Now that you’ve decided on building your finances, it’s time to choose which type of account type to open. Deciding on where you put your money can make an impact on your future financial security. Financial institutions often have a few options for you, but the two most popular choices are a personal savings account and a checking account.
These two serve different purposes and may have different rules and guidelines. If you want to learn more about the differences between a personal savings account and a checking account, here are some facts:
A savings account may be for you if you plan to build your finances over a long period. In this account type, the money you deposit accumulates over time. It is designed to hold your money to help you save for larger goals, like building an emergency fund. It often comes with several features encouraging you to deposit more money.
Financial institutions offer certain interest rates for savings accounts. Your interest will vary based on market conditions and the amount deposited into the account. Because of that, if you keep your money in a savings account, in the long run, you’ll eventually see your finances grow.
Another feature financial institutions have to entice you into depositing in a savings account is the minimum maintaining balance on your account. This is the minimum amount that a depositor should have in the account to keep it open and receive benefits such as interest. Failure to keep it above the required maintaining balance may get you a penalty. This may come in the form of a monthly charge fee, denial of interest payments, or in extreme cases, even closure of the account.
Financial institutions may impose a maximum of six monthly withdrawals without paying a fee to prevent you from withdrawing too much money from a savings account. This is due to Regulation D, a federal rule that ensures adequate reserves in said institutions and depositories. Although Regulation D was loosened slightly in 2020, your bank or credit union can still impose limits on your account.
Meanwhile, a checking account, also known as a demand account, is designed for regular transactions such as monthly bill payments, ATM withdrawals, and daily purchases. The money deposited in a checking account is easily accessible compared to those deposited in a savings account.
To make payments and transactions more convenient, checking accounts will come with a debit card you can use. What’s great about this type of account is that it generally does not have a cap on the number of monthly transactions you can make. Some financial institutions also offer checking accounts without maintaining balance, so you won’t have to worry about constantly depositing on them.
Keep in mind that since checking accounts are more for daily transactions and payments, they are not meant for building savings and won’t earn you any interest. However, it’s worth noting that it often doesn’t get charged monthly maintenance fees. Some financial institutions may even allow you to waive said fees by meeting certain criteria every month, like making a specific number of debit card transactions.
Which Account Type Is Better for You?
If you’re trying to figure out which type to open, it’s best to think about what you want to achieve with your finances. If you want an account where you can put your emergency funds in and allow it to grow, go for a savings account. Meanwhile, a checking account is the way to go if you need one that allows faster payments and transactions.
Ideally, it’s best to have both so you can enjoy their benefits and get the most out of your money. It can also help you separate your emergency fund from your everyday finances, preventing you from accidentally using it.
It’s important to note that you don’t have to keep them both at the same financial institution. Some people do this because one institution is more convenient, but another offers more competitive interest rates for their savings accounts. Having both at the same bank or credit union allows you to transfer your funds faster and could help you qualify for loans.