Is a savings account necessary?

[ctigers0714]

With such low interest rates, why should I open a savings account? I keep all my extra cash in my checking account and I also have some money in the stock market. Would it be smart to open an online savings account? I've read that Ally has good rates but I wouldn't be depositing enough money to earn any meaningful interest.

I'm still a college student so obviously I don't have a full-time income to manage.

[Baby_nurse]

No interest vs low interest. I'll take low over no any day.

[hamchan]

Most banks and credit unions I have had accounts with will require you to open a savings if you want free checking.

[dczech09]

It is recommended that you use savings accounts for two reasons: short-term savings and emergency fund savings.

Any savings that is short-term (vacation, clothing, large purchase, Christmas, etc) should be set aside. Yes, you could use a checking account for this, but then you run the risk of just spending the money on something it was never intended for.

Your emergency fund savings should be set aside in either a savings account, or a money market mutual fund with check writing abilities. This money is for emergencies only. We all will get nailed with a complete emergency at some point. Since we do not know when, we should be prepared for when the time comes. That is what an emergency fund is for.

In either event, the whole purpose of a savings account is to park money for the short-term, not build wealth. The stock market is way too risky in the short-run, CD's have penalties, and checking accounts make things too easy for us to spend the money willy-nilly. So savings accounts work great.

Again, the purpose here is to park money for the short-term (until we need it), not build wealth. We build wealth through other channels. Since wealth building is not our primary focus with regards to savings accounts, the interest rate really is not that big of a deal.

With that said, you can find some online banks or credit unions offering savings accounts with some small nominal rate. But with market rates the way they are right now, you will not find anything substantial. Don't focus on interest rate too much- be more concerned with customer service, the ease of access to your money, the bank's reputation, and look for no fees. You should never have to pay a fee for a savings account!

Hope this helps!

[Freddy McFrugal]

I agree with the writer above that you want a certain amount of money that you can access in an emergency. Personally, I figure the stock market is unlikely to lose more than 50% of its value. As long as my stock holdings (in mutual funds in my case b/c I know I'm not the kind to properly analyze individual stocks) exceed 200% of about 12 months of living expenses, I feel quite comfortable keeping money just in checking for day-to-day needs and the stock market. I have a checking account that yields a small percent of interest.

I tend to fund my checking account from my salary income, and send the excess to my investment account.

[kork13]

It is recommended that you use savings accounts for two reasons: short-term savings and emergency fund savings.

Well put.

Having a savings account is always valuable. As dczech said, you have checking accounts for immediate use, savings accounts for short-term/emergency savings, then investments for mid- to long-term savings.

It probably sounds terribly snooty/judgmental/whatever when I say this, but when I hear someone mention that they don't have a savings and/or checking account, it kind of makes me worry about how they manage their money. Obviously having a savings/checking account will not suddenly make you money-smart, but without having one, it's much more difficult for you to plan and be prepared for needs beyond the immediate. Not having a basic account like that a fairly decent indicator of individuals who don't manage their money as well as they should (or could).

There are alot of predatory practices in the banking industry at times... But basic checking/savings accounts are definitely NOT one of them, and they are (IMO) something of a necessity for successfully managing your money.

[ctigers0714]

Very good advice dczech, thank you.

when I hear someone mention that they don't have a savings and/or checking account, it kind of makes me worry about how they manage their money.

I understand what you're saying but I've always only had a checking account so I've learned how to budget in my own way. I do think I am going to open a savings account because I have some things I would like to set aside money for and it would be nice to know how much I have dedicated for that singular purpose.

When opening a savings account with a different bank than the one I have my checking with, how would I go about transferring funds? I didn't know if there were fees involved since both accounts would not be with BOA.

[feh]

When opening a savings account with a different bank than the one I have my checking with, how would I go about transferring funds? I didn't know if there were fees involved since both accounts would not be with BOA.

Most banks provide Electronic Fund Transfers. That's how I get money between my local CU and my EF at Ally.

[JoeP]

Not necessary, but we find it convenient. We use savings as a deposit area for payrolls, and then transfer to other accounts, and ATM withdrawals come from it. We found that trying to do all this with a checking account makes balancing that account a little more complex (we balance checking to the penny every month).

