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A savings account is a type of bank account that typically earns interest. Savings accounts are most useful for those who don't have the money to invest and need somewhere safe to stash their cash. For example, you can use a savings account to store an emergency fund or to save for a specific purchase like a car or a down payment on a house.
In this article, we'll go over several things that a savings account is most useful for. Suppose you're looking to open a new savings account. In that case, CIT Bank offers an online savings account where you'll earn a competitive interest rate, significantly higher than a brick-and-mortar bank.
Let's jump in.
Table of Contents
A Place For Your Emergency Fund
A savings account is a useful place to store your emergency fund. When you store your emergency fund in a savings account, you'll earn some interest on it as well as keep it somewhere not mixed with your checking account.
By having your emergency fund in a separate account, you'll be less likely to spend it accidentally.
Having three to six months' worth of living expenses in your emergency fund is generally recommended by financial experts. At the very least, saving $1,000 for your emergency fund right away will prevent most minor mishaps like a broken-down car, replacing an appliance, or covering a basic trip to the ER.
Saving for Specific Big Purchases
Having a specific place to save money for a big purchase is a useful reason to have a savings account. In fact, if you're saving for multiple things, such as a car, down payment on a house, and your next vacation, you might consider opening separate savings accounts for each thing you're saving for.
Having separate savings accounts for each major purchase will allow you to allocate money in any priority you'd like.
Separating Your Savings from Your Everyday Spending Money
It's a good idea to store your extra money away from your everyday spending money. When you separate your savings from your everyday spending money, you'll be less likely to spend money that you didn't intend to accidentally.
A savings account is a useful place to do this, especially when your savings account is in a separate bank than your checking account. This limits your access to your savings, adding an extra step to accessing it.
The benefit of adding an extra step to accessing your savings is that you won't be as affected by an impulse decision to use it since it may take a few days to clear when you transfer it to your checking account.
Safe Place for Your Money
The money in your savings account is safe, making having a savings account useful.
This is because your savings account is FDIC insured up to $250,000. So if your bank goes under, you won't lose any money, up to the $250,000 limit.
Earn Significantly More Interest Than a Checking Account
Savings accounts, specifically high-yield savings accounts, often offer 10 to 20 times the interest rate of a traditional brick-and-mortar bank. Oftentimes, checking accounts offer minimal to no interest at all.
While storing money in a savings account won't earn nearly as much return as if you invested, your money will grow safely.
Having any interest rate is better than having no interest at all. So when opening a savings account, consider the interest rate. CIT Bank's Savings Builder account has a competitive interest rate and is a great place to save your money.
Wrapping It Up
In this article, we discussed how savings accounts are most useful.
You'll want to use your savings account for emergencies, saving up money for a big purchase like a car or home, separating savings from how you spend your everyday money, and having somewhere to earning interest on your savings.
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