4 Great Uses for a Savings Account
Posted by jefferson on Aug 17, 2012 in Eliminating Debt | 47 comments
I was just ten years old when I got my first savings account at a local bank. Up until that point, I had kept all of my birthday money and allowance in a piggy bank in my bedroom, completely unaware of the fact that there were banks willing to PAY ME for the privilege of holding my cash for me. But when my mom suggested that I could open up a savings account and save up for that Sega Genesis that I really wanted, I was all for it.
As a family on the path to emerging from debt, we are starting to embrace the usefulness of savings accounts once again. Whether you are planning ahead for a major purchase, or just need a place to put your savings for a rainy day, here are four great uses for a savings account.
Emergency Fund
One of the most important tools in your arsenal when it comes to getting and staying out of debt, is the emergency fund. If you haven’t heard of the concept (and I hadn’t before I started reading personal finance blogs), the emergency fund serves as a buffer to keep you from having to use the credit card when unexpected expenses come up. You will never get out of debt if you are still using your credit cards, plain and simple. The emergency fund doesn’t need to have a ton of money, $1000 should be enough to cover most emergencies, but it needs to be there. The money in will need to be easily accessible, which makes the savings account the perfect location. As an added bonus, your emergency money will grow while it sits in your fund, waiting for you to need it.
Vacations
I love vacations as much as anyone, and it was a tough pill to swallow when I realized that we weren’t going to have the funds to go anywhere this year. But alas, 2012 is the year of debt repayment in the See Debt Run household, and there will be plenty of time for vacations next year. As much as I do love vacations, I have to acknowledge that they can be quite expensive. I promised myself that I would never take another vacation that I couldn’t pay for ahead of time, which is where savings accounts come in to the picture. Figure out how much money the vacation will cost, and put an appropriate amount each month into a savings account so that you will have enough to cover the costs when the day comes. We are planning a big vacation next year to celebrate our freedom from debt, and this time it will be 100% paid for when we head off.
Home Renovations
As a homeowner, it is your obligation to keep your house maintained and in good condition. If you consider your house as an investment, you may want to go another step and actually make some improvements. With a little bit of research, you can easily find the return on investment that you should expect to get from each type of renovation. Typically, kitchens and bathrooms add the most value to your home, compared to other home improvements. But like vacations, home renovations aren’t typically something you can pay for with a single paycheck. Setting up a savings account and budgeting for a renovation with monthly contributions, is the perfect way to go about this. We are hoping to tackle a bathroom remodel at some point in our not too distant future, and we have a “renovation” savings account that we maintain just for this purpose.
Teaching Your Kids About Money
I mentioned my experience with setting up a savings account at an early age at the beginning of this post, and we have paid it forward with our kids by getting all three of them savings accounts of their own. Yes, our 13 month old has a savings account. After all, where else was she going to put her birthday money? She doesn’t even have a tiny purse yet! But the reality is, that kids aren’t born knowing anything about money, and as a parent, giving them hands-on experience is a great idea. Just to give you an example, before opening savings accounts, my eleven year old had a tendency to spend (waste) every cent that he earned on junk that never brought any lasting happiness. Since opening his account, he has now saved $150 dollars, almost enough to purchase that iPod Touch that he has been wanting.
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Savings accounts are useful for many reasons, and with the ease of opening an account at most banks, you should take advantage of them as much as possible!
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Yes, yes, yes, and yes. All of these are good uses for a savings account. Honestly, this is one of those lists that could seemingly go on “forever.”
Roshawn @ Watson Inc recently posted..Do Americans Know What Poverty Is?
That is true Roshawn.. I had trouble limiting the list to just 4!
Emergency Fund, Vacations, and Home Renovations…all things that we need, all things that are expensive!
One thing my wife and I might do is put all the income we get from our basement rental into a separate savings account. It would be both an emergency fund/home renovation fund. I think it’s smart to start building reserves for home renovations because even if you don’t want to update anything you might get hit with some huge repair bill if something major breaks.
DC @ Young Adult Money recently posted..Getting a Property Ready For Rental
That is a good point, DC.. You can often get a pretty good idea when things are going to start breaking down based on their age.. For example, at about 25-30 years old, almost all furnaces and A/C units start to wear down quickly. If your home has key appliances reaching that point, it is best to start saving.
#1 and #5! Taht’s definitely the best most safest place for our emergency fund! And our girls now have their own savings accounts, which helps them understand money and saving. We have been thinking about putting a portion of our emerg. fund into a CD, but then that ties up that money, which sort of makes it not an emerg. fund. So maybe not a great plan, but a CD would offer slightly more interest than savings acct alone!
