Credit Loan > Checking and Savings Accounts > Using High-Interest Savings Account to Get Over Humps

A Few Extra Dollars Make A Difference

While stocks are increasingly risky and the terms of high interest savings accounts are improving-- especially with the advent of on-line banks-- they are not, by themselves, the complete road for saving for retirement.

There is no question that judicious use of high-interest savings accounts can and should be an effective part of saving for the future, but as a rule, depending solely on a high-interest account will not insure one’s future. To produce an effective retirement fund, it is vital to invest in a balance of money-market funds, bonds and even some stocks as long as one is not going for the quick fix. However, in the immediate present, high-interest savings accounts can function as a valuable tool for day-to-day survival. This is especially true as many online banks offer a lower minimum balance than traditional savings accounts, which allows for greater and more rapid access to one’s money.

It is certainly necessary to have sufficient funds in one’s checking account to pay the bills that come due in the daily course of our lives, but if there is a surplus, investing it in format with ready access is a very good idea. It is true that the interest rates are not sufficient to provide a lot of excess cash, but it can make a great deal of difference in an emergency.

One-thousand dollars can garner $30 in a year, which may cover a prescription deductible or be the extra $30 you need to patch up Fluffy the Rottweiler after the neighbor’s cat chased him into the blackberry bushes again, saving such a bill from going on a credit card. Avoiding the use of your credit card, even for small things, saves the interest -- which over time, saves a lot of money.

Having a little extra cash that you have relatively easy access to, such as in a high-interest savings account, isn’t likely to be enough to make you go crazy with spending, but in tight months can be enough to help pull the budget through—again, without resorting to credit cards. Anything that avoids that trap is a crucial money-management tool.

The other advantage to keeping any kind of financial surplus in such a vehicle is that the money, while easy enough to get to in an emergency, isn’t right at hand. We all know what happens when we have an extra $50 or $100 in our checking accounts. We find shoes or video games on sale. Just having to make that little extra effort to get to the money can make all the difference in keeping to our budget.