The Goal with Most Savings Accounts

Savings accounts provide a place to store your cash reserves (money you might need in an emergency or for property taxes, income taxes, etc.) or for the temporary placement of assets in transition.

Savings account interest rates offered with most savings alternatives are all very low and tend to rise and fall over the years with inflation. The intention, however, is to obtain short-term principal stability and liquidity as well as a yield consistent with comparable savings alternatives.

Except for assets in transition, the goal would usually be to maintain only the amount needed for an emergency, your taxes, etc. A savings account or cash account is intended to be both stable and liquid. You can always access it and you do not expect to lose your principal.

Anything over what’s needed for reserves can be used to reduce debt (an especially good idea when yields are low on savings accounts) and to fund your long-term investment strategy.

Managing your cash reserves is a dynamic process where you continuously monitor and change the amounts allocated to the assets (i.e. high yield savings account, money market account, certificates of deposit, savings bonds) in your reserve account over time due to a change in market conditions or a change in individual circumstances.

A savings account is just one place where you can put cash for your reserves and for that you could look for a high yield savings account, money market account or a short term CD with the highest interest rate and the lowest fees from an FDIC insured bank.