Last updated: 28th Jan 2020
You might have confusion in between saving account and checking account. In this article, you will get in detail comparison between both.
A savings account is an account that is maintained with banks or financial institutions which help keep your cash safe and accessible.
these accounts are beneficial for people who do not wish to spend their money immediately and wish to achieve some capital growth.
A typical saving account will pay you moderate interest on the amount saved over a period of time.
It is always advisable to keep at least three to six months’ worth of bills in your savings account.
This will provide the necessary cushion in times of emergency like loss of a job, medical issue, immediate foreign travel or any other situation that requires money.
A savings account is highly liquid, meaning it is easy to access your money when you need it.
Savings account generally pays a higher interest rate than checking accounts on the funds deposited.
The interest rate depends on the bank, the economic conditions and on how much money is in the account.
Let’s say if a checking account pays you 0.01% interest per year, a savings account might pay you 1% per year.
It is always better to place your money in an instrument which allows it to grow over a period of time than at home.
The Federal Deposit Insurance Corporation (FDIC) is an independent agency of the U.S. government that protects you against loss of deposit if your bank is FDIC insured.
When you open a savings account at a financial institution in the US, always ensure to check if it is insured by FDIC.
These accounts are insured up to $250,000 per account per each depositor.
Savings account to limit the number of certain types of transactions the account holder can perform each month because of Federal reserve rule called Regulation.
These transactions include transfers between accounts, bill payments, overdrafts.
If you exceed the limit, the bank may charge you a fee, close your account or convert it into a checking account.
A most savings account can be opened with a deposit of $25 or lower. Some institutions may have an even lower limit.
This feature gives an opportunity for all to begin saving money even if you don’t have much money at the beginning.
You can easily access your money deposited in your savings account in times of emergency situations.
Most credit unions, institutions, and banks provide you with online access to their funds 24 hours a day.
Some even allow you to link your account to other accounts for hassle-free transfer of funds.
Savings account in any bank or institution under government insurance helps to keep your money safe.
FDIC insures banks and National credit union share insurance fund insures credit union.
This ensures that the money deposited is in safe hands. In other words, there is no risk involved for you as a customer.
This is one of the primary benefits of a savings account.
You can withdraw your deposited money with ease as it allows access to you whenever required. You can withdraw your money using an ATM, bank teller, online banking.
But, keep in mind that the government allows only 6 electronic transfers per month.
You can, however, opt for online transfer if you need to withdraw more funds.
With the option of online banking, it becomes very convenient for consumers to do transactions from the comfort of home or at work.
This saves time from going to the branch personally as it is faster and more efficient.
The facility to link your savings account to your checking account is provided by most banks and financial institutions these days.
This is very helpful in transferring money from savings to checking accounts when they are low or out of funds.
This facility helps in avoiding overdraft charges and other fees which otherwise would be incurred on checking account.
Ideally, a savings account is good to open as your first bank account. Kids, students, and adults looking for a place to keep their extra cash or savings.
This will help them cultivate the habit of saving and seeing the money grow over a period of time will motivate them to increase savings with time.
A checking account is also called as demand accounts or transactional accounts.
It is a deposit account held at financial institutions that allows numerous deposits and withdrawals limits whereas a savings account has limits on both.
The interest paid by a checking account is comparatively lower than a savings account.
Checking accounts can be accessed using checks, automated teller machines and electronic debits among other methods.
Checking accounts are great for everyday expenses.
These accounts do not place many restrictions on how often you can access your money through debit card purchases, withdrawals or transfers in a month when compared to a savings account.
Checking accounts provide an option to do ETF. This is also called as a wire transfer.
With this option, it is possible to have money directly transferred into your account without having to wait for a check to come into the mail.
A checking account typically comes with personal checks and a debit or ATM card. More often, people, these days use a debit card to access money in their account.
banks offer zero liability fraud protection for debit cards to help protect against identity theft if a card is stolen or lost.