TB at BlueCollarWorkman recently posted..Justice is Served Up to a Restaurant
With the E-Fund.. The interest that you get is really just a bonus. The important part is having it as accessible as possible!
Good point with the savings account. Besides scheduled activities sometimes we face other unexpected activities and we must be prepared. We should have white money for dark days.
Gekko recently posted..Securing a flawless financial future with debt consolidation non profit companies
Love all these reasons to have a savings account. Kudos to you guys for forgoing the vacation for debt repayment! Sounds like you have a good attitude about it.
femmefrugality recently posted..Free Education Brought to you by Social Entrepreneurship
It was tough this year to skip a vacation.. My boys wanted one so badly, and my daughter has never seen the beach (she would love it!).. Next year, we are going to live it up a bit once we get rid of this debt load.
I like all of those reasons!
Forgoing vacation this year is very awesome of you guys. Just think, when you finally get to go next year and have paid for it 100% with cash, it will be so much more relaxing and fulfilling!
Holly@ClubThrifty recently posted..The VIP Club – Our First Weekly Roundup
That is probably true, Holly.. Sometimes waiting for something can make it all that much sweeter.
All great ! I’m making myself a vacation fund with $50 a month, and I can’t go on vacation until it is full enough to pay for it. Which may take awhile.
Gillian — Money After Graduation recently posted..At what amount will you feel rich?
Gillian.. Depending on how much you need.. You are right it might be a while. But at least you have the end goal in mind.
I think I was about 10 when I got my first savings account too and I’ve stuck with that same bank ever since. I was lucky enough that my mom bought me my sega genesis for Christmas one year. I don’t remember what I saved for instead, but I think it was important to start learning about savings early.
One thing to remember about savings accounts though…technically your money doesn’t really grow in them. Pretty much all savings accounts provide interest rates below the rate of inflation. So the money is losing purchasing power over time.
Modest Money recently posted..Mid August 2012 Blog Update
While true that savings accounts are well below the rate of inflation.. They are certainly better than putting the money in a piggy bank where it wont grow at all.
With this world of interconnected banks and paypal accounts, moving money in and out of a savings account to where you need it has never been easier.
I’ll keep this post in mind when my husband and I start our own family. The only financial experience/lesson I had as a kid were the 3 tupperware containers my parents gave me that were labeled saving, spending, and college. It was a nice gesture but didn’t help too much since they never monitored what I did with my money so I probably dropped it on something stupid like candy cigarettes!
Jessica @ Budget for Health recently posted..How Much Protein Do You Need?
Hah.. Yeah. It is a really good exercise for kids to learn about savings at an early age. It can really teach some good habits!
I just wish a saving account would throw out a bit more interest than .5%. Pretty sad.
Joe @ Retire By 40 recently posted..A Taste of Summer from our Community Garden
Teaching kids about money is HUGE. I know I have a ways to go before my little one will really get it (he is only 2 months afterall), but we already have a savings account for him and plan on using it as a tool to teach him the value of saving for a goal.
Good idea.. Most kids will get money for birthdays and such, and having a place to put that money is a great idea!
Emergency funds are soooo important! I am so glad that my husband and I finally have one. It helps me sleep a little easier at night.
That’s great that you started savings accounts for your kids! We are going to start one for our daughter too.
Sega Genesis…wow. I remember that! LOL
Mackenzie recently posted..You Are Coming Back, Right?
All so very important…and much better of my old thinking of “a savings account is there for when I overdraft my checking account”. And yes, paying for a vacation 100% upfront is going to be so awesome.
bogofdebt recently posted..Dilemma
No doubt about the vacation, b. It will make it even more relaxing!
I’m excited to open a savings account for out little one. I think I may need to back off a bit talking about money because I don’t want to ONLY TALK ABOUT MONEY with my kids, because I easliy could do that. My passion needs to also reflect my priorities, and money is not at the top of the list
Jacob @ iheartbudgets recently posted..Payday Loans
Yeah.. Your little baby probably would be more interested in play-doh and Pokemon than mutual funds and Roth IRAs.. But he will get there eventually
I know it is overkill but I have a savings account for many of my budget categories. That way I can save up the money in some categories for larger purchases like you suggest.
Lance@MoneyLife&More recently posted..Why Don’t I Ever Take My Paid Time Off?
There is nothing wrong with this at all, Lance.. We have a ton of savings accounts as well, and I am pretty sure that we will have even more once we get out of debt. Right now, very little of our money actually goes into them.
