What would you do if you had the opportunity to buy your dream house? Or if your car suddenly conked out and you needed a new vehicle fast? Perhaps you have stayed awake at night wondering how you're going to finance retirement or a big medical bill.
Peace of mind in all cases can come in the form of a familiar tool, something most of us have known about and have been contributing to since we were young: a traditional savings account.
Yes, some traditional savings accounts at the bank still look like the ones we knew when we were young. But there are a host of other traditional savings tools that can help us put money aside for important purchases, cover unexpected costs or simply achieve confidence knowing we are saving for important expenditures such as retirement and children's college educations.
Traditional savings accounts have gotten a bit of a bad rap in recent years because of low interest rates. No longer are any of us earning interest income on our savings accounts like we were years ago. Of course, that also means we're not spending as much on interest payments when we make big-ticket purchases on credit, such as for cars and homes.
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But even in an environment of low interest rates, traditional savings accounts and related tools make a lot of sense. Here are some reasons to consider them:
It's important to save. Yes, you've heard this message all your life. But it's true and it's actually quite easy. The best way to save is to put a little money away from each paycheck or your checking account every few weeks or every month. An automatic transfer is the option I recommend. A deposit of $100 into your savings account every month will leave you with $1,200 at the end of the year, a sizable chunk that you can continue to save or that can help when an opportunity or unexpected expense comes around the corner.
Your money is protected. In savings accounts, certificates of deposit and other traditional vehicles, your money will earn some interest but, importantly, it won't lose value and is insured. Deposits in traditional accounts at banks are insured for up to $250,000 by the Federal Deposit Insurance Corp., meaning the full faith and credit of the U.S. government is behind your account. Having some funds in an insured account means knowing they will always be there.
Your money is accessible. Money in traditional savings accounts, even short-term certificates of deposit, also is more accessible than many other investments. You know where it is and can easily access it. Other investment options may promise greater returns. But many also may lose value, and you can't always get your money when you need it. You can with savings accounts.
Special accounts provide extra benefits. In additional to traditional savings accounts, savings options include special accounts for children's college educations, family health-care expenses and retirement. All of these accounts offer special features, including tax benefits, which increase the overall yield and attractiveness of the accounts. Your banker and tax adviser can provide more specifics about each kind. But there are definite advantages to saving through special accounts for specific expenses that most of us will incur at some point in our lives.
Peace of mind is priceless. Again, it's advice you've heard before. But my clients who save say one of the best benefits is they know they're building a nest egg, and it takes worry off their minds. Even if they don't know how they will spend their savings, they appreciate knowing that they have funds in reserve should they need them. It's one less worry on their mind as they watch their accounts grow over time.
By necessity, we focus a lot of attention on our spending. We all have bills and important items we need to purchase for ourselves and our families. We're lucky to live in a country where we have the freedom to use our financial resources as we see fit. Including a savings component through traditional accounts adds resources and flexibility to your personal finances, giving you greater happiness and confidence knowing you have funds available when you need them.
Steven Raj is Vice President of Lending at Park State Bank in Duluth. You can reach him at stevenr@parkstatebank.com or (218) 727-8001.
