Savings Account vs. Checking Account
As many of you are blossoming into young adults, you are also getting introduced into the world of independent finances. This means managing finances by yourself, opening a bank account, and navigating through the world of finances. But do you understand the multitude of different options and choices that come with this new found freedom?
Opening a banking account and understanding how to manage your finances is a deep and intricate system, however, in this post I am going to be talking specifically about the differences and similarities between a checking account and savings account.
So first, what does opening a bank account do? Well, there are 3 main reasons for opening a bank account.
It’s a safe place to store your money
You can pay using a debit card or check, instead of paying with cash
Can get cash from an ATM
What is a Savings Account:
A savings account is a bank account that will hold deposited money meant for saving or money that you won’t use immediately. They typically don’t have debit card and check facilities, a limited amount of withdrawals, a limit on how much money can be drawn, and have limited transfer options. In order to open a savings account, there is usually a minimum requirement that you have to put in the account. This however, differs between different banks.
One thing beneficial about a savings account is that it has monthly interest. This interest is also compounding. For example, say you had $100 in your bank account and you had 10% interest. After the first year you would get $110 and you would get a 10% interest on the entire $110, meaning your interest was compounded. In reality, you wouldn’t be getting 10% interest, it would be much less. The reason the bank is providing you with this interest is because the money you have stored in your bank account will be used to provide loans to other people. However, this doesn’t mean that you won’t receive your money whenever you want, or your money can be lost.
What is a Checking Account:
A checking account is a bank account that is linked to a debit card and cheque, and allows daily transactions. This account’s purpose is to deposit money and withdraw money. With a checking account there is no limit on how much money you can withdraw like a savings account. On the other hand, a checking account typically doesn’t have as high of an interest rate as a savings account.
Another downside to checking accounts are they aren’t as safe as savings accounts. As identity theft starts to be an ever increasing problem, a checking account will be less secure than a savings account. This is because savings accounts have a limit on how much money you can withdraw, whereas checking accounts have no limit. This is why it is important to make sure you don’t store too much money in your checking account.
