Are Savings Accounts Worth It? The 6 Pros and Cons

Are Savings Accounts Worth It? The 6 Pros and Cons

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Do you have a savings account or do you think savings accounts are just for old people? I can say without a doubt, savings accounts are NOT just for old people and something that you may want to consider opening. Before we get into that, let’s answer the burning question:

Are savings accounts worth it?

A savings account offers you access to your money quickly while also paying an above-average interest rate. Much higher then you would get from any checking account. In addition, the separation of your finances may allow you to better manage your money but this may come with additional fees.

I have a savings account and I recommend everyone to use one as well. A savings account is simply a tool and nothing more. It’s a tool that can be used to help manage your money more efficiently and who doesn’t want to make the whole topic of money easier?

In this article, I want to take you through 6 pros and cons of using a savings account. In the end, I will also answer some common questions to help you get a better idea if a savings account is right for you.

Why A Savings Account Is Worth Having

Personally, I have a savings account and I suggest most people have them and use them to their advantage. Sure, savings accounts aren’t as fancy as your free Robinhood trading account but they do offer some great benefits.

Let’s go over a couple of pros of having a savings account.

Higher Interest Rates Than A Checking Account

Interest rates matter and not just in the context of your mortgage or auto loan. Those interest rates you want to keep as low as possible but when it comes to a checking or savings account, you want to maximize them.

Most people, myself included, get our paychecks direct deposited to a checking account. This account is where all of my bills are paid out of but I don’t leave money here for long. I actually have a max value that I want in this account and anything above that number, I transfer to either an investment account or savings account.


Well, checking accounts usually have an interest rate of 0%. That means if you let your money just sit there, it will earn you exactly $0.00. That’s not good for anyone besides the bank and we’re trying to be better.

A savings account interest rate usually ranges from .25% to 2%. Every day your money is in these accounts, they earn interest. As I’ll explain later in this article, it isn’t a huge amount but money is money.

Risk-Free Returns

Some people don’t trust banks. If you are one of those people, then this article (and possibly this whole website) may not be for you. I’m not saying that they aren’t full of crooks but they legally have to insure your money up to a certain amount. In addition, any interest that is paid from a savings account is guaranteed.

Savings accounts offer a risk-free return. Is this return going to change your life? Probably not, but as I just told you it’s better than the 0% that you would be getting from a checking account.

If you want to build wealth, then you need to have your money working for you and the risk-free return of a savings account is another way to do just that.

It Separates Your Finances

The main reason I enjoy having my savings account is that it separates my finances. I never suggest keeping all of your money in one place because managing it becomes almost impossible. For example, my favorite savings account is named “Travel Savings”. Literally it’s named “Travel Savings”. I’m sure you can imagine what the money from that account goes to.

Every week on payday, a certain amount of money gets pulled from my paycheck and is automatically deposited into that account.


Well I, like many people, enjoy traveling and want to do and see as much as possible. The problem is saving for it can be hard. Having a separate savings account forces me to save so when I do decide to take that big trip, I’m prepared and it’s much less of a burden.

If you want to learn more, watch my video on how I automate my finances.

Why You May Not Want A Savings Account

A savings account can be a great tool for your financial plan but it shouldn’t be the only way you set aside money. Saving accounts offer risk-free returns but those returns may not be your best option.

Now that we know the pros of a savings account let’s go over some of the cons to help you better form an opinion.

The Interest Rates Aren’t That Great

Earlier, I told you that a savings account offers a guaranteed, risk-free return via the interest rate. But these interest rates aren’t great, especially if your savings account is at a local bank. These rates will range from .10% to maybe .50%. If you find anything above that at a local bank, then they are the anomaly.

Online banks are now starting to offer high yield savings accounts. This is the same concept as your savings account at your local bank, but they offer better returns on your money. It’s all online so there are less costs for them. No building to maintain and fewer employees. These accounts sometimes have interest rates of 2% or higher. That is a great return for short-term investing and a good way to passively earn money. Next, we’ll talk about long-term investing, where you should be expecting a much higher rate of return.

You May Be Better Off Investing

There is a major difference between investing and saving. Yet often the words are used interchangeably. Here is the major difference; saving is for the short term (6 months – 3 years) while investing is over the long term (4 years – you die).

Holding a year or two of cash in a savings account as an emergency fund is always a good idea. It will never hurt to have that cash at your disposal because life happens. But holding anything above that may be costing you hundreds of thousands of dollars in long-term growth.

Historically, index funds that reflect the U.S. Stock market have returned 7% annually. The difference between 2% and 7% may not seem like much but through compounding interest, it piles up.

If you want to build wealth, you need to be investing and allow your money to make money. If you want to learn more and have someone walk you through setting this up then check out my course, Money Made Easy.

There Are Always Fees

If you have been a reader of Young, Dumb, and NOT Broke?! for any time now, then you know that I absolutely cannot stand fees. If a bank is going to nickel and dime me with fees on a savings account, then I’m going to switch banks. I have no loyalty to a bank.

Some of these fees show up as account minimum requirements or a specific number of transactions needed. All of these are unnecessary.

I’m all for finding something that works and being loyal, but if a bank is going to charge you $5 a month to have a simple savings account then I would strongly recommend looking elsewhere.

Related Questions About Savings Accounts

It’s hard to form an educated opinion about a topic from a simple pro and con list so let’s go over some related questions to help you better understand if a savings account is right for you.

1) Which Savings Account Is The Best?

This is a question you are going to have to answer for yourself but personally I like to use two different types. I have one at my local credit union that holds my “Travel Savings” this has an interest rate of .25%. The reason I use this one is that I spend that money within a year on a trip.

The other one I have is through Wealthfront. This account usually holds quite a bit more and has an interest rate of 1.78%. Obviously, much higher. I use this account to save money for larger purchases and investments like the duplex we plan on buying later this year.

There is no such thing as the “best” savings account, it is all going to depend on your preferences and what you’re saving for. If you would like to check out Wealthfront then click the button below.

2) How Much Money Should You Keep In Savings?

A savings account can be a great place to store an emergency fund. But as I’ve told you in this article, you may be costing yourself money in missed opportunities by keeping too much money in a savings account.

So how much should you keep in savings?

That is going to depend 100% on your personal preferences. Personally, I have a year’s worth of living expenses in an online Wealthfront savings account and a much smaller amount in my Travel Savings account.

What I would suggest is to just try something. Your financial plan is going to change over time, as it should. Start by seeing if you can put $1,000 in a savings account. After a couple of months of not touching that money, go to $2,000 or maybe even $3,000. If you can save that much money you are in the minority of people and you should congratulate yourself.

3) How much money can I save in my bank savings account without tax?

Unfortunately, you are going to pay tax no matter what (taxation is theft). Interest that you earn in a savings account is taxable income and you must report it. Every year you will get a 1099 tax form that has the interest you have earned form your savings account.

Having to pay taxes on this income shouldn’t scare you away from opening a savings account. Even with taxes, you will be earning much money than you would with your dollars just sitting in a checking account.

The Bottom Line

Savings accounts aren’t fancy but they also aren’t just for old people. Adding this tool to your financial plan is a great idea for anyone who wants to manage their money in a more productive way.

If someone told you that you can open a free account that can automatically save money for you, while also earning interest on your money then why wouldn’t you do it?

Take advantage of the products these big banks offer and open yourself a savings account today.

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