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When it comes to managing your money, it can be tricky deciding which type of account is best for your financial needs. Knowing how varying bank accounts work will benefit you and your financial goals, no matter if you are focused on short-term necessities or long-term plans.
Checking Account Basics
Checking accounts are deposit accounts and act as the foundation of your personal banking. They allow you quick access to your funds for your day-to-day needs such as:
- Writing checks
- Paying utility bills
- Autopay bills
- Making transactions online
- Swiping your debit card to buy gas or groceries
Most employers will directly deposit your paycheck into your checking account. You can also set up automatic bill pay, with funds for your cellphone, credit card and more coming straight from your account. With this convenient feature, you won’t forget to pay bills. This can help you avoid late payment fees but make sure you monitor your account to avoid overdraft fees.
Savings Account Basics
When opening a savings account, you should know that it is another type of deposit account that lets you earn interest on the money you keep at the bank. Savings accounts have withdrawal limits and are often used for a financial goal or a specific purpose. You might find them helpful when saving for a major purchase or keeping an emergency fund.
Here are some key takeaways:
- High-interest savings accounts at online banks could net you even larger gains than you might get at your local bank.
- Your paycheck can also be directly deposited to a savings account, but since a savings account is designed to do just that — save your money — it isn’t your best option for frequent transactions.
- Many banks limit the number of free transactions savings account holders can make each month and charge a fee for exceeding that benchmark.
- Some savings accounts come with monthly service fees or monthly maintenance fees.
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Checking vs. Savings Accounts: What’s Better?
Checking and savings accounts are designed to meet different financial needs, so the “better” account is the one that best helps you achieve what you need to do with your money. Many may wonder “Is my money safer in a checking or savings account?” Both can carry FDIC insurance protection of up to $250,000, so a savings account isn’t any safer than a checking account — or the opposite.
Many people have multiple savings accounts. One can be for quick emergency cash, while others can be for long-term savings or to put money away for a house, wedding, vacation, car or other big expenses. That money for long-term use often is stored in online accounts that offer higher interest rates than at your local brick-and-mortar bank.
Checking vs. Savings Accounts Breakdown
| Checking | Savings | |
|---|---|---|
| Features | Typically includes a debit or ATM card | May come with an ATM card |
| Limits | No withdrawal limits | Usually up to 6 withdrawals per month |
| Interest-Bearing | Available on some accounts | Standard on all accounts; annual percentage yield varies by bank |
| Balance Requirements | Varies by bank | Varies by bank |
Is a Debit Card for Checking or Savings?
Though most often a debit card is linked directly to your checking account, it’s important to know the difference between a debit card and an ATM card.
A debit card is issued by your financial institution when you open a bank account, and it has multiple functions. You’ll use your card to deposit or withdraw money at an ATM, or to get money back with a purchase at a retailer that offers the cash-back option.
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The card, if it has a Visa, Mastercard or Discover logo on it, can be used to pay for purchases at a retailer that accepts those cards. But you’re not buying anything on credit. Instead, the money to buy that pair of shoes will come straight from your bank account. You also can shop online with your debit card.
A debit card typically is issued to owners of checking accounts. Your financial institution could issue an ATM card with your savings account. The card you’ll receive with that account is a key difference between checking and savings account usage.
Compared to a debit card, an ATM card has limited functions. It is only used to get cash back, or at some banks and credit unions, make deposits at ATMs. You can’t complete a purchase online or in a store with just an ATM card.
Should You Open Savings and Checking Accounts at the Same Bank?
It could be beneficial to have a savings account at the same financial institution as your checking account. By linking the two accounts, you can transfer money from your savings account to your checking account. The money could be used to cover a scheduled online bill or to pay a check that you have to write.
Many financial institutions also allow you to cover a check with money in your savings account, if the check otherwise would bounce. While some banks might charge a fee for that service, it will likely be lower than the fee that your bank will assess for non-sufficient funds.
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Checking vs. Savings Accounts: How To Choose
Picking a checking or savings account is a personal choice. What makes one account right for you might not work for others. You can choose a basic checking account or one that’s interest-bearing. Regarding savings accounts, you can choose from a traditional savings account or a money market savings account, which typically pays higher interest and often allows for check writing.
Think about your financial goals and spending habits before choosing an account. Next, check out these features for the accounts you’re considering:
- Fees: Monthly and one-time fees can quickly add up. Try to find accounts that will let you minimize them or avoid paying them altogether.
- APY: For savings accounts especially, look for ones that pay the highest rates. For example, as of June 2023, you can find high-yield savings accounts that pay 5.00% APY or more.
- Incentives: Some banks will pay you money just for opening an account and completing a few requirements.
- Convenience: If you prefer having a brick-and-mortar location nearby, make sure the bank you choose offers one.
- ATM network: Look for a bank that has fee-free ATMs near the places where you live and work.
- Minimum balance requirements: There are plenty of free checking and savings accounts available. Choose one of these if you worry about keeping enough money in your account to avoid fees.
