Checking and saving accounts cater to our basic necessities – spending money and growing money.
The checking account’s purpose is to make cash available for your spendings. While a savings account grows your money by paying interest on the deposited amount.
The main difference between checking account and savings account is the flexibility to withdraw money and interest earned.
Checking accounts allow you to withdraw money as many times as you can while that is restricted in savings accounts.
A savings account’s main advantage is to earn interest on your stashed money which is almost negligible in checking accounts.
Let’s go in detail about what is the difference between a checking account and a saving account
Difference Between Checking Account & Saving Account
|Checking Account||Savings Account|
|Account to use for the daily monetary transactions||Account to use for the save money and earn interest|
|No withdrawal restrictions||Withdrawal up to 6 times allowed|
– Monthly maintenance fee (get waived off)
– Overdraft fee
– Out-of-network ATM fee
– Foreign transaction fee
– Monthly maintenance fee (get waived off)
– Savings withdrawal limit fee
|No or nominal interest rates||Better interest options|
|Designed for spending money||Designed for growing money|
What is a Checking account
A checking account enables you to perform routine banking transactions. You can deposit money, withdraw, write checks, make transfers and pay bills.
Checking accounts don’t pay you good interest on your money. The national average of Annual Percentage Yield (APY) is 0.04% which hardly lets you save anything.
For example, Bank of America opens a checking account with a $1000 opening amount. You get an APY of 0.05%. The monthly fee is $12 which you can avoid by keeping $1500 as a minimum balance.
Let’s discuss all the types of checking accounts.
6 Types of Checking Accounts
#1. Free checking accounts
You don’t have to keep any minimum balance in your checking account to avoid the account maintenance fee.
The bank will charge fees on other account-related services like overdraft fee, check fee, other network ATM fee, foreign transaction charges and stop payment fee.
You may not earn any interest on your free checking account but that varies bank to bank.
#2. Regular checking accounts
A regular checking account is used to do various routine banking transactions like deposit and withdraw money from an ATM, pay bills, and use the debit cards.
You pay a monthly account maintenance fee but many banks waive the fee if you keep a minimum required balance in your account.
#3. Low-balance checking accounts
Low balance checking accounts are the best accounts for people who do lesser transactions. You have to keep a small amount as an account balance and the bank won’t charge any fee.
But the bank will offer you limited services like limited number of checks, no account statement by mail (however, the bank shares your account statement via email).
People also call them ‘Lifeline” accounts because, in the 1980s, several states started bank accounts under “lifeline laws” to enable low income people the benefit of bank accounts.
These accounts offered modest monthly fee and permission to keep low minimum balance in their accounts.
#4. Interest-Bearing checking accounts
If you don’t want to have two separate checking and saving accounts, then go for an Interest-Bearing checking account.
You will earn interest in the range of 0.05% to 0.35% on your money deposited in the checking account, but you may also be aware of the high maintenance fee.
Secondly, the interest you would earn might not be as good as the savings account. Because savings accounts give you an interest above 1% in general.
#5. Premium checking accounts
Premium checking account comes with some privileged services like a monthly fee waiver, ATM transaction fee reimbursed, and free checks.
You will get free financial advice or lower mortgage interest rates if you keep a high amount (over $ 10,000) in the account.
You also earn better interest rates than regular checking account.
#6. Second-chance checking accounts
If you have a negative checking account history (where the bank has closed your account due to unpaid balance), then you can open a second chance checking account.
You have to pay a $20 monthly fee. Bank will also put some restrictions like no overdraft facility with second chance checking accounts.
However, you can convert it to the regular checking account if you maintain the account well for at least one year.
You can get this account facility in all 50 states through banks and credit unions.
Benefits of Checking Account
- A sense of security because the U.S. Federal Deposit Insurance Corp. (FDIC) provides protection cover on your money in the accounts.
- You can access money from the bank without a need to carry cash.
- You get debit card against your checking account that you can use for your payments
- You can withdraw money from the ATM anytime, in case you need cash.
- Get paycheck directly deposited into your checking account
- You can use online banking services
What is a Savings account
Savings account is a bank account designed to store money. The main purpose of a savings account is to save money for longer periods with the intent of earning interest.
The best part is that you have limited withdrawal access, which leads to money accumulation in the account in the long run.
For example, Barclays savings account offers you a 1.50% APY with a $0 monthly fee. You also get the options to get a CD account to attached to your savings account.
4 Types of Savings Account
#1. Traditional savings account
A simple account where you hold your money, earn interest offered by the bank and withdraw when you need it.
You can do limited withdrawals from your savings account (up to 6 times a month).
More withdrawals may lead you to pay charges between $5 to $15 per extra withdrawal. The bank may convert your savings account into a checking account.
#2. Money market account
Money market account is similar to a savings account with larger deposits.
Money market account gives you more flexibility in terms of money withdrawal as you get a debit card to withdraw money from your money market account.
You can also write checks against the account.
Similar to other savings accounts there are restrictions on the number of withdrawals. You can withdraw money up to 6 times in a month.
#3. Student savings accounts
Banks charge you a fee if you don’t maintain the minimum amount in your savings account.
Being a student you may find it difficult to sustain high amounts of money.
Student savings account solves this problem by offering you a fee-free savings account until you get a job.
You can open a student savings account with any credit union or brick and mortar banks in the states.
#4. Certificates of deposits
Certificates of deposits are best for long term savings. You get minimum liquidity and maximum rate of interest on certificate of deposit (CD).
You have to purchase CDs for a fixed tenure. It can be a couple of months or up to 10 years. You get high interests in the range of 2.5% to 3% on CDs.
However, you have to pay some fee at the time of maturity. But if you don’t withdraw your CD, your bank will reinvest your money further with the same length of term.
Benefits of Saving Account
- Risk-Free – Savings accounts are risk free investment accounts unlike stocks that are volatile in nature. Market fluctuations don’t affect your saved money.
- Earn Interest – You earn interest in your savings account in the range of 1%-3% that depends on the type of account.
- Easy Access- You can access your money whenever you need using online banking.
- Start with a low amount – You can start a saving account with as low as $5. Some banks even offer saving account with no initial payment.
- Secure- Just like checking account, your saving account is also protected by FDIC.
Why You Might Prefer Checking Bank Account
Checking account is like your wallet that you can use to spend money on your daily life needs. It could be paying your grocery bills, buying movie tickets or paying your credit card bill.
You get ATM access to withdraw money whenever you need. You also get a debit card for swapping and online payments.
You can get your paycheck deposited into your checking account if you are in a job.
Why You Might Prefer Savings Bank Account
Your savings account is like the piggy bank that comes with an additional benefit of interest-earning.
Just like your piggy bank, you can save money in your savings account with restrictions on the withdrawals.
A savings account keeps your money intact from extra expenses. Unlike checking account where you might end up spending all the money
You can’t overlook the virtues of both checking and saving accounts because both are essential in your life.
You can choose a low balance checking account if your monthly transactions are less.
While choosing your savings account, how much upfront money you want to save can decide the account type.