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In Part 1 of the Back to Basics series, we discussed checking accounts and overdraft protection. Today, we move to Part 2 to discuss savings accounts.
According to MSN Money, the personal savings rate has fallen to near zero. The personal savings rate is the lowest it has been since 2001. The United States is currently on track this year to record a savings rate below 1%. This will be the lowest since the Great Depression when the rate turned negative.

Why Save.
You can be pretty sure that if you aren't dependent on your parents or have a big trust fund, there will be those unexpected financial emergencies that can blow your budget. If you rent or own a home, own a vehicle, you can almost guarantee that there will be an an unexpected expense to arise at some point.

Don't think you need a savings account? Consider this: What will do you when your car dies and needs repairs. What will you do when the water heater goes out? What if you lose your job unexpectedly?
Sometimes, it not all about the bad things. There are also good things to save for. You may want to take a nice vacation but you don't have the money to pay right now. Break up the total amount and save until you have the amount you need for your trip.

Unfortunately, in the real world, things like this happen and you need to be prepared to handle the unexpected expense.

If you have a savings account, you can weather the financial emergency without a major blow to your finances (hopefully). Sure, it will suck that you have to watch your savings balance drop like a rock but at least you won't need to rely on credit to get your through the rough times. It's alot better to pay yourself back than having to pay a bank. If you borrow money from a bank, not only must you repay the original amount; you'll also need to pay them for the opportunity for using their money (aka interest). Why pay the bank when you can pay yourself??

Where to Save?
When it comes to where to open a savings account, you have numerous options. If you prefer to keep your money in a local brick and mortar bank, I recommend checking with your local credit union first. Not only do credit unions offer better rates, they usually offer better customer service. The bad thing about keeping your money local is that you will probably get a pretty low interest rate.

If you are looking for a better rate and have Internet access, you may want to check into online banks. Online banks like ING Direct and HSBC are a great place to open a savings account. ING is currently paying 3% APY and HSBC is currently paying 3.5% APY. These rates are among some of the highest rates being paid right now. There is no minimum balance and no fees to maintain the account. In addtion, the account is also FDIC Insured up to $100,000 so you don't have to worry about losing your money if the bank fails. If you have a Washington Mutual Bank in your area, they are currently offering a checking and high yield savings account combo. The savings account is currently paying a rate of 3.75%.

If you don't currently have a savings account start now. It may be $5 or it may be $500. It doesn't matter the amount. The important thing is that you get in the habit of saving for that rainy day.

HSBC Direct - Strategy

Image Credit: kevindooley


  1. Stanley // August 16, 2008 at 3:36 PM  

    Great article. I highly recomend ING for a svings account. I have been with them for a couple years and the money I get back in interest is far more better than my old BofA account!