If you are new to banking, then you might listen an array of accounts provided by your bank but what to choose and why to choose is the question which haunts most of the people.
Checking Account vs Savings Account
Two terms which confuse people many a times until they get their hands on the real and visible differences between the two, along with which one to have in an ideal situation.
Though the basic similarity between the two ends at the very fact that both hold money for keeping it safe, which basically implies by an arrangement to lend money to a bank in the form of deposits which they keep safe until you withdraw it or actually spend it.
But the differences are very far from each other when it comes to accessing money, the way it is with credit card and debit card.
So, let’s dive deep into what differentiates one from the other, with their own pros and cons with a bottom line about the same.
- Traditionally, they are transactional accounts meaning that your bank expects you as an account holder to withdraw your money frequently with few restrictions on number of times and amount of transactions, though with some banks a minimum amount balance might be required to be maintained. And the interest also varies from 0 to very little in amount.
- As checking account is designed in such a way that you have access to your money anywhere and at any time, it comes with an ability to make payments digitally, or with credit/debit card or even cheques.
- As you are spending as per your convenience, you have to pay a fees for a list of services and/or mishaps like not not keeping enough balance, using another bank’s ATM, spending more than you have in your bank account etc.
- With various modes of payment permissible with this type of account, you tend to avail benefits of one or many as per your spending habit.
- Lastly, choose this account if you have to carry out frequent money transfers like businesses, companies, firms etc.
- Savings account, as the name implies, is closer to a form of investment wherein the bank expects you to store more money (than savings account) with them and earn interest. That’s why you have more restrictions on withdrawal and/or transfer as a minimum amount balance needs to be maintained.
- But as savings account are intended to help and make you save, it’s hard to spend directly. You either have to send the money to your checking account (which will then lie under your limit of transactions per month) or request cash from the bank or can also take it out from an ATM (in case one is provided to you by your bank)
- As monitoring of money and other activities in a savings are not much as compared to a checking account, banks tend to charge very less (or in some cases, even nothing) except for some cases like exceeding monthly withdrawal limit.
- But with this, as you get a typically higher interest rate, it is easy to grow your money faster. It is like saving more, spending less and still incurring additional benefits besides the usual saving for a rainy day.
- Lastly, choose this account if you have a steady flow of income per month, like a salaried employee and have short-term financial goal like buying a property, a car etc.
Why you might (or might not) require both the types of accounts?
Earlier, having both the accounts used to be a thing but only having a checking account can serve the purpose sighting the fact that you can invest some savings in mutual funds or other forms of deposits, yielding higher interest.
But point of worry is that with one account, your money might be vulnerable to more spending and less saving, thus encountering a descend in how much you have actually been able to keep up for your future needs. With a dedicated savings account, the urge to spend more decreases as stated above.
Bottom line is that if maintaining two different accounts seems to be a daunting task, then you can ditch the checking account and just keep a savings account with your money in a high interest checking account. And amidst that, if you feel that your savings are dipping, then you can always invest them somewhere else to not be tempted to spend them anymore.
And alas, the overall debate to choose which one over the other finally ends on a note that it all depends on how you wish to use your money and which one will serve you the best purpose because it is up to you as an individual.