It’s essential to familiarize yourself with the various bank account options in the realm of personal finance. One thing you need to know is the difference between checking and savings accounts.
A checking account enables you to effortlessly access your funds for everyday expenses and transactions. Meanwhile, a savings account is intended to help you save and earn interest on your hard-earned money.
Picking the appropriate account that caters to your financial needs can aid you in better money management and reaching your financial aspirations. This article delves into the nitty-gritty of the differences between checking and savings accounts, providing you with the knowledge you need to make an informed decision.
What are the main differences between checking and savings accounts?
Let’s take a look at the main differences between checking and savings accounts:
Interest rates: Checking accounts usually offer lower interest rates compared to savings accounts.
Accessibility and withdrawal limits: Checking accounts provide greater accessibility and fewer withdrawal restrictions as compared to savings accounts.
Fees and charges: Checking accounts may come with more fees and charges than savings accounts.
Intended purpose and use: Checking accounts are meant for daily transactions and expenses, while savings accounts are meant for saving and earning interest on your money.
What is a checking account?
A checking account is a type of bank account that allows you to deposit money, write checks, and make electronic transfers. This type of account typically includes features such as debit cards, online banking, and mobile banking capabilities. Checking accounts are intended for everyday transactions, like paying bills, making purchases, and accepting direct deposits.
How to choose a checking account
Choosing the right checking account can assist you in better money management and reduce costs related to fees. Here’s a concise guide on how to pick the ideal checking account for your needs:
- Look for a checking account that does not impose a monthly maintenance fee, or has a straightforward process to waive it.
- Consider accounts that offer free access to a vast ATM network, along with sign-up bonuses.
- Ensure the account provides a standard debit card for seamless everyday purchases.
- Thoroughly examine the details and be aware of any other fees linked to the account prior to making a decision.
- Look for accounts that offer overdraft protection or have no overdraft fees.
Check out our picks for the best checking accounts.
Common transactions made with a checking account
Here are a few examples of the types of transactions that can typically be made with a checking account:
- Paying bills online or by mail
- Debit card purchases
- Withdrawing cash from an ATM
- Depositing paychecks via direct deposit
- Writing checks to pay for goods or services
- Making online transfers to other bank accounts
What is a savings account?
A savings account is a type of bank account that is designed for saving money and earning interest on those savings. This type of account usually provides higher interest rates than checking accounts, and comes with specific withdrawal restrictions. Some savings accounts also offer additional perks such as online banking and mobile banking.
How to choose a savings account
Knowing what factors to examine when selecting a savings account can speed up your journey to reach financial goals. Here are some elements to consider when choosing a savings account:
- Search for a savings account that offers the highest annual percentage yield (APY) possible.
- Evaluate the fees of different banks and credit unions. Consider opening a savings account with an online bank as they often offer superior interest rates.
- Review the account’s minimum deposit requirement, and look for accounts with a lower requirement or no requirement at all.
- Examine the account’s withdrawal and transfer restrictions, to guarantee they are consistent with your savings objectives.
Take a look at picks for the best savings accounts.
Common transactions made with a savings account
- Depositing money for long-term savings goals or emergency funds
- Withdrawing money from the account, subject to withdrawal limits
- Monitoring account balance and transaction history
- Setting up automatic transfers from a checking account to a savings account
- Setting up direct deposit to the savings account
- Earning interest on the balance in the account
Other Types of Savings Accounts
A CD is a deposit account that provides a fixed interest rate for a set term, such as 6 months or a year. Perfect for those seeking guaranteed returns and who don’t need access to their funds.
A money market account, similar to savings, but often offers higher interest rates and the ability to write checks. A low-risk investment option insured by FDIC, it’s suitable for those seeking higher returns than savings and the ability to access their funds with ease.
Both CD and money market accounts can be great for growing your money over time, but you should compare rates and understand the differences before choosing one over the other.
Types of Checking Accounts
There are several types of checking accounts, including:
- Basic Checking: This is a standard type of account that typically comes with a low or no monthly fee, and a small minimum balance requirement.
- Interest Checking: This type of account earns interest on the account balance, and usually has a higher minimum balance requirement.
- Student Checking: These accounts are designed for students and typically have no or low fees, as well as lower balance requirements.
- Senior Checking: This type of account is for senior citizens and typically has lower fees and minimum balance requirements.
- Premium Checking: A premium checking account often come with features such as free checkbooks, ATM fee waivers, higher interest rates, and other perks. However, it also typically has higher fees and minimum balance requirements.
- Online Checking: This type of account is offered by online-only banks and typically have low or no monthly fees and no balance requirements.
- Second Chance Checking: These accounts are designed for customers who have had past banking issues such as ChexSystems or credit problems. Second chance checking accounts typically have higher fees and may require direct deposit.
Is my money safe in checking and savings accounts?
When depositing money at a bank or credit union, safety is generally assured through FDIC or NCUA insurance.
The Federal Deposit Insurance Corporation (FDIC) or the National Credit Union Administration (NCUA) will reimburse depositors for their insured deposits in case of an institution failure. The deposit insurance covers up to $250,000 per depositor per institution.
Always research the financial stability of the bank or credit union before depositing a substantial amount.