Checking account tends to have lower interest rates than savings accounts.
If you do choose an interest-bearing checking account, keep in mind that you will pay hefty fees if you do not maintain a minimum balance as specified by the bank.
It is important to be aware of the maintenance and overdraft fees.
Some checking accounts at large banks charge maintenance fees as high as $15 a month. This will be waived off if you meet the minimum balance criteria.
Kindly go through the fine print before you open an account.
The overdraft fee is charged when you spend more than you have in your account.
Direct deposit allows your employer to electronically deposit your paycheck into your bank account.
Banks also benefit from this feature, as it gives them a steady flow of income to lend to customers.
Because of this, many banks will give you free checking (i.e., no minimum balance or monthly maintenance fees) if you get direct deposit for your account.
The availability of debit card ensures that money is accessed easily.
ATMs make it convenient to access cash from your checking account or savings after hours, but it’s important to be aware of fees that may be associated with their use.
Using an ATM from another bank could result in surcharges from both the bank that owns the ATM and your bank.
However, surcharge-free ATMs are becoming increasingly popular.
You can use your debit card to buy goods & services directly without having to carry cash always.
Also, it is more convenient to carry a debit card than stacks of cash.
- Online Transactions
Checking accounts provide access to online banking services like paying bills and transfer of money, etc.
This makes using a checking account a hassle-free experience for the customer.
Checking account is good for those people who need to deposit a paycheck or cash on a regular basis.
People who are employed and receive weekly and monthly check can open a checking account.
It is also beneficial for people who enjoy the convenience of a Debit card.
You should by now have an idea about what a savings and checking account is and its features and benefits.
We will now look at the major differences between the two. We have chosen the below points to highlight the same.
- Withdrawal restrictions
- Interest Rates
- Debit cards
- Bill Pay
Savings accounts usually have restrictions on how often money can be withdrawn.
The limit is typically three to six withdrawals a month, including electronic transfers and automatic payments.
There is no limit to the number of deposits one can make into a savings account.
There are no limits on the number of transactions (withdrawals and deposits) that can be made to or from a checking account.
Savings account accrues interest over a period of time giving the customer an advantage of capital growth.
The interest rate depends on the bank and the amount deposited.
Checking accounts earn significantly lesser or no interest, depending on the bank.
Savings accounts typically do not come with debit cards, so withdrawals must either be transferred to a connected checking account online, requested over the phone, or done in person at the bank.
Checking account customers, on the other hand, do have the benefit of owning a debit card.
This can be used to withdraw money from ATM’s and pay for goods and services purchased in stores or online.
Savings account generally do not charge a fee as long as the owners do not exceed the set withdrawal limit per month.
If you exceed the limits, then a maintenance fee will be charged.
Many banks require checking account holders meet some criteria; for example, to set up the direct deposit of paychecks into a checking account, the account owner must usually maintain a minimum balance or make a minimum number of transactions each month.
When these criteria are not met, banks often charge users monthly maintenance fees.
Banks may also impose ATM usage fees, overdraft charges, overdraft protection fees to avoid overdraft charges, and fees for online access and bill paying.
These vary depending on the bank.
In a savings account, automatic bill pay cannot be set up. However, one can transfer money from his or her savings account to a checking account once an account is linked.
Checking account allows for the set up of automatic bill payments for recurring payments like rent, electricity, water bills, etc.
it is also possible to make one time payments with the option of online banking.
A checking account is typically used for regular spending and purchases, like paying bills, shopping for groceries, etc.
While it is possible to withdraw money from a savings account at an ATM, by default ATMs withdraw cash from a checking account.
A savings account, as the name suggests, is used to save money for a longer period of time.
The idea is to let that money accrue and not use it unless there is an emergency or until it is time to pay for college tuition or purchase a significant item, like a house or car.
So, go ahead and choose an account that suits your needs. But always ensure to be informed about the product you are getting into.