Why Savings Accounts and CDs Still Matter

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With interest rate earnings on savings accounts and certificates of deposit, or CDs, practically paying nothing in 2013, many people are asking why they should even bother with these financial tools for investment. However, the fact is, saving money is one of the best ways to remain financial solvent and protected as well as be able to plan for long-term financial needs into the future.

In reality, the large majority of people have little or no savings stored away. Credit and borrowing the methods 95 percent of the population uses for big purchases, with savings being an afterthought. Yet savings can provide emergency funds when credit can’t be used, it can help pay for big purchases and down payments for a home, a car, or college, and it can help put away funds for retirement and living better during later years. The big challenge for people is to just put enough away to begin with to build up these funds over time.

When it comes to saving money and seeing it grow into a large resource, time is the greatest factor a person can have as an advantage. Most people are quite capable of putting a few dollars away every month, despite being on tight budgets or managing competing interests. In fact, some of the most powerful savings methods don’t involve big transfers of cash. They work far better with small steps consistently taken every day, every week, every month. And, eventually, like ants building an anthill, the amount grows into a large reserve.


Kids can start early with a piggy bank and a basic child’s savings account. Once the piggy bank gets full with coins, the money can be taken to a bank and deposited. Technically, these accounts are managed by parent or guardian as a trust account. However, for the purposes of learning, the account looks and works the same way as an adult’s account in that the child can deposit money at a bank and see it grow over time. This practice teaches children early the power of savings, why it works, and it savings a pot of money for their use later on, maybe for a first car or for college savings.

For young adults, savings helps build the next steps into mid-life by helping create reserves for a home down-payment and initial retirement deposits. Both types of savings can be done via savings accounts, CDs, and Roth IRAs. Young adults have the greatest advantages for savings because they have plenty of time ahead of them as well as very little in the way of commitments and liabilities. Many in their early twenties may still be living at home or at college. All those earnings can easily be stashed away in significant amounts rather than burned up on beer or going out every evening. It’s just a matter of practicing discipline early. Doing so, it’s not uncommon to find a savvy mid-twenties person with $30,000 or $50,000 already savings up for a home or a retirement, as crazy as that may seem. Online banking makes such savings extremely easy from a PC or mobile device which most young adults understand well.

Middle-age adults have probably the greatest challenges versus savings, and this is where being creative can make a difference. By the thirties a person may already be sharing a life with someone else, looking for a home to buy, managing student loans and car payments, and possibly raising small children. Credit and debt have already been established and add to monthly bills. It can often seem like there’s never enough money and time to go around to take care of everything adequately. However, where possible, marginal savings can build up quickly.


A number of tools work well in putting money away in middle age, even when it seems like the monthly paycheck gets swallowed up too quickly:

• First, when managing the checkbook try rounding up to the next dollar on every transaction. Then take the change difference and transfer anything in increments of 25 cents into a savings account connected to the checking. So if filling gas at the pump was $20.19, write it down as $21 and transfer 75 cents to savings. Doing this every day, 30 days a month can average $30 to $100 monthly.
• Second, set aside an amount, like a personal tax out of every paycheck. Treat it like a bill and pay it first before any monthly spending occurs. This can be done as a transfer, creating a new CD on the 1st of the month, or buying a government I-Bond or EE-Bond. Whatever the case, follow the personal “tax” regularly. Within a year, that pattern can be a few hundred dollars to a few thousand dollars saved, depending how much is diverted.
• Third, if you get any gifts, tax refunds, or one-time bonuses, put them away into a CD before thinking about spending. Doing so locks up the funds and saves them without any commitments. Then, you can plan wisely for big expenditures as needed.

Finally, in one’s older years, savings shouldn’t stop. Assuming a pension or 401k will pay for everything when it’s time to stop working is foolish thinking. And many find out that mistake the hard way later on. Savings should continue regardless of all the retirement resources available. It can help deal with unexpected medical costs not covered by Medicare, and it provides and adds to an emergency reserve. It also allows a person to pay off any last bits of debt to retire free and clear of liabilities.

So if savings or CDs seem like a waste of time as an investment, forget about the interest part of the picture. Savers benefits most from these accounts by having the financial resources to make big decisions later in life without worry. That’s worth far more than a few dollars of interest earnings.

About John Krystof

John Krystof writes about personal finance and money matters for He was born and educated in Central Europe, but presently resides in New York City.

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