There’s no doubt about it, we financial nerds spend a lot of time talking, thinking and writing about savings accounts. Why? Well, I can boil it down to one very important reason. Simply put, the more money you keep in savings, the more protection you provide for your more valuable assets in the event of a financial emergency.
But here’s the thing, if the main purpose of a savings account is to protect your assets, then that leads to another important question: is a savings account an asset?
Yes, the money you keep in your savings account is considered an asset, and therefore, can be added to your net worth. In fact, since an asset is anything of monetary value that you own, any cash you keep on hand (whether in a bank account or not) is considered an asset.
That said, not all savings accounts are created equal. In other words, if you want to maximize every aspect of your net worth, it’s both important to understand the concept of assets in your financial life, as well as, set yourself up with a savings account that benefits your overall financial efforts.
And that’s exactly what I’m going to cover in the rest of this guide.
So, if you’re ready to get your “asset in gear”, and make the most of your savings, keep reading! (Sorry for the bad pun.)
Understanding Assets vs. Liabilities
Before we go any further, it’s important for you to understand the difference between assets and liabilities. Allow me to explain.
As I mentioned earlier, an asset is considered anything you own that has some sort of monetary value. For example, in addition to actual money: real estate equity, vehicle equity, stock, mutual funds, retirement accounts, and much more are all considered assets. To put it simply, if you own it and it has financial value, it can be considered an asset.
On the other hand, a liability is anything that you owe to somebody else. For instance, mortgages, car loans, credit card debt, or any other kind of loans in your name are all considered liabilities.
So back to our original point, the simple fact that money has value, and you own the money in your savings account, makes it an asset.
How Much Money Should You Keep In Your Savings Account?
Ok, now that we’ve established why a savings account is an asset, the next most important question is: how much money should you keep in your savings account?
At minimum, you should keep the equivalent of 3 to 6 months worth of living expenses in your savings account at all times. This is what most experts recommend, as it is usually enough to cover your expenses in the event of a financial emergency.
But wait, if a savings account is an asset, then shouldn’t you just put all your money in there and call it good?
Well, you could definitely go that route, but truthfully, that’s not a great option.
As I mentioned at the beginning of this article, the main purpose of a savings account is to protect your more valuable assets. But what, exactly, does that mean?
Let me put it this way, if you have $10,000 in a savings account that earns an interest rate of 1%, and $10,000 in a mutual fund that earns an interest rate of 8%, then the money in your mutual fund is more valuable.
Because of that, the longer you let the money in your mutual fund sit and earn interest, the better off you’ll be. But here’s the thing, in the event of a financial emergency, if you were to keep all your money in mutual funds, you would be forced to pull that money out, or worse, take on debt, in order to pay for the emergency — both of which, defeat the purpose of investing.
That’s why having a savings account is so important. Sure, it might not earn quite as much as your other assets, but should a rainy day come along, you can use it to make ends meet without having to pull from your more valuable investments.
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What To Look For In A Savings Account?
So, now that we’ve gone over the difference between assets and liabilities, and covered how much money you should keep in savings at any one time, let’s get into the really good stuff: what to look for in a savings account.
You see, one of the things I’ve noticed as I’ve gotten deeper and deeper into the world of personal finance is that most people are leaving money on the table with a sub-par savings account interest rate. Even worse than that, a lot of people, many of whom don’t even realize it, are paying savings account fees month after month when they shouldn’t be.
And if that’s your situation, then we recommend setting yourself up with a better savings account. But, before you do, here are couple things you should look for:
1. A Good Interest Rate – Let’s be honest, even the best savings account interest rates aren’t anything to write home about. But that doesn’t mean you should settle for a savings account that earns a couple pennies every month. Rather, you should look for an interest rate that beats the national average, which, in our experience, is usually between 0.5% and 1.5%. Seriously, even a small jump in interest rate could net you a couple hundred bucks a year.
2. No Monthly Maintenance Fees – If you are paying monthly maintenance fees for your savings account, you need to pull that money out before you even finish reading this sentence, and go set yourself up with a better savings account. In personal finance, the fewer fees you have to pay the better.
Recommended Savings Accounts
- Axos High Yield Savings – To put it simply, this is our favorite savings account. With no monthly maintenance fees, no minimum balance fees, and a great interest rate, it is hard to beat this little gem of a savings account. The only thing we don’t love is that it takes $250 to open an account. But, seeing how it is a savings account, this might actually be a good thing. Click here to open an Axos High Yield Savings Account.
- CIT Savings Builder – The CIT Savings Builder was the first savings account we ever recommended to our readers, and it is still one of our favorites. With a great interest rate, no monthly maintenance fees, and really simple user interface, you can’t go wrong with this savings account. Click here to open a CIT Savings Builder Account.
- Axos Money Market – If you’re looking for a little bit more flexibility with your savings, then a money market account might be perfect for you. Similar to a checking account, you can write checks directly from a money market account, all while, earning the same great interest rate you would normally see in a high yield savings account. Our favorite money market account is the Axos Money Market. Click here to open an Axos Money Market account.
Is Cash an Asset? In short, yes, cash is the most liquid form of an asset. Even though the value of your cash will decrease as inflation increases, it still has value, which makes it an asset.
Is A Checking Account an Asset? Yes, a checking account is an asset, along with any savings account, money market accounts, CDs, or any other bank accounts you own. Since an asset is just anything that you own that has monetary value, any bank account you own that holds money is considered an asset.