Are Traditional Savings Accounts Worth It for You Anymore?

The Future of Banking: Are Traditional Savings Accounts Worth It for You Anymore?

John Csiszar  Wed, March 2, 2022

Just a few short years ago, online savings accounts were paying annual percentage yields of 2% or even more, making them a great place to stash cash. But with the onset of the coronavirus pandemic, the Federal Reserve quickly cut interest rates, dropping savings rates close to zero. Even the best online savings yields top out at about 0.50% these days. What this means is that for the past two years, savers have earned negative yields on their bank accounts, after factoring in inflation and taxes. And with inflation skyrocketing past 7% in recent months, savings accounts are falling woefully behind. So, are traditional savings accounts even worth it for you anymore? The answer is definitely yes — when they are used properly.

When Are Savings Accounts Still Appropriate?

Savings accounts will never generate the big returns offered by asset classes like the stock market, but they serve valuable purposes that stocks and other investments can’t. Here are the top reasons why savings accounts are still appropriate.

They Carry FDIC Insurance

Probably the most important characteristic of a savings account is that it is FDIC insured. This means that your assets in the account, up to $250,000, are insured against loss by the federal government. Some bank accounts offer additional supplemental insurance that can bring the total amount up to $1 million or even more. This makes savings accounts the ideal vehicle for funds that you absolutely can’t lose, such as your emergency fund.

They Offer Liquidity

Savings accounts are generally accessible at any time. You can withdraw your funds from a branch any time it is open, and for accounts that offer debit cards, you can use an ATM machine to take out your funds as well. Even the stock market, which is also considered highly liquid, doesn’t offer this type of accessibility, as you must sell your stocks and then wait two business days after the sale to access your cash. For times when you need money right away, a savings account is one of the best available options.

They Can Help You Reach Your Short-Term Savings Goals

If you’re saving for a short-term goal, such as a wedding or a vacation, a savings account is usually your best option. Even if the interest currently paid on savings accounts is low, you will earn at least something while saving for your goal, and you won’t have to worry about losing value in the account even in a bad market environment.

When a Savings Account Just Doesn’t Cut It

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