3 Benefits of Having a Savings Account Separate From Your Checking Account
- When you're saving for the future, you shouldn't keep the money in your checking account.
- A savings account is usually a better place for your savings.
- Higher interest rates are just one advantage of using a separate savings account.
You probably don't want to keep your savings in a checking account.
When it comes to saving for the future, it may seem convenient to keep all your money in one place. But, the reality is that using a checking account to store your savings is usually not the best approach.
In fact, there are some significant advantages to maintaining a separate savings account -- including these three big benefits you should be aware of before you decide on the best place for your hard-earned cash.
1. You can often earn better interest
Many checking accounts do not pay any interest on the money you are keeping in the account. If your checking account does pay you interest, chances are good the rate it offers is extremely low.
A high-yield savings account, on the other hand, can allow you to earn a more competitive interest rate that's well above what would be available on most checking accounts. As your balance grows, it will become especially important to try to earn a generous interest rate as the greater the return on investment, the easier it is to grow your wealth.
During these times of high inflation, it can also be more important than ever to opt for a high-yield savings account paying the best possible interest rate. Even when your account does offer a competitive ROI, the interest you'll earn is likely to be well below the current inflation rate, which means your savings will end up losing ground. You want to make every dollar count and reduce the impact of inflation as much as possible to avoid your savings losing buying power. You really cannot afford to pass up the better rates that a high-yield savings account offers.
2. You're less likely to spend your savings
If you have your money in a checking account, chances are good it's both easily accessible and intermingled with the money you spend to pay your bills and cover discretionary expenses. As a result, the lack of separation between your savings and spending money makes it far more tempting to just spend your savings on your current needs rather than investing for the future.
If, on the other hand, you can have dedicated savings accounts for your individual objectives -- such as an account for a vacation, another for a new home purchase, you will be far less likely to just spend the money on something else besides your end goal.
3. It's easier to track your progress
When you want to be successful with saving money, the key is to have specific and measurable goals. You'll need to know what amount you hope to end up with, and how much to save each week or month to amass that sum.
If your savings is mixed in with checking, it can be hard to keep track of what's earmarked for the future and what you can and should be spending today. You may not also be aware if you've fallen behind in accomplishing one of your savings goals and need to change course.
To make sure you avoid these undesirable outcomes, keep your savings and checking separate. You'll earn a better rate, your money will stay where it should, and you'll be more likely to hit your objectives on schedule.
These savings accounts are FDIC insured and could earn you 11x your bank
Many people are missing out on guaranteed returns as their money languishes in a big bank savings account earning next to no interest. Our picks of the best online savings accounts can earn you 11x the national average savings account rate. Click here to uncover the best-in-class picks that landed a spot on our shortlist of the best savings accounts for 2023.
Our Research Expert
We're firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers. The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.
The Ascent is a Motley Fool service that rates and reviews essential products for your everyday money matters.
Copyright © 2018 - 2023 The Ascent. All rights reserved.