Mar 14, 2023
Whether your goal is to pay for a vacation, start an emergency fund, or save for a down payment on your dream home, it's a smart move to open a savings account that's separate from your checking account.
It's no secret that cash sitting in your checking account is losing value over time (thanks, inflation!) but it doesn't have to be that way. That's why finance professionals don't keep all their money in a checking account. And neither should you.
Why you need a savings account
Maintain the value of your money
In a checking account or a standard interest savings account, inflation is slowly eating away at the value of your hard-earned cash. According to the government's most recent inflation data, average annual inflation in the U.S. is 2.3%. That means $100 in your checking account today will have just $98 of buying power this time next year
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The average savings account has a relatively low interest rate -- the industry average is about .06%, and most basic accounts only pay .01%. That means that every year, $100 in savings will only earn up to 6 cents in interest, earnings that barely begin to replace the value lost to inflation.
That is, unless it’s earning interest in a high-yield savings account.
A good high-yield savings account will offer over 1.5% interest on savings, and specific savings investments, like certificates of deposit, or CDs, may offer even more. These are simple, easy options that will maintain the value of your money.
Gain control over your spending
A separate savings account is a smart way to discourage reckless spending and promote sound financial habits.
A savings account that is entirely separate from your checking will limit access to your cash as you can't instantly transfer money between the accounts. While you will still have easy access to your emergency fund in case something happens, adding a few extra steps can help you learn to live on the money you have available in your checking account.
Even the simple task of deciding on an amount to transfer into savings gets you thinking about your finances and forces you to budget.
It might sound simple, but what’s out of sight is out of mind!
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Opening a savings account
We recommend comparing banks to find the best savings account, and that account can be at a different financial institution from your checking account.
Choose an institution offering a high APY (annual percentage yield) and note the minimum deposit required to open an account. The whole process takes about 15 minutes, but it’s well worth the investment of time.
More: Compare rates from the best banks
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