In the world of retirement strategizing, the focus tends to be on 401(k)s, IRAs, pensions, or other retirement investment accounts. But that doesn’t mean you should forget about the traditional savings account.
Savings accounts can have many uses, but for starters, it’s a great place to stash cash for emergency situations. Financial experts recommend keeping 3 to 6 months’ worth of money in a savings account to cover emergency expenses. Even if you have no foreseeable expenses, there is no way to predict the future, so it’s not impossible that you might need cash on hand to cover an expense.
In addition, savings accounts can be a place to store money for large expenses such as a down payment on a home, buying a car, spending on hobbies, or taking a vacation. Even if there are no foreseeable expenses in the future, your money in these accounts earns interest and can grow over time.
You might be wondering, “I have a 401(k) and an IRA. Why do I need a savings account as well?”
When it comes to your savings, different accounts have different uses. If all you have for savings is in retirement accounts, your withdrawals from those accounts could be subject to an early withdrawal fee if you need it for an emergency expense.
The bottom line is that savings accounts can provide you with a place to keep cash for an emergency expense or a planned expense you’re saving up for. And as a bonus, the cash you keep there has the potential to earn interest.
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