Difference Between Checking vs Saving Account
In this digital world, the majority of the population has access to either a checking or a savings account. At this point, it’s not just for the purpose of safekeeping funds but also for receiving a salary from a job, or earnings from personal business. Funds from these accounts can now be utilized for transactions as well, both in-store and online. These types of bank accounts require an actual deposit and a minimum balance for maintenance, but they are the safest way to invest as they are not subject to any risk. However, what exactly is the difference between checking and saving account?
Definition of Checking Accounts
A checking account is a deposit-type bank account that allows its owner to have access to his/her money for frequent payments like grocery store purchases, ATM withdrawals and online purchases. The owner can also write checks to somebody else. This type is also called a transactional account as it can be utilized for purchases and other business dealings.
This kind can only be opened by non-minors or individuals above 18 years of age. This requirement is one major difference between checking and savings account. Additionally, since checking accounts normally contain a large amount on money, opening them also involves a background check to determine their capability to hold the minimum amount set by the financial institution.
This type of bank holding usually has low interest. But then, they’re highly liquid and low bank fees, too, so it is easy to access them when one is in dire need of funds. One must pay close attention to overdraft charges, though, as they are not usually paid attention to. High-value accounts may have accompanying insurance as well. Also, bank funds amounting to 250 thousand dollars or more are FDIC insured, which provides more guarantee to the holder in case the bank goes into bankruptcy.
Definition of Savings Accounts
A saving account is also a kind of bank account that has high liquidity but is not intended for daily use. Like a checking account, it also earns an interest over time, which usually depends on the amount paid in and maintained, but it’s a longer-term account. One major difference between savings and checking account is that the former is relatively easy to open than the latter.
There already exist junior accounts that can be owned by minors under the direction and authorization of their guardians. Also, the former has a lower opening and maintenance balance. This means that it’s more affordable and easier to keep. This type is ideal for keeping emergency funds or for accumulating money for future large purchases.
Almost every bank offers a savings account, and it can also be their source of investment funds, which they return to the investor almost immediately. The problem with this investment vehicle, though, is that it doesn’t fight inflation, which means that the money saved and left in it for a long time may not have the same purchasing power. Like the first type, it also has a maintaining balance and using all of its minimum balance upwards will result in either account closure or penalties. Therefore, it is best to keep at least the minimum amount.
Main Differences Between Checking Accounts vs Savings Accounts
To better explain the difference between checking and savings accounts, here is a table with their characteristics.
|Basis of Comparison||Checking||Savings|
|Distribution Limitations||None||Set frequency every quarter, depending on bank|
|Interest earning?||Yes||Yes (better than the former)|
|Purpose||Easy access to funds||Saving up for long-term or short-term expenditure|
|Distribution options||Check, ATM, Electronic, Wire||ATM, Electronic, Wire|
|Accessibility||Can directly access funds||Owner may need to move funds to a checking account prior to withdrawal|
|Applicable fees||Overdraft Charges, Transaction Fees||Transaction Fees|
|Maintaining balance||Higher||Lower than the other|
Difference Between Savings and Checking Account: Why You Need Both of Them
It is recommended to have both types when planning to keep funds in the bank. Having explained what is the difference between a checking and savings account, you must now consider the advantages and disadvantages of each. Because they perform similar functions while offering different advantages, they can help achieve different goals.
Keeping a checking account will make your transactions easier, and it will allow you to unlock larger sums of money to give to someone else. Having the other will provide a better chance of making money, though. It also entails fewer requirements, which means you can open as many accounts as you need for different accumulation purposes.
It will be better if you have one of each type in the same institution, so you can easily move your funds around and facilitate better transactions. You can use your checking account to pay for large amounts (like house deposits) and the other for small bills.
Difference Between Checking vs Saving Account: Bottom Line
Checking and savings accounts are made available for diverse reasons. Checking accounts have minimal restrictions but more meticulous opening requirements. However, with them, you can issue checks. You just have to be mindful of overdraft charges or you may lose money in the process.
Savings accounts have a lower minimum opening and maintaining values, but there are restrictions in terms of withdrawals. Nevertheless, they provide good interest. Both investment media have good liquidity and provide interest rates, that can help accumulate and keep money.
However, they may be affected by inflation, as the money kept in both accounts for a longer period may not have the same purchasing power. However, both types are still worth investing in, and you must not miss out on keeping one or, even better, both of them.