Differences Between Checking and Savings Accounts
When you are considering opening a new bank account, you want to make sure you understand all of your options. Besides the major decision of choosing the right bank, another important consideration is deciding upon the right mix of checking and savings accounts to apply for.
In the old days, the differences between checking and savings accounts were pretty clear: checking accounts were for writing checks, while savings accounts paid you an interest rate against your balance but did not allow checking writing.
Nowadays, the differences between checking and savings accounts are less clear-cut. This is because banks now offer a large number of different financial products to meet different sets of consumer needs. Checking and savings products offered by banks can have a large range of features, with checking accounts often having features previously known only to savings accounts, and vice-versa.
Here is a short description of the difference between checking and savings accounts. Note that you should check with your bank to find out about the details of your own accounts.
In general, checking accounts are for the frequent deposit and withdrawal of cash from your account. This can be done by cash, debit, check and credit transactions.
Characteristics include:
1. Allow you to write checks.
2. Are connected to debit cards and/or credit cards, allowing you to use these instruments to draw against your balance.
3. In some cases, allow you to earn interest on balances (although the interest rate is usually lower than that of a savings account at the same bank).
4. Can be free or involve a monthly fee.
5. Usually allow for easier and faster wire transfers than do savings accounts.
6. Often allow for overdraft protection, meaning that the bank will cover an overdrawn account but will charge you an overdraft fee in the process.
7. Can be linked to savings accounts or other checking accounts that you have at the same bank, for easy balance transfers.
Savings accounts:
Savings accounts are generally used for longer-term savings of money. Characteristics include:
1. Allow you to earn higher interest rates.
2. Have restrictions as to the number of withdrawals you can make in a given month.
3. Can be linked to checking accounts or other savings accounts for balance transfers, making it easy to move money around among your various accounts.
4. Often are free, requiring no monthly fee.
When opening a new bank account, it is very common nowadays to open one or more checking and savings accounts at the same time. When you do this, you can play to the advantages of both types of accounts, using them differently as your needs evolve.
If you are shopping for a new checking account, consider finding a bank that does not charge overdraft fees. These banks, while few and far between, do exist. They will promise to never charge you an overdraft fee, even if you over-draw your account. Such banks often charge a monthly checking fee, but this fee is minimal and can result in an overall much lower monthly banking bill due to the fact that you are not finding yourself paying overdraft fees.
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