When it comes time to deposit your money in a bank or a credit union, whether you put it in a checking account, a savings account or both can make a lot of difference in how much money you have and spend. So what do checking and savings accounts do, and what’s the difference between a checking and a savings account?
What’s a Checking Account?
Checking accounts are usually what people are referring to when they talk about their bank account. They allow you to spend your money without it being in your hand as physical bills. Checking accounts make use of a debit card, check card or physical paper checks to pay. So what are the reasons you should open a checking account? A checking account allows you to:
- Keep your money secure in an account as opposed to as physical bills in your wallet.
- Pay using checks or your debit card instead of cash.
- Cash checks others have written to you.
- Wire money and pay bills online using that money.
Some checking accounts also allow access to certain types of loans based on your credit history. Other accounts also pay interest on the money that’s in your account, which can, in turn, earn you even more money.
Checking accounts are designed to allow you to deal with immediate needs like covering your bills or paying everyday expenses. This is different than savings accounts, which we’ll cover in the next section.
What’s a Savings Account?
Instead of being an account for immediate use, a savings account is, as its name implies, an account where you can keep the money you want to save separately from your spending cash. In many cases, especially if you use a credit union, you can also earn interest on the money you put in your savings account, increasing your funds over the long term.
You might be wondering why, if you can keep your money safe in a checking account, you’d need to open a savings account at all. So, what are some good reasons to open a savings account? Well, savings accounts give you the ability to do the following:
- Set savings goals for yourself.
- Save money for rainy days and emergencies.
- Pay off larger bills than may be feasible with your checking account, such as a student loan payment.
While many people do use their checking accounts as reserve accounts for the cash they keep on hand, that’s not their designed purpose. Most checking accounts don’t accrue interest. If they do, it’s at a lower rate than a savings account, even one at the same institution. Most people tend to spend the money in their checking accounts instead of saving it, as it’s an account for regular spending.
Checking vs. Savings Accounts – What Are The Big Differences?
While you can use checking and savings accounts for some of the same things, there are still some definite differences that set them apart. Checking accounts, for the most part, are:
- Transactional — that is, banks or credit unions expect that the user will frequently be moving and removing money. As such, there’s no real timing or restrictions on when these transactions can take place.
- Paid for with fees — A checking account almost always has a list of services it provides or account holder missteps that are punished, such as overdrafts or low balances.
- Free of interest payments — Many of the traditional checking accounts offered by most banks and credit unions offer no interest payments of any kind to their account holders, no matter how much is in the account.
On the other hand, savings accounts are:
- A longer-term investment — With a savings account, the bank is allowed to access your funds, which they loan out to make a return. In this way, savings accounts represent more of an investment than a simple checking account does.
- Harder to use or spend — Savings accounts are designed for you to save money in, so you aren’t able to write checks with them or have a card attached to them – usually, you have to move or withdraw money from the account before you can spend it.
- Interest-paying — While the rates on a current savings account might not be great, they can help you accumulate more cash over time, especially as the amount that you put in them increases.
When it comes to deciding on the account for you, consider your immediate needs. If you need a place to hold your money (that’s not your wallet) while still being able to spend it, consider a checking account. A savings account, on the other hand, is more suitable for saving up for larger or more long-term purchases, like a car payment, house payment or student loans.
If you’re looking for a way to pay for college without having to put a dent in your bank account balance by making payments on student loans, consider some of the financial aid services offered by Vista College. We’ll provide step-by-step walkthroughs on the different types of financial aid students have available to them, including the Pell Grant, military and veteran benefits like the GI Bill, Tribal (BIA) Funding and other options.