Do you need a savings account if you keep a high balance in your checking account?

Having more than one bank account could work to your advantage.

Key points

• You may find it easier to keep all your money in one bank account.
• Here’s why it’s beneficial to have a savings account in addition to a checking account.

You’ll often hear that it’s important to have some cash on hand for emergencies, whether it’s sudden home repairs, car repairs, or medical bills. Plus, you never know when you might lose your job and the salary that goes with it. Having cash reserves could save you from having to rack up costly debt just to stay afloat.

You will usually hear that a savings account is the best place to store your emergency fund. But is it really necessary? Couldn’t you just maintain an extra-large checking account balance instead?

Technically, you can go this route. But here’s why you might not want to.

It is beneficial to have a separate savings account

Let’s say you decide to save up to $15,000 for emergencies. You can put this money in a savings account or keep it in a checking account and not use it. You may prefer to go the latter route to have access to all your money at once, and also to be able to view a single balance and know how much money you have. While this logic makes sense, it’s beneficial to keep a separate savings account for several reasons.

First, many checking accounts pay no interest or pay minimal interest. Admittedly, today’s interest rates are generally not very encouraging. But generally, you’ll earn a lot more interest on your money in a savings account than if you kept it in a checking account. And even during times when interest rates aren’t high, you might as well earn more interest than less.

Plus, if you keep your emergency fund in a checking account, you risk forgetting what that total is supposed to entail and dipping into funds to cover non-emergency purchases. Or, you might just be tempted to spend beyond what your paychecks are giving you. The whole point of an emergency fund is to be there for you in the blink of an eye. Keeping that hunk of cash separate could really help you avoid giving in to temptation.

What if an emergency arose and you had no money in your checking account?

Suppose your car breaks down and you need to write a check to cover your repairs. If you have your emergency fund in savings, are you going to trip yourself up?

As long as you have your checking account and your savings account at the same bank, probably not. Usually, if you hold both accounts at the same institution, you can transfer money between them instantly. Suppose you need to write a check for $500 for a repair. You can most likely log into your account, transfer $500 from savings to check, and then return that money with no problem.

It’s a good idea to maintain a cushion in your checking account in case your bills are a little higher than usual from time to time. But your real emergency fund is money that you should keep in a separate savings account. Plus, you might want to put some money aside for other big goals, whether that’s going on a trip or buying a house. Separating that money is a good way to stay on target.