The savings account is about as in style as 90′s rock sensation Pearl Jam (Don’t feel bad if you’ve never heard of them) but much like some of those same 90s fads, the savings account is making a reemergence.
Everybody is happy when interest rates fall and they can refinance their homes, but they forget that falling rates also affect their savings accounts and their certificates of deposit when they try to roll them over. Because interest rates took savings account yields to under 1%, many finance gurus are delivering its eulogy.
Nobody likes to be rejected so we went looking for reasons that the savings account is still an appropriate investment option and it wasn’t hard to find a series of reasons why this tried and true account is still worth a look.
Savings accounts are easy: In reality, the savings account is laughed at in the investing world. These are the people who understand how to invest in stocks, bonds, treasuries, and other “serious” investments, but the amount of everyday people who really know how to “invest” isn’t high and for that reason, the savings account is where they put their money. Sure, 1% isn’t much, but if it’s true that 80% of retail investors actually lose money year over year, who is coming out ahead? Any investor laughing at the savings account crowd better not be one of those 80%!
Savings accounts are safe: Investment markets are acting as widow makers right now. The stock market is moody and when it gets moody it brings out the get-rich-quick crowd who end up getting crushed instead of rich. The investors who make money know that sometimes you go for the big gains and sometimes you sit on the sidelines and wait for a better environment. Don’t forget that if the overall market loses 10% of its value over the course of a year, but your savings account made 1% in the same year, that’s an impressive gain.
Savings accounts are liquid: Having money that is always available is a necessity in difficult economic environments. The investing crowd may argue that stocks are just as liquid as savings account funds and while that’s true, if you need to sell your stocks for an emergency purpose, there’s no guarantee that you’ll leave with more money that your original investment. Because a savings account is a fixed income investment, the least you’ll leave with is your original investment.
Savings accounts have no fees: Every investment you make comes with fees. You pay commission to buy and sell stocks, you pay a premium to buy bonds, and unless you have the knowledge to invest on your own, you’re going to pay a financial adviser commission of a flat fee to make these transactions for you. Depositing your money in to a savings account comes with no fees.
Bottom Line: Nobody will say that in a low interest rate environment, a savings account is a stellar growth investment, but investing isn’t always about making money. Sometimes it’s about preserving capital. A savings account is perfect for that. There are plenty of well meaning people making generalized statements about the demise of the savings account, but investment product that essentially offers a zero percent chance of losing money has a place in a rocky economy.