Opening a savings account has become a sort of rite of passage for many young people. After all, by having their own savings account, they’ll have the ability to pay their bills in a quick and easy way and avoid expensive late fees. They can also build an emergency fund for rainy days, save for short-term goals (such as going on a vacation or raising enough money to pay for a house deposit) and even create a nest egg for their retirement. But, if you’re planning to get your own savings account, don’t just go into the first bank or credit union you see. Instead, take the time to learn about the pros and cons of this personal finance tool. This way, you’ll know if it can give you great value for your money and if it’s worth your time and effort, and you can ultimately make an informed and financially feasible decision.
PROS
Keep your money safe
When they have extra cash, many people opt to carry it around in their wallet, place it in a piggy bank or stash it under their mattress. Unfortunately, all of these strategies put their money at risk. Those who carry their cash around can lose it if their wallet gets stolen. Those who keep their money at home (either in a piggy bank or under their bed) can find themselves without any savings if their house gets burglarized or becomes damaged in a fire.
Allows you to automate bill payments
You can set up your debit card or credit card to automatically pay your bills every month. This way, you won’t have to worry about missing due dates and incurring late fees, and you have the assurance that you’re paying your bills with money you already have (instead of money you’re borrowing from your debit or credit card provider).
CONS
Usually have low interest rates
If your goal is to make your money grow, opening a savings account isn’t the right choice for you. The security and easy access that you’ll enjoy with your savings account comes with a trade-off: you’ll invariably have relatively low interest rates (usually less than 1 percent per annum). This means you’ll see only minimal growth and enjoy limited yields.
Can tempt you to spend your money
Since you can withdraw from your account at any given time, no one can really stop you from dipping into your savings whenever you want. This can be detrimental especially if you’re spending your money not on necessities or emergencies but on non-essentials like designer clothes or a new smartphone. If you want to avoid the temptation of unnecessary spending, you can put your money in stocks, certificates of deposit and other long-term investments that come with a maturity date.
