Saving and checking accounts are like tools to handle your money, but they have different jobs. It’s important to know what each is good for, so you can manage your money well in the short and long run. Most people just go to the bank and open an account without proper knowledge of the bank account. This guide will help you understand the major differences between a checking and a savings account.
What Makes Checking and Savings Accounts Different?
A checking account is like your money command center for everyday stuff – paying bills, getting your paycheck, and grabbing cash from ATMs.
Meanwhile, a savings account is like a safety net. It’s where you stash money for unexpected events or save up for something special, like a vacation.
Also Read: How To Open a USA Bank Account as a Non-US Citizen
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Major Differences Between Checking and Savings Accounts
Below are some of the differences between a checking and a savings account shown in a tabular form below.
| Account Type | Primary Use | Interest | Common Fees | Minimum Balance | Limits on Transfers |
|---|---|---|---|---|---|
| Checking Account | Spending | Sometimes, usually minimal | Monthly maintenance fee, overdraft fee, out-of-network ATM fee | Varies by bank | None |
| Savings Account | Saving | Yes, rates vary by bank | Monthly maintenance fee, minimum balance charge, withdrawal limit fee | Varies by bank | Six transfers each statement cycle, in most cases |
What Is a Checking Account? (Checking Account Explained)
The checking account is more like your go-to bank account for everyday stuff. You use it for moving money around, buying things with your card, or writing checks. They usually throw in handy extras like a debit card, a checkbook, and a phone app with cool features for paying bills and quick payments.
But here’s the catch: these accounts don’t usually earn you any extra money. No interest. So, if you’ve got some extra cash hanging around, it’s smart to save it in another account that does earn you some interest.
When you’re out there looking for a checking account, keep an eye out for these three things:
1. No monthly fees, or at least, easy ways to avoid them.
2. Free access to lots of ATMs.
3. Low or no fees if you accidentally spend more money than you’ve got (overdraft fees).
Also, check if the bank is throwing in any bonuses for new accounts. You could score a sweet $100 to $500, or maybe even more, just for opening a checking account and setting up direct deposit. Not too shabby, right?
What is a savings account?
A savings account is like a special place to save your money for important goals. Unlike your regular spending account, it’s a bit harder to access. You can’t write checks from it, and there’s a limit of six free withdrawals or transfers each month.
The idea is to keep your money in the savings account for a while, and in return, you earn some extra cash through interest. Savings accounts, especially the high-yield ones, often give you better interest rates than regular checking accounts. So, it’s a smart way to watch your money grow faster.
Things To Consider When Going For a Savings Account
When on the lookout for a savings account, here are some things to think about:
APY (Annual Percentage Yield): The higher the APY, the more interest you’ll make. Keep in mind, though, that savings account rates can go up or down whenever the bank decides.
Balance Requirements: Some savings accounts ask for a hefty balance to get the stated APY. Go for an account with a minimum balance you can manage without breaking a sweat.
Fees: Look for accounts without monthly maintenance fees or ones that make it easy to avoid them.
Bonus: Some banks sweeten the deal by giving you a cash bonus just for opening a new savings account.
Just like with checking accounts, opening a savings account might come with a little bonus too.
Do Checking and Savings Accounts Come With Interest?
Checking accounts are mainly for everyday transactions and usually don’t earn any interest. They’re not the best for growing your savings.
However, savings accounts are the ones that usually give you some interest. When you’re looking for a good savings account, it’s a good idea to pick one with a high Annual Percentage Yield (APY). That’s what helps your savings grow the most.
Lately, many banks have increased their savings account interest rates because the Federal Reserve has bumped up interest rates quite a bit since March 2022. The best APYs are often found with online banks and credit unions.
Just know, the interest rates for both savings and checking accounts can change based on what’s happening in the market. Something to keep in mind!
Is It a Good Idea To Keep Both Your Checking and Savings Accounts At the Same Bank?
Advantages
1. Convenience: It’s handy to see all your account info in one place, whether it’s on a statement, website, or app.
2. Overdraft Protection: Linking your savings to your checking helps cover transactions that go beyond what’s in your checking account.
3. Relationship Perks: Some banks give you bonuses, like a higher interest rate or no fees, when you connect your checking and savings accounts.
Disadvantages
1. Missing Out on Better Deals: Your bank might be great for checking but not offer the best savings rates. Having accounts at different banks could get you better deals.
2. Impulse Spending Risk: If your accounts are at the same bank, transferring money between them is instant. Some folks find this makes it too easy to spend on a whim. If you want a bit of a buffer against impulse buys, having accounts at different banks could help since transfers take longer.
So, it’s a balance between the convenience of having everything in one spot and the potential perks or pitfalls that might come with it.
Is the Money In Checking and Savings Accounts Secure?
Money in deposit accounts is a safe bet, especially if they’re held at financial institutions insured by either the Federal Deposit Insurance Corp. (FDIC) for banks or by the National Credit Union Administration (NCUA) for credit unions. This ensures that your funds won’t disappear in case the bank encounters trouble, as long as it’s within the specified limits and guidelines.
As of January 2022, the FDIC covers deposits up to $250,000 per depositor, per FDIC-insured bank, per ownership category. Similarly, the NCUA protects balances in checking and savings accounts up to $250,000 per person, per account type.
To verify if a bank is FDIC-insured, you can use the BankFind Suite. For credit unions, check the NCUA’s searchable database of insured credit unions. Please confirm these figures with the most recent information, as they may have changed.
Conclusion
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