Read this tip to make your life smarter, better, faster and wiser. LifeTips is the place to go when you need to know about Savings Accounts and other Financial Planning topics.

Why should I use savings accounts for short-term savings?

Savings Accounts for Short-Term Savings

There are three different types of savings that consumers are usually interested in. The type that appeals to you can determine where you should actually invest your cash.

Short-term : For savings you keep less than 5 years.
Mid-term : For savings intended to be used 5 to 19 years from now.
Long-term : For savings not meant to be used for 20 or more years.

Savings accounts can be used for any of these types of savings objectives, but they're best used for short-term savings objectives. The reason for this is that savings accounts do not offer as high a return as other investments do, so leaving cash invested in one for a long period of time could work against the savers. In addition, many longer-term investments could create a liquidity issue if someone needed quick access to their cash.

When you have long or mid-term savings goals, savings accounts can provide a benefit in that they balance out the risk of higher-risk investments. But it's important to limit the amount of savings you invest in low-interest savings over the long term.

Comments

6/17/2015 2:15:57 PM
Deanna R. Jones said:

Thanks for the information! I've always thought that people usually open savings accounts that they can use throughout their lives. I didn't know that people could also open short term savings account to keep money that they would need to save for less than five years. It seems like I would want to open a savings account to put money that's separate from my own personal account for I large investment, like a new car, or a vacation to Bali.

Ask a Question

Not finding the advice and tips you need on this Financial Planning Tip Site? Request a Tip Now!

Guru Spotlight

Byron White

Ever wonder how you could make your life better and more fun? So have tens of millions of fans who have turned to LifeTips for answers over the past decade. We keep the tips, advice, books, podcasts and writing services flowing, so you can keep your life and business growing in the right direction. Upward!