Why put money in savings account?

[Investornew]

Does it make any sense to save for college by putting the money in a savings account? I know someone who does this and has about 40K in the account so far and her child will be needing the money for college in about ten years.

The only advantage I can see to a savings account, is that the money is safe. You can't lose any of it, as you could with an investment. Is this just an option for people who can't deal with the risk of losing money in an investment account?

 

[Ready]

No, it does not make sense. But some people are so risk averse that they will never be comfortable investing in equities.

 

[hesperus]

Is this just an option for people who can't deal with the risk of losing money in an investment account?

It's that of course, but a savings account may also be one component of an asset allocation strategy, ie cash. It seems that your question may be part of a larger question regarding investing?

 

[Investornew]

It's that of course, but a savings account may also be one component of an asset allocation strategy, ie cash. It seems that your question may be part of a larger question regarding investing?

I might put some investment into cash if I were, say, afraid of a pending stock market crash.

This person uses a savings account for college instead of a 529 plan, because I believe they might be totally risk averse.

I did lose some money in a 529 plan I had with Fidelity, although not very much. So yes, the risk is there.

I feel a 529 plan money is also safer from creditors than bank account money is.

 

[Blue Collar Guy]

Does it make any sense to save for college by putting the money in a savings account? I know someone who does this and has about 40K in the account so far and her child will be needing the money for college in about ten years.

The only advantage I can see to a savings account, is that the money is safe. You can't lose any of it, as you could with an investment. Is this just an option for people who can't deal with the risk of losing money in an investment account?

If they are risk adverse than its a great move. I had an old boss who got into the 457k (like a 401k) when it first came out in 1987(thats when my job first offered it). He had put in the max for 30 years into the stable income fund sort of like a money market but pays a little more. I sat down with him around 1998 and told him the upside of equities. In 2000 he was telling me/asking me how am i doing now? hahah i told him i getting crushed. he said this is why he is in stable, then around 2008 he once again asked me how it was going , i told him i lost so much im too scared to look at the statements. He roared with laughter(so did i, but mine was a nervous laugh). I was in the 457 starting in 1994 (i missed 7 years), and finished in 2008 (when i retired). I have wayyy more than he does and he has put in 16 more years. Some people cant take the shock of a loss.

 

[braumeister]

Regardless of whether it makes objectively good sense or not, people will do whatever lets them sleep soundly at night and there's nothing wrong with that.

 

[Investornew]

If they are risk adverse than its a great move. I had an old boss who got into the 457k (like a 401k) when it first came out in 1987(thats when my job first offered it). He had put in the max for 30 years into the stable income fund sort of like a money market but pays a little more. I sat down with him around 1998 and told him the upside of equities. In 2000 he was telling me/asking me how am i doing now? hahah i told him i getting crushed. he said this is why he is in stable, then around 2008 he once again asked me how it was going , i told him i lost so much im too scared to look at the statements. He roared with laughter(so did i, but mine was a nervous laugh). I was in the 457 starting in 1994 (i missed 7 years), and finished in 2008 (when i retired). I have wayyy more than he does and he has put in 16 more years. Some people cant take the shock of a loss.

To me, even a stable income fund would be better than a bank savings account. A bank savings account earns interest of maybe a few dollars a year? At most. I don't have one. I have a money market account with a small amount as emergency funds, in case of job loss.

 

[pb4uski]

Online savings accounts routinely pay about 1%... not a lot but much better than most bricks & motar banks.

I was watching an interview with the president of BlackRock on the news this morning about a survey that they do and was floored by this:

On average, cash now totals 58% of Americans’ assets, down from 67% in late 2016.

 

[kgtest]

Regardless of whether it makes objectively good sense or not, people will do whatever lets them sleep soundly at night and there's nothing wrong with that.

I sleep like a baby, have ever since I stopped putting my money in banks and learned how to invest it wisely!

 

[Fedup]

Risk adverse.

 

[Jerry1]

Cash is king. I can't explain it and financially it makes no sense, but emotionally, I like two things about keeping a good chunk of cash in the bank - safety and liquidity. When I think of my asset allocation, I don't really look at the money in the bank so I guess if I say I'm 60/30/10, I'm really 57/28/15 (equities/bonds/cash). Whatever.

