Saving money is essential, but you may question the need for a savings account. After all, the interest on most of these accounts is lower what you pay on your debt, such as student loans. So, is it really advantageous to have a savings account? While putting money in a savings account may not earn you high interest, it is crucial to your overall financial plan.

To help you understand, have a look at the pros and cons of savings accounts,

Pros of a saving account

• It is simple to open an account and access it at any time via 24X7 online banking or at the Automated Teller Machines (ATMs).
• You can link the savings account with your checking account and avoid overdraw charges. You can also transfer funds faster without any hassles.
• Savings account at a Federal Deposit Insurance Corporation (FDIC) member bank, and NCUA-covered credit union insures your money up to $250,000.
• These accounts offer quick liquidity in case you need immediate funds.
• Although the interest rate on a savings account is not high, you may still accrue a decent amount over a long term.
• Most financial institutions allow you to open an account for as little as $25, which makes it an excellent way to develop financial discipline.
• You may automatically pay bills through the savings account, ensuring no missed payments and late fees.
• Financial institutions do not levy any lock-in period, allowing you to switch accounts when required.

Cons of a savings account

• Most of the savings accounts need you to maintain a minimum balance or levy monthly maintenance fees, which may eliminate the interest earned on your account.
• Compared to other types of investments and accounts like money market accounts and certificate of deposits (CDs), savings account offer a lower rate of interest.
• Under Regulation D, savings account must adhere to federal limits to withdraw funds, which is six times per month; in case you exceed this limit, the bank may levy an additional charge or may change your account to a checking account.
• Because you can access your savings account from any place at any time, it may be challenging to inculcate financial discipline and the habit of saving.
• The rate of interest for a savings account is variable and the institution may modify it when required; the rate on high-interest savings accounts are often in line with the federal rates.
• In case the savings account interest rate is lower than the rate of inflation, the value of the balance in your account one year from today will be lesser.
• A majority of the credit unions and banks offer monthly or annual compounding of the interest on the account balance, which means you earn significantly lower than other types of investments.

These pros and cons of saving accounts show that earnings on a savings account are not very high. However, you need to consider the purpose of the account and the liquidity offered while opening one. Also, if you are new to savings, then this is a good way to begin.