In the old days, people wouldn’t have thought you were crazy if you hid your money under the mattress or maybe even stored your extra jingle in the freezer. But these days, pretty much everyone keeps their money in a bank or a credit union. And when you choose the right bank, not only is your money safer than under the mattress, but depending on the type of bank account you open, you can earn interest and increase your bottom line as well. Win-win!
There are two main types of bank accounts: checking accounts and savings accounts. But when you compare the two, what’s the difference? Let’s take a look at checking versus savings accounts so you can start hitting all of your financial goals.
What are chequing and savings accounts?
When you compare a checking account to a savings account, you are actually comparing an expense account and a savings account. Super simple, right? Here’s how checking and savings accounts work.
Think of a checking account as the home base for your money. This is where the money comes in, but more often than not, this is where the money comes out. Your checking account is a great tool for the daily transactions of life.
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To open a checking account, you must make a first deposit. Do your research here. Some banks may require a minimum initial deposit or charge you a monthly fee if your balance is below a certain amount.
When you open a checking account, you receive a debit card. (You might even still receive a series of paper checks! Remember that?) Your debit card acts like cash. When you use it at the grocery store, the gas station-anywhere amount is automatically deducted from your balance.
And your checking account is also a great place to set up direct deposit for your paycheck and automatic bill payment. Now you can get your money faster and eliminate the stress of trying to track which bills are due when. Additionally, most banks offer online banking, so you can keep tabs on your account through a secure website or app on your smartphone.
The best part about a checking account? This makes budgeting a snap. You have financial goals and you need a plan to reach them. This is where your budget comes in. Your budget lets you tell each of your dollars where to go before the month begins. And when you configure your monthly budget in the EveryDollar app, you can link it directly to your checking account. Then whenever money comes in or goes out, you can track it down to your budget. Cha Ching! (Literally.)
Advantages: Chequing accounts are easy to set up and use. They make budgeting and paying bills easier than ever! And it’s safer to keep your money in a checking account than it is to carry all your money.
The inconvenients: Checking accounts can be full of hidden charges. Avoid any bank that charges monthly maintenance fees or fees to maintain a certain balance. And definitely say no when they offer overdraft protection. You could end up paying a monthly maintenance fee to “protect” yourself if you overdraft your account. Then you could be hit with a fee if the bank has to transfer money from one account to another to get your balance out of the red.
If a checking account is primarily used for spending money, then a savings account is, you guessed it, for saving money. A savings account is a place to store money and earn some interest while you’re doing it.
Like a checking account, opening a savings account is simple. In fact, if you are opening a checking account, this is also a great time to open a savings account. When you link them, it’s easier than ever to grow your savings by moving money from your check to your savings. (Bonus points if you ask your employer to automatically deposit a portion of your paycheck directly into your savings account. But be sure to review this often so you don’t miss the opportunity to increase that amount.)
A savings account is a great place to keep money that you don’t need immediately but want access to when you do, for example, your $ 1,000 emergency fund or a savings fund. amortization set up to save for a future expense. If that money is in a savings account instead of a checking account, you can’t accidentally spend funds intended for future car repairs or Christmas.
Plus, with a savings account, you can earn interest just by leaving your money there. Average interest rates on savings accounts are microscopic. Like less than a tenth of a percent. So while a savings account shouldn’t be the primary driver of your long-term wealth strategy, it’s a nearly risk-free place to store extra cash. When you choose a bank insured by the Federal Deposit Insurance Corporation (FDIC), your money is backed up to the tune of $ 250,000.
Advantages: A savings account is a great place to keep the money you don’t want to spend while earning interest.
The inconvenients: Like a checking account, a savings account can have fees if you’re not careful. Beware of banks that charge fees if your balance drops below a certain amount. And while the FDIC recently lifted its limit of six withdrawals per month, you should check with your bank to confirm their policy so that you don’t have to pay a fee if you go over the limit.
Check against savings: which one is right for you?
The short answer is: both! With a checking account and a savings account in place, you have a solid foundation to start crushing your financial goals. A checking account is a safe and hassle-free alternative to cash that allows you to take care of all your basic transactions while staying on budget.
And a savings account is like peanut butter jelly in your checking account. When you pair them together you get a great combination. Use your savings account to keep the money you don’t want to spend away from your daily pocket money. Transfer money from your checks to your savings to build your three to six month emergency fund, your next vacation, or that set of tires you know you’ll need. Plus, earn interest on your savings.
Checking or Savings Account: What’s the Difference?