Using savings accounts the right way

Savings accounts are fantastic for stashing your cash. You’ll earn interest (regardless of what the interest rates are doing, because even a little something is, well, a little something), and the money is handy if you need it. But sometimes, the temptation is to use a savings account as an everyday spending account. Here, we’ll walk through why that might not be to your advantage, and what a better alternative might be.
 

The nuts and bolts of basic accounts

Savings accounts aren’t intended for short-term spending; rather, they’re designed to be used to save for the long term. Unlike a checking account, where you can make unlimited withdrawals, write checks, use your debit card, set up electronic bill payments, etc., your options with a savings account are limited. You can attach it to your checking account in case of overdrafts, and an ATM card is available if you need one for emergency cash withdrawals. And that’s usually the extent of it. Yes, there are types of savings accounts that offer checks, such as a money market account (more on that a little later), but that’s not what we’re referring to here. We’re talking about a “regular” savings account — the kind they called a “passbook savings” back in the day. The options are limited because a savings account is designed for saving. Your money is meant to be safely tucked away, on standby for an emergency or working toward your future goals.

Now, about those money markets we mentioned earlier. A money market account is a type of savings account that combines higher interest rates and accessibility for the ultimate in flexible savings. Think of a money market as a step up from a basic savings account — they earn higher interest like a CD, but you’re able to make a specified number of withdrawals per statement cycle, so your money is still accessible. These benefits come with higher balance requirements, however, which mean they may not be ideal for someone who’s just starting out.

Savings are meant to be saved

Generally speaking, banks prefer savers to be careful about how many transfers or withdrawals they make, which is why many banks, including UBT, assess a debit activity fee for each debit transaction in excess of six per month. (In layman’s terms: Most banks let you withdraw or transfer money out of your savings account up to six times each month for free; after that, you’ll be charged a small fee.) However, there’s no limit to the number of deposits you can make into a savings account each month — making the account ideal for long-term accumulation.

Essentially, savings accounts are meant to encourage long-term saving, not short-term spending. It’s best to build — and store — your emergency fund in your savings account, using your checking account for spending. Need more than what you’re earning now for living expenses? Consider transferring what you’ll need for the whole month, or even twice a month, to your checking account and spending from that account instead. You’ll avoid debit activity fees, maintain your savings account for its original intent, and be able to enjoy the flexibility of a checking account and all the perks that come with it.

Make saving automatic

If you have checking and savings accounts with UBT, an easy way to bolster your savings would be to sign up for RoundUp, which attaches to your checking account, rounds your debit card transactions up to the next dollar, and deposits the difference in your savings account. Effortless savings — what could be better?

Have questions, or ready to get started? You can open an account online in about five minutes — less time than it takes to figure out what to eat for dinner. Or simply visit the UBT branch nearest you. And of course, if you need help, we’re here for you. 

Looking for more information about building your safety net? Check out our Emergency Funds resource center.