Many people often worry that they may lose money by simply saving it and not investing it. Today, we settle all your worries by discussing savings, why they are important, and how your savings account can make money for you.
Importance Of Saving Money
You can save money in a savings account for many reasons. Still, most people do it to reduce financial stress, have enough to overcome unexpected emergencies, or simply keep their options open with liquidity.
All these reasons are valid, but an emergency fund should be your priority if you are just getting started. It becomes insurance for emergencies, prevents you from taking on debt, and gives you peace of mind.
The general rule of thumb is that you should have enough in your emergency fund to sustain your lifestyle for at least 3 to 6 months without any income. It provides a good buffer for any major financial crisis like losing your job.
Once you have an emergency fund, you can start thinking about investing any surplus savings you make. But why let your money sit in a savings account as your emergency fund when you can make risk-free interest on it?
High-Interest Savings Accounts
The key difference between saving money and investing is that you take a risk with investments, which is why you get a substantial return on your investment when you take the right risks and lose money when you take the wrong risks. However, saving money has no risk, which is why you cannot expect a huge return, but you can still generate some money from your savings or emergency fund.
Banks provide a small interest rate, typically less than 1 percent, on any money you deposit into your savings account. However, you can maximize this return by depositing your money into a high-interest savings account instead.
This type of savings account can give you anywhere between 1 to 3 percent interest on your savings without risking any money. You are leaving free money on the table by not opting for a high-interest savings account.
However, it is important to note that the returns you make from a high-interest savings account may vary depending on the terms of your bank. For example, some banks set a maximum on how much or how many times you can withdraw money from such an account before reducing your returns.
Other banks may charge a fee or request you to lock the money for a minimum term. Regardless of the terms, your savings are not affected. Only the interest you make in them may change.
Many people are unaware of high-interest savings accounts and how they can maximize their return from savings without taking any risks. We strongly recommend keeping your emergency fund or any savings in a high-interest savings account.
It allows you to make the most of your savings without taking risks. Even if you don’t make a profit from your money, this type of savings account will at least help you fight off inflation to some degree. Ultimately, it’s free money, and everyone should consider it.