It's an open 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 their money in checking, or even in a standard savings account.
Whether your goal is to save up for a vacation, start an emergency fund, or save for a down payment on your dream home, the advice is the same: Start by opening a high-yield savings account that's separate from your checking account.
Maintain your capital and its value
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 about 2%. That means $100 in your checking account today will have just $98 of buying power this time next year
The average savings account has a pretty 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 high-yield savings account generally offers over 2% interest on savings, and some types of investments, like Certificates of Deposit, or CDs, will offer over 3%. These are simple, easy options to maintain the value of your money.
Get control over your finances
A separate savings account is a smart way to discourage reckless spending and encourage financial stability and 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 access to your savings in case of emergency, 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!
We recommend opening a savings account 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.