Checking vs Savings Account – Which Do You Need?

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I think you’ll agree that the United States is moving increasingly toward being a cashless society.

Recent research has found this to be true.

In 2018, payment processor TSYS found that only 14% of people it surveyed prefer cash as a payment method.

To operate successfully in today’s financial world, you need a bank account.

This article will help you decide between a checking vs savings account.

Banking – Essential in today’s world


Why Banking Is Iportant

It might still be possible to be a cash freak and run your life with a pile of greenbacks in your pocket, but it’s getting increasingly more difficult to do so. We can see this in the fall in the number of U.S. households without a bank account.

In 2000, around 10 million U.S. households didn’t have a bank account. Today, despite the number of households rising from 105 million at the turn of the century to more than 128 million in 2018 (statista.com), the number of households without a bank account is fewer than 8.5 million (FDIC National Survey of Unbanked and Underbanked Households). That’s only around six in every 100 households that don’t benefit from at least one bank account.

If you don’t have a bank account, you are in a decreasing minority. And it’s easy to see why. Relying on cash makes your life much harder. Without a bank account, you must:

  • Arrange to pay bills by cash
  • Take time out of your busy life to visit suppliers to pay
  • Rely on others to pay bills for you

You’ll also find it more difficult to get credit. That could make your life very challenging. For example, without a bank account, you are more likely to need to strategize to get an apartment with no credit history when you want to move into your own place.

It’s also becoming more difficult to buy goods and services without a bank account. Customers are being turned away from more and more shops and restaurants if they cannot pay with plastic. Businesses are going cashless. Large companies like Dos Toros and Starbucks are among those experimenting with cashless stores.

Carrying cash also leaves you wide open to theft. If your bank card is stolen or defrauded, you have recourse through your card provider to reclaim the money that has been stolen from you. But once cash is gone, it’s gone.

And if someone needs to send you money, if you don’t have a bank account you won’t be able to take advantage of facilities like Zelle. Without a bank account, you rely on money orders or cash – and who wants to send either through the post?

Someone using Zelle can transfer money from their bank account to yours in seconds – and it’s free. If you own a bank account connected to Zelle (and most banks are today), it’s easy to transfer and receive money. You can pay your bills and send money to loved ones in a couple of clicks of a mouse.

Checking Vs Savings Account – Which Do You Need?


Which type of bank account you need depends on how you plan to use it:

  • A checking account is designed for everyday use – to run all your normal transactions through. You can withdraw cash from ATMs, pay for purchases large and small with your debit card, and pay bills electronically.
  • A savings account is designed as a place to store your money and earn interest on it. Access to your money will be limited, as will the number of transactions you can run through a savings account.

So, What Is a Checking Account?


What Is a Checking Account

A checking account is your spending account. Your employer is likely to pay your wages into your checking account, and it’s ideal to run all your financial transactions through.

There are no limits on the number of transactions you can make, and you can make these in a variety of ways. You might decide to pay by paper checks, or by debit card, or pay regular bills such as utility charges by direct debit.

Some checking accounts pay a small amount of interest on positive balances, and you may be able to arrange an overdraft facility to make budgeting easier when financial emergencies hit.

Most checking accounts have no monthly fees, and they offer free access to ATM machines across the country and internationally. If you dip into your overdraft or withdraw from an ATM that is not in the bank’s network, there will be fees to pay.

You’ll have access to online and mobile banking. This will help you to manage your finances, deposit checks by scanning on your cell phone, and view your balance online at any time.

What about a Savings Account?


Unlike a checking account, you won’t be able to make daily transactions from your savings account. In fact, you can only make six transactions per month, though if you go into the branch in person you may be able to make more.

As a ‘reward’ for this limited access, you will be paid interest on your savings account balance. You’ll need to shop around, though, because interest rates vary between banks.

There will be a limit on how much you can withdraw from your savings account, and if you wish to withdraw more than this you may need to pay a fee.

You can deposit money into your savings account in several different ways, though the most common is by direct deposit – usually from a connected checking account. You will have branch and ATM access (as you do with a checking account) and be able to manage your account electronically in much the same way as a checking account.

Like a checking account, you could use a payment app like Zelle to transfer money into your savings account.

What If the Bank Fails? Will My Money Disappear?


What If the Bank Fails

Fear of the banks failing is natural, especially after the banking crisis that started in 2007, which called upon the taxpayer to prop up several of the largest financial institutions in the United States. So, you may be concerned that if your bank collapses, your money will disappear into a black hole caused by the bank’s bankruptcy.

Rest assured, your money is protected. Your bank deposits are protected by insurance through the Federal Deposit Insurance Corporation. But it is important to know how much is protected and how…

Up to $250,000 of your bank balance will be insured by FDIC if the bank goes bust. This is per depositor, and per institution. So, if you have $250,000 saved with one bank and another $250,000 saved with another, the entire $500,000 would be protected – depending the two banks don’t operate under the umbrella of the same financial institution.

Checking Vs Savings Account – Which Do You Need?


Checking Vs Savings Account

The type of bank account you need, and the choice of checking vs savings account, will depend on how you manage your finances and how you spend your money.

A checking account is ideal if you want to have your salary check paid into and to manage your daily transactions.

If you own or rent your home, you can have your mortgage or rental payments paid directly from your account. You can also arrange for other regular bills to be paid when they fall due. This relieves you of the need to make manual payments and ensures that you never miss a payment again – say goodbye to late fees.

A checking account also comes with a debit card. You won’t need to check if a restaurant takes cash before you sit down to eat.

While a checking account will make your daily financial management easier, it is certainly not the best place to keep your savings:

  • First, the ease of access makes temptation easier to give into
  • Second, large deposits are big targets for fraudsters and thieves
  • Third, your savings won’t be earning the interest they could if you keep them in a checking account

Therefore, for your emergency fund, larger cash deposits and regular cash savings, you are likely to need a savings account, too.

Checking Vs Savings Account – Finding the Best for You


When you start looking for the best checking and savings accounts, you should search for those with high interest and low fees. Accounts with no fees are often the best for most people, as maintenance fees could cost more than you make in interest.

Choosing to have both a checking and savings account at the same bank could make your financial life a little easier. It will be easier to transfer cash between your accounts, and monthly fees might be waived if you link accounts at the same bank.

However, it’s unlikely that you will find the best checking account terms and savings account interest rates at the same bank, so it might be best to open accounts at different banks – and then use Zelle to make immediate transfers when you need them.

By Michael Barton

Michael’s career includes a quarter century in the global financial industry, ranging from trading and training to advice and sales. He has held senior positions at companies such as Goldman Sachs, SNC (Merrill Lynch), and Cargill Investor Services.

This experience helped Michael provide a unique service in his capacity as a personal financial advisor, helping retail and high net worth clients manage their money more effectively and invest more profitably.

Michael has joined DollarBreak to bring the Wall Street touch to you. To help you navigate your budget, make and save more money, and maximize your investments.

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