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Should I Open a Savings Account? Is It Worth It?

Should I Open a Savings Account?
Susan Guillory
Susan GuilloryUpdated March 6, 2023
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Editor’s note: Lantern by SoFi seeks to provide content that is objective, independent and accurate. Writers are separate from our business operation and do not receive direct compensation from advertisers or partners. Read more about our Editorial Guidelines and How We Make Money.
Financial knowledge comes in stages. One stage is learning how to manage the cash flow in your checking account. Once you get to the point that you always have more than enough in your checking account to pay your bills, you’re ready for the next stage: Putting aside money in a separate account for an emergency or big purchase.Still, you might wonder whether opening a savings account is really necessary. We’ll talk about the perks of savings accounts, tips for what to look for in an account, and some drawbacks to be aware of. 

What Is a Savings Account?

A savings account is similar in some ways to a checking account: You can open it at your local bank or credit union, and you can make deposits in person or by transferring money from one account to another.The major difference is that a savings account is for…you guessed it: savings! The money in a savings account accrues interest over time. Also, you can’t write checks or use a debit card with a savings account, and you may be limited in how many withdrawals you can make per month.Before we address whether savings accounts are worth it, let’s look at who might benefit from opening one.

Who Should Open a Savings Account?

Just about anyone who qualifies for a savings account should open one. If you’re over 18, working, and have a checking account, you can benefit from a savings account. But what if you’re under 18, not working, and don’t have a checking account? Surprisingly, the answer is the same: Setting money aside in a savings account can make smart financial sense.

When Should You Open a Savings Account?

If you’re thinking of opening a checking account for the first time, you can also easily open a savings account. And if you already have a checking account but not a savings account, it’s not too late.Let’s say you recently came into a large sum of money, maybe from an inheritance or a tax refund. That’s a great time to open a savings account so that your money can start earning interest.

Reasons for Opening a Savings Account

So is a savings account worth it? Certainly, you have to put a little energy into opening the account, either online or at a bank. But what exactly will you get out of it?

1. Start an Emergency Fund

What would you do if your car broke down or you had a complicated plumbing problem at home? Could you cover the cost of professional repairs? More than half of Americans can’t cover a $1,000 emergency. But if you make a plan and put money in savings, you’ll have enough to handle the unexpected.

2. Buy a Car

If you don’t like the idea of taking out a car loan, squirrel away money each month so you can buy a car with cash. You’ll save money on loan fees and interest, and own your car outright from the beginning. 

3. Create a Vacation Fund

Dreaming of a beach vacation but lacking the cash? It will take some discipline, but over a few months or years, you can set aside enough in savings to reach your fun goal. And by saving up in advance, you won’t have to worry about being able to pay off your credit card when you get back.

4. Upgrade Your Home

Are your kitchen cabinets screaming for a makeover? Rather than taking out a home equity loan to cover a remodel, you can save money over time to cover the cost.

5. Help Qualify for a Loan

If you’re looking to take out a personal loan, having a savings account may help you qualify. It shows the bank you’re serious about managing your finances and can cover the first few payments. 

6. Prepare for the Holidays

Many people throw all their holiday expenses — gifts, dinners out, travel — on their credit card. Then in January, they panic when the bill arrives. By saving a little throughout the year, holiday expenses are covered — without losing money to credit card interest. There’s even a name for this kind of savings: a Christmas club account.Recommended: Best Cash Back Credit Cards

Tips for Opening a Savings Account

When you’re ready to open an account, start by looking for a bank that offers a high interest rate. That may or may not be your regular bank. Online banks offer competitive rates, so shop around online as well as with brick-and-mortar banks.Consider a high-yield savings account, especially if you have a short-term savings goal. These offer higher rates than traditional savings accounts. The key is to leave your money in the account for as long as possible. If you take it out, it won’t accrue interest. Set a goal for how much you want to save and over what period of time, and automate deposits to be taken directly from your paycheck.Recommended: Money Market Accounts vs. Savings Accounts

Advantages of Savings Accounts

Here are a few of the perks of having a savings account.
  • Separate Your Savings. It can be tempting to spend what’s in your checking account. Having a separate account puts it out of sight and out of mind.
  • Earn Interest. Unlike a checking account, money in savings earns interest. Instead of just sitting there, your money is working for you. 
  • Set It and Forget It. Automate deposits into your savings account to help you accumulate more money faster, without lifting a finger.
  • Spend Less on Big Purchases. When you save the money you need for big purchases like a vacation or wedding, you don’t have to take out a personal loan or pay down a big credit card bill. Not paying interest saves you money.

Drawbacks of Savings Accounts

To be completely honest, there are a few drawbacks to savings accounts.
  • Money Is Less Accessible. By law, you can withdraw money from a savings account only six times per month. Some banks have even stricter requirements. If you go over that number, you may pay a penalty fee.
  • Saving Cuts Into Available Cash. While saving is important, it can take some adjusting if you’re used to spending all the money in your account. This is where planning ahead comes in handy. Just create a budget for how much you’ll save and you won’t miss the money so much.

Deciding If a Savings Account Is Right for Your Financial Goals

So why open a savings account? In truth, only you can answer that question. Maybe you’re looking to save for a specific goal, such as a trip or a new car. Or you might just want an emergency fund for peace of mind.Be honest with yourself about how much available cash you have every month. If money is already tight, trying to save may not be possible right now. That’s OK: Table the idea and come back to it when you have more money available.

The Takeaway

Opening a savings account can help you set aside money for the things you want in life, with the added perk of earning interest on your deposits. You’ll also save money on interest when you avoid relying on a credit card for big purchases. When shopping around for a savings account, make sure to look for a competitive interest rate. You may or may not find that with your current bank, but it’s perfectly fine to keep money in two different places.Where can you find a savings account with a great rate? Right here with Lantern. Compare different banks and their offers instantly.Compare today’s high-yield savings rates, including fees and balance minimums.

Frequently Asked Questions

What type of savings account is right for me?
What factors should I consider in a savings account?
Is a savings account worth it?
Photo credit: iStock/dragana991

About the Author

Susan Guillory

Susan Guillory

Su Guillory is a freelance business writer and expat coach. She’s written several business books and has been published on sites including Forbes, AllBusiness, and SoFi. She writes about business and personal credit, financial strategies, loans, and credit cards.
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