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Should I Keep All of My Savings in a Savings Account?

written by: M Lambert•edited by: Jason C. Chavis•updated: 7/6/2011

If you have quite a bit of money in savings you need to make sure that you are using the right tool to save that money. Savings accounts are safe, but may not offer the best rate of return. If you are interested in building wealth you may need to look at other options.

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    Emergency Funds

    A savings account is a good place to keep your short term savings or your emergency fund. However it is not the best place to keep the majority of your savings, because it has a low rate of return. Money that you keep in your savings account should be money that you want to be fairly liquid, but it will not help you build your wealth.

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    Mutual Funds and Stocks

    The majority of your savings, apart from your six month emergency fund, should be in tools that will help you grow your money. Mutual funds are fairly safe tools for your savings. You can build your wealth as you reinvest the returns that you receive on your mutual funds. Mutual funds are safe than normal stocks because they spread the risk over several different stocks.

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    Real Estate

    Another good place for your savings is in real estate. Your home can begin to build equity that you can cash out when you sale your home. Rental homes are another way that you can begin build income streams from your investment. It is important that you do not go into debt to purchase these homes, just as you would not borrow money to invest in the stock market.

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    CDs

    US Postal Savings System 5 If you want to play it safe and keep your money at the bank certificates of deposit (CDs) are a safe way to save your money, and they offer slightly higher yields on your savings than a normal savings account. The disadvantage is the penalties if you need to withdraw your funds early. Another option to consider is a money market account through your bank. This offers higher rates and it is easier to withdraw the money when you need it.

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    Considerations

    It is important to make sure that the FDIC protects any savings account you have. You need to carefully investigate any online banks that you use, to make sure that the FDIC protects them as well. You need to make sure that are within your limits on your accounts at the bank. Individuals have $100,000 limit that you can have at one bank at a time. If you have questions about this you should talk to an account representative at your bank.

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    Image Source

    US Certificate of Deposit 1932. (Supplied by the US Post Office; Public Domain; http://upload.wikimedia.org/wikipedia/commons/6/68/US_Postal_Savings_System_5.jpg)