In the world of personal finance, understanding the different types of bank accounts available to you is crucial. One important distinction to understand is the difference between checking and savings accounts.
A checking account is a type of account that allows you to easily access your money for day-to-day transactions and spending. A savings account, on the other hand, is designed for saving and earning interest on your money.
Choosing the right account for your needs can help you better manage your money and reach your financial goals. In this article, we will delve deeper into the differences between checking and savings accounts, and help you make an informed decision about which type of account is best for you.
What are the main differences between checking and savings accounts?
Here are the main differences between checking and savings accounts:
- Interest rates: Checking accounts typically have lower interest rates than savings accounts.
- Accessibility and withdrawal limits: Checking accounts have more accessibility and withdrawal limits than savings accounts.
- Fees and charges: Checking accounts may have more fees and charges associated with them than savings accounts.
- Purpose and intended use: Checking accounts are intended for day-to-day transactions and expenses. Savings accounts are intended for saving and earning interest on 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. Checking accounts typically offer features such as debit cards, online banking, and mobile banking. They are designed for everyday transactions such as paying bills, making purchases, and receiving direct deposits.
How to choose a checking account
Choosing the right checking account can help you manage your money more effectively and save you money on fees. Here’s a quick overview on how to choose the best checking account for your needs.
- Look for a checking account that doesn’t charge a monthly maintenance fee or has an easy way to waive it.
- Consider accounts that offer free access to a wide network of ATMs and even sign-up bonuses.
- Make sure the account comes with a debit card as a standard feature for easy everyday purchases.
- Read the fine print and understand any other fees that may be associated with the account before making a decision.
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
- Making purchases with a debit card
- 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. Savings accounts typically offer higher interest rates than checking accounts and come with certain withdrawal limits. Some savings accounts also come with additional features such as online banking and mobile banking.
How to choose a savings account
Understanding what to look for when choosing a savings account can help you reach your financial goals faster. Here are some things to consider when choosing a savings account.
- Look for a savings account with the highest interest rate you can find.
- Compare the fees of different banks and credit unions. Consider opening a savings account with an online bank as they tend to have better interest rates.
- Check the account’s minimum deposit requirement, and consider accounts that have a lower requirement or no requirement at all.
- Consider the account’s withdrawal and transfer limitations, to ensure they align with your savings goals.
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
CDs are a type of deposit account that typically offer a fixed interest rate for a specific period of time, such as 6 months or a year. They’re a great option for those who are looking for a guaranteed return on their investment and don’t need access to their money for the duration of the CD term.
Money market accounts are similar to savings accounts but typically offer higher interest rates and check-writing abilities. They’re generally considered to be a low-risk investment option and are FDIC-insured. They are a great option for those who want higher returns than a savings account and are looking for a liquid investment option that they can access their money easily.
Both CDs and money market accounts can be a great way to save and grow your money over time. However, you should understand the differences between the two and compare rates 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 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?
Depositing your money in a checking or savings account at a bank or credit union is generally considered safe. Banks and credit unions that are FDIC-insured or NCUA-insured, respectively, offer deposit 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.
However, it’s always advisable to do some research into the financial stability of the bank or credit union before depositing a large sum of money.