Many of us are guilty of opening a checking and/or savings account but not fully understanding their benefits or how to use them properly to make the most of our money.
Each account has a different purpose and function, so understanding the differences helps you choose the right combination for you. This can help you manage your personal finances, minimize overspending and make your hard earned money go further.
What Is A Checking Account?
A checking account allows you to write checks, or withdrawal funds, as an everyday way to pay others. In the not so distant past, this was primarily done in the form of paper checks – documents you signed to transfer funds from one person to the other.
Today, most checking account transactions are processed through the swipe of a debit card or an automatic transfer of money via electronic methods.
In all cases, checking accounts are transactional accounts. This means the financial institution you choose expects you to use this account to make frequent transactions, such as purchases, funds transfers, and deposits including trips to the grocery store, stops at the gas station or your favorite coffee shop.
This is a primary reason most checking accounts are designed without many restrictions on how many transactions you can make in a month.
Fees Associated With Checking Accounts
When looking for a checking account, make sure you understand the fee structure.
Some accounts carry fees such as ATM transaction fees, overdraft fees, or minimum balance fees. Whenever you choose a financial institution for a checking account, be sure to look at the fee structure. It is important you choose the right account for your needs.
Many credit unions offer no-fee, free checking accounts to get you on the right path towards financial success including accounts tailored to your spending habits such as youth accounts, basic free checking, or checking with more perks.
Do You Earn Interest On Checking Accounts?
In some cases you can earn interest on a checking account. While some checking accounts may pay interest, it is usually for carrying a larger daily balance, often $5,000 or more. In order to earn the interest, you need to maintain a minimum balance in the account.
Considering most people use the funds in their checking accounts frequently, often multiple times a day, these accounts really aren’t designed to pay a significant amount of interest month-to-month, but if used wisely you can certainly grow your money. In many cases, interest bearing checking accounts also come with other perks you may find useful such as discounts on financial services or free checks.
So while it is possible to earn interest on a checking account, most people also have funds in a savings account. This is where they typically earn a higher interest rate.
What Is A Savings Account?
Savings accounts help you save money, not to spend it like a checking account.
Savings accounts are not designed for everyday transactions. Funds deposited are usually kept there long-term. However, unlike other accounts such as CD’s, with a savings account you still have access to your funds should you need them.
While the goal is not to spend these funds, most modern savings accounts provide you with access to your money. This can be through ATMs and online transfers between accounts. You may even have a debit card or checks connected to the account. In many cases there are a maximum number of withdrawal or transfer transactions allowed each month before you pay a fee, so make sure you fully understand not only how your money will earn interest, but also any fees associated with your savings account.
Interest On Savings Accounts
Interest on savings accounts varies based on factors such as the balance and current rates.
You can expect to earn money on the balance you retain in your savings account. Local Credit unions offer some of the most competitive rates on savings accounts. Credit Unions exist to serve their members and the community, not corporate shareholders. This means credit unions can typically offer better rates. Read more about what it means to be a Belco credit union member.
Commonalities Amidst Differences Between Checking And Savings Accounts
Despite the difference between checking and saving accounts, there are some factors they have in common.
Both accounts are backed by the Federal Deposit Insurance Corp. or FDIC. This provides you with protection for up to $250,000 per person, per account.
The National Credit Union Association (NCUA) offers the same protections for funds you place into checking and savings accounts. With credit unions, you can be rest assured knowing your money is safe.
Credit Union Checking and Savings Account Offerings
As a member-focused financial institution, Belco Community Credit Union offers a variety of checking and savings accounts that benefit you.
For example, you can choose our basic savings account and start earning interest on funds. We also have Money Market Accounts, Certificate Accounts, and Retirement Accounts – all savings options that enable you to build value over time.
In terms of checking accounts, Belco has several to help you meet your financial goals. A basic and free checking account is the best option if you want no minimum balance and access to outstanding features.
Understanding The Difference Between Checking And Savings Accounts
Learn the difference between checking and savings account options before you decide where to invest. Knowing what each holds in terms of account accessibility, fees, balance requirements, and other features, is critical to helping you improve your financial health.
Learn more about checking and savings accounts with these resources: