Savings Account Advantages and Disadvantages (2024)

There are several savings account advantages and disadvantages. Three advantages of savings accounts are the potential to earn interest, it’s easy to open and access, and FDIC insurance and security. Three disadvantages of savings accounts are minimum balance requirements, lower interest rates than other accounts/investments, and federal limits on saving withdrawal.

If you’re fortunate enough to have extra money for long-termgoals, first, pat yourself on the back! Saving is so important and yet, sochallenging for most people. Next, figure out how to make that extra money workfor you. These days, there are so many ways to use, grow, and save your money,including good old-fashioned savings accounts.

Savings accounts are usually the first bank account thatanyone opens to put aside money for the future and create or preserve wealth.Children could open a savings account with a parent to develop a culture ofsaving. Teenagers open savings accounts to keep cash earned from home chores ortheir first job. A savings account is an excellent way to keep emergency cashfor unexpected emergencies or life events. The opening of a savings accountalso signals the commencement of the relationship between you and a financialinstitution. For instance, when you join a credit union, your membership isestablished by your “share” or savings account.

Many people ignore savings accounts due to the relativelylow long-term interest rates offered in comparison to other long-terminvestments. Before you decide, check out their advantages and disadvantages.

Savings Account Advantages

  1. Access and availability. Savings accounts are easy to open andyou can withdraw and deposit money anytime (within federal limits) at ATMs orvia 24-hour, online access, unlike long-term investment accounts. Many institutionswill allow you to link your savings account to other accounts, like a checkingaccount, which can help you to avoid costly overdraw fees. This also allows youto quickly transfer funds from one account to another.
  2. Protection. A savings account at a bank that is amember of FDIC, (Federal Deposit Insurance Corporation) insures your money forup to $250,000. If you use a credit union covered by NCUA insurance, youraccount is also covered up to $250,000.
  3. It’s a liquid asset. Savings accounts deal in cash, whichmeans you don’t have to worry about selling investments or making othercomplicated moves to access your money.
  4. Savings accounts accrue interest. Although interest rates have beenextremely low since 2007, you will still accrue interest over time with asavings account. The rates depend on the bank, but the national average isabout 0.09 percent, with high-yield interest rates of up to 2.05%.
  5. Low startup requirement. Many savings accounts can be startedfor just $25. Some institutions allow an account to be opened for as little as$1, so you can begin saving with even a modest amount.
  6. Automated bill payments. Many financial institutions allowbills to be paid automatically out of a savings account without being subjectedto the withdrawal and transfer laws, helping you avoid late fees or missedpayments.
  7. No lock-in period. You’re not locked in for any periodof time, which means you can switch savings accounts as often as you like.

Savings Account Disadvantages

  1. Minimum Balance Requirements. Most savings accounts have minimumbalance requirements or monthly maintenance fees. If your savings account fallsbelow the minimum balance requirement, the bank will deduct fees from youraccount, negating from interests you earned.
  2. Low Interest Rates. Interest rates are lower compared toother types of accounts or investments, such as money market accounts orcertificate of deposits (CD).
  3. Federal Withdrawal Limits. Due to Regulation D, savings accountshave federal limits when withdrawing funds, which is six times per month. Thebanks will charge you a fee if you exceed the federal limits, or they canchange your account from savings to checking accounts if you continue onwithdrawing more than six times per month.
  4. Access and availability. Yeah, we know this is in theadvantage category, too, but if you find easy access to these funds is too muchof a temptation, then that could make long-term saving difficult.
  5. Rates can change. Savings account interest rates arevariable, meaning that financial institutions are free to set and changeinterest rates as they wish. High-interest savings account rates will staylargely in line with the movements of the federal rate.
  6. Inflation. If your savings account doesn’t pay acompetitive interest rate, inflation could be eating up the value of yourearned interest, leaving you with an account balance that’s worth less a yearfrom now than it is in today’s dollars.
  7. Compounded interest. Most traditional banks or creditunions compound your savings account interest monthly, or even annually. Thismeans the full potential of your money isn’t always realized, especially whencompared to other investment opportunities.

Establish Good Saving Habits

If you wantto start saving, here are three tips to get you started on the right foot:

  • Track your spending or get anelectronic app to help you do so. If you realize that you’re spending too muchon personal expenses or non-necessities, cutting back on those can give youmoney towards a savings account.
  • Set up an automatic savings plan. Thisfeature automatically transfers a small portion of your paycheck into yoursavings account, so that you can “pay yourself first” and develop a habit ofsaving.
  • Joint accounts. Consider opening a savingsaccounts with your partner so that you can save together.

Is a Savings Account Worth It?

The benefits of a savings account aren’t in how much you earn. Instead, you’ll want to consider the purpose of your account, and the liquidity and access you have. When it comes to your emergency fund, a savings account is likely the best choice. Some experts recommend having at least six months of living expenses in a savings account just in case, but even having a few thousand dollars in the account can help in a pinch. Consider also the specific savings account advantages and disadvantages before making a decision.

Savings Account Advantages and Disadvantages (2024)


Savings Account Advantages and Disadvantages? ›

It allows individuals to deposit and store their money while earning a certain rate of interest on the deposited amount. The primary objective of a savings account is to encourage individuals to save money over some time, providing them with a safe and accessible place to keep their funds.

What are the disadvantages of savings? ›

There are also a few potential downsides to savings accounts.
  • Interest Rates Can Vary. ...
  • May Have Minimum Balance Requirements. ...
  • May Charge Fees. ...
  • Interest Is Taxable.
Sep 11, 2023

What are the benefits of a savings account? ›

It allows individuals to deposit and store their money while earning a certain rate of interest on the deposited amount. The primary objective of a savings account is to encourage individuals to save money over some time, providing them with a safe and accessible place to keep their funds.

What are the advantages and disadvantages of a regular savings account? ›

Advantages and Disadvantages of Savings Account
  • Advantages.
  • Earn Interest. A savings account helps you earn interest on the deposited amount. ...
  • Safest Investment Option. ...
  • Minimum Investment Amount. ...
  • Disadvantages.
  • Interest Rates Can Change. ...
  • Easy Access. ...
  • Minimum Balance Requirement.

What is the risk of a savings account? ›

The interest rate on savings generally is lower compared with investments. While safe, savings are not risk-free: the risk is that the low interest rate you receive will not keep pace with inflation.

What is not an advantage of a savings account? ›

Answer and Explanation: C) Protections against inflation is not a benefit of a savings account. Inflation is a decrease in the value of cash over time due to financial and monetary policy that means that prices of goods and services increase faster than the value of money.

Is savings good or bad? ›

Having adequate savings enables you to live a more fulfilled life. You are more likely to be less stressed about your future goals like retirement or unexpected expenses like healthcare. Savings allow you to be relieved and at ease, knowing you have sufficient funds to navigate different situations in life.

What is one con of having a savings account? ›

Savings Account: Pros & Cons
High interest earnings will grow your money exponentially over time.Limited to certain types and amounts of withdrawals and transfers.
You can withdraw at any time during your bank's business hours.May require a minimum balance to avoid paying fees.
2 more rows

What are 3 benefits advantages of saving your money at a bank? ›

Saving at a bank helps you manage your finances in a more organized and planned manner. Having a savings account lets you separate funds used for daily needs from savings funds. You can also check your savings funds' incoming and outgoing flows through neatly recorded transaction history or account mutations.

Is it better to have money in savings? ›

The idea is that you have enough cash accessible that you can tap into whenever you need it without having to rely on credit cards or a personal loan. A savings account is also helpful for covering any immediate financial goals you want to achieve over the next two years.

Is $20,000 a good amount of savings? ›

While $20K may not let you quit your job, it's enough to start building financial security, whether you max out your retirement accounts, invest in fine art, or divide your cash between multiple investments.

How much money should you keep in your savings account? ›

For savings, aim to keep three to six months' worth of expenses in a high-yield savings account, but note that any amount can be beneficial in a financial emergency. For checking, an ideal amount is generally one to two months' worth of living expenses plus a 30% buffer.

Is putting money in a savings account risky? ›

As long as you open a savings account at a legitimate bank that is FDIC-insured, “there is zero risk of capital loss,” says Gordon Achtermann, a Virginia-based certified financial planner. The amount of interest you're earning on your money in a savings account may decrease, but your cash will not.

What are the 5 disadvantages of money? ›

The following are the various disadvantages of money:
  • Demonetization - ...
  • Exchange Rate Instability - ...
  • Monetary Mismanagement - ...
  • Excess Issuance - ...
  • Restricted Acceptability (Limited Acceptance) - ...
  • Inconvenience of Small Denominators - ...
  • Troubling Balance of Payments - ...
  • Short Life -

What is the disadvantage of not saving money? ›

Choosing not to save money can lead to several negative outcomes, both immediate and long-term: Financial Vulnerability: Without a safety net, unexpected expenses or income disruptions can result in debt, stress, and even financial ruin.

What are the disadvantages of saving money at home? ›

While it's perfectly OK to keep some cash at home, storing a large amount of funds in your house has two significant disadvantages:
  • The money can be lost or stolen. ...
  • The money isn't growing.

What is too much in savings? ›

“While having an emergency fund in savings is prudent, there are signs you may be keeping too much cash there versus investing it,” said Lokenauth, who laid out the following indications that you might be overdoing it: Your savings exceed your basic living expenses for six to 12 months.

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