Low Interest Savings Accounts and CDs Are Still a Good Idea

By Spencer Tierney

Today’s best rates for savings accounts and certificates of deposit are a far cry from last year’s rates of 2%. And rates across most banks will likely keep dropping.

“It will be increasingly uncommon to find institutions that are willing to pay 1%” on a savings account, says Mike Schenk, chief economist for the Credit Union National Association.

The reasons are many — the Federal Reserve dropped its benchmark rate in March, the pandemic-related economic crisis continues — but rates aren’t the only strength of savings accounts and CDs. Here’s how else they help you save.

Savings Accounts Provide Cash Access and Tools

Taking a savings account for granted is easy to do; they’ve been around a long time, and most Americans have one. But it bears noting how savings accounts can help our financial lives:

• Easy access to funds: Unlike with brokerage accounts, you don’t sell investments in order to convert your money back to cash; savings accounts keep money as cash. And you can easily transfer money to your checking account as needed.
• Useful barrier to spending: A savings account, which lacks a debit card, offers fewer ways to withdraw than checking accounts. And historically, savings accounts had a limit of six withdrawals per month, although in April 2020 the Federal Reserve stopped requiring banks to enforce this limit. Having an account separate from your checking can help you intentionally save, instead of blurring the divide between your spending and saving funds.
• A destination for automatic transfers: If you would benefit from a hands-off approach to saving money, you can set up recurring transfers from your checking to savings accounts. Or split direct deposits between accounts.
• Option for multiple accounts for goals: Open several accounts and dedicate them to different spending categories, like an envelope budgeting system. One could be a backup for your checking account, one for vacation and one an emergency fund.

“How you use these tools should be based on how you manage your money,” says Saundra Davis, founder and executive director of Sage Financial Solutions, a San Francisco Bay Area-based nonprofit focused on financial coaching. If you don’t mind tracking multiple accounts, go for it.