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Your emergency cash stash: The importance of a savings account

by , 04 July 2013

While having your money work hard for you is paramount to financial security and your retirement nest egg, it's also important to have some money tucked away you can access quickly for emergencies. A savings account provides exactly that function. Here's what you need to consider when it comes to ‘rainy day' savings…

Savings accounts are the least risky place you can put you money. Your money is pretty much as safe as it can be.

And while the consequence of this safety factor is you won’t get a high return on your cash, it’s a good way to put money aside to save for something specific.

Savings accounts are useful for an emergency as you can withdraw all your money at any time. So use it to store emergency cash for this purpose, explains Warren Jeffrey in his The Accelerated Investor programme.

For instance, you should store the excess you might have to pay on household insurance if something is stolen in your savings account. It’s also a useful place to park money for an overseas holiday or for money you plan to invest in the future.

How much cash you should keep in your savings account

The amount you store for emergency purposes depends on your individual circumstances and standard of living, but generally you should look at saving anything between R15,000 to R120,000.

Remember, the interest you earn on this money is minimal and to many extents non-existent due to all the charges you have to pay when using the account. You even pay government a small levy when using this account!

It’s also important to remember that because the interest you receive is determined on a monthly basis, the amount of interest isn’t fixed. It depends mainly on your balance as well as on the market circumstances. Generally, you’d get between 0% and 0.8% interest per month on a savings account.

Since the interest you earn on your money in savings accounts is so low, try not to leave large sums of money for too long.

Bottom line: Savings accounts are an essential part of your financial armoury, but make sure you don’t leave too much money there. After all, the only way to grow you wealth is to have as much of your money working for you as you can.

Your emergency cash stash: The importance of a savings account
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