Here's Why I'll Always Keep Money in a Savings Account -- Even When Interest Rates Are Miserable

It's a pretty good time to have money in a savings account. Right now, you can earn upward of 4% on a savings account balance without taking on any risk -- assuming, of course, that your bank is FDIC-insured and your balance is limited to $250,000 or less. 

By contrast, when you invest in stocks or other assets, there's the potential to lose some of the money you put in -- or even all of it in an extreme situation. So the ability to earn more than 4% risk-free is something to be grateful for. 

I know I sure am. But there was also a time when the interest rate on my savings account was so low it was pretty much a joke. For years, I basically had no choice but to accept less than 1% interest on my money for the privilege of being able to keep it in the bank.

But I don't regret my decision to do that. And even if interest rates get back to that point down the line, I plan to continue to keep money in savings. Here's why.

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SoFi Checking and Savings APY up to 4.60% Rate info You can earn the maximum APY by having Direct Deposit (no minimum amount required) or by making $5,000 or more in Qualifying Deposits every 30 days. See SoFi Checking and Savings rate sheet at: https://www.sofi.com/legal/banking-rate-sheet. Min. to earn $0 Open Account for SoFi Checking and Savings Member FDIC.	APY up to 4.60% Rate info You can earn the maximum APY by having Direct Deposit (no minimum amount required) or by making $5,000 or more in Qualifying Deposits every 30 days. See SoFi Checking and Savings rate sheet at: https://www.sofi.com/legal/banking-rate-sheet.	Min. to earn $0
Synchrony Bank High Yield Savings APY 4.75% Rate info Our Disclosure: Annual Percentage Yields (APY) is subject to change at any time without notice. Offer applies to personal accounts only. Fees may reduce earnings. For High Yield Savings accounts, the rate may change after the account is opened. Visit synchronybank.com for current rates, terms and account requirements. Member FDIC Min. to earn $0 Open Account for Synchrony Bank High Yield Savings Member FDIC.	APY 4.75% Rate info Our Disclosure: Annual Percentage Yields (APY) is subject to change at any time without notice. Offer applies to personal accounts only. Fees may reduce earnings. For High Yield Savings accounts, the rate may change after the account is opened. Visit synchronybank.com for current rates, terms and account requirements. Member FDIC	Min. to earn $0
Capital One 360 Performance Savings APY 4.25% Rate info See Capital One website for most up-to-date rates. Advertised Annual Percentage Yield (APY) is variable and accurate as of April 11, 2024. Rates are subject to change at any time before or after account opening. Min. to earn $0 Open Account for Capital One 360 Performance Savings Member FDIC.	APY 4.25% Rate info See Capital One website for most up-to-date rates. Advertised Annual Percentage Yield (APY) is variable and accurate as of April 11, 2024. Rates are subject to change at any time before or after account opening.	Min. to earn $0

You need a safety net

SecureSave recently reported that 63% of Americans do not have enough savings to cover an unplanned $500 expense. But that's a pretty upsetting statistic, because the reality is that every working American should really try to have a three-month emergency fund at a minimum. What I mean by that is a savings account with enough money to cover three full months of essential bills, like rent, food, and medication.

Of course, if you're able to build up savings beyond that point, even better. But if you're able to save up three months' worth of expenses, you'll have cash reserves to tap in the event of a period of unemployment. And you'll also have money to access for things like sudden car or home repairs. 

Meanwhile, I've always made a point to keep money in a savings account regardless of interest rates because I've experienced my share of financial hiccups. Years back, I lost my job out of the blue when my company had to make cuts. I was a good employee and hadn't done anything wrong -- but the business had to let a bunch of us go. I was able to cover my bills with relative ease until I found work again because I had a nice emergency fund to tap. 

More recently, I've run into different home repair issues as my house has aged. I've needed to replace a water heater, air conditioner, and, most recently, two heating systems at the same time. And my emergency fund has come to my rescue on each of these occasions.

Would I rather keep my money in stocks and other assets when savings accounts are paying minimally? Sure. But then I run the risk of losing money. 

Let's say I put my emergency fund into stocks and the market tanks right when I need to take a large withdrawal. Suddenly, I'm locking in an investment loss and making an already yucky situation even worse. 

Savings account rates shouldn't be your deciding factor

If you have money you want to set aside for long-term goals, then by all means, invest it. But any funds you have earmarked for emergency expenses or situations, like unemployment, should stay in the bank -- regardless of what savings accounts are paying.

In fact, don't look at your emergency fund as an opportunity to make money. Think of it as a safe place for the money you need to have available at all times. 

You can put your non-emergency savings to work by investing that cash in the hopes that it grows. But do yourself a favor and pledge to always maintain a minimal safety net in the bank -- even if the interest rate on your savings account is horrendously low.