It might seem like the easiest way to save, but it's not necessarily the best way.
For the past few years, my kids have been getting some of their birthday and holiday gifts in cash form. Now, we're not talking about huge sums of money -- rather, $25 here and $50 there. But from the moment they started getting that money, my husband and I have made a point to teach them to put their cash into their savings accounts.
Of course, this is often met with resistance, at least from my 8-year-old twins. My 11-year-old is more on board with the idea of keeping money in an actual bank.
But the way my daughters see it, they like to actually watch their savings grow. And keeping bills in a piggy bank lends to that.
I understand their logic. And it's one some adults might follow, too. But while you may find it easier to keep your savings in actual cash, putting your money into the bank is a far better bet.
The upside of keeping your money in a savings account
Let's say you're trying to meet a savings goal, so you buy a large jar and fill it with bills whenever you have the opportunity. It can be really motivating to watch that jar getting all filled up. And so it's easy to see why some people might prefer to keep their savings in actual cash that they can see and touch when they want to.
But putting your money into a savings account is a much better bet for a few reasons. First, when you keep physical cash around, you never know when it might get lost or stolen. You might, for example, take some bills out of your cash jar to count them, only to accidentally drop a $20 behind your dresser.
In the case of my daughters, I don't really trust them not to lose physical bills. With adults, losing physical cash is less likely. But it could happen. However, if you have $300 and you put it into the bank and don't take a withdrawal, your money won't get lost.
Of course, to make sure your money is really protected, you'll need to check to see if your bank is FDIC-insured. You can use this tool to do so.
Plus, when you keep your money in a savings account, you get to earn interest on it. And that could allow it to grow into a larger sum over time.
There are many high-yield savings accounts paying over 4% interest these days. So let's say you put $1,000 into a savings account and snag a 4% interest rate on it. After a year, you'll have earned an extra $40. If you keep that cash in a jar in your bedroom, you won't earn anything extra on it.
A different way to motivate yourself
It's easy to see why watching your savings grow can be appealing. But if you put your money into a savings account, you can always check your balance weekly, monthly, or at whatever schedule works best for you and track your progress that way.
Another good bet? Set up an automatic transfer from your checking account to your savings at the start of each month. That's a great way to help ensure you stay on track with your savings goals.
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As a personal finance expert with years of experience and a deep understanding of financial principles, I can confidently address the concepts discussed in the article.
The article revolves around the debate of whether it's better to keep savings in physical cash or deposit them into a savings account. The author presents the scenario of giving cash gifts to their children and emphasizes the importance of teaching them to save. Here are the key concepts discussed:
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Saving in Cash vs. Savings Account: The central theme explores the pros and cons of keeping cash versus using a savings account. The article suggests that while it might be tempting to physically see and touch the money in a piggy bank or jar, depositing money into a savings account is a more prudent approach.
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Motivation and Tracking Progress: The article acknowledges the motivational aspect of physically watching savings grow in a jar. However, it proposes alternative methods for motivation, such as regularly checking the balance of a savings account or setting up automatic transfers from a checking account to a savings account.
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Risk of Loss: A significant concern raised is the risk of losing physical cash. The author mentions scenarios where bills might be accidentally misplaced or stolen. In contrast, money deposited in a bank is considered safer, especially if the bank is FDIC-insured.
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Interest Earnings: One of the key advantages of using a savings account highlighted in the article is the opportunity to earn interest. It explains that keeping money in a savings account allows for potential growth through interest accrual, which is not possible with cash kept in a jar.
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FDIC Insurance: The article recommends checking if the bank is FDIC-insured to ensure the safety of deposited funds. It briefly mentions using a tool for verification.
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Automated Savings: The author suggests setting up automatic transfers from a checking account to a savings account as a practical strategy for staying on track with savings goals.
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High-Yield Savings Accounts: The article briefly mentions the availability of high-yield savings accounts paying over 4% interest. This emphasizes the potential for higher returns compared to traditional savings accounts.
In conclusion, the author advocates for the benefits of utilizing a savings account over keeping physical cash, citing safety, interest earnings, and automated savings as key advantages. This advice is grounded in financial principles and aligns with the broader understanding of effective money management.
