This Time, Dave Ramsey Got it Wrong About Savings

Dave Ramsey has provided some good information about paying off debt. Not all of his suggestions and tips are great, though. In fact, he put out a Tweet and a video recently that has some questionable advice about savings accounts. Specifically, Ramsey said that you should not be trying to make money on the money you put into the bank. 

Unfortunately, following this advice could end up coming at a big cost. Here’s why. 

This is what Ramsey said about savings 

Ramsey’s tweet said: “Never invest at banks or in savings accounts. Remember, a savings account is for savings. You’re not trying to make money on this money. You’re trying to save for specific purposes like emergencies, a down payment on a house, a family vacation, or even next year’s Christmas fund.”

Now, it is true that for long-term investing such as for retirement or your kids’ college funds, you don’t want to put that money into a bank account. Those funds should be in retirement or brokerage accounts where you can gain exposure to equity and you have the potential to earn higher returns.

However, most people do need to keep a pretty substantial amount in savings for things like an emergency fund, home down payments, and the other stuff Ramsey mentioned. When you combine all the money you need to save for these short-term goals, you could end up with tens of thousands or even hundreds of thousands of dollars in savings. It’s foolish and short-sighted not to try to make money on all of this cash that you have sitting there. 

A high-yield savings account is safe — but can still provide a great rate

One of the reasons Ramsey is very wrong when he says not to try to make money savings is because it is easy and risk-free to find a savings account with a great return.

While the FDIC reports that the national average savings account rate is just 0.42%, you can easily find savings accounts paying 10 times that amount. If you can earn 10 times the return on all the money invested and not take on any additional risk, it is a no-brainer to do that. If you don’t, you are leaving money on the table for absolutely no reason at all. 

Say that you have $50,000 in savings accounts for various purposes, like an emergency fund and home down payment fund, and money you are saving for a vacation or a big purchase. If you earn 0.42% for two years on that money, you would make a whopping $444.93 in interest. But if you earned 4.00%, you would make $4,104.48 in interest. Maybe Ramsey is rich enough to give up an easy, effortless $3,659.55 that cost you absolutely nothing to earn, but most of the rest of us are not. 

It takes about two minutes to research and find a great high-yield savings account. Your money is FDIC insured so there’s no danger of losing it when you o. And most high-yield savings accounts come with no fees and minimum balance requirements, unlike the savings accounts offered by traditional banks that pay almost no interest. A cheaper account, no added risk, and more money. Why wouldn’t Ramsey want you to take that deal?

You should take the time to find a great savings account and move your money into it so you earn as much as you can. Do it today. Don’t let Ramsey’s advice lead you astray and cause you to miss out on thousands of extra interest over your lifetime.