down, or you could fall victim to fraud. What would you do to cover your costs in these situations?
The best way to avoid defaulting to credit and getting in over your head is with a strong emergency fund. Most experts agree that six months of living expenses is a good target, though that number may need to be higher if you work in an industry with a tight labor market. Don’t include luxuries like dinners out or monthly subscription costs that you could stop paying if money got tight. It’s also important to keep that emergency fund accessible. If it’s in a brokerage account, you risk needing to access that money when the market is down. A savings account provides the security and flexibility that you need for a rainy day.
Like this article? Check out this other post from the FCU Blog: "Rainy Day Fund: Save for Emergencies"