Last Updated on 06/11/2017 by GS Staff
Q:What is the difference between a checking and savings account?
A:The two primary accounts you can establish at a bank are a checking and savings account. Most people have the ability to open one or both types of accounts. However, each account serves it own purpose.
What is a Checking Account?
A checking account is used primarily for day-to-day transactions. When people go to the grocery store, for example, and use a debit card, the funds are typically debited from the checking account. Similarly, when a person writes a check, the funds are removed their checking account when the check clears. The checking account is also the account which most people withdraw from at the ATM.
Most banks provide very little restrictions on a persons ability to access the funds in a checking account. This makes sense because many people use this account on a daily basis. The downside is that the interest rate provided by banks on a checking is usually pathetic. You can expect to collect about 0.04 percent interest while your money sits in the bank.
What is a Savings Account?
A savings account is an account where you store money that you do not need to access on a daily basis. It is where you would keep the money that you want to set aside for weeks, months, or potentially years down the road.
Essentially, you deposit money and earn interest, which helps your money slowly grow. The interest on a savings accounts is routinely higher than a checking. You may be able to find a savings account that offers approximately 1 percent interest if you hunt around.
Accessing your money in a savings account is not as easy as with a checking account. You are limited to six convenient withdrawals or transfers per month based on Federal Reserve regulation. “Convenient” means such transactions made to third party as online, phone, pre-authorized or automatic transactions. It does not apply to transactions such as ATM or teller transactions. View this Regulation D Chart for additional information of savings limitations.
Considerations Before Opening An Account
Banks may charge a fee or can even close your account if the transaction limit is exceeded. Check with the bank about the restrictions on their accounts before opening a savings or checking account. You should be aware of such things as their minimum required balance, fees, service charges, and maximum allowed transactions.
The interest rate you receive from the bank is also important. You are not going to reach millionaire status from the interest but every little bit helps. Search both locally and online for accounts with the best rate, minimal fees and restrictions.