Personal Finance Advice

Yes, you do.

Some people lump all their money into one checking account, using the money they need to pay their bills and then leaving the rest as savings.  In fact, many of these people have checking accounts that are quite substantial and that even earn some interest.  For some of these people, they like the idea of having all their money in one place because it simplifies their finances considerably.  Some of these people simply don’t see a need for a separate savings account, so they keep all their money in the checking account instead of opening an additional account for savings.

Why do you need a savings account? There are a few reasons:

Savings accounts - buy definition - are for savings.  There is a psychological advantage to having a separate savings account, even if there isn’t much money in it initially.  If there is no savings account present then there isn’t a tangible, constant reminder to set some money aside for a rainy day.  It’s simply easier to have a separate account that is only for savings and not for spending instead of having one large account with all the money sitting in one place.

Savings accounts usually earn better interest rates.  Most checking accounts don’t earn interest, and those that do earn interest usually don’t earn a very high return.  Of course, there are exceptions to this rule, but in the vast majority of cases you’ll earn a higher interest rate for your money in an account specifically designed for savings than you will earn in a checking account.

A savings account can simplify your finances.  If all your money is in one account it will take a lot more precise recordkeeping to figure out what portion is for savings and what portion is for spending.  Two separate accounts - one for checking and one for savings - makes it much easier to distinguish which funds are for what purpose.

Even if you don’t have a large sum of money to put into a savings account initially, this should not stop you from opening an account.  Most financial institutions allow customers to open up a savings account with a small initial deposit, and in many instances you can avoid monthly fees if you either keep a minimum balance in the account or automatically transfer a certain amount into the savings account every month.

If you don’t have a savings account, make it a priority to open one up soon.