Beating the banks with checking and savings accounts
Issue date: 9/24/10 Section: News
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Having a checking and savings account will provide you with a strong foundation for your personal finances. However, for this to work, you must understand and optimize your bank accounts so that you beat the banks and not vice versa. Although these accounts are arguably the simplest to understand compared to other personal finance issues, many people become overwhelmed and suffer from hidden bank fees and poor returns.
As you probably know, a checking account lets you deposit money and withdraw it via checks, debit cards, and online transfers. Savings accounts pay interest and are used for short to midterm savings (typically up to five years). This includes saving for Christmas gifts, a vacation, a down payment on a car, or even a wedding. Once again, the main difference here is that savings accounts pay interest. Unfortunately, most large banks only pay 0.5 percent interest, whereas inflation is typically around 3 percent. This means that while you might be earning 0.5 percent every year, you are actually losing 2.5 percent annually when you consider the purchasing power of your money.
You might be wondering why having both accounts is necessary. The simplest answer is that this system makes managing your money very easy. Think of your savings account as a place where you deposit your money to earn interest while your checking account is where you withdraw money from. Checking accounts are designed for easy withdrawal, while federal regulations prevent you from making more than six withdrawals per month from a savings account. Having a savings account also gives you great way to budget your money. If every month you deposit $100 into your savings account and leave the rest for spending, you will not be able to access that $100 very quickly and will have successfully saved it.