A lot of people have the mistaken impression that there is no real benefit to opening a savings account. However, the reality is that there really are a number of significant benefits to opening and growing a savings account. Here are 5 of the most important reasons:
1. Spend less money
Numerous studies have shown that individuals and families that keep their money in a savings account spend less money than those who only use a checking account or cash. The reason for this is that the extra step it requires to transfer money from savings to checking before spending forces you to think about the decision more than just swiping a debit card. While this won’t prevent you from every frivolous purchase, it will probably make you stop and think more often.
2. The interest really does add up
While interest rates are lower than they were a couple of decades ago, the truth is that interest really does still add up over time. If you have $10,000 in a savings account that has 1% interest, you will have an extra $100 at the end of the year. While this isn’t a ton of money, it is still better than a checking account with 0% interest, and if you leave the money alone long enough, compound interest will help accelerate the growth of your savings.
3. Savings is far better than credit for emergencies
Many people use a credit card to pay for emergencies. However, even at low interest rates, the cost of using credit can dramatically increase the actual cost of an emergency expense. By having a savings account you can dip into instead, you will be saving a lot of money.
4. Having money in a savings account improves your creditworthiness
When creditors are looking at your finances and credit history, the ability to show them a savings account with regular deposits and a growing balance can help tip the scales in your favor. This could mean lower interest on a mortgage or car payment, which means more savings for you!