Are There Good Reasons to Have an Instant Access Savings Account?

April 10, 2012 Tushar Mathur No comments

In the world of investments there is a wide range of options to choose from if you want to make money from your money. But no one recommends you have an instant savings account in this situation. The low rates of interest given on such accounts mean they’re not worth having. Or are they?

If you read any information at all about getting your financial affairs in order, it generally begins by telling you to open an instant access savings account if you don’t already have one. So why would this be the first recommendation when it won’t pay you any real cash?

Ready for anything

The truth is that we all need a certain amount of ready cash we can dip into whenever the need arises. I’m not talking about spotting something in a sale and wanting to buy it. I’m talking about major roof repairs or a faulty appliance that needs replacing – basically anything that would require you to get your hands on a sum of money very quickly indeed.

This is where the importance of an instant access account comes in. Since you can get instant access to the money you hold there, it is just as important as having other accounts that give you a better return for your money. So whether you have stocks, shares, bonds and any other financial products, you should always have some ready cash you can actually get at in a hurry as well.

How much do you need?

Most experts reckon that three months worth of your regular salary is enough to hold in such an account. The idea behind this is that if you were to lose your job you’d have three months worth of income sitting in an account to fall back on if you ever needed it.

You can probably start to see how important these instant access accounts can be. They may not give you much in the way of interest on your investment, but remember that this is really not an investment at all. Instead it is a cushion. Stocks and shares may provide you with an investment and a good return on your cash over time, but they won’t be any good if you need cash in a hurry.

It’s worth remembering here that if you do ever need to dip into your emergency instant access fund, you should try and replace whatever you take out of it as quickly as you can. For example, let’s say you have $8,000 in this account. You need to take out $2,000 for some essential car repairs, leaving you with $6,000. Normally you put $500 a month into another long term savings account (or whatever else you invest in) but for the next four months you should divert that cash to plump up your instant access account again. Once it is back to normal you can simply forget about it again, until the next time you need this very essential resource.