Another thing I've always wondered is why, when I have almost $2M saved, does it still feel good to have a thousand in C-notes in my pocket? Cash is king.

 

[Yawnmower]

I really don't see why they wouldn't do something with the money. They could be doing so much more with it or making so much more with it. especially when you have that much siutting around! lol.

Have you thought about making some suggestions on what they could do with it? If theyre really averse to investing there's always things like term deposit investments and the like that aren't anywhere near as risky, and they'll be making more than they are now. [mod edit - link removed]

I mean i guess there's something to having a bit of emergency fund cash on hand, but each to their own...

 

[Koolau]

Cash is king. I can't explain it and financially it makes no sense, but emotionally, I like two things about keeping a good chunk of cash in the bank - safety and liquidity. When I think of my asset allocation, I don't really look at the money in the bank so I guess if I say I'm 60/30/10, I'm really 57/28/15 (equities/bonds/cash). Whatever.

Another thing I've always wondered is why, when I have almost $2M saved, does it still feel good to have a thousand in C-notes in my pocket? Cash is king.

Yep, when computers go down at the grocery store, it's nice to have enough green stuff to go home with what you need. True, some stores are so dependent that they can't even take cash if the computer doesn't work. I fear that will get worse. Still, at some point, if you have cash, you'll get what you need someplace. YMMV

 

[Sojourner]

This person uses a savings account for college instead of a 529 plan, because I believe they might be totally risk averse.

Aversion to perceived financial risk is definitely very widespread in the population at large, so that's certainly part of it. But I think the level of financial ignorance and illiteracy is even more to blame for this kind of situation. It seems like a very basic understanding of asset allocation, risk analysis, the historical performance of equity markets, and even what mutual funds and ETFs are is utterly lacking in the average person out there. Many people view "investing in the stock market" as some sort of mysterious and possibly dangerous kind of black magic, so instead of taking the time to learn about it, they just do the easiest and least-risky thing they can think of -- stick their money in a savings account, or maybe a CD. It's what their parents did, it's what many of their friends do, so it must be good enough... and it's easy.

 

[gayl]

Does it make any sense to save for college by putting the money in a savings account? ... The only advantage I can see to a savings account, is that the money is safe.

Although I agree with MOST of what is said, I think savings accounts have a valid holding place for funds needed within a year. (I keep 1 yr cash + what kid would get coming college year from unsubsidized loans. FWIW: I always said I'd cover that, subsidized loan is on him and he gets a boatload of grants / scholarships)

 

[Luck_Club]

Cash is king.

Another thing I've always wondered is why, when I have almost $2M saved, does it still feel good to have a thousand in C-notes in my pocket? Cash is king.

Same here. I get an uncanny feeling of elation standing behind someone fumbling with a PIN while holding my cash in hand to pay for my items.

On a side note, DS just learned a valuable lesson about cash. Never carry more than you are comfortable losing. Seems someone lifted a couple of hundred out of his wallet while in gym class.

 

[calmloki]

Aversion to perceived financial risk is definitely very widespread in the population at large, so that's certainly part of it. But I think the level of financial ignorance and illiteracy is even more to blame for this kind of situation. It seems like a very basic understanding of asset allocation, risk analysis, the historical performance of equity markets, and even what mutual funds and ETFs are is utterly lacking in the average person out there. Many people view "investing in the stock market" as some sort of mysterious and possibly dangerous kind of black magic, so instead of taking the time to learn about it, they just do the easiest and least-risky thing they can think of -- stick their money in a savings account, or maybe a CD. It's what their parents did, it's what many of their friends do, so it must be good enough... and it's easy.

I/we are invested in the market to the tune of about 23% of our net worth with about 28% of that sum sitting in California tax free bonds. That said, I'm pretty convinced the stock market is a strange bogus game along the lines of tulip bulbs or beanie babies. The fact that people trade stocks back and forth and the "value" of a company goes up or down based pretty much on rumor and whim baffles me. Still, whatcha gonna do with excess money? We lend on property and do well mostly, so that makes me feel better about holding 13% of our net worth in cash savings accounts.. currently. Lord knows I'm trying to act like the vast amount of investing Americans - but it is a struggle.

 

[Fedup]

I thought I read a link somewhere that 50% of Americans are in cash. So there are a lot of people out there who are out of the market.