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Month after month I keep looking at my bank account and have been pretty happy with the progress I’ve been making in paying down my debt. I keep theory crafting about what the best use of money long-term. But there is one question that had regarding banks that I have always wondered, “Are savings accounts worth it?”

My Answer: Savings accounts are worthless if you plan to make money.

“Oh No! Mr. Debt To Dough is ruining his credibility once again!”. My goal is to offer you real perspectives. Some are pretty traditional, while others might go against “common knowledge”. This will most likely be filed under “not so common”.

Grab some popcorn, grab a beer, and raise an eyebrow or two. Because I’m pretty sure this will be an interesting read (or not).

When Were Savings Accounts Relevant?

Back in my day, before I was old enough to have a credit card or even had a job, the average APY was over 5% (bank interest rate) for savings accounts. If you had a CD it would be above 6%.

Even having $1,000 in savings would net you $60 in the 90s. Some of you might have experienced this during the 90’s boom. For us millennials, that almost sounds like a fairy tale.

Those were some meaty interest rates! Most interest rates you pay for mortgages or car payments can be lower than that in 2018.

The Current State Of Savings Accounts

Fast forward to now. There are some online banks and some credit unions that offer a 1-1.5% APY (as of May 2018). And even so, most of these banks require a certain amount of requirements to get the APY.

  • High minimums needed.
  • Higher savings accounts usually keep you on the higher end.
  • Now, there are some really good banks out there that offer legitimate high APY, you just need to do research. Alternatively, you can subscribe to my newsletter and I am able to circle back on the subject I’ll notify you :). 

In reality, most banks have terrible savings account interest rates. According to the FDIC, the average annual savings interest rate is 0.60% (not to be mistaken with 6.0%).  This is a fraction of a percentage. Get the hell out of here. I’ll put it in perspective.

  • You have $1,000 in your savings and let it sit for 3 years.
  • Year 1: You’ll have $1,006 -> Year 2 = $1012.04 -> Year 3 = $1018.11
  • After 3 years -> You’ll net $18.11.

I’m not done yet. Here are the average interest rates for some of the top banks in the US.

Even though the national average rate is 0.60%, these big banks offer nearly nothing.  If you had $1,000 saved in those banks, after 3 years you will have earned $3. I am pretty sure I can make more money finding change on the ground in a few hours.

So long story short: The current state of savings is terrible.

Stop Transferring Savings To Checking & Vice Versa

I can probably say I’ve made a late payment or have had an overdraft fee several times in my life. I consider myself good with money but mistakes do happen. Human error is a real thing.

One of the things I’ve been doing more of is putting a sizable buffer in my checking account compared to savings.

If you are trying to balance the books and aim to get the maximum amount of your savings before moving funds back to your checking account, you will often come out behind more often than ahead. Overdraft fees will negate any savings you have.

Let’s run the numbers:

Assume you have a 0.5% APY with about $3,000 saved up.

  • End of Year 1: $15 earned.
  • End of Year 2: Another $15 earned.
  • End of Year 3: Another $15 earned -> Total: $45 earned in interest.

Over this three-year period, you do your monthly (or weekly) book balancing enough to pay bills. But what happens when in month 16 when your utility bill pulls money out early and you are hit with an overdraft fee?

  • Overdraft Fee: $35
  • Overall money earned: $45-$35=$10

You have to be on top of your savings-to-checking game to come out ahead long term if you don’t have much money in savings.

Always Keep A Buffer

Conventional wisdom says that you should always keep an emergency fund in savings. I don’t disagree with that.

But I also created a rule for myself: Always create a checking buffer fund equal to your biggest payment. Say you have a car payment of $400/month. Never, ever, ever have your checking account go lower than that. So if any unexpected payment comes early, you will always be covered.

I would go as far to say if you have less than $1,000 you keep your money in checking until you reach that amount.

The Harsh Reality of Savings Accounts

According to, 62% of Americans have under $1,000 in savings. Now, not everyone with less than $1,000 in savings is in dire straights. Some of these people keep their money in stocks, bonds, retirement funds. But a strong majority of these people legitimately don’t have much money to their name.

The last thing I want to see if people in need getting dinged by banks for not having enough money.

Age for Savings Insights

When Do Savings Accounts Make Sense

I’m not here to say “savings accounts are evil”, but inform that savings accounts can be ideal under certain circumstances.

  • You create a savings account for emergency funds. This is often the most realistic reason to have a savings account. You can mentally separate your savings compared to your checking when it’s visible.
  • You create a savings account for easier tracking “goals” or other “budgets”. Most banks allow you to create more than one savings account. You can create a savings account for “vacations”, “special events”, “gifts”, or even a “treat yourself” savings. I usually keep a “mad money” savings account that is expendable for gambling only.
  • If you aren’t sure of what to do with the money. There are a lot of investing blogs out there that can better direct you into “optimally” using the money. But in the meantime, it beats keeping all of your money in your checking. Plus if you $10K+ that’s when you can make a sizable enough interest where it’s worth putting in savings over nothing at all.
  • Limit yourself from identity theft. Piggybacking off the previous point, if you have your identity stolen and someone cleans your account. It’s going to be a lot easier to swallow a $500 loss vs a $5,000 loss. You will probably get your money back over time, but it’s still not comfortable.

My Last Thoughts Regarding Savings Accounts

Savings accounts are meant to be a safe and boring investment for most people. It’s not really supposed to do anything but be a measure of financial progress to some people (myself included). As you get more financially savvy, you’ll better understand your goals and objectives and can plan accordingly.

Until then, don’t hold yourself back by subjecting yourself to overdraft and other banking fees. But if you are at a big bank with $10K+ in savings, check out Ally or Mutual of Omaha to go from 0.01% APY to over 1% APY. It’s a start.

What are your main reasons for having a savings account? Are they different from above?


Savings Accounts Worthless