Should you listen to Ramsey’s advice and open a savings account?
- Savings accounts provide very low returns, but Dave Ramsey says you need one anyway.
- He says savings accounts are like insurance without the red tape.
If you’re like most people, you have only a limited amount of money to go around. And there are many things you could do with your hard-earned cash, including investing with a brokerage firm and potentially earning generous returns that help you build wealth.
When you’re trying to decide where your money should go, finance expert Dave Ramsey suggests that at least some of it needs to be in a savings account — and that’s true even though the interest rate you’ll be paid on your savings is likely “pretty low,” according to the finance guru.
Ramsey says you should have a savings account even though you won’t make much money off it
On the Ramsey Solutions blog, Ramsey makes clear that everyone needs to have a savings account. However, he cautioned that there’s a downside to these accounts. “You’re never going to get rich off of them,” he warned.
But Ramsey said you shouldn’t be disappointed about the fact that a savings account won’t make you much money — and you shouldn’t hesitate to open one even when you begin shopping around and you find out that the interest rate most savings accounts offer you is unimpressive.
“A savings account is not an investment,” Ramsey explained. “It’s a cushion for those times when life deals you an unfair blow. Think of it like an extra insurance policy — minus all the red tape.”
See, Ramsey believes you need a savings account to “store money until you spend it,” and says that this type of account is an appropriate place to put both your emergency fund and money you are saving for bigger purchases you plan to make relatively soon.
He suggests opening your savings account in addition to your checking account so you can keep this money that you’re setting aside separate from the cash you have to spend.
Is Ramsey right?
Ramsey is absolutely correct that opening a savings account isn’t going to make you wealthy. In fact, right now, the returns most accounts are offering are well below the rate of inflation, so any money you put into savings is going to slowly lose a little bit of value over time.
And he’s also right that you should open a savings account even though that’s true. While savings accounts don’t provide generous returns, they do offer an easily accessible place to keep cash where there is no risk of losing it. And if you are going to need money accessible in case of emergencies or for a purchase you plan to make within around two to five years, then a savings account is the right place for it.
You don’t want to tie up money that you might need soon in a complicated investment that creates the potential for losses. Otherwise you may end up without the cash you need — and you may have to sell your investments at an inopportune time which increases the likelihood you’ll lose big. A savings account doesn’t carry these types of risks — you can deposit money into it, earn a little interest, and take it out whenever you need.
While you don’t want to keep more money in savings than necessary, there is definitely cash that belongs in this account so open one ASAP if you don’t already have a savings account of your own.
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