Savings accounts are great tools for putting money to one side for a specific purchase; however, savings accounts are also an important safety net in case of emergencies. Ideal one would need to put money into a savings account on a regular basis, which also will help with earning interest on the account.
Safety nets in personal finance are vital to guard against unexpected events and for the peace of mind they offer. If one can put about 10% of earnings into a savings account then, in time, you will build up that safety net. This should never be used for purchases; it is there just in case. For specific purchases, one should have a separate account or at least put more than the 10% into the account, as long as you leave the safety float in the account. If you have at least three months salary held in a savings account then you have a good safety net. If you think of this as a float, then you will never be tempted to deep into the lump sum. Remember as well, that this lump sum will be earning you interest, and as long as the interest is greater than the rate of inflation then your money will be increasing.
If you set up a standing order to pay into your savings account from your current account, then you will soon forget about the money and will not even miss it. This standing order means that the savings are on auto so that you never forget. The best way is to set up the standing order precisely when you are paid, so that the money is instantly removed and you will know that what is left is for spending.
Interest rates vary with different savings accounts and the rates will change according to the nature of the accounts. A long-term bond will probably earn you more bank interest than an easy access savings account. You always need to check the terms of your savings account in case of penalties for early withdrawal and so on. You may also find that some savings accounts have a tired interest, this means that the interest will rise once you reach a certain threshold; this is incentive, of course, to save more.
Savings accounts are varied and, especially in this financial climate, there are many banks offering good deals in terms of bonuses and interest. It is important to shop around, either online or by visiting different banks, to see exactly what the best deal and the best setup is the right one for you. Remember, that the banks ultimately work for you.
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