I know i usually talk about exotic mutual funds and other investment products, but many have forgotten the one investment product that was used before the mainstream knew about stocks and bonds, and that is the old fashioned savings account.
The Savings Account, also sometimes called a “Passport” account, accumulates interest or dividends either daily or monthly. The daily compounding of interest in these accounts are usually harder to find compared to savings accounts that accumulate interest monthly.
I believe a savings account should be used in conjunction with an brokerage account for the following reasons.
1. Liquidity- Money in a savings account is usually more “liquid” (meaning more accessible) than a brokerage account. You can either sweep the returns of your investments into a savings account, or have it as a standalone to compliment it.
2. Safe- A savings account is insured by the FDIC up to $250,000. What that means is that if a bank goes under, it will will refund your money up to the $250,000 mark.
3. Simple- A savings account is real simple. Put money into it, let it draw interest monthly, add periodic deposits into the account so that it can work WITH the interest (also called compounding interest) and Volla! You have a small nest egg!!