The Savings Account: Pros and Cons

The traditional way to save money for families and individuals was to put your money into savings account, and then allow it to grow interest from there. Times have changed, and now the savings accounts that we once used and loved aren't as valuable to us anymore, because the interest that you get on your money saved is very low. There are benefits and downfalls of savings accounts, and it is important to understand why the advantages of a saving account has changed, and why most people aren't using savings accounts anymore.

Banks will normally take all of the money consumers have in savings accounts, and then loan out to people. When the banks can't lend out money to consumers, they are unable to make money off of the interest that they gain from the money loaned. That money is the money that they use to pay interest on consumers accounts, and since people don't have much money saved anymore, and people are unable to get loans, the interest rates in savings accounts have dropped dramatically. Instead of putting money into savings accounts now where it sits and gains little, they are turning to IRA's and other investments options.

Money kept in a savings account is going to gain a small amount of interest, and you are less likely to use it like the money that is in a checking account, but there are no major benefits at this time to use a savings account verses a CD or IRA. The only advantage is that you can take the money out whenever you want to, without any charges, and when you take money out of an IRA or CD before it reaches maturity, you are going to face an fee. This is a convenient options for those who have any unexpected emergencies coming up, or if they need to pull money from their savings often.

Having money in a savings account also doesn't provide you the tax benefits that you get when you are putting money an IRA or other option. When you open a savings account for a child to pay for their college education, any money you deposit will sit, gain little interest, and not benefit you at all. When you put the money into a 529 you are going to watch the money grow over the years significantly, and you are going to get tax benefits for the money that you put into it. So will others on the money that they contribute as well.

Savings account don't pay the same amount of money that they used to, and that is why so many people are choosing not to use them. Many banks have higher rates on their investor checking accounts then they do on their savings accounts, so before you start putting your money away you want to consider a Roth IRA or other fund that will be more profitable. Saving for the future should be a major part of every persons life, and you want to do whatever it takes to get the most out of the money that you are putting away.