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Advantages & Disadvantages of a Savings Account | Sapling.com
Savings accounts are among the more conservative investment options for storing extra funds. A primary drawback of a savings account is its limited interest-earning potential, but virtually no risk of loss is a major benefit.
credit: Jack Hollingsworth/Photodisc/Getty
While you can earn interest with some savings accounts, security is a major reason to invest your extra money in one. Typical savings accounts are insured by the Federal Deposit Insurance Corporation, which means your money is protected. Also, since you aren't investing your funds in a risk-bearing product, you do not incur the potential to lose money on a bad investment as is common with stocks.
Other major benefits of savings accounts include:
Liquidity -- Withdrawing money from a savings account is simple. Government regulations limit you to six withdrawals per month on savings accounts, but taking money out is as simple as making an online transfer. You can complete a transfer in minutes online. In contrast, taking money out of stocks, bonds and certificates of deposit results in penalties or non-optimized sales transactions.
Easy setup -- It's simple to start a savings account. Many banks even link basic checking and savings packages, which offer
some interest and fee advantages. You can also find banks that offer no or low initial deposit options. These accounts are especially beneficial for a young person learning to save for the first time.
Savings Account Disadvantages
No or low interest yields are among the primary drawbacks of a savings account. Bankrate notes that some high-yield or high-deposit accounts pay more, but interest rates are well under 1 percent for typical accounts as of June 2015. Relative to higher-yielding CDs and investment products, a savings account isn't the best way to grow your wealth.
Other major drawbacks of savings accounts include:
Transaction limits -- Federal limits on withdrawals per statement cycle impede some of the liquidity benefits of a savings account. You can only access your funds a handful of times each month. Some banks are even more restrictive than the government requires, limiting you to fewer than six transactions in a statement cycle or charging fees when you exceed a certain threshold.
Bank fees -- You may have to pay account or maintenance fees to a bank with a savings account, particularly if you maintain low balances. You can look around for no-fee options, but this takes time.
Category: Savings account