Savings Accounts

Almost everybody is familiar with savings accounts; they are usually the first investment we make. Usually when we are kids our parents will take us down the local bank to open an account. As adults we usually switch over to more sophisticated investments. Nevertheless a savings account can be a useful part of anybody’s investment portfolio.

A savings account is probably the simplest and safest sort of investment that you can make. It is really just a matter of opening an account at your local bank and depositing money into it. The big advantage of a savings account is the liquidity; you can withdraw money at any time that you want. This makes it a good place to keep the money that you are expecting to need to use in the near future. It is better than keeping the money at home in the form of cash since it will allow you the opportunity to earn some interest.

The other big advantage of savings accounts is that they are a very safe investment. In fact they are probably the safest investment that you can make. The only real risk is that the bank may fail although even this is offset by the fact that savings accounts are insured. That means that your money is protected if the bank fails up to a certain maximum amount. So unless you have a very large amount of money in your savings account it is basically a no risk investment. That makes it a useful part of your investment portfolio as a way to ensure some stability.

Of course there are downsides to a savings account and the big one is the low interest that they pay. In general the greater the risk or the less liquid your investment the more you will earn. As the safest and most liquid investment you can make it should probably come as no surprise to learn that a savings account pays a very low interest rate. In fact the rate that is paid is so low that it is really not a good long term option for your investments as it won’t even keep up with inflation. A savings account is good for money that you will need in the near future but not for the bulk of your portfolio.

One way that you can increase the interest rate that you earn from a savings account is to consider using one of the online banks that has started to appear in recent years. These are a little bit inconvenient because it can be a pain to get your money in and out; you basically have to have a checking account with another bank. However the trade off for this is that you will get a higher interest rate than you will from your local bank. Often a significantly higher rate. This can make a savings account a much better investment option.