The Advantages and Disadvantages of Personal Savings
While savings accounts are generally considered to be a great thing to have as part of your financial portfolio, it’s important to weigh up the advantages and disadvantages of savings accounts before you commit to opening one.
In this guide, we aim to do exactly that to help you make a more informed decision when it comes to ironing out your finances.
Personal savings definition
Personal savings involves an individual’s money that they have put away or ‘saved’ for non-immediate use. There are many things that people might use their personal savings account for, such as saving for a wedding, saving for a house deposit or simply just to have some funds saved for a rainy day.
There’s no real right or wrong way to use a savings plan, providing that it’s working for you, your situation and your money. If you are thinking of opening up a savings account, check out the personal funds pros and cons list that we’ve put together below.
Advantages of savings
If you’re looking to save money for a big purchase, or just because you want to give yourself a bit of financial security in case of an emergency, then you’ll be pleased to know that there are many advantages of saving money.
Earn interest on your savings
One of the top advantages of having a savings account is that, depending on the type of savings account you have, you can often earn interest on the money that you’ve saved.
This is a great incentive to save money, especially if you’re saving for a big purchase like a house or a wedding, as your money can literally earn its own money.
Many banks offer introductory offers when you switch savings accounts, so many people find it beneficial to switch their savings accounts to different providers when there’s an offer they can take advantage of.
Easy access to money
Another benefit of having personal savings is that you have easy access to your money.
This is great in a financial emergency when you need money, but don’t have the sufficient funds in your regular bank account. Many banks also offer streamlined processes when it comes to accessing your savings and oftentimes, you can use your savings account when making purchases or withdrawing money from an ATM.
However, this could also be considered to be a disadvantage in some cases, particularly if you’re not very good at saving your money; the temptation to spend might be greater due to the ease of accessing your money - so be strict with yourself!
Most savings accounts are free to open
Those wishing to remain on a tight budget and save as much money as possible will be delighted to know that most savings accounts are free to open and use.
While some might charge you a “maintenance” fee for having the account open, you can definitely find savings account providers that don’t charge a penny.
The financial security of having a savings account is a tremendous relief for many people.
Knowing that you’re able to save money in a separate account for a rainy day makes financial planning much easier for many people, especially if you’re prone to spending money when it’s just sitting in your regular account.
You can save with your partner for big purchases
Personal savings can also be tied into a joint account that you share with your partner, for example.
If you’re saving money for a big purchase such as a house or a wedding and you want to combine your saving efforts, then you might want to open a joint savings account so you can both contribute to it.
Disadvantages of savings account
While there might be many benefits of saving money, it’s also important to be aware of some of the downfalls of having personal savings as well.
Interest rates can fluctuate
While many savings accounts enable you to earn interest on your money, these interest rates can often fluctuate and you might end up barely gaining anything on your money.
It’s advisable to look for a high-interest savings account, but these can often come with specific terms and conditions and requirements that you have to meet in order to keep your money in that savings account.
Minimum balance requirements
Following on from the point above, one of the requirements of enjoying a high-interest savings account might mean that you have to meet a minimum amount of savings in your account each month in order to benefit from gaining the high interest.
For example, if your account requires you to put at least £500 into your savings account each month, this could prove to be a lot of pressure if you don’t want to commit to an exact savings figure each month.
As well as minimum balance requirements, some savings accounts also have withdrawal restrictions in place which means you might only be able to make a certain amount of withdrawals from your savings account each month.
If you go over the withdrawal limits, you may be charged for the extra withdrawals you make and your account could even be switched over from a savings account to a checking account if the bank feels that you’re not making the most out of it.
Tips for saving money
We could write an entire guide on our best tips for saving money, but we’ll save that for another time. In the meantime, here are a few of our top tips for saving money and making the most of your savings account.
If you want to learn more about personal finance, be sure to check out our useful guides listed below!
- Write out your monthly expenditures and work out the areas where you could cut back on your spending.
- Think about your goals and why/what you’re saving for to help motivate you to actually put money away each month.
- Prioritise your spending and get rid of any unnecessary monthly subscriptions.
- Save your money in a high-interest savings account to benefit from your money making its own money.
- Pay off your debts as soon as possible so that you don’t have to worry about any large fees each month and you can start to save money safely in the knowledge that it’s now all yours and you don’t owe anything to anyone.