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.
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