What Is the Difference Between Savings and Checking Accounts?

If you are new to banking, you may need to know the difference between checking and savings accounts. 

In fact, these two accounts serve various financial purposes so you need to know how they function and which option suits your monetary needs. 

Should you have a savings account to benefit from interest? Should you rather open a checking account to obtain a debit card? Keep on reading to get the answers and pick the right option.

The Basics of a Checking Account

A checking account is an account that lets an individual make withdrawals and deposits and is held at the bank or another financial institution. It may bear some interest but many checking accounts don’t have this function. 

You can withdraw your money at any ATM or the bank as well as through money orders, checks, debit card purchases, wire transfers, or ACH transfers. If you have a checking account you can write checks or use a debit card for purchases. 

Do you need emergency money now? If you don’t have a savings account with enough funds set aside for the emergency, you may look for ways to take out a small loan to have extra money for the short term. 

To be confident in your finances for the long term, creating a savings account is a necessity.

The Basics of a Savings Account

A savings account is an account that helps an individual to hold money for a certain purpose or intention rather than daily transactions.  

The interest rate is paid to the account holder by the bank or another financial institution for keeping their funds in savings accounts. You can’t conduct many withdrawals within a month. 

Typically, a savings account holder may make up to six withdrawals a month. The person is granted unlimited withdrawals from their savings account only if they conduct them at an ATM or in person.

Why You Need a Checking Account

The initial target of a checking account is to help you get access to your funds for everyday usage. This account is often called transactional. It means that this account lets consumers access their money at any time of the day. 

You may want to withdraw your funds at the nearest ATM or pay with a debit card. It’s easier to gain access to your money using a checking account than a savings account. 

You may use checks or debit cards to obtain cash from your checking account. On the contrary, a savings account has limitations to the number of possible money withdrawals per month.

You can find the answers on the OCC.gov platform. Generally, you know the way your checking account works. A client writes a paper check, obtains the funds from the ATM, or pays with a check card. 

The recent changes in checking accounts make consumers notice the “clearing” procedure when the funds are taken out of their checking accounts much faster.

Why You Need a Savings Account

The purpose of a savings account is to help you set aside a certain amount for your long-term financial aim. It can be a big-ticket purchase, a vacation, a retirement, or just a solid safety net that will protect you in case of an emergency. 

You can hold your funds in a savings account for a long period. This is a type of long-term investment, unlike a checking account that’s generally utilized for daily needs. 

A great benefit of a savings account is that it can accrue interest so your savings will increase over time.

The drawback here is that you can’t access your money at any time of the day or withdraw it. You should visit the local bank branch, make a withdrawal at the ATM or set up an online transfer. 

Besides, you have the right to write checks from your money market savings account. If you are planning to purchase a house, make a renovation project, buy an auto, go on a vacation, retire comfortably, or make any other expensive purchase, setting up a savings account is a great idea.

Which Account Should I Choose?

Now that you understand what a checking and a savings account mean and how they work, it will be easier for you to pick the right option. If you compare these banking options, you will notice that they serve various financial needs. 

A checking account is preferable for using your own money for daily purchases, while a savings account is beneficial for growing your savings for the long term. 

When you start shopping around for the most suitable option, here are a few questions to ask yourself first:

• Should I meet a minimum balance demand?

• What fees are associated with each account? Do I need to cover a monthly maintenance fee?

• Are there limits on daily withdrawals from the ATM for checking accounts?

• Does a savings account have a debit card or an ATM card?

• Will the interest accrue on the account? What is the APY?

• Are there limits on daily deposits for a savings or a checking account?

• Does the bank offer additional bonuses for opening an account?

This statistic shows the median interest rate on checking accounts in the USA from 1998 to 2014. As you can see, the average rate on checking accounts accounted for 0.05 percent in 2013.

Average interest rate on checking accounts in the United States from 1998 to 2014

Link: https://www.statista.com/statistics/325600/average-interest-rate-checking-account-usa/

Some consumers may have noticed that their checks are now processed faster.

Besides, you should take into account the type of access you should have when we talk about banking. 

The bank may suggest mobile or online banking tools to manage your funds on a checking or savings account digitally without the need to physically visit the bank. 

If the branch banking or digital features aren’t available, you may decide to turn to another bank.

The Bottom Line

In conclusion, you may need some time to review the basic features of checking and a savings account to help you decide which option is better suited for your financial needs and purposes. 

What account should you open? There is no one-size-fits-all answer and it may even be helpful if you open both of them and take advantage of their benefits.