Managing your money is a lot easier after you gauge whether a saving vs. checking account will meet your spending and saving needs.
But there’s no need to get flustered – the differences are really not that complicated.
What Is A Savings Account?
A deposit account created to set aside funds for emergencies, vacations, home improvements, down payment funds, and the like is a savings account.
The funds in a savings account are reserved for these purposes only and aren’t for paying bills or covering spending (unless it’s an emergency, of course).
Savings accounts are offered at traditional banks, credit unions, and online banks.
Having a savings account at your local bank is better than having no savings account at all. This is because banks pay their customers an Annual Percentage Yield for depositing money in their savings account.
The APY isn’t uniform – it changes often and varies from bank to bank, but as of August 3, 2020, the national average savings rate is 0.06%.
If possible, create a savings account with an online bank, since these often offer a better APY, owing to the lower operating costs.
While the interest rates vary from bank to bank, it’s not difficult to find online banks and credit unions offering an APY in the ballpark range of 1%.
So, to sum up:
Savings accounts offer better interest rates than checking accounts.
You cannot withdraw or transfer money freely – only six times a month at the most regardless of the mode of transfer. If you go over the limit, it may entail charges, or your bank may convert your account in a checking account.
What Is a Checking Account?
Unlike savings accounts, checking accounts are designed to enable frequent deposits and withdrawals. When you sign up for a checking account with a bank/credit union, you will get a debit card and also a checkbook.
Cash withdrawals are enabled via ATMs, and you can spend money with your debit card, via checks, and through money orders. Wire transfers can also be carried out freely.
Likewise, you can also deposit cash, checks, or money orders at the ATM or by visiting your bank’s local branch. Mobile check deposits and wire transfers are also an option for deposits.
In essence, if you want an account for daily transactions – things like paying bills electronically, shopping, and transferring funds to another account, getting a checking account is the best way to do that.
But one of the most important factors to consider when picking between saving vs checking account is that most checking accounts are not interest-bearing.
Your money will not grow if you stow it in a checking account.
The debit card and checks that come with checking accounts make transacting convenient.
Banks and credit unions pay little to no interest to customers with checking accounts.
How to Choose the Best Savings and Checking Accounts?
After you gauge saving vs. checking account’s benefits and downsides and figure out which one is right for you, the next step is to find the right bank to make an account with.
There is no right or wrong bank – but you must look for banks that offer high-interest rates and charge low service fees.
Losing money even after creating a checking or savings account doesn’t make sense, so try and dodge maintenance charges.
Many banks offer free checking and savings accounts, and some searching should help you track down details like APY and the terms and conditions.
The best checking accounts charge no monthly fees and offer free access to ATMs across the nation.
The best savings accounts offer around 1.00% APY, but these accounts also come with their fair share of maintenance charges and other fees.
Keeping these details in mind will help you find the right savings and checking accounts in no time.
Is making a savings account the best way to grow my money?
Comparing saving vs. checking accounts, a savings account is the better option to grow your money. But it’s not your only option for fetching higher interest rates.
If you have a larger sum of money and don’t expect to withdraw it for several months, you can make a money market account. These offer better interest rates than regular savings accounts and also supply some ATM access and check-writing priveledges.
You can also consider getting a Certificate of Deposit. CDs offer high-interest rates, but require you to deposit your money for more extended periods. The best part about CDs is that unlike investments, your earnings are guaranteed.
Will I lose the money in my savings or checking account if the bank fails?
If you make an account with a bank, your funds are insured by the Federal Deposit Insurance Corporation. On the other hand, if you create an account with a credit union, your funds are federally insured through the National Credit Union Administration.
The bottom line is, if your financial institution fails, you will not lose your deposit (up to the insured amount).
Is it a good idea to have my savings and checking accounts at the same bank?
Having both accounts at the same bank can make it easy for you to manage your money. Money transfers between accounts in the same bank take only minutes to carry out.
Some banks even waive monthly fees if you link your savings and checking accounts.
However, the downside is that you may not find the best savings and checking accounts at the same bank. If you want to maximize savings, you may need to open a savings account at another bank.
If you do this, make sure you have enough money in both banks to avoid unnecessary charges.