“Life Use” accounts are accounts and/or assets used for daily living. Checking, savings, and money market accounts (and some CDs) are all life use accounts. When life use accounts are used incorrectly you can end up losing out to small efficiencies that add up to large losses over time.
Checking accounts can be thought of like a container to hold money while it flows in and out. A checking account is not a great way to save money nor should it be considered an investment. Keeping too large a balance in your checking account can keep you from financial gains your money could earn if it were stored somewhere else.
Savings Accounts should be used specifically to achieve near-term financial goals, protect yourself for a rainy day, and for upcoming large purchases (within the next 12 months). It is considered a best practice to maintain between three to six months worth of monthly expenses in your savings account. This protects you from unforeseen circumstances where you might be without income for a few months.
If you are saving to make a planned purchase such as a vacation, a new car, or a hot tub for example, in the next 12 months, your savings account is the best place to put that money aside. You’ll have more access to the funds and they will typically grow faster than they would in a checking account.
It’s important to monitor your savings account to ensure you don’t store more money than needed in it. More money than necessary in a a savings account has no chance to grow your long-term wealth using investment accounts that generally offer higher returns.
Linking your Checking and Savings Account(s) to InvestorKeep ensures you will be alerted to opportunities to invest for the long-term when circumstances allow.