When to Use a Basic Savings Account

A basic savings account is a good tool for people who are just getting started learning how to manage their money. The account does collect a small amount of interest and allows a fairly good access to those funds (you can only access them through bank withdrawals or at ATMs). Most importantly, it teaches you how to pay yourself each month, just as you must pay others when you make a car payment, buy food, and pay for utilities. Many people are so used to living paycheck-to-paycheck and buried by a sea of debt that they do not realize the value of paying themselves each month, even if it’s only 1  to 2 percent of their gross monthly income. As the Money Mastery program teaches, a part of what you earn is yours to keep.  Every good spending plan should include a “spending” category for savings.
 
Saving for Emergencies
The interest you can collect on a basic savings account is rather low, which makes it a poor long-term savings tool if you are hoping to get some compounding interest built up to invest for retirement or major purchases down the road.  But it’s perfect for emergencies. You never know when you’re going to suddenly have a medical emergency, or a major unexpected home or car expense. Having money in a standard savings account makes it more easily available. You don’t want all your savings tied up in investments for that reason — it makes it tougher to get at when you suddenly find yourself in need of it.
 
Saving for Emotional Events
In addition, these kind of savings accounts are also a good place to put away money for impulse spending, or what we call “emotional savings.” Just as emergencies are sure to happen and you should be prepared for them, emotional spending is bound to happen as well, so you might as well be prepared with money to cover this kind of spending so that it does not derail your ability to pay off debt or meet your other financial obligations. Emotional savings frees you from the guilt you feel when you purchase on impulse and eliminates the terrible feeling of deprivation you get when trying to follow a strict budget.
A regular savings account does not require you to have a minimum balance to open such as a Money Market account or other long-term investment vehicle (which can range between $1,000 and $5,000) so you’re most likely to make the best use of a regular savings account if you are just getting started with saving and don’t have a lot of money to open the account.
When you first get your savings account set up, you should familiarize yourself with all the basic information surrounding it, including whether you have a limited number of monthly withdrawals from savings and whether your bank will charge a fee after a certain amount of withdrawals. You can also use your savings account for direct deposit purposes, which gives you an easy, automatic way to save some money with every paycheck.
Just because you’re not going to be using your regular savings account for long-term investing purposes, doesn’t mean you shouldn’t shop around for good interest rates. Some online banks, for example, offer higher interest rates for savings purposes.
For more tips about using a basic savings account, contact the skilled money management experts at Money Mastery today. We look forward to helping you with your personal finance goals!