Checking or Savings: How to Manage and Transfer Money Between Accounts
Deciding where to deposit your paychecks and how to split your funds between checking and savings can feel overwhelming, but it's a vital step in managing your finances. Whether you’re paying bills or saving for future goals, having a plan can help you make the most of your money. Follow these guidelines to better manage your checking and savings accounts.
What Is a Checking Account?
A checking account is a bank or credit union account that gives you easy access to your money. You can withdraw at any time by writing checks, using a debit card or mobile payment method, or transferring money into another account. Typically, checking accounts pay little to no interest.
Checking accounts are made for security and convenience. It’s where you should keep the money you need for bills and everyday spending. Any funds you plan to use in the near term should ideally be kept in your checking account.
What Is a Savings Account?
A savings account is well suited for funds you plan to use in the distant future. A savings account pays interest, so your money will grow as long as you keep it in the account. Any money you don’t plan on spending should be placed in your savings account. This will help you stick to your budget or financial goals. If you’re paying off debt, you might choose to put your money in savings, then transfer it to your checking account when you’re ready to pay a bill.
Do I Need Both a Checking and Savings Account?
Yes, since both types of accounts have their own strengths, it's generally advisable for people to have both. If you only had a checking account, you would miss out on earning interest on savings. On the other hand, using a savings account to pay bills or buy groceries usually doesn't make sense because there are limits on how often you can withdraw funds.
How to Transfer Money Between Checking and Savings Accounts
Transferring money between checking and savings accounts is usually pretty straightforward. If you're enrolled in online banking, you can transfer money by signing on to your bank's website or mobile app. You can also go into any bank branch and transfer funds in person. Another option is to automatically deposit a portion of your paycheck into your checking account and the rest into your savings. For example, you could automatically put 10 percent of each paycheck into savings and 90 percent in checking. Just ask your employer or bank for a direct deposit form and set up a deposit that's split between the two accounts.
It's smart to check your account balances a few times a month to determine if you should add to your savings, or move funds into checking for immediate use. If you get paid once every two weeks or once a week, those are good times to transfer money. Try to avoid transferring funds more often than once every one or two weeks, because there are limits on how frequently you can withdraw from a savings account.
How Much Money Should Be in Your Checking Account?
A general guideline is to keep enough money in your checking account to cover your basic living expenses for two months. You may also want to add more money to this account if you have a big purchase coming up. When you know you're going to write a larger check than usual — like a down payment on a car — you should first transfer the money into your checking account, so you have enough to cover it.
How Much Money Should Be in Your Savings Account?
Ideally, if you don't need the money in the next month or two, it should be in an interest-bearing account that will help you build an emergency fund. Generally, emergency funds are built to cover three to six months of living expenses. Other saving goals include a down payment for a house or car, or saving for investments or retirement.
Track Your Monthly Expenses and Bank Statements
You should routinely review your bank statements to ensure they’re accurate. Be on the lookout for unauthorized transactions or fraud. You can also set up banking alerts to notify you of any unusual account activity, and to help track spending.
In addition, regularly reviewing your accounts will help prepare you for upcoming expenses that will be taken out. Knowing every subscription, service, and utility you pay for each month can alleviate the worry of the unknown. If you establish and stick to your budgeted expenses and discretionary spending, you won’t be surprised or caught off guard when reviewing your bank statement.
