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The Importance of Separating Spending and Savings Accounts
Some reasons to have two different accounts for your money

Whether you’re great at managing your money or bad at it, chances are that you have room for improvement. Accelerate your savings goals while staying on top of routine expenses when you establish two different accounts for your spending and savings.

Unique 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. You also 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 checking and savings 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 shared with Business Insider recommends keeping your savings and checking accounts at two different financial institutions. "It adds some friction between these accounts. If you don't see your savings account every time you log in to your checking, then you're much less likely to spend it."

Bera also suggests 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 that one account instead of dipping into their emergency savings.

Whether you keep your spending and savings accounts at the same institution or different ones, you can  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.



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Disclaimer - All content contained in this newsletter is for informational purposes only and should not be relied upon to make any financial, accounting, tax, legal or other related decisions. Each person must consider his or her objectives, risk tolerances and level of comfort when making financial decisions and should consult a competent professional advisor prior to making any such decisions. Any opinions expressed through the content in this newsletter are the opinions of the particular author only.
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