A few months before the global financial crisis hit Canada with a full force, I sold all my stocks and put all my money in a savings account. Don’t even try to imagine all the ridicule I enjoyed from my friends at that point – my friends are a funny bunch. But most of them have lost over a half of their investments since then, and all my money is still with me. It was the right decision made at the right time. But the point of this story is not to show how good I am.

In fact, I usually stay away from predicting where the market is going and consider doing so nothing but gambling. The point of the story is simply to illustrate that a savings account as an investment vehicle has its place. Let’s take a look at where that place is. A savings account is a type of investment with a guaranteed principal and a guaranteed low interest. This interest is typically higher than on a checking account but lower than on a term deposit or a GIC. But this rule is not set in stone. I’ve seen savings accounts paying higher rates than one year GICs and I’ve seen savings accounts paying nothing.

Traditionally, it is more difficult to access money on a savings account than on a checking account. But when we say difficult, we only mean that you probably have to transfer the money to your checking account before you are able to use it. This transfer may take only seconds today. And usually there is no penalty involved. To summarize, savings accounts are safe and convenient, but provide very low return. In most cases this return (on an after-tax basis) is not even sufficient to keep up with inflation.

So when should we use them? First, it is a short term vehicle. Your money won’t grow in a savings account, but it can stay there while you are waiting to make your next move. It is a good place to keep the money saved for a major purchase or a trip. Money which you will need soon. And of course, a savings account is a perfect vehicle for your emergency fund. I hope you don’t want to ask me what the hell this is. It is a prudent financial practice to keep on the side in an easily accessible form an amount of money sufficient to cover at least three to four months of your basic bills. Savings accounts are just ideal for that.

Going back to the beginning of this post, if the market keeps climbing up for twelve straight years, it is probably a good time to get your money out and put it in a savings account. And if you are too sensitive to cruel jokes, keep this information to yourself.

Nikolay Sisan is a Certified Financial Planner and freelance writer in Vancouver.