Opening a bank account is your first step towards proper financial management. Bank accounts make it easier for you to save money. They are convenient, and guarantee security for your money, to mention a few benefits of opening a bank account.
Among the commonly preferred types of bank accounts are checking and saving accounts. But how do you determine the right one for you, especially if you are new to banking?
Check out this guide on checking vs savings account to help you make a sound decision.
What Is a Checking Account?
Ideally, the name “checking” comes from the word check, a common form of making payments. Therefore, a checking account is primarily used to make payments.
For a long time, individuals used paper checks to settle payments. But thanks to technological developments, you can now make payments with a debit card or an electronic wire transfer that links to your account.
Debit cards have been proven to protect users from different levels of fraud. They are also super convenient and easy to use.
A checking account is your go-to choice if you intend to use the funds for regular spending, ATM withdrawals, and pay bills.
What Is a Savings Account?
As the name suggests, a savings account is used to save money for long-term goals. The money in your account earns interest.
Moreover, federal regulations limit the number of times you can withdraw funds from your savings account per month. You can only make six transactions or withdrawals per month.
While savings accounts do not come with debit cards or checks, they feature a routing number, which you can use when sending or receiving money electronically.
Even better, you can easily link your savings account to your employer’s account, such that when it is time to receive your payment, a portion of the funds is auto-deposited in your savings account.
Checking vs Savings Account – Which One is Best for You?
The best bank account depends on your precise needs. You may also open both to have an emergency funds plan and a daily use financial account.
You can count on credible banks such as Farmers Bank for professional advice on the various checking and savings account options so you can select the plan that works best for you.
To help you make a sound decision, it will help to understand the pros and cons of each of these bank accounts. Weigh them and choose the most suitable.
What Are the Benefits of a Checking Account?
As earlier mentioned, checking accounts are used for day-to-day deposits and withdrawals. It is a safer way of keeping money that you need for everyday use, without stacking it in your purse or jeans. More benefits of checking accounts include;
Easy and Convenient Access
Checking accounts do not have a limit on the amount you can withdraw daily or monthly. Therefore, you can access your finish whenever you want to make a purchase or settle a bill.
The best part is that you don’t have to visit the bank to withdraw the money. You can withdraw from an ATM using your debit card or make an online transfer.
Deposit Directly From Your Employer
You can share your checking account number or link your account directly to your employer’s payroll. This way, your employer will deposit funds directly to your account, thus minimizing the risk of losing paper checks when sent via mail.
You Can Track Your Spending
Checking accounts save you from going overboard with your spending habits. You can access records of your spendings and deposits, which allows you to account for every coin.
You can see where most of your funds come from and where it is going. Moreover, you can quickly lock your debit card if it’s stolen, thus preventing unauthorized access.
Drawbacks of Checking Account
Checking accounts feature some downsides, including;
Little to No Interest Rates
Although some checking accounts earn low interest, most don’t. The reason being, checking accounts are meant for daily or regular use, so you don’t put your money in the account and leave it to stand still.
Some checking accounts require you to pay monthly fees. Ensure to confirm this with your bank before opening an account.
What Are the Benefits of a Savings Account?
If you are stashing cash in a home bank or putting all your money in a checking account, you should rethink your decision. Opening a savings account is your first step to financial freedom and peace of mind, knowing that you are sorted in case of financial emergencies.
Other benefits of a savings account are:
You Earn Interest
The main benefit that makes a savings account stand out from a checking account is the interest. The money in your account can earn you more through compound interest. This means that you earn interest on your principal amount and the interest that you have already earned.
Setting cash aside for savings after paying bills is a huge challenge. You will always be tempted to spend the money elsewhere, an issue that you can avoid by enabling automatic savings to your account.
With automatic savings, you can link your account to your employer, such that a portion of your payment is deducted automatically and transferred to your account. With this, you can build up your savings without thinking about the money.
Access Your Funds When Need Arises
Unlike other savings plans where you cannot access your money without penalty, a savings account allows you to withdraw your funds when you need it, but for limited times. The accessibility makes savings accounts a great plan for emergency funds.
The online disadvantage of a savings account is that you can only access and withdraw funds six times per month.
Embark on Your Journey to Financial Freedom with Checking and Savings Accounts
Transferring your money to a bank account is a huge move. And selecting the right account is a personal choice. Now that you understand the differences between checking vs savings account, you are better positioned to make an informed decision on which one to open.
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