The recent economic recession has proved one thing that saving money is important. If you have a good amount of savings, then it will be easier for you to manage sudden medical emergencies like a car repair, traffic violation, medical bill, etc. In a recent study, it has been found that around half of the American families have a savings account with a median balance of $2,400. Around one-third of families with low to moderate income have a savings account with a balance of $800.
Questions to consider before opening a savings account
Here are 4 important questions which you need to consider while opening a savings account. Let's take a look:
What amount should you save?
It is very important to decide as to what amount of money you should save in your savings account. The more amount you save, the more financially secure you will be in times of emergency. Most of the financial planners are of the opinion that it will be to good to save 3-9 months of expenses in your savings account. When there is a financial emergency such as job loss, then at least you will have something to fall back upon. However, the amount will also depend upon your personal comfort level.
How will you work on building savings?
When you are saving for the first time and you are not in the habit of savings, you should start small. With time you will have to increase the amount. Before you start building your savings, you should decide how much you want to accumulate. After that, you need to set up a time frame for it. In order to build up your savings, you should deduct a fixed amount from your salary and put it into the account. In order to let your savings grow, you should open the savings account in a bank other than the one you normally use. If it is out of sight, it will be out of mind as well!
How much interest rate will be available to you?
At present, the interest rates are at an all time low. But this shouldn't stop you from saving money. After all, saving money for the financial emergencies have nothing to do with the interest you earn over that account. It should also be noted here that normally credit unions offer better interest rates compared to other banks and financial institution. Also, online banks and financial institutions offer good rates of interest. But you should always remember that for savings account, interest rate is not important. The money that you save holds more value.
Is it necessary to have an emergency fund?
While setting up a savings account, many people have the confusion as to whether or not they should also have an emergency fund. There is no harm in saving money in a separate emergency fund. This fund can be used only for medical emergencies. When your savings account falls short, you can look up to your emergency fund for help!