Totally agree, though I go a bit beyond that with my savings accounts. I have seperate accounts for emergency funds, wedding money, the dog, and Christmas. I prefer it that way, so I can see at a glance how much I have in each instead of having to consult my spreadsheet.
Jordann @ My Alternate Life recently posted..The Mysterious Money
Yes. It really can help bring your goals into reality to have them clearly spelled out in savings accounts.
I love the idea of opening a savings account for your kids! Hopefully they’ll get used to always having one and thus keep it a top priority to always save money throughout their lives.
Shannon-ReadyForZero recently posted..Car Loan or Home Loan: Which Would You Pay First?
I think they will, Shannon… Especially my little guy.. He has hopes to just continue to pad his account and pretty much never buy anything for himself. It is very impressive..
I would definitely add in getting your pay check directly deposited into your account. We rarely spend all our paycheck the moment it is cashed and since banks calculate interest on average daily balance; you can collect interest each and every time your pay check is deposited.
Definitely a good use!
Good point, JP.. I have an automatic tranfer setup every payday that moves my money around to specific staging accounts for saving and for mortgage/car payments.
Savings accounts are great. They allow you to separate funds for specific uses and still earn a small amount of interest with no risk.
Sean @ One Smart Dollar recently posted..The Frugal and Famous: 10 Celebrity Penny Pinchers
It is just awesome how many banks really don’t limit the amount of savings “buckets” you can have..
I’m giving you a big ABSOLUTELY to the renovations savings account! Unless you know exactly what is in your house and you’re well versed in construction estimating, doing work on the house is going to cost you more than you expect. Needless to say, my house work has slowed down considerably, but at least I won’t still be paying for it two years from now.
Cassie recently posted..Living Apart
One of our biggest financial mistakes was taking a zero percent (no interest for 12 months loan) that we ended up not paying off in time and getting charged back interest for. This will never happen again..
I like how savings accounts helped your kids learn to save money. Valuable tool!
AverageJoe recently posted..Blog Post of the Week! by Joyful Self Manager
That’s great that you had your first savings account when you were 10. It is so important to teach kids about money at a young age.
JW @ AllThingsFinance recently posted..The True Cost Of Car Ownership – Midweek Infographic
I may have missed something about the fact that when many of us were ‘kids’ we had ‘passbooks’ for our savings account. When I made a deposit of birthday or Christmas money, the teller would add a stamp for the ‘accrued interest’ into my passbook, along with my deposit.
Some banks still offer a version of this, if you request it. It maybe that kids are now able to online bank, my kids now in their 20′s weren’t able to do so when they were preteens. The bank statements didn’t hold the same allure as that passbook in your hands, with an ‘extra’ $8.00 added to the balance, just for letting the bank ‘hold’ your money.
This brings me to another bit of advice to those with young children, under 7. Check out life insurance policies on the kids, the value of ‘low risk’ and compound interest towards college costs! Big deal.
I love the last reason — I clearly remember getting my first savings account as a kid, and when I turned 16, my mom took me to the credit union to open my very own checking and savings accounts. It was great!
Kathleen @ Frugal Portland recently posted..Yakezie Carnival, Dog Days of Summer Edition
You should do a reader post with other suggestions!!! I love the last one – teaching kids about money. That’s EXACTLY why all kids should have a bank account like you did!
Elizabeth @ Simple Finance recently posted..My Dirty Mortgage Qualification Secret
I use a savings account for vacation funds! It’s a great way to save and not feel guilty for spending the money.
Ornella @ Moneylicious recently posted..3 Rules for Financial Safety Every College Student Can Follow
Awesome with teaching the kids to save! We did the same with ours. Its pretty cool when they save up for something they want and reach their goal. Sometimes Dad throws in “company matching” to keep them from giving up too quickly.
My Money Design recently posted..My Alternative Emergency Fund Strategy and How It Works
I use a savings account for vacations, renos and emergencies. Biggest thing that we do is to make sure that we contribute regularly. Some categories don’t get a lot – for example, home renos only get $20 a month right now because we have no plans in the near future.
No kids yet so I can’t say I do that last point
CF recently posted..Fiverr should be called Fourer
I love savings accounts, we have like 15 of them. Not at tons of banks or anything, but mainly sub-accounts. Some of the savings account we have are:
-Emergency Fund
-Car Expenses
-Europe Trip
-House Fund
-Travel Fund
-Health & Dental Fund
-Puppy Expenses Fund
-Christmas Fund
It makes it so much easier to save for certain things/expenses when you can see exactly how much you have saved in each area.
Jen @ Master the Art of Saving recently posted..My Plan to Save a LOT of Money