Save for a Rainy Day
Savings are usually put into safe places that allow you access to your money at any time. Examples include savings accounts, checking accounts, and certificates of deposit. Your money may be insured by the Federal Deposit Insurance Corporation (FDIC) or National Credit Union Administration (NCUA). But there’s a tradeoff between security and availability; your money earns a low interest rate.
Most smart investors put enough money in savings to cover an emergency, like sudden unemployment. Some make sure they have up to six months of their income in savings so that they know it will absolutely be there for them when they need it.
But how “safe” is a savings account if the interest it earns doesn’t keep up with inflation? Let’s say you save a dollar when it can buy a loaf of bread. But years later when you withdraw that dollar plus the interest you earned, it might only be able to buy half a loaf. That is why many people put some of their money in savings, but look to investing so they can earn more over longer periods of time.