• Starting a savings account may help you cover a financial emergency without taking on expensive debt.
  • Savings accounts may also help you achieve financial stability and peace of mind.
  • With a savings account, you can better plan for retirement and leave a legacy behind for your loved ones.
  • Several savings products may help you harness the power of compound interest, including savings accounts, CDs, and money markets.
  • In today's world of instant gratification, saving money may seem like an inconvenience. However, forming a savings habit may be one of the most important steps to take for your financial health. Saving money may even keep a small emergency from becoming a major disaster for your finances.

6 Benefits of Saving Money

Let's explore some of the best benefits of saving money, as well as a few ideas to help you get started.

1. Create a Financial Safety Net

The most important reason to start saving money is to create a financial safety net to fall back on when you experience an unexpected expense. If you're unprepared, a major car repair, a medical emergency, or loss of employment can prove devastating to your financial situation. In those situations, you may be forced to take on expensive credit card debt or sell some of your assets to cover the bill.

However, an emergency fund — or "rainy day" fund — may prevent you from taking a serious financial hit when things go wrong. It can also give peace of mind of knowing that, if an emergency occurs, you could cover the expense.

However, too few consumers save money for this purpose. Only 54% of Americans say they have money set aside to cover a financial emergency.[1] Yet, building an emergency fund should be a priority.

Although there's no one-size-fits-all answer to how much money you should save in an emergency fund, a good rule of thumb is to save at least several months' worth of living expenses, including your rent or mortgage, utility bills, grocery costs, transportation costs, etc. However, any money put into an emergency fund is better than none.

2. Achieve Financial Stability

Similarly, having savings in the bank is key to reaching financial stability. When you've reached financial stability, you can cover regular and additional expenses. People who are financially stable maintain a regular savings habit and have paid off any high-interest debt.

Yes, money can't buy happiness, but achieving financial stability comes pretty close. When you're financially stable, there's no need to lie awake at night worrying about your money situation. It can lead to an overall improved quality of life.

According to a study by George Washington University, 60% of respondents reported feeling "anxious" when even thinking about their financial situation. The study found that concern over being unable to cover medical bills and other major expenses was a chief culprit for this stress. The study's authors suggested that building up savings could alleviate the reported anxiety.[2]

3. Reach Your Life Goals Sooner

By saving money, you may meet those important but expensive life goals — such as buying a home, achieving a degree, or even starting a business—more quickly. At the same time, having a clear goal can help motivate you to save more money.

Of course, no matter what the goals may be, the sooner you start saving, the faster they'll be met. That's thanks largely to the power of compound interest. Compound interest is interest calculated using the amount of money you deposit in the account (the principal) and any interest already accumulated. 

For example, say you were to deposit $1,000 into a savings account that pays 1.5% interest annually. In the first year, the account would earn $15 in interest ($1,000 times 0.015). However, if you didn't withdraw or deposit any of the funds, the next year, the account would earn $15.23 in interest ($1,015 times 0.015). The following year, the interest earnings would be $15.45 ($1,030.23 times 0.015), and so on. That may not seem like much of a difference, but when saving for a long-term goal, that compounded interest adds up.

4. Enjoy More Flexibility in Life

With a comfortable nest egg saved up, you can enjoy the flexibility that may allow a major lifestyle change. For example, if you want to change jobs or embark on a new career, money set aside can help pay the bills if there's a gap in employment. In addition, savings can help meet expenses if you're feeling burnt out and need to take a sabbatical from work.

Having money saved in the bank may also prove a valuable lifeline if you want to start a business. Until your new enterprise becomes profitable, you could use saved money to cover some of the business's startup costs and avoid taking on expensive debt.

Savings may also help you enjoy more flexibility in life beyond employment. For example, you can be better positioned to travel, move to a new area, or return to school. Whenever you're tempted to make a big change or embark on a new adventure, it could be made possible thanks to the money saved up for these kinds of expenses.

5. Plan a Comfortable Retirement

Studies show that 80% of U.S. households with at least one adult of retirement age are either currently struggling with money or are at risk of becoming financially insecure.[3]

By building up a savings habit today, you may avoid becoming part of this growing percentage of financially at-risk adults. Even better, with enough savings, early retirement may become a possibility.

To get an idea of how much money you'll need to save to enjoy a comfortable retirement, use PNC's Retirement Calculator for free. You may decide to start saving money in a tax-advantaged retirement plan such as a 401(k) or IRA (individual retirement account). These specialized retirement accounts can help you save money now or for retirement.

6. Leave a Legacy

Having a substantial amount of savings can give peace of mind to loved ones should something happen to you. You could also leave a sizable bequest to a favorite nonprofit or charity. Knowing that your money will eventually help others can be a great motivation for saving.

Start Saving Today

As mentioned above, the sooner you start saving, the better. The savings can grow even faster if you deposit money in an interest-bearing account rather than a checking account. Here's a quick rundown of some of the most popular savings vehicles:

  • Traditional savings account: Most banks offer savings accounts that pay a modest amount of interest on your deposited money. As with all of the savings products on this list, savings accounts are typically insured by the Federal Deposit Insurance Corporation (FDIC) up to the amount allowed. That means, in the highly unlikely event that your bank were to fail, your money would still be protected. The bank may place a limit of fee-free withdrawals per month from your savings account. 
  • High-yield savings account: High-yield savings accounts typically pay higher interest rates than traditional savings accounts — up to as much as 10 times more.[4] Like traditional savings accounts, most high-yield accounts are also insured by the FDIC. However, not all banks offer them (and they may not be available in all regions). Check with your bank to find out if it offers a high-yield savings account.
  • Certificates of deposit: Also known as "CDs," certificates of deposit require you to leave funds deposited for a predetermined period of time. If the money is withdrawn early, you may lose any interest earnings and pay a fee. However, as a trade-off for this inconvenience, CDs typically pay much higher interest rates than traditional savings accounts. They're also FDIC-insured.
  • Money market accounts: Generally, money market accounts offer higher interest payouts than traditional savings accounts. Although these types of accounts typically have stricter requirements for minimum balances and deposits than regular savings accounts, you can usually make an unlimited number of withdrawals per month using your ATM card or by visiting a bank branch in person. Most money market accounts are FDIC-insured, too.

There's no reason why you can't open more than one type of account. It can be beneficial to put emergency-fund money in an easily accessible account such as a savings account or money market. At the same time, you could put other funds intended for a longer-term goal in a certificate of deposit.

The Bottom Line

No matter which type of savings account you decide to open, having money set aside may help you reach financial goals, decrease stress levels, and plan for an enjoyable retirement. In addition, by designating some savings as an emergency fund, you won't need to face financial hardship or take on expensive debt when an unplanned expense arises.