Checking vs Savings Account Differences
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What Is a Checking Account?
Visiting a branch Using an ATM machine Using a debit card as payment Writing a check Making an online payment or transfer Using a digital payment app (like Venmo or Apple Pay) Via wire transfer At an ATM At a branch Via mobile deposit Making an electronic bank-to-bank transfer Direct deposit Via wire transfer
Pros and Cons of a Checking Account
What Is a Savings Account?
Pros and Cons of a Savings Account
Checking vs Savings Accounts: How They Compare
Tips for Choosing a Checking Account
Fees Since you’ll be using the account frequently, you’ll want to keep fees to a minimum. Some common fees to watch out for include: monthly maintenance fees, overdraft fees, and out-of-network ATM fees. Consider how you’ll be using the account, which fees matter to you, then look for a bank that doesn’t charge those fees or charges a minimal amount. Minimum balance requirements Many banks require a minimum balance on checking accounts (or checking and savings accounts combined) to avoid monthly fees. Other banks require a certain dollar amount in monthly direct deposits to waive the maintenance fee. Before you open an account, make sure you can meet the bank or credit union’s minimum balance requirements. Or, look for an account with no minimums. ATM network You’ll want to make sure the bank has a convenient network of ATMs. If you go out of network, you will likely get charged a fee from your bank, as well as the ATM operator. Mobile banking Banking apps connected to your account allow you to check balances, deposit checks, and pay bills directly from your phone or other mobile device. Some also offer integration with peer-to-peer payment apps, such as Venmo or Zelle. If you plan to do some (or most) of your banking on the go, you’ll want to make sure the bank has a robust and user-friendly app.
Tips for Choosing a Savings Account
Interest rates When comparing interest rates from different financial institutions, you’ll want to focus on APY, or annual percentage yield. This number tells you how much interest a bank account earns in one year. The higher the APY on a particular savings account, the faster your money grows. Keep in mind, however, that rates on savings accounts are variable and can change at any time. Also, many banks offer promotional rates for a limited time to entice new customers. Fees Savings accounts may have monthly maintenance fees or penalties if your balance falls below a certain amount. These fees can easily negate the interest you earn, so you’ll want to keep them to a minimum. Withdrawal restrictions While banks are no longer required to limit the number of monthly transactions, many have maintained the six-transaction limit, while others have increased the number of withdrawals and transfers permitted. It’s worth finding out what the bank's policy is on transaction limits. Compounding methods Compounding interest is when both your principal and the accumulated interest earn interest. It helps your cash grow faster than simple interest, which pays interest only on the principal. In an account that pays compound interest, the return is added to the original principal at the end of every compounding period, Banks can stipulate that interest will be compounded daily, monthly, quarterly, semiannually, or annually. The more frequently your interest compounds, the greater your return.
Opening Checking and Savings Accounts Together
Quick transfers When accounts are at the same bank, they will typically be linked, which makes it fast and easy to transfer funds from one account to another. One statement All account information is easily viewed in one statement, web page or app. Perks Some banks offer incentives for opening both a savings and checking account, such as a higher interest rate on savings and/or interest on checking as well as savings and waived fees. Overdraft protection You may be able to link a savings account to your checking account as overdraft protection to cover a check or debt transaction that exceeds your checking balance.
3 Money Tips
To get into the savings habit, consider having 10% of your paycheck directly deposited into your savings account. Or, set up a small automatic recurring transfer from your checking account into your savings account on the same day each month. An emergency fund is a key financial safety net. Aim to have three- to six-months worth of living expenses tucked away in a separate account that earns interest, but allows you to access the money if needed (such as a high-yield savings account). To set up a simple monthly spending budget, consider the 50/30/20 rule. This involves splitting your after-tax income into three categories of spending: 50% on needs, 30% on wants, and 20% on savings.
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