If you receive your paycheck with direct deposit or through checks, all the money goes into your checking account. Your checking account acts as a clearinghouse where your money goes in and out. However, a checking account isn’t the only type of bank account you should keep your money in. A savings account offers many benefits over checking accounts, like high-interest rates and fewer fees.
Benefits of savings account
Let us take a look at the main benefits of a savings account
Earn a higher interest rate
Checking accounts offer little to no interest rate on all your deposits. The average interest you earn is 0.04%. However, when you save your money in a savings account, you can earn more than 1% of interest. This makes it a perfect place for keeping your money for short-term goals.
Less fee on minimum balance
A savings account is made to keep your money safe while it grows over time with interest. The Federal Reserve regulation limits the number of withdrawals for a month, or you will end up paying a fee to the bank.
Avoid the temptation to spend
When you open a checking account, you get access to debit cards and Internet banking. Since you can withdraw money anytime, this leads to wasteful spending. However, if you keep your money in a savings account, you won’t be able to spend that money easily. With a savings account, you don’t get any debit card or Internet banking. Even if you transfer money from your savings account, you lose a good amount of interest.
Keep your emergency fund safe
Emergency funds are one of the main uses of a savings account. According to Federal Reserve data, 40% of people cannot afford a $400 emergency. Medical bills, car repairs, and home repairs can easily cost over $400, and they are some of the basic expenses. With a savings account, you can keep your money safe and grow over time, which will help you if there’s an emergency.
Saving account Vs. checking account
A checking account is made for managing day-to-day deposits and expenses. With a checking account, you get access to a checkbook, debit card, and online banking. This account is not great if you want to save money for both long-term and short-term goals because you earn almost no interest on your deposits.
Savings account are made for keeping your emergency fund or short-term finance safe. You don’t get access to any debit card or online banking, which can tempt you to make wasteful spending. But, you earn more than 1% of interest on your savings.
How to open a savings account
Opening a savings account is very easy and takes less than an hour. All you have to do is follow these simple steps:
- Start by comparing interest rates, fees, and minimum balance requirements of different banks. If you are looking for credit unions, verify that you are eligible to open a savings account.
- After choosing the bank, visit the local branch for all the information you need to open the account. Also, carry documents like any ID proof that contains your name and address and your social security number.
- To activate your account, you need to deposit initial funds.
Banks with high-interest rates
Here is the list of top banks that offer high-interest rates:
- Vio Bank High Yield Online Savings
- Comenity Direct High Yield Savings
- Ally Bank Online Savings Account
- Citi Accelerate High Yield Savings
Never neglect your savings or keep surplus money in your checking account. You will not lose interest and end up spending money on things you might not need. Thus, it is advisable to put your money in a savings account.