You're probably already familiar with how a checking account works—it's what most people use to make day-to-day financial transactions, like depositing paychecks, withdrawing money from an ATM, or setting up automatic debits to pay for the cable bill each month.
But a checking account has another important partner in crime, and that's the savings account. A savings account, like a checking account, lets you keep your money in a safe place.
But unlike most checking accounts, you can also earn a small amount of interest each month, and if used the right way, a savings account can help you curb impulsive, unnecessary spending and meet your long-term goals.
Savings accounts are offered at most banks. Like checking accounts, savings accounts are FDIC-insured, meaning the bank insures your money up to $250,000. Basically if the bank goes out of business, you won't risk losing your money up to that amount—making a savings account a safer alternative to stashing your cash under your mattress.
Some savings accounts may require a minimum balance and most offer an interest rate to help your savings grow (even if only by a few pennies). The interest you earn on savings accounts can be compounded daily or monthly and rates vary among financial institutions, so be sure to ask your bank or credit union about its current rates before you enroll.
If you're already familiar with savings accounts, you probably know the interest rates are pretty low these days.
By setting up automatic transfers from your checking account to your savings account, you can limit your temptation to spend all of your money at once—and you don’t have to think about it every time you want to save money.