We’re living in quite an unstable time, financially. The cost of living is rapidly rising, the world economy came very close to collapse, attitudes around what working entails and what it’s worth have changed, and new technology is putting into question the entire idea of a currency.
All that is to say that we need to be counting our pennies now more than ever. A lot of things are changing and having a backup pot of money in the background can be extremely beneficial, if even to keep your own mind at ease.
But there is some debate, as there is with just about anything money-related, over whether or not it would be best to have easy access to your money in your savings account. The instinct would be to say yes, obviously. It’s your money, after all. But maybe it would be more beneficial to you financially to open a notice account instead, where you will have to let a provider know that you intend to access your account.
We’re breaking down the pros and cons of either side of this debate: access to your money instantly or red tape protecting your money.
Pros of restricted access
There are a lot of savings accounts out there that offer a degree of restriction to your savings account. For example, let’s take a look at certificates of deposits, or CDs. CDs can be a great saving opportunity, but you won’t get access to the money. They offer insurance typically up to $250K and competitive fixed rates, but you have to keep your money in the tank for the entire term. That can range from 3 months to 5 years!
There is a lot you can save in 5 years. If you’re even only putting away $200 a month, you’d end up with enough to cover the deposit on a mortgage.
This can be a great help if you’re looking to save up for something in particular, which can’t be sprung on you at any point. The other side of this is that you cannot get access to your money if you should need it for another reason. If your current home suddenly leaks, for example, you’re going to have to find the renovation money elsewhere.
However, there are notice savings accounts that aren’t so strict. A lot of notice accounts offer the opportunity to access your funds with 30 to 120 days’ notice. The idea is that the sheer hassle of having to talk to the bank would put you off bothering unless you really needed to.
Cons of restricted access
However, even this isn’t too helpful in an emergency. Take housing, for example. It can move a lot quicker than you would think. If you’re renting, your landlord and you have an agreement to committing to a month’s notice when you’re moving out. That means in a month you’d need your deposit for your new place. If you have a notice period of more than 30 days, you’re stuck waiting.
And there are a number of much more urgent needs for money. A car breaking down, a home getting damaged by weather, or poor maintenance, getting fired from your job or having to quit unexpectedly. There are a lot of instances where instant access to your money would be vital.
Pros of easy access savings
On top of the fact that it would be useful to prepare for the worst, easy access savings accounts would teach a little financial discipline. You will learn to have some restraint in your own methods. Learn to swap the idea of a large expense for a small one. Learn to enjoy the idea of a goal you are working towards and take pleasure in seeing it come to light.
Plus, there are accounts that are named easy access that still force you to really think about if you want to take out that money. Some accounts offer the option of limited withdrawals, whether it’s the number of times or the amount of money.
Cons of easy access savings
The con of easy access is that it can simply be too easy. You need petrol near the end of the month? Rent money? Other expenses? And you’ll just grab a few extra dollars for that thing you want, but don’t need. What’s the harm in it?
It comes down to you and your judgment
If we’re being honest, this decision comes down to how much you trust yourself with your money and whether the instinct to just grab $20 here and there at the end of the month won’t drain your savings.
That, in turn, can lead to the slippery slope of upping the amount every time, because if $20 isn’t a big deal why is $50?
If you’re confident in your self-discipline, you have a good record of keeping your hands out of your pocket unless you really need to and are looking to save for a rainy day or emergency, you’d be better off with an easy access savings account. But if you have an expensive habit or hobby, an impulsive personality, or you really need to save for something and not once touch it, you’d be better off with a notice savings account.
Have a talk with your bank to see what options they have to offer or consult some comparison websites for better interest and returns rates.