Reader Question: Do I Need a Separate Savings Account?

by Julie on December 17, 2012 · 5 comments

Reader QuestionLast week I received the following question from a reader named Chana:

“I have a question. I have to say that I live outside the US, I live in Israel and banking here might be different. But I’m sure there are many silimarities.

I have read a lot of your site, and many other sites about budgeting and family finances. And there is something I just can’t figure out. We have one bank account, and all the income goes into it, and all the expenses get paid from it. But if I want to save money- don’t I have to open a separate bank account? And if I want to save for a few different purposes, wouldn’t each of those require a different bank account? It seems to me that my costs of banking would double and triple. Is there a way to designate the various savings, earmark them, but without increasing banking fees?”

I’m guessing that my posts about found money are what prompted the question. Here was my reply to her:

Good questions. First of all, you don’t absolutely have to open a second account. You could let money accumulate in your current account. The negatives to that plan are that – since it’s the account you pay expenses out of – it’s easy to “spend” your savings.

Also, you probably have a checking account with little or no interest being earned. Savings accounts offer higher interest rates, which is another reason to have one. Although interest rates are currently horribly low, at least in the States, someday the difference should be more significant.

As far as expenses, none of my savings accounts have any expenses attached to them. They’re free accounts. I’m not sure if that’s different in Israel, but it’s worth checking out.

I should go onto add that, aside having a Bank of America savings account that is attached to our checking account, I have multiple online savings accounts at ING Direct. I like ING Direct because the savings accounts are free and the rates are competitive (at least as competitive as any savings account rates get these days).

But my favorite part about ING is that once you have the initial savings account you can open up sub accounts from it for different savings goals.

I currently an emergency fund (being funded by found money), a college savings account for my daughter (being funded by writing income) and a second college savings account for my son (being funded by my bookkeeping income).

This process works so well for me and I know I save more than if I just let extra money accumulate in my checking account.

I hope this helps, Chana!

By the way, Chana sent me this little tip in her follow-up email:

Also, just FYI, since finding your website I have a tab in my gmail called “family CEO” and I mark anything regarding family managing with that tab – very helpful.

What a great idea, Chana. I’m going to “borrow” it. :)

If you have any questions or comments about the topics we discuss at The Family CEO, please feel free to email me. And don’t worry – if I think it’s something that would be good to share on the blog – I will never do that without asking your permission first.

Note: I am not a financial professional and the opinions in this blog should not be construed as professional advice. This post contains my referral links. Please see my disclosure policy for more details.






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{ 5 comments }

Brick By Brick Investing | Marvin December 17, 2012 at 2:44 pm

ING is fantastic I have used them for over 10 years you won’t be disappointed!

Julie December 17, 2012 at 3:28 pm

I agree, Marvin.

Tushar @ Everything Finance December 21, 2012 at 9:19 pm

I think that it’s important to open a new account to save money. If it’s out of the normal account, you won’t notice it and want to spend it. I’m a huge advocate for ING as well. Can’t beat free banking!

Julie December 22, 2012 at 3:46 am

I agree on all counts, Tushar. Thanks for weighing in!

Cheryl December 24, 2012 at 5:09 pm

I have an ING orange checking acct and a savings acct. How do I get the sub-accounts? Good reminder for me and I need to start using them again!!

Just found your blog this afternoon and loving it!! I’m wanting to start one and I have no idea how.

Thanks!

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