Banking

How Much To Keep In Checking vs. Savings

By David Krug David Krug is the CEO & President of Bankovia. He's a lifelong expat who has lived in the Philippines, Mexico, Thailand, and Colombia. When he's not reading about cryptocurrencies, he's researching the latest personal finance software. 6 minute read

A comparison of the advantages and disadvantages of checking and savings accounts.
Almost everyone may benefit from putting their trust in a bank, but it can be confusing to figure out which kind of accounts are best for certain scenarios. This tutorial will teach you the similarities and differences between checking and savings accounts so that you can make the best financial decisions possible.

We hope that by the end of this article, you’ll understand why selecting the proper option can help you achieve your financial objectives and how best to utilize each account type to ensure that your money is safe and sound.

Checking and savings accounts have a lot in common

As far as checking and savings accounts are concerned, they are nearly identical. These accounts all serve the same essential purpose. You may deposit as much money as you wish, including by direct deposit, into both types of accounts, and you can withdraw as much money as you need. Both types of accounts can be issued checks and debit cards, and most banks allow you to access your accounts online.

Despite the fact that both checking and savings accounts allow you to withdraw money, you’ll learn more about the differences between the two later in this book.

What does “FDIC” or “NCUA” imply on a bank plaque, for example, if you’ve ever seen one? 

A bank’s checking or savings account funds are insured by the Federal Deposit Insurance Corporation (FDIC) and the National Credit Union Administration (NCUA), two different insurance companies. There’s peace of mind in knowing that your money is safe with these organizations, no matter where you choose to store it.

Benefits of checking accounts

The purpose of a checking account is to allow money to flow in and out. Unlimited deposits, withdrawals, and transfers are standard features of the greatest checking accounts you can get. Ask about the institution’s policy before deciding where to create a checking account because some organizations limit the number of transactions per type.

When it comes to deposit and withdrawal methods, there is a wide range of options, including in-person and online. Additionally, debit cards are issued to account holders by many checking accounts, allowing them to withdraw money from a business or an ATM.

Some bills can be paid automatically using a checking account. It’s possible to set up autopay without a debit card by using your account number and routing number. This is an excellent way to keep track of your monthly bills and reduce the chance of making a late or missed payment.

Where checking accounts fall short

Fees for account maintenance or failure to maintain a minimum balance are common features of several checking accounts. In other words, you have to pay a monthly fee to have access to your money. Additionally, if you use an ATM outside of your institution’s network, you may be charged a fee. When you open a checking account, be sure to inquire about any possible costs. Understanding how to handle your money in the most advantageous way is the goal of this informational article.

It’s nice to earn interest on your bank account since it means your money is working for you, but finding a checking account that pays interest is far more difficult. When it comes to checking accounts, interest-bearing accounts often give only 0.01% APY (annual percentage yield). If your checking account does earn interest, you’ll likely have to pay it back in the form of monthly fees. As a result, they’re not the best place to keep big quantities of cash.

Despite the fact that financial institutions have mechanisms in place to guard against fraud, the possibility still exists. Be especially cautious with your details and debit card use if you hold a significant amount of money in a checking account to reduce the risks of fraud and theft of your money. In the event that fraud occurs, you should be aware that your bank may take some time to investigate and reimburse your account. As a result, checking accounts are no longer the best location to keep substantial amounts of cash.

Benefits of a savings account

As a rule, savings accounts have lower fees and higher interest rates than checking accounts. As a result, you’ll pay less in fees and earn more interest, allowing your savings to grow even if you don’t deposit anymore. If you qualify for a high-yield savings account, which you can learn more about below, you can earn rates as high as 2% APY, which is higher than the national average interest rate of just 0.10 percent. You don’t even have to remember to deposit money each month if you set up a direct deposit or a transfer from your checking account to your savings.

Aside from that, it’s crucial to know that the money in both your savings and checking accounts are insured independently, but for the same amount, so if you create a savings account, you’ll be covered for an additional $250,000 in the event of an insured loss. In fact, if you have a lot of money, it’s advisable to spread it out throughout several different savings accounts.

Where savings accounts fall short

It is important to remember that a savings account is designed to hold money that will not change hands very often, if at all. As a result, the federal government has set restrictions on how you can withdraw funds from your savings account.

There must be no more than six withdrawals or transactions each month to qualify as a savings account, according to the Federal Reserve. When it comes to withdrawing money, you’ll be charged a fee six times a month, despite being able to make unlimited contributions.

That limit includes transactions performed online or configured to run automatically. Overdraft protection and automatic bill payments, for example, will count against your monthly limit if they are linked to your savings and checking accounts.

In other cases, transfers and withdrawals do not count toward this restriction, although they are less convenient. It doesn’t count against your transaction limit if you go to the bank or use an ATM in person or wait for a cheque from your savings account to arrive in the mail.

High-yield savings accounts

A high-yield savings account is an option if you’d want to start a savings account. Your money might grow even quicker in this account since it pays a greater interest rate than standard savings accounts. It’s important to keep in mind that high-yield savings accounts have the same transaction restrictions as ordinary savings accounts.

There may be a greater minimum balance requirement for high-yield savings accounts, but this isn’t always the case. If your money is growing at a faster rate, this condition may be worth it. It’s possible to discover high-yield savings accounts with no monthly fees or minimum deposits at internet banks. Before deciding on a high-yield savings account, do some further research.

Are checking and savings accounts better for you?

Now you can have it all. That being said, the answer to this question is dependent on your personal financial habits and aspirations, as well. Even while it’s possible to have both, it is also conceivable to have just one. Opening a savings account when you know you’ll be making frequent withdrawals is a bad idea. For those who want to keep their money in cash and are able to limit their withdrawals, a savings account may be the best option.

Open many savings accounts to better secure your money or a high-yield savings account to earn more interest if you already have a substantial sum of money saved up. Using high-yield savings account to save for a significant purchase, such as a vehicle or house, may be preferable to relying on a standard savings account as an emergency fund.

Is it necessary that all of my accounts be held by the same financial institution?

Your decision is final. It isn’t necessary to keep your checking and savings accounts with the same financial institution. There may be benefits to sticking with the same bank, such as waived maintenance costs if it is one of our finest ones. Transferring money from one account to another might be a lot more convenient, but this convenience can also lead to more frequent withdrawals from your savings.

Alternatively, you might enroll in two different schools and take advantage of the advantages each one has to offer. For instance, one bank may provide a higher interest rate on your checking account, but it may not have a high-yield savings account available at that time. Having several accounts at different organizations may also help you make better financial decisions.

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