10/25/2022
The appropriate choice of banking products should be focused on their usefulness for our personal finances. Due to lack of knowledge, there is a tendency among users not to be able to differentiate between a checking account and a savings account.
For this reason, we clear up this confusion so that you can keep in mind how each one works.
How does a savings account work?
In the United States financial instruments have a specific purpose according to personal needs, and each type of bank account is created for distinct purposes.
In reference to the savings accounts, it is not intended for daily use but to store money, earn interest and have funds available for both projects and emergencies.
For this reason, we can establish that they have some main attributes:
They are not for spending
As we have made clear, a savings account is not designed to be used for your daily or regular expenses. In fact, they usually don't offer you a debit card nor a checkbook for common transactions.
This instrument comes with the limitation of 6 transactions per month, such as transfers and withdrawals that are not at any of the bank's branches.
Less commissions
Through savings accounts, banks earn money through what is known as spread. This is the result of the interest they charge for lending your money and the dividends they pay you.
These banking products are easier to manage and maintain, so they include fewer fees and charges.
They pay interest
Although the dividends generated by the interest rates of these accounts are not great, they are useful to accumulate a little more over time. That's why it's important to compare your options to choose the best alternative.
Long-term investing
In the banks' minds, savings accounts work more as an investment instrument than a usual spending instrument. This is because you are giving them access to your money for a longer period of time, which allows them to lend it out and make a profit.
Hence, the incentives and restrictions for you to leave that money alone and accumulate as much as you can.
Savings account with a
high yield of 4.65% APY, with no monthly service fee, that you can open from a minimum amount of $100.
Fee free online account with interest payments of
up to 3.30% APY and a $300 gift for new customers who sign up for the Rewards Checking Account.
Online interest-bearing checking account with a minimum of
0.10% APY and no fees, with free debit card, free online transfers and use of ATMs without charges.
Savings account with a profitability well above the average, with total availability of your money and with the possibility of requesting an ATM card to withdraw money.
Money market account with a higher profitability than savings accounts, with total availability of your money through checks and transfers.
Description of a checking or checking account
Unlike the previous ones, checking accounts are designed for you to manage your money quickly and conveniently. It is considered an instrument for daily use, which normally does not generate interest and offers greater facilities to make different types of transactions.
It stands out for:
Its transactional nature
This means that banks enable checking accounts for people to manage their money quickly, frequently and with few restrictions as to time or number of transactions.
That's why they often include a checkbook, debit card, apps for your favorite devices and programs like Zelle or other similar services. This makes it easy to make payments to yourself or to people at other institutions.
They don't usually pay interest
While most traditional checking accounts do not pay dividends, there are institutions that do offer this benefit, but we want to point out that these products usually won't earn you more interest than a savings account.
They include a variety of fees
These instruments are characterized by a long list of fees associated with services or omissions of account holders. It is not uncommon to be charged for overdraft or lack of funds (overdraft), going below the minimum balance, using another bank's ATM, maintenance, etc.
Banks charge these fees because the higher number of transactions requires more administrative expenses and they cannot lend your money because the speed of consumption is faster than with a savings account.
Reasons to have a checking and savings account
It is quite common for your bank to offer you a free savings account to accompany the checking account you already have. The idea behind having both products is simple: to complement the limitations of each.
This way you can mobilize your money more efficiently and at the same time have a cushion for unforeseen situations or future plans.
Of course, instead of a savings account, you can opt for a certificate of deposit or a money market account, which have better interest rates. If you don't want to run the risk of spending all of your funds in one account, it's best to diversify.
Also, having money set aside that you don't plan to touch on a regular basis can help you with a lack of liquidity.
Español: Diferencias entre cuentas corrientes y de ahorro