Having one’s paychecks automatically transferred to their checking account is a convenient way to get access to one’s earnings. However, people tend to make the mistake of leaving most of their money there.
And as most people would already know, one’s checking account isn’t really the best place for money to grow. What more, keeping a lot of money there might hinder an individual from working on their financial goals from funding a retirement account to seeking ways to build their wealth.
Those who’ve made a habit of doing most of their immediate cash in checking are instead advised to open a high-yield savings account.
While the contents of a checking account can grow due to interest rates, that addition would appear negligible compared to the potential gains of transferring one’s money to a high-yield savings account.
The latter can earn up to as much as 2% depending on the specific bank and account a person ends up choosing. For context, checking accounts only grow at a rate of 0.06% on average.
That growth might not amount to much at first but it’s still a much better payoff without much-added effort.
One perk of using a checking account is that it makes it easy for people to make both deposits and withdrawals. Unfortunately, that also means that it’s easier for one to be tempted to spend their money given their access to it.
Putting one’s cash stash in a savings account can help an individual keep their money out of sight and out of mind. It would even work better if a person chooses to open their new account in another bank.
What more, seeing the rise in a high-yield savings account’s contents after each transfer can motivate a person to continue with their habit of setting aside money.
Separate Accounts for Different Goals
To further utilize a high-yield savings account, people are also recommended to open multiple ones. Each can correspond to a specific financial goal that a person may have.
The good news is that there is reportedly no limit when it comes to how many of this type of account an individual can open. There are also banks, like Ally Bank, that allow their clients to create ‘buckets’ in their high-yield savings account giving them the benefit of keeping money in more organized and separate streams.
This kind of organization can’t be found in a regular checking account.