# What Are Savings? How to Calculate Your Savings Rate

## What Are Savings?

Savings refers to the money that a person has left over after they subtract out their consumer spending from their disposable income over a given time period. Savings, therefore, represents a net surplus of funds for an individual or household after all expenses and obligations have been paid.

Savings are kept in the form of cash or cash equivalents (e.g. as bank deposits), which are exposed to no risk of loss but also come with correspondingly minimal returns. Savings can be grown through investing, which requires that the money be put at risk, however.

### Key Takeaways

• Savings is the amount of money left over after spending and other obligations are deducted from earnings.
• Savings represent money that is otherwise idle and not being put at risk with investments or spent on consumption.
• Savings accounts are very safe but tend to offer very low rates of return as a result.
• Saving can be contrasted with investing, in that the latter involves seeking to grow wealth by putting money at risk.
• Negative savings is indicative of household debt or negative net worth.

## Understanding Savings

Savings comprise the amount of money left over after spending. People may save for various life goals or aspirations such as retirement, a child's college education, the down payment for a home or car, a vacation, or several other examples.

Savings may commonly be earmarked for emergencies. For example, Sasha’s monthly paycheck is $5,000. Expenses include a$1,300 rent payment, a $450 car payment, a$500 student loan payment, a $300 credit card payment,$250 for groceries, $75 for utilities,$75 for cellphone service, and $100 for gas. Since Sasha's monthly income is$5,000 and monthly expenses are $3,050, there is$1,950 leftover as savings. If Sasha maintains this excess as savings and later faces an emergency, there will be some money to live on while resolving the issue.

If one is unable to maintain savings, they may be said to be living paycheck to paycheck. If such a person experiences an emergency, there is often not enough money saved up to live on and they may risk falling into debt or bankruptcy.

The U.S. Bureau of Economic Analysis defines disposable income as all sources of income minus the tax you pay on that income.

## Types of Savings Accounts

### 5%

The average personal savings rate in the U.S. (as of March 2022).

## Savings vs. Investing

People sometimes use the words savings and investing interchangeable, for instance saving for retirement in a 401(k) plan, but this usage is technically incorrect. Retirement "saving" is more accurately investing, since money put away in these accounts is used to purchase securities such as stocks, bonds, and mutual funds. When money is invested, it is at risk of loss—but that risk is offset by positive expected returns over time. Savings, in contrast, are by definition "safe" from any potential loss.

Additionally, savings are highly liquid and available for immediate use (e.g. using a debit card to make a purchase). Investments, on the other hand, must first be sold into usable cash. This can take some time and you may incur transaction costs. Investments, by definition, entail some sort of long-term time horizon to allow the money to grow and appreciate.

## Savings FAQs

### What Is the Meaning of Savings?

Savings simply refers to the money you've earned that is left over after all of your spending and other expenses have been completed.

### What Are the Types of Savings?

Savings is essentially cash, so there is only one type of savings in that respect. However, you can choose to keep your cash savings in various places, such as under the mattress or in a bank account. Bank accounts offer several types of savings products from standard deposit accounts to checking and money market accounts or CDs.

### How Can I Save $1,000 Fast? The best way to increase savings is to cut down on costs. Keeping a budget and not spending loosely can help. If you spend$6 on a fancy coffee every morning before work, for example, you can buy a cheaper $1 cup of Joe instead. Say you work 200 days out of the year—you've just saved$1,000.

Article Sources
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1. U.S. Bureau of Economic Analysis. "Income & Saving."

2. Federal Deposit Insurance Corporation. "Are My Deposit Accounts Insured by the FDIC?," Select "Single Account."

3. Federal Deposit Insurance Corporation. "National Rates and Rate Caps."

4. Consumer Finance Protection Bureau. "What Is a Money Market Account?"

5. Office of the Comptroller of the Currency. "What Are the Penalties for Withdrawing Money Early from a Certificate of Deposit (CD)?"

6. Financial Industry Regulatory Authority. "Certificates of Deposit (CDs)."

7. U.S. Bureau of Economic Analysis. "Personal Saving Rate."

8. Federal Reserve Bank of St. Louis, FRED Economic Data. "Personal Saving Rate (PSAVERT)."

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