Checking and Savings Accounts - Which is right for you?
There are different types of bank accounts. However, there are two of them that you are likely to be offered by a bank when you want to open an account. They are checking and savings accounts, which are quite similar but different. Hence, it takes knowing their purposes to use them properly. In this post, we explain the difference between checking accounts and savings accounts to help you make the right choice in line with your financial goals.
What is the Difference Between Checking and Savings Accounts?
Checking accounts allow people to make payments for items purchased online and offline, settle bills, deposit and withdraw cash, as well as carry out other regular transactions. They are not the same as “savings accounts,” which are better for storing money for a long time.
“Checking accounts,” as they are called in the United States, are also known as “current accounts” in the European Union (EU), the United Kingdom, and some other parts of the world. In Canada, they are written as “chequing accounts.” Regardless of how they are called or spelt in different countries, they serve the same purpose.
So, the main aspect where checking and savings accounts are different is in their usage. Generally, checking accounts are used to pay for daily or frequent expenses. For this reason, they often come with debit cards. On the other hand, savings accounts are for keeping money aside, usually intending to gain more from it in the form of interest, and they typically do not offer debit cards. Also, you can open a savings account to withdraw money from it whenever you need to pay for something special or urgent.
How to Choose a Checking Account
It is helpful to select a checking account that will provide you with the most benefits. Here are some general tips on how to choose the right checking account:
Try to get a checking account with no or very low monthly fees.
- Check for the options with no maintenance fees.\
- Make sure that the bank or financial institution offers a debit card to customers, if possible, both physical and virtual cards for daily use.
- Look out for free access to ATM networks nationally or globally.
- Consider the banks or neobanks with sign-up bonuses for new customers.
- Some checking accounts come with small interest and are worth opening.
Best Checking Accounts
The best checking accounts to use for your daily transactions today include the following:
Premium Checking Accounts in Neobanks
A premium checking account is a bank account that comes with paid interest, discounted mortgage rates, fee waivers, ATM compensation, and a variety of other incentives. It is meant for customers who have enough funds to meet its high minimum balance and other strict requirements. For example, you would need a minimum balance of about US$10,000 or more to own a premium checking account and avoid paying monthly fees in the United States. Not every traditional bank or neobank offers this kind of account, and not every customer is qualified to use it. So, if you are eligible for it, try to get this kind of account if your bank has it. You will earn very high interest in your money.
Best Premium Checking Accounts
Below are our top picks of neobanks that offer the best and most rewarding premium checking accounts that you can use:
bunq (Easy Bank)
Vivid Money (Prime)
How to Choose a Savings Account
Similar to choosing a checking account, you need to try to get a savings account that will give you the most in terms of rewards. The following are general tips on how to choose the right savings account:
- Compare the options available and accessible to you and pick the one that offers the highest interest rate.
- Also, consider the fees—the lower the maintenance and monthly fees, the better for you. The best option is the one that offers fee-free services.
- Look out for the minimum deposit requirement. The best option would be the savings account that has no minimum amount for you to deposit or that asks you to pay as low as €1, $, or £1.
- Check the withdrawal limits for the most favourable in terms of amount and frequency.
Best Savings Accounts
Many banks offer competitive savings accounts in the industry. Nevertheless, if you want to earn high interest on your deposit and pay small or no fees for keeping your money for later use, we recommend you try the accounts in our top selection below:
Yes. Most standard savings accounts allow you to deposit and withdraw money. However, they usually place limits on the number of times you can make a withdrawal and the maximum amount you can take within a month.
Financial experts recommend that you keep between three and six months’ worth of your expenses in your savings account.
Yes, you may, if the checking account pays interest. But the purpose of a checking account is not to save money but to spend it. So, it is better to have a separate savings account that will pay you high interest on your deposit.
There are several benefits you can get from having a free checking account. They range from no minimum balance requirements to no monthly charges. A free checking account helps you pay fewer or no fees while gaining more on your money.
Alternatives to Regular Savings Accounts
There are other options for you to earn money through interest apart from regular savings accounts. They include the following:
Money market account
If you need an account that pays interest like a standard savings account but comes with the option to write cheques and use debit cards, go for a money market account. However, their minimum balance requirements are usually higher than those of savings accounts.
Certificate of deposit (CD)
Consider having a certificate of deposit if you have a large amount of money to save or you want to put aside some funds and not make any withdrawals for several months. Although this option comes with a higher minimum deposit requirement, it will give you a higher interest rate than a regular savings account. The main reason for this high reward is that a CD does not allow you to access your deposit until the specified duration is over.
Could I Lose My Money in a Checking or Savings Account?
In the United States, most bank and credit union deposit accounts are federally protected for up to $250,000 per depositor. The funds in a bank account are covered by the Federal Deposit Insurance Corporation, whereas credit union accounts are insured by the National Credit Union Administration.
In the EU, the money in your account is insured for up to €100,000. So, even if the bank that is holding your account fails, you will not lose your money.
Therefore, generally, your money in a checking or savings account would be safe up to the officially protected amount in your country if the bank or credit union that has your account fails.
Do Checking and Savings Accounts Pay Interest?
Savings accounts usually earn interest, but checking accounts hardly do. While there are a few banks that offer checking accounts with interest, the financial gain is usually smaller than that of savings accounts. For example, in the United States, the national average interest rate on a savings account is 0.06%, while that on a checking account is 0.03% as of March 2022.
Should I Have Both Accounts at the Same Bank?
Most banks allow their customers to have both checking accounts and savings accounts at the same time. While you may go for this option, there are benefits and downsides that you should be aware of.
On the positive side, opening your savings and checking accounts with one bank makes it very easy for you to manage your money. With this system, customers can make instant transfers between their personal savings accounts and checking accounts. Some banks waive their monthly fees to encourage you to create both accounts and link them as one.
On the negative side, this system might not be good for you if your bank does not provide the best benefits for having checking accounts and savings accounts. Besides, banks with the highest interest on savings usually do not offer checking accounts. So, you may want to consider opening your checking and savings accounts with two different banks that offer the best rewards at the lowest cost to you.
Purpose Makes the Difference!
Despite their similarities, it is important to know the difference between checking and savings accounts. Your aim for opening a checking account with a bank or any other financial institution should be to easily manage your frequent spending, which includes deposits, transfers, online and in-person payments, as well as cash withdrawals. On the other hand, your savings account should be for keeping cash for the future and growing your money. With this knowledge and understanding, choose from our list of the best accounts for checking and savings in this article.
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