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Should I ditch my savings account?
Q: I've had a couple overdrafts this year, and the fees have been really expensive. It's not that I'm so short on money; it's more been a question of timing of paychecks, and juggling money between checking and savings accounts. I'm thinking of getting rid of my savings account altogether--the interest rate now is just one-tenth of one percent. In fact, those overdraft fees just wiped out more than a year's worth of interest on my savings account. Is it really worth keeping the savings account when interest rates are this low?
A: It's absolutely worth having a savings account--perhaps just not the savings account you currently have.
Here are three things you should be doing instead of dumping your savings account:
- Look for a savings account with a higher interest rate. According to the FDIC, the average rate on savings accounts nationally is just 0.12 percent, and it sounds like your savings account is a little below that average. However, there are still banks offering savings account rates in the neighborhood of 1 percent, so shop around--you can do better.
- Opt out of overdraft protection in your checking account. Force yourself to learn better banking habits by opting out of overdraft protection. As you point out, it's just too expensive.
- Keep more of a cushion in your checking account. Given the low-rate environment, you won't miss out on much interest by keeping a little bit more of a cushion in your checking account. Transferring some money from savings to checking seems a better alternative than getting rid of your savings account altogether.
This may not be the golden age of savings accounts, but they are still worth having. For security and budgeting reasons, it is worth keeping your savings separate from your spending money, and even the minimal return available from current interest rates is still better than none.
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