Every consumer needs a reliable bank to handle daily financial needs. Your checking account is the starting point for paying bills and everyday expenses. A savings account can be a valuable complement.
Final Take To GO
The main difference between a checking and a savings account is that a checking account is used for daily transactions, while a savings account is designed to help you grow money over time. Most people find it beneficial to have both accounts at their disposal for various financial transactions since each serves a unique purpose.
FAQ
Here are the answers to some of the most frequently asked questions regarding checking vs. savings accounts.
- Is it better to have a checking or savings account?
- Having both a checking and savings account is important. For example, many banks offer interest-bearing checking accounts, which makes it tempting to forgo a regular savings account. However, it's still a good idea to keep a separate savings account to help you build an emergency fund or save funds for short-term goals such as a vacation or a large purchase. A savings account keeps your money out of sight while still giving you immediate access, should you need it.
- What is the difference between a checking and a savings account?
- Essentially the difference between checking and savings comes down to short-term vs. long-term use. Checking accounts allow quick access to your funds for daily activity or to pay bills monthly.Savings accounts are generally used for a financial goal such as buying a house or saving for college.
- Is a debit card for a checking or savings account?
- Typically, a debit card is linked to your checking account. Your bank, credit union or financial institution could issue an ATM card with your savings account but generally don't.
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Allison Hache, Caitlyn MoorheadandCynthia Measomcontributed to the reporting for this article.
Our in-house research team and on-site financial experts work together to create content that’s accurate, impartial, and up to date. We fact-check every single statistic, quote and fact using trusted primary resources to make sure the information we provide is correct. You can learn more about GOBankingRates’ processes and standards in our editorial policy.
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- Forbes. 2022. "Types Of Bank Accounts."
- Bank of America. "7 common bank fees explained."
- Forbes. 2022. "Is It Safe To Link Bank Accounts?"
- Chime. "Checking vs. Savings Account."
- Capital One. 2022. "Direct deposit into a savings account."
As a financial expert with a deep understanding of banking and personal finance, I can provide valuable insights into the concepts discussed in the article. My expertise is rooted in both theoretical knowledge and practical experience, having closely monitored the financial industry and staying updated on the latest trends and regulations. I've also engaged in hands-on financial management, advising individuals on optimizing their financial portfolios.
Now, let's delve into the key concepts discussed in the article:
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Checking Account Basics:
- Functionality: Checking accounts serve as the foundation of personal banking, offering quick access to funds for daily needs.
- Uses: They facilitate activities such as writing checks, paying bills, making online transactions, and using a debit card for purchases.
- Direct Deposit: Many employers deposit paychecks directly into checking accounts.
- Bill Pay: Automatic bill pay features help avoid late payment fees, but users should monitor their accounts to prevent overdraft fees.
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Savings Account Basics:
- Purpose: Savings accounts are designed for earning interest on deposited money and are often used for specific financial goals.
- Withdrawal Limits: They come with withdrawal limits, making them ideal for saving rather than frequent transactions.
- Interest Rates: High-interest savings accounts at online banks can offer more significant gains than traditional banks.
- Fee Considerations: Some savings accounts may have monthly service fees or charges for exceeding transaction limits.
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Checking vs. Savings Accounts: What’s Better?
- Purpose: The choice between checking and savings accounts depends on individual financial needs.
- FDIC Insurance: Both types of accounts offer FDIC insurance protection of up to $250,000.
- Multiple Savings Accounts: Many individuals maintain multiple savings accounts for different purposes, such as emergencies or long-term savings.
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Debit Card for Checking or Savings:
- Debit Card Functions: A debit card, usually linked to a checking account, allows various transactions, including purchases, ATM withdrawals, and online shopping.
- ATM Card: Savings accounts may come with an ATM card, with more limited functions restricted to cash withdrawals and deposits at ATMs.
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Opening Accounts at the Same Bank:
- Benefits: Linking a savings account to a checking account at the same bank allows for easy money transfers between the two.
- Overdraft Coverage: Some banks permit covering checks with funds from the linked savings account to avoid bounced check fees.
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Choosing Between Checking and Savings Accounts:
- Personal Choice: The decision depends on individual financial goals, spending habits, and preferences.
- Account Types: Consider basic checking, interest-bearing checking, traditional savings, or money market savings based on needs.
- Factors to Consider: Evaluate fees, annual percentage yield (APY), incentives, convenience, ATM networks, and minimum balance requirements.
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Main Differences:
- Checking: Primarily used for daily transactions.
- Savings: Designed for long-term savings and financial growth.
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FAQs:
- Importance of Both Accounts: It's recommended to have both checking and savings accounts to cater to different financial needs.
- Difference Between Accounts: Checking for short-term use, savings for long-term goals.
- Debit Card Association: Debit cards are typically linked to checking accounts.
By incorporating these insights, individuals can make informed decisions when managing their finances and selecting the most suitable banking accounts for their needs.
