Savings Accounts – Why DON’T You Have One?

Savings Accounts - Why Don't You Have One?

Nothing is more frustrating than the disappointing financial knowledge people here in the United States have when it comes to the basics. While it is easy to blame the ignorance of the individual, I believe this is more systematic than anything else. We have the poor combination of a terrible education system and a culture of entitlement that supports this general lack of knowledge. Not that any sort of systematic breakdown is an excuse for people to not to educate themselves on fundamental financial principles.

I don’t want to be seen as deriding anyone who is actively educating themselves, or striving hard to improve their financial status in life. Heck, I’m doing the exact same thing.

What I am talking about are the absolute basics, things that everyone, no matter your education or socioeconomic background, should know. Building an emergency savings reserve, responsibly managing your credit, and understanding of “spend less than you earn” are all examples of these basic items that should be in everyone’s repertoire.

But what about those people who have the basics down? Well, my frustrations continue. Call me ignorant, foolish, or prideful, but a conceptual understanding of what inflation is and how to offset and hedge against it with even your simple cash reserves is fundamental.

But why am I even talking about this? Over the past few years, I have run into a number people who don’t have a basic understanding of this particular inflation concept. It’s simple; over time whatever money you have sitting in cash loses its purchasing power! So let’s take the next step and stop leaving your entire emergency fund, and more, just sitting in a non-interest bearing checking account. Look, congratulations for learning to save some money. I think you should be commended for saving up cash reserves, as you are miles ahead of many people. However, it is alarming to me that someone with $10-50,000 or more in cash would leave all of this money in a simple, non-interest bearing checking account.

Open a Savings Account!

Nothing could be simpler than opening a Federal Deposit Insurance Corporation (FDIC) or National Credit Union Administration (NCUA) insured savings account earning greater than the 0.05% most banks pay on their standard free savings or interest bearing checking accounts. Look, this post isn’t to solicit affiliate payments, or some other monetization baloney, but just to save your purchasing power. Even though interest rates are crazy low right now, you can find several online banks with rates at least .75% or higher. If inflation is 2% a year, you’ve saved just under 40% of your purchasing power in your first year.

Concerned about not having the money in your checking account? Well, don’t be. Some accounts allow you to write checks directly, and for the rest, it takes two or three days for you to transfer money to your regular checking account. I would recommend keeping a month’s worth of expenses in your regular checking account and transfer the rest. Why? Because waiting the two days for the money to transfer isn’t a big deal for over 99% of life’s challenges.

Bottom line, there is no need for anyone to continue to maximize the natural loss of purchasing power. So to all those with excess funds in a checking account, please open a savings account to hedge just a bit against inflation. Every little bit helps to make a difference in the long quest to financial independence.

If you are looking for a place to check out rates, or any other financial services, be sure to check out Bankrate (don’t worry, there’s no affiliated relationship here).

Photo: CylusPrints

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  1. If you get a full year’s worth of emergency fund it’s even more important to figure out another way than just parking it in a checking or savings account. In more normal interest rates times, I’ll be swapping it over to a cd ladder, but for now the small extra % you can get with cd’s isn’t worth locking the money up.

    • I agree, not worth locking up the money at all. I’d much rather have an abundant emergency fund on hand for a stock market correction.

    • I agree that you don’t want to have the money tied up with CD’s, nor do I ever advocate putting your emergency fund in CD’s unless you have a low withdrawal penalty. My main focus here is people with $25,000 sitting in a checking account earning nothing. Put that into a “high-yield” (laughable these days) savings account where you will at least have some hedge against inflation.

  2. “We have the poor combination of a terrible education system and a culture of entitlement that supports this general lack of knowledge.”

    Oh man, you struck a chord with me. Our financial education is non-existent or terrible. Mine consisted of one semester of consumer education in high school. It covered stuff like comparing prices on cans of beans at the grocery store. Not good.

    And don’t even get me started on the topic of entitlement. Grrrrrr.

    Also, love the picture of the Jefferson Memorial. He was one of the greatest thinkers and one of my heroes.

    • It is utterly and totally unbelievable the complete lack of financial education in schools today! I actually had zero financial education in school and believe that major improvements in the education system would pay huge dividends!

      Entitlement is certainly a sore subject for me as well. Truly a sad situation that has been created in this country.

      Glad you like the picture! One of my friends is the source of most of these nicer shots on the site, this one included.

  3. I tend to keep minimal funds in a savings or checking account. I’m much more focussed on quickly deploying excess funds into my investment portfolio. The low rates of return just don’t make it so worthwhile to keep excess funds in savings or checking accounts in my view. I use my dividend income as a hedge for emergencies etc.

    • I agree, the low rates tend to keep things pretty limited in my checking and savings accounts as well. That being said, you have the advantage of some serious monthly and quarterly cash flow from your dividends that most beginner investors or non-investors don’t have. My main point is that I’d rather people put the excess reserve cash in a savings account earning some interest as opposed to a checking account that is earning nothing.

  4. Great point sir, but I think we could take it even a step further and get that cash invested! Not that I’m a role model for investing, I have a long ways to go, but it’s important to do more than just have it in a savings account. BUT, I totally agree if the options are savings or checking, get the higher interest rate!

    • I agree, investing is the way to go for the bulk of your funds, but there are definitely reasons to have significant cash savings and liquidity. Depending on age, risk tolerance, financial goals, etc.

      Thanks for stopping by BM!