[Baby_nurse]

Very good advice dczech, thank you.



I understand what you're saying but I've always only had a checking account so I've learned how to budget in my own way. I do think I am going to open a savings account because I have some things I would like to set aside money for and it would be nice to know how much I have dedicated for that singular purpose.

When opening a savings account with a different bank than the one I have my checking with, how would I go about transferring funds? I didn't know if there were fees involved since both accounts would not be with BOA.

If you are going to have accounts at different places, there generally is not a fee to move from one to another, but there is a delay. For instance, I have a checking account at BoA and a secondary savings account at Ally. I have an automatic transfer of funds from BoA to Ally every 2 weeks. There is no charge, but it does take about 3 days to complete to have the money available. Just something to keep in mind if you think you might possibly need to have access to the money in a hurry. That shouldn't be a problem with a long term savings, or one for a specific goal (new car, house, vacation, etc). It could be more of a problem if the intent of the savings was a true emergency fund. In that case, a checking account at the same institution as the savings might be beneficial.

[Gailete]

I have an on line savings account (actually four of them) at Capital One 360 and online bank (formerly ING). there is no cost to have an account and you can transfer money easily between a checking account at another bank to there and then back again if needed. I have a tendency to see checking account money as money that I can spend, so I try to pull all but needed funds into the different savings with their special purposes. I don't expect a great interest rate on my savings but a way to keep money safe and ready to use for whatever the accounts are for.

[dczech09]

I have an on line savings account (actually four of them) at Capital One 360 and online bank (formerly ING). there is no cost to have an account and you can transfer money easily between a checking account at another bank to there and then back again if needed. I have a tendency to see checking account money as money that I can spend, so I try to pull all but needed funds into the different savings with their special purposes. I don't expect a great interest rate on my savings but a way to keep money safe and ready to use for whatever the accounts are for.

I have my emergency fund at Capital One 360 (formerly ING when I opened the account). They have not done anything to scare me yet, but I won't hold my breath since it is Capital One. But I don't have any fees associated which is great, and I can very easily transfer money to one of my accounts at my primary bank. No cost to transfer money. The only issue is that transferring money usually takes about 3 days to complete. However, this makes it the perfect emergency fund as I am not enticed to spend the money on impulse.

[Gailete]

I won't hold my breath since it is Capital One

Once ING said they were bought by Capital One I got nervous a bit too, but so far they are following ING's path so that is okay too. Those accounts work out so easily for me especially since one son has an account with them. When I can't go shopping or he is at the store and picks things up for me I can instantly transfer money to his account to pay him back, no more transferring funds at the local bank or writing him a check being as I rarely have cash on hand. He is my autistic son so never rounds up or down what he spent. He tells me to the penny exactly what he spent. Plus seeing the totals of my savings accounts AND Sharebuildder accounts all on one page is a huge bonus.

[workinabroad]

Yes

I'd say it's definitely necessary if you want to know to the penny how much you have saved. I used to try and just subtract my "saved" amount from the rest of my checking, but that got to be annoying. I withdrew my "savings" and did the envelope system, but that doesn't work if you can't trust those you live with. :/

so, yes. and I like Ally bank.

[SeanH]

My problem with savings accounts is they tend to be part of the artificial barrier system that banks create and use to extract fees from people. I needed some additional services from Wells Fargo which they wouldn't provide unless I let them setup a savings account. I said sure - they set it up for me. I was then hit with fees for the next 2 months because an automatic transfer mechanism that they setup didn't work. Eventually refunded, but dumbfounding - a bank is supposed to be where money accumulates and they dinged me for $50. This was on a checking account with $15k in it earning ... 0.01% interest. Gave them the adios and moved to a small community bank that pays 2.5% (previously 5%) on checking up to $25,000 without any barriers to money or requirements for additional accounts. Some people need the silos and the separation - their money burns a whole in their checking account as fast as it does in their pocket. Maybe a pretend barrier is all they need. I just wish they didn't have to put up with bank shenanigans to implement these sort of strategies.