Back in February 2010, Sheila Bair, then the head of the FDIC, wrote this very useful article on why savings were good for you — and your family:
When John needed to repair his car’s transmission three years ago, he put the $1,000 bill on his credit card. By the time he finally paid off the charge last month at an interest rate of 15 percent, the repair had really cost him a whopping $1,248.
If he had had savings to tap into, he would still be out $1,000 for the transmission. But the other $248 that he paid his credit card company in interest would still be in his pocket. Or better yet, in a savings account that pays him interest.
Putting even small amounts of money into a rainy-day fund to cover emergency expenses or saving for future purchases adds up quickly. And, the best part is that you can earn a little interest on the money.
Simple Ways to Save Money and Earn Interest
Earned Income Tax Credit and US Savings Bonds
There are many ways to start saving. For example, nearly 24 million workers last year received a tax credit, called the Earned Income Tax Credit or EITC, for low- and moderate-income people. The average person eligible for the credit got back more than $2,000 from Uncle Sam. If you used half of that $2,000 refund to buy a savings bond, and it earned 3 percent interest, you would accumulate $1,061 in two years just by letting your money do the work.
How do you get money to fund a savings account?
Or you could start a savings account with that $1,000 from your tax refund and add $10 a week by cutting out such things as trips to the vending machine and cell-phone features that you don’t use. You would have $2,133 over the same two years. This savings habit could be made easier by enrolling in an automatic savings plan if your employer offers one, or asking your bank to automatically transfer a portion of your paycheck into a savings account if you use direct deposit.
You should have a rainy-day fund.
Rainy-day funds are essential to cover unexpected expenses or losses in income. Personal savings also allow families to pay for long-term goals such as a child’s college education or a down payment on a house. In addition, savings are vital to ensuring a secure retirement. They are so vital, in fact, that many employers will match some of the dollars their employees put away for retirement. For instance, if you save $20 a month, your employer might put another $20 into your retirement account.
Money alone can’t buy happiness, but research shows that a cushion of savings really can provide such benefits as reduced stress and better relationships with family members.
Read the full story here.