What’s The Difference Between a Savings Account & Checking Account?
Simply put, a checking account is used for money you’ll need quickly. The term ‘checking’ comes from the fact that you can write out a check from your account. You can also get a debit card with your account that allows you to make everyday purchases.
In most cases, checking accounts allow you to draw out money whenever you need it. They are ideally used for everyday transactions. However, keeping your money in a checking account for a long period of time comes with no extra benefits.
This is where a savings account comes into play. A savings account is ideally used for funds you plan on saving over a long period of time. Savings accounts come with benefits such as APY. An APY refers to the amount of interest your bank will pay you each year based on the amount of money in your savings account.
What Savings Accounts Are Good For
Savings accounts are good for short term saving. For example, you want to buy a new car by the end of the year. Contributing small amounts of money into a savings account over the year will help you reach your goal.
Savings accounts are also great for stashing away emergency money. The rule of thumb is usually to have 3-6 months of living expenses saved in case of emergency.
Why You Shouldn’t Put Your Money in a Savings Account
As stated above, savings accounts could be a good tool for you to use to reach your saving goals. However, saving accounts won’t build wealth.
Similarly, don’t bet on making a whole lot of money off of APY even with high yield savings account. As of right now, in 2021, the average high yield savings account is offering around 1% APY. However, the inflation percent has averaged up to around 3%. Therefore, at the end of the year your money will be worth 2% less than it was before.
To make things worst, in order for you to even get accepted for a high yield savings account with a return around %1 you need a certain amount of money in your account at all times. Usually, you need at-least $25k to get this kind of APY right now. So, if you’re just starting to save then you’ll have to settle for a regular savings account. As of right now, in 2021, the average APY is around .40%. So, again at the end of the year your money is losing even more value.
So, keeping money in your savings account is not a smart move if you’re looking to grow your money. As a result, wealthy people don’t keep their money in savings account. Instead they have their money work for them. They use their money to make more money.
What to do Instead
There are many options out there that will help grow your savings. However, the best option is to invest your money wisely. Over the last few years saving accounts APY has decreased. However, other opportunities have risen. One of the best in my opinion is Cryptocurrency. By investing into crypto you could see as high as 400% return on your money.