Savings and checking accounts are among the safest and simplest places to keep your money. In the United States, up to $250,000 of deposit in a bank is federally insured by the Federal Deposit Insurance Corporation (FDIC). While both types of accounts enable low-risk preservation of your original principal, they come with different features and serve different purposes.
Interest Yield
You can earn more interest on your savings account than on your checking account. Some checking accounts do not yield any interest at all. Banks commonly offer a tiered system of interest yields to encourage savings account customers to keep higher balances. Bankrate.com allows you to see a free online comparison of the interest yields and minimum balance requirements of different FDIC-insured savings accounts.
Cash Liquidity
While the savings account is a better place than the checking account to grow your money, both types of account allow easy access to the funds. Funds in the savings and checking accounts are liquid cash. Setting aside money as an emergency cash fund in a savings account can be a lifeline when you encounter unforeseen expenses or a loss of income.
Fund Withdrawal
Your savings account is likely to has restrictions as to how frequently you can make withdrawals. Some banks charge a fee if you exceed a certain number of withdrawals within a statement period. The reason is that banks utilize the funds deposited in savings accounts to generate loans to other customers and make money. In contrast, checking accounts tend to be less restrictive with the number of withdrawals allowed, so long as the account funds are adequate.
Debt Payment
Most households maintain a checking account to conduct routine financial activities. The checking account serves as a convenient place to deposit payroll checks and pay bills using personal checks. The savings account does not provide the same level of convenience when it comes to debt payment. However, you may still be able to pay certain bills from your savings account if you opt for electronic debit from this account.
Account Management
Before opening a savings or checking account, you can use the FDIC Bank Find online database to make sure that your bank is FDIC-insured. Linking your savings and checking accounts within the same bank enables you to transfer funds easily between them. For convenience, you may want to have access to both accounts on your ATM bank card.
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