Whether you’re great at managing your money or find it challenging, there is an easy way to accelerate your savings goals while staying on top of routine expenses - establish two different accounts for your spending and savings.
Benefits of each type of account
Both accounts have distinct characteristics. According to Nerdwallet’s Margarette Burnette, the main difference is the accessibility of your funds. Checking accounts typically earn no or little interest, so they’re more conducive for withdrawing money and paying bills. Another bonus is that they tend to have no monthly fees. And you have access to the financial institution’s ATM networks.
Savings accounts often have a limit on the number of withdrawals you can make during a month and yield higher interest, which gives you an incentive to keep your hands off of your funds. Though the average savings account annual percentage yield is 0.09%, Burnette confirms that some institutions offer savings account options 20 times more than that. The higher the APY, the faster you’ll grow your money, so be sure to talk with a representative at your institution
Advantages of keeping separate accounts
The main benefit of keeping the two accounts separate is to avoid the temptation of dipping into your savings for non-emergency items. It’s a way to “protect yourself from yourself,” as The Balance’s Justin Pritchard puts it.
Another key advantage is that having a designated savings account can make it easier to budget for major expenses during the year such as property tax or vacation. Pritchard recommends setting aside money each month to grow the savings account so that when these events happen, you’ll have enough funds to cover the costs.
Ways to get the most out of your accounts
While establishing two different accounts for spending and saving is a good place to start, there are other strategies you can implement to cultivate healthy finances. Certified financial planner Sophia Bera with Business Insider recommends opening separate savings accounts for each of your savings goals. For instance, all her clients have travel savings and emergency savings accounts. This lets them withdraw funds from a dedicated account instead of dipping into their emergency fund.
Another tip is to take advantage of automatic payments. Pritchard advises setting up automatic monthly transfers from your checking to your savings account. It’s a simple way to prioritize savings goals, especially if you’re forgetful and busy and could use this convenient tool to keep you on track.
By implementing these strategies, you’re well on your way to being more disciplined with saving so you can achieve your financial goals faster without going into debt.