Blog #13: Your Savings Account is Stupid

Our entire lives we’ve been taught to save money. A penny saved is a penny earned. Savings accounts are good, credit cards are bad. And while all that is good and right, I’m here to tell you that savings accounts are stupid. They are outdated, misused, and contribute to banks making millions (billions?) of dollars off your hard earned money every year.

Years ago, when you opened your checking account, your bank likely also had you open a savings account. When you login online, you see both accounts with positive balances. Balances that are ‘growing’ your money; contributing to your net worth. For decades my checking account has earned me a meager 0.15% but savings accounts were WAY better, they earned me almost 1% of interest!!! It sounds like savings accounts are way better, right? They were better… in the 1990s. Just like how Blockbuster and Circuit City were awesome. But in the last 10 years we’ve seen the availability of High Yield Savings Accounts (HYSAs) explode, and guess what!?!? They average 3-4% returns. 

So, today I’m here to say that having a standard savings account is stupid.

Instead of having a savings account, you should only have a checking account (for day to day transactions) and a HYSA. If your main bank where you keep your checking account doesn’t offer a HYSA, then it’s time to open a HYSA at an online bank that does. Your main checking account should still handle the bulk of your banking, paying for bills and credit cards and loans and mortgages. You should keep 2-3 months worth of expenses in there. But the rest of your liquidity and emergency funds should  NOT be in a savings account; they should be in a HYSA where it will earn 3-4 times the amount of interest your old savings account would.

“Tom, this seems so simple, why doesn’t everyone do it?”

Some people might not know about HYSAs or realize how much of a difference in interest rates they offer compared to checking and savings accounts. But even if people do know about them, a lot of personal finance topics come down to being… personal. People grew up with regular, old savings accounts and we can be pretty stubborn to change. If you’re comfortable with your old way of banking, why change? Most HYSAs are only offered by online banks, which save money by not having physical locations and thus can pass those savings onto customers in the form of higher interest rates. Some people are still weary of using online banks. Also, changing banks is a pain in the butt, but in this case you wouldn’t be changing your main checking account, just your seldom used savings account. 

All of these reasons are understandable. Change can be scary. But if you ask each of my clients they’ll probably tell you that I’ve questioned each and every one of their accounts in order to understand why that account exists and what that account’s purpose is. Because I really don’t see the purpose in an old, 1998 savings account anymore. The world has changed, banking has updated, and it’s time to not be stuck in the past.

And sometimes you need a professional like Tom Arasz CFP to push us to make smarter financial decisions and get things done.

Summary Checklist:

• Banking has changed significantly in the last 10 years

• Regular, old Savings accounts don’t have a purpose anymore

• This is an easy problem to fix

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