Maybe you’re used to having only a checking account, and you haven’t set up a savings account yet. But now you’re starting to think about the future and your savings goals. Is it worth having a savings account? We believe it is!
Here’s why it’s a great idea to have both a savings and a checking account:
First, let’s talk about the differences between the two kinds of accounts. It all comes down to how you access your money. With a checking account, you can access your money easily for everyday transactions, including purchases, bills, and ATM withdrawals. Usually, the money in a checking account won’t earn interest. If your checking account does accrue interest, it’s usually at a low rate or on a capped amount.
A savings account, however, is a great place to store your money because it will often have a higher interest rate. The difference here is that because of that interest, you’re limited to what you can withdraw in a month, either by the amount or by the number of transactions.
Maybe You’ve Only Had a Checking Account
Your paycheck comes in like clockwork every week or two weeks, you pay your bills, and you have some left over for groceries, your usual trip to the movies, and your monthly clothing budget. Maybe even after all that, you have a few bucks remaining. But that money just sits in your checking account, waiting for the next round of bills and purchases. It’s not doing anything, not generating interest, not being automatically transferred anywhere.
While it’s great to have a little bit of a cushion to keep you from overdrawing your account, you occasionally want to bleed off some of the excess into a separate savings account. Give yourself a good ceiling for your checking account, and when the dollar amount goes over that, transfer the extra to a savings account for safekeeping and so it can grow for you.
Start with Just a Little
If you’re just getting started with a savings account, transferring those few extra dollars a little bit at a time is a great way to get your savings started, without having to think about it too much. Every little bit counts, and what’s more, a savings account will accrue interest. Even if that interest is just a few cents per month to start out, it’s money that will go on to accrue more interest. In this way, bit by bit, you’ll be able to save up for that island vacation you’ve always wanted or a new car to replace your clunker, or to have some emergency funds stashed away.
The best way to build a savings account slowly is to set up automatic deposits from your checking account. This can be as little as five dollars a month. Then, if you have some additional funds left over at the end of the month, you can transfer that amount as well.
Bonus for Having Both Savings and Checking Accounts
Don’t forgo your checking account to just have a savings account. You need both. Having a checking account also means that you’ll establish credit. Credit scores demonstrate your history of paying your bills on time, and if you have a higher credit score, you’ll be able to take out better loans for a home or a car. Some businesses even run a credit check on you before you can work for them, especially if you handle any money for the business.
There are many resources out there on how to keep your credit rating high and how to fix it if you’ve had some bad luck in the past. The simplest way to keep your credit score high is to pay your bills on time and not go into debt. If you establish your credit but find you have a poor credit score right off the bat, that just means you haven’t built up any history yet. The good news is that how much money you have in the account and your income aren’t factors calculated into your credit score. Whether you have a steady income might be, but the actual dollar amount isn’t the important part.
Maybe You’ve Only Had a Savings Account
Adding in a checking account to complement your savings is a good idea. A checking account will give you more freedom for paying for purchases because you can use checks or a debit card to make payments. Carrying around a lot of cash can be annoying and even dangerous. Depositing it in a checking account ensures that your money is safe from physical harm (such as fire, flood, and theft), and you’ll be able to track your spending without having to save your receipts.
Some account services offer ways to categorize each purchase so that you can see where all your money is going. This way, you’ll grow more adept at managing your money and knowing where you spend it, in case you want to streamline your purchases and cut out unnecessary expenses. Consider also that if, for some reason, your payment isn’t accepted on a bill, a canceled check is proof that you paid it. So you can make a case against late payment fees as well (saving you some money in the long run).
Do Your Homework
When you’re shopping around for a credit union to start up one of these accounts, make sure you research the features on the accounts. Look at the interest rates and if there are ATM fees or minimum balance requirements. What perks do they offer? Make sure the institution you choose has online banking or a mobile app if these are services you’re interested in. This will allow you to see your transactions quickly and be reachable in case there’s fraud detected on your accounts.
We hope you’re convinced that it’s time to open that second account! Visit us online or in-person at a Rivermark Community Credit Union near you, and we can answer any further questions you might have about checking and savings accounts. We have a lot of resources available for you on our website as well.