Checking vs. Savings Account: Why Not Understanding the Difference Can Cost You Money
If you find it difficult to save money, you’re not alone. More than half of Americans -- 57 percent -- had less than $1,000 saved in 2017, according to GOBankingRates. When bills are paid and necessities bought, there may not be much left over. The tip to remember is, it’s a positive step to save any amount. With the right accounts, you can simplify saving and make it part of your routine.
What is the difference between checking and savings accounts?
Both accounts can be used for many different purposes and not understanding those differences can literally cost you hundreds — even thousands — of dollars.
Knowing when to use one over the other starts with understanding the purpose intended for each account.
What Is the Purpose of a Savings Account?
The purpose of a savings account is to give you a safe location to place your money for a long period of time. It also provides an opportunity to help your money grow. To help you reach your financial goals faster and build a habit of saving, banks pay you interest on the account. Plus, the money is available to you as a financial safety net.
It's important to have a safety net for all of those unexpected expenses, such as a burst hot water tank, a flat tire, a leaky roof, your phone dying...you get the idea. Without this cushion, you might need to turn to loans or credit cards to cover those costs. And that can set you back on your financial goals. Having some money saved gives you peace of mind that you can cover emergency expenses and can contribute to your happiness and health, since you won't have that nagging “what if” feeling.
What Is the Purpose of a Checking Account?
A checking account holds your money before it's spent in the near future, and makes accessing your money easy . As soon as a deposit to your checking account “clears” and the money makes it to your bank, you can use it to cover your expenses. With your checking account you can easily spend using checks, cash withdrawals, a debit card and online and mobile banking, usually without restrictions on the number of transactions you can make.
When Does It Make Sense to Use One Over the Other?
When deciding whether to put your money in a checking vs. a savings account, it's best to think about what you are using the money for. (This savings calculator can help.) Do you intend to spend it on bills? Or do you intend to hold onto it for longer?
Here's some guidance for when to use which type of account.
- Use a checking account when you need to spend the money on bills or other expenses in this month or even the next. You won't want to park money in a checking account for longer periods of time though, as it typically doesn't earn as much interest as a savings account.
- Use a savings account when you're saving up for a specific goal and you want to get to your goal even faster by growing that money through interest. Put money into savings that you don't plan on spending for at least a month into the future (and ideally much longer than that). Think of it as a safe place to park your money until you need it. There are different types of savings accounts to meet your personal savings goals, from a basic savings account to a money market savings and Key also offers certificates of deposit.
Do I need checking and saving accounts?
It's a sound money strategy to have both a checking account and savings account, as these two accounts will cover several purposes you have for your money. While having a savings account without a checking account would be quite inconvenient for everyday money needs, having a checking account without a savings account means you're not thinking about building your financial future.
Small steps for saving make a big difference
Opening a savings account is the first step toward financial wellness. With both a checking and savings account at the same bank, you’ll be able to use online and mobile banking to immediately transfer money between your accounts. Remember, saving money doesn’t require large lump sums. Whenever you push any amount to your savings account – whether it’s $200 left over after you’ve paid your bills, or $5 that represents a coffee you decided not to buy – you make quick, easy progress for your long term financial health.