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Choosing the right bank account

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Dear Dr. Don,
I have a question about the right type of bank account. Do I need a high-interest checking and a high-interest savings account? I have money in a checking account that earns an annual percentage yield of 1.35 percent while my savings account earns an APY of 1.7 percent.

Would it be beneficial to have all the money transferred to savings instead of checking? I don’t understand why I need both. Could you explain?
— Kumar Cache

Dear Kumar,
A savings account has a different purpose than a checking account. A checking account is a demand deposit account where claims against the account are payable on demand. You hold money in a checking account to pay your bills.

The three reasons for holding cash are for transactions, as a precaution and for speculative reasons. A checking account is generally the best place for your transaction balances. The precautionary and speculative monies can be held elsewhere — like a high-yield savings account, as long as the funds are liquid (available) to meet your needs.

Speculative, as the term is used here, doesn’t mean gambling. It means keeping some money in reserve for opportunistic purchases — just as the Oracle of Omaha, Warren Buffett, does with Berkshire Hathaway.

A money market account is not the same thing as a checking account. Banks limit the permissible monthly number of transfers or withdrawals from savings deposits by check, debit card or similar order payable to third parties to six per month.

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Read more Dr. Don columns for additional personal finance advice. To ask a question of Dr. Don, go to the “Ask the Experts” page, and select one of these topics: “Financing a home,” “Saving & Investing” or “Money.”