A solid financial plan rests on a foundation of liquid assets, such as cash and the money in your checking account. Although your checking account is excellent for handling your everyday expenses, there are good reasons to have a savings account (or two!), too.

 

One reason to open multiple savings accounts is to help you maintain the motivation needed to reach your financial goals. For example, beyond establishing an account to save for an emergency fund, you might have a second account for a vacation fund, and a third one for building up a down payment for a home or car. With each account representing a specific goal, you can easily track every deposit and know exactly how much closer you are to your end goal.

 

We all know it is easier to spend money when it is in your pocket. A savings account allows you to move money out of your "pocket" (checking account) and keep it separate from your everyday spending. By being "out of sight, out of mind," you may not be as easily inclined to spend it. However, if you need to, funds in your savings account are readily accessible, and a transfer to your checking account or cash withdrawal is quick and easy. Be sure you understand the terms of your savings account to be sure of any limits on the types of and the number of withdrawals you can make without incurring a fee.

 

Although stuffing your mattress with excess cash is an option, it is not a very good one. If you hold physical cash, you are taking several risks: Your money could be destroyed in a fire or flood, it could be stolen, or you might forget where you left it (it happens!). Savings accounts are a much safer place for excess cash. Besides providing physically secure storage, the Federal Deposit Insurance Corporation insures up to a maximum of $250,000 in your bank savings account. So, should the bank suddenly go bankrupt or fail, the FDIC will cover your deposits. Even if your account gets hacked, federal law protects you against certain types of fraud and errors in your bank account, too.