We\u2019ve recently written about two ways to help folks save more at tax time.<\/p>\n
One is to split your tax refund \u2013 put some of your refund into a savings account and some into a checking account; the other is to be encouraged to \u201cpledge to save\u201d before even doing your taxes. This latter idea, the nudge, went through a trial run this last tax season. One of the things that EARN and Commonwealth (the groups who did the trial run) discovered was that refunds deposited into savings accounts stayed in the accounts longer than funds that were deposited into checking accounts.<\/p>\n
This data got us thinking about other ways we use checking and savings accounts and whether the use of one over the other really does impact our savings rates. But, first some background\u2026what\u2019s the difference between a checking account and a savings account?<\/p>\n
The most basic difference is that a checking account is more for your regular spending needs, e.g.,<\/em>paying bills, buying groceries, etc., and a savings account is best for stashing away money that you plan to use for something down the road, e.g. emergencies, education, downpayment on a home, etc. Many savings accounts also come with higher interest rates, making them more attractive for those wishing to earn a little on the money they are putting away.<\/p>\n Yet even a little interest isn\u2019t enough to get a lot of folks to open more than a checking account. \u201cWhy bother?\u201d they ask. Well, behavior economics\u2026that\u2019s why!<\/p>\n Remember when we talked about out-of-sight, out-of-mind? In other words, if we never see the money in our checking account, we are much less likely to spend it,i.e., w<\/em>e\u2019re more likely to SAVE IT!<\/p>\n