The majority of people these days will have a checking account available through which most of their money, such as their salary, will pass. Having a checking account is useful in that it keeps money in a safe place while providing easy access to it through the bank or an ATM. However, for those that have enough income to start saving money there are a number of reasons to open a separate savings account, and the following are a few of these.
Better interest rate
In most cases a savings account will have a higher interest rate than most of the standard current accounts available. This means that any money saved is earning more interest, and in the long run this is obviously beneficial. While a higher rate of interest may only result in a small increase in the money received as interest in the first year, as savings grow the impact of a higher rate of interest can be substantial over the years. Leaving savings money in a current account will typically mean that it earns little interest, and it is therefore much better to open a separate savings account to take advantage of a higher interest rate.
Easier to keep track of savings money
Keeping track of the money available for everyday spending and money being saved can be difficult if it is kept in the same account. A separate checking and savings account can make the process of knowing what money is available for spending and what is being saved much simpler, and this means keeping control of finances is much easier. In most cases the two accounts can be linked such that money can be passed between them, and this makes it simple to transfer money from a current account to a savings account. This can be done automatically on a monthly basis such that the account holder knows that the money left in a checking account is what is available to spend.
Harder to gain access to
While at first this may not seem like a good thing it does have advantages. The money available in a checking account is freely available such that it can easily be withdrawn from an ATM on an impulse. It is generally not possible to do this with a savings account, and it can take a few days to access the money. This means that most people will think a little more carefully before withdrawing money from a savings account and are less likely to take it out on impulse and spend it. Many people can spend money on a whim which they later regret, and as the money in a savings account takes longer to get hold of, there is less chance of doing this.
Helps to encourage saving money
A separate savings account enables someone to easily see their money growing year by year. This can be an encouragement to try and save a little more and this is obviously beneficial in the long run. The more savings that someone can accrue, the more financially stable they are, and this ensures that they have the money available to deal with any unexpected financial requirements that come along.
Bank fraud and identity theft are things that no one wants to fall victim to, although it does happen. While dealing with this will be a frustrating experience, it can be made worse if all of someone’s money is kept in a single checking account. The account may be frozen while problems are dealt with, and this can result in no money being available until such time that a problem with an account is sorted. Having a separate savings and current account can be a little more secure in that, if money is not available from one account as a result of bank fraud, it can still be accessed from the other account.
Saving money is a good habit to get into and it can help to make life a little more secure. There are a few reasons to open a separate savings account and some of these are shown above. For the benefits that it can provide, therefore, opening a savings account can be a common sense thing to do.