What Is the Purpose of a Savings Account?

What Is the Purpose of a Savings Account?
Use a savings account as your personal piggy bank.

Safety

As long as the bank you use is insured by the FDIC, your money is protected up to a total of $250,000 per account. That high limit makes it easy to keep your money safe, no matter what your short-term goal. You could, for instance, move some of your money into a savings account as you approach retirement. Moving your money can protect it from stock market losses and help you preserve your spending power as you transition from accumulating your nest egg to spending it.

Teaching About Money

Parents and grandparents can use a savings account to teach their kids and grandkids about money. The adults can help those young people learn the value of saving by helping them bank a portion of each monetary gift they receive for their birthdays and at the holidays. Parents and grandparents can make saving more attractive by offering to match a portion of every dollar the kids put into the account, much the same way employers urge their workers to invest in a 401k. These lessons can instill a love of saving and an interest in the value of money that can last for the rest of that young person's life.

Emergency Fund

Building an emergency fund is essential in these days of job insecurity and financial problems. Experts recommend that all workers squirrel away at least three to six months' worth of living expenses in an emergency fund, and a savings account is the perfect vehicle for building such a fund. You can open a free savings account with a low balance requirement, then move money slowly into that fund by transferring the funds from another bank account. You can earn some extra interest along the way, making it that much easier to build your savings and protect yourself from a job loss or unexpected expense.

Short-Term Goals

You can use a savings account to save up for a major purchase, such as buying a new car or putting a down payment on a home you wish to buy. A savings account is the perfect vehicle for short-term goals, since the money put there is completely safe from loss. At the same time, the money you put in a savings account can earn a bit of interest, maximizing the value of your savings and making it that much more effective. A savings account also provides easy access to your funds whenever you need them, unlike a CD, which requires that you tie your money up for a period of months or years.