Let me start out by stating this one very important fact: savings accounts and checking accounts are not the same thing and should not be treated as such. If you’re saving money, whether it be for a large purchase or setting up an emergency fund, a savings account is an absolute must.
Read on to find out why you need a high-interest savings account to store your hard earned dollars.
What is a high-interest saving account?
Well, it’s exactly as it sounds. A high-interest savings account has a significantly higher interest rate than just your average savings account that you can get from a regular brick and mortar bank.
Why is a high-interest savings account better?
Better interest rates
Most checking accounts give a crappy 0.01-0.10% interest on money left in an account. But, with a high-interest savings account, usually obtained through an online bank such as Ally Bank, you can find interest rates averaging around 2%!
Sign-up with one of these “out of sight, out of mind” online banks to build up your savings. Keep the money you need for bills and expenses in your checking account, a couple thousand should be enough, and transfer extra money from your checking into your new high-interest savings account.
Setting up a monthly automatic transfer greatly simplifies this process.
Your savings account is separate from your checking account. If you use your debit card to buy gas and your information is stolen, only what you have in your checking account is at risk. Your savings account and everything in it remains separate and secure.
For maximum security, use a credit card! It’s completely separate from your accounts. You’re better off leaving the debit card at home.
How to access your money
Getting to your money is important, so there are a couple important points to be aware of with online savings accounts.
No ATM card
Most savings accounts do not come with ATM cards, making them less practical for daily use. For this reason, they’re often paired with a checking account to transfer money in and out of the savings account.
Keeping an online high-interest savings account purely for growing wealth means you won’t need an ATM card for withdrawals, so, no big deal.
Transfers are usually instant when money is transferred within the same bank. But if you have your checking account with a brick and mortar bank and your savings account with an online bank, it may take 2-3 days for a transfer to go through.
Most savings accounts have a monthly withdrawal limit of 6 transactions per month and may penalize you for going over that limit. This is a federal rule, known as Regulation D and left to the banks to enforce.
If you’re someone that has difficulty controlling their spending, the transfer delay and withdrawal limit could make for a great spending deterrent!
My primary checking account
I choose to keep my primary checking account with JP Morgan Chase Bank. I have been with them for years and I have multiple accounts with them. This allows me the option to visit a branch if I choose to (which I very rarely do).
I only keep $3-5k in this account, everything extra goes into savings or gets invested.
My high-interest savings account
My emergency savings I keep with Ally Bank in a high-interest savings account that is currently giving me a return of 2%.
While 2% doesn’t sound like much, (especially when compared to CD’s or investment accounts) by the years end, I will have earned a nice little sum of cash just for having my money in there. If and when I ever need the money, I can easily access it with no fees or restrictions.
With Ally Bank I do have a checking account, but I don’t keep money in there. It’s just so I can transfer money and is a backup account with a debit card if needed.
Your next step
Getting set up with a savings account is quick and easy. Find one that requires no initial deposit or minimum account balance and that gives you a fair return on your deposit.
With so many to choose from, shop around and read reviews until you find the one worthy of your dollars.
Do you have a high-interest savings account?
If not, have I inspired you to go out and get one?
Do you have any questions for me?
Let me know in the comments below!
Note: Opinions expressed here are the author’s alone, not those of any bank, credit card issuer, airline or hotel chain, vendor or company, and have not been reviewed, approved, or otherwise endorsed by any of these entities.