When opening a bank account, you should first determine which type of account best fits your needs. The most common kinds fall under either checking or savings. Knowing which type of account you need allows you tailor your banking experience. Although subtle variances exist from bank to bank, the basic differences between checking and savings accounts apply to all institutions. Banks are allowed to set their own fees, restrictions, and requirements to open accounts. Always check with your preferred banking facility to avoid unnecessary fees.
Primarily, checking accounts are used for everyday banking, such as paying bills, buying groceries, and other daily transactions. They allow you to withdraw your money quickly and with minimal effort. Most individuals deposit funds into their checking accounts as they get paid, often by direct deposit. They then utilize their checking account numerous times a day to conveniently pay for the things they need. Checking accounts typically do not offer interest on money held in the account, but offer easy, regular access.
On the other hand, savings accounts exist to aid you in saving money. They can be created for multiple purposes, including college tuition, emergency funds, or saving for a new car. Their main purpose is to save money. They offer long term, risk free savings. Extra money is deposited and earns interest while it stays in the account. These accounts are specifically tailored to minimize access and encourage saving. People often find it easier to resist the temptation to spend when their money rests in a savings account.
Ways to Access Money
Your checking account offers many ways to access your money. You can easily obtain funds by visiting an ATM, writing a check, or making purchases with your debit card. Each method of payment is useful for different circumstances. If you need a record of payment, write a check. Stop by an ATM to pull out cash, or use your debit card if you forget. Often checking accounts offer online bill pay and external online transactions, such as auto drafts. Many banks also provide overdraft protection.
Savings accounts encourage savings by discouraging withdrawals. You probably will not receive a debit card or checks with your savings account. To access your money, you will need to request a withdrawal. Sometimes this means going to the bank in person and making a request. However, many banks now allow you to transfer money from your savings account to your checking online or in a mobile app. Some banks even allow you to pull money from your savings account at an ATM with the debit card to your checking account. While savings accounts limit the ways you can access your money, they are still more flexible than other accounts such as a CD or 401(k).
Limitations on checking accounts usually involve the person obtaining them. For example, most banks require the account owner be over eighteen years of age. Individuals with poor banking history or credit history may be denied checking account privileges. However, many banks offer second chance checking accounts with limited functions during a probationary period. Transaction limits are extremely uncommon for checking accounts.
Banks typically allow individuals under the age of eighteen to open savings accounts with an adult signer. This allows adolescents to understand the concept of savings without the responsibility of a checking account. However, as decreed by the FDIC, banks must limit account holders to 6 convenient transactions in a monthly time period. Transfers or withdrawals made by telephone, computer, fax, check, or debit card are considered convenient transactions. Also, automatic transfers by the bank to cover overdrafts are convenient transactions. If you go over the number of allowed transactions, you may be charged fees, or the bank may switch your account type.
Checking and savings accounts were developed to provide customers with a variety of banking options. Choosing the right one is important to avoid unnecessary fees. You also want to make sure your account works for you. Once you have determined which best suits your needs, consult with your personal bank to determine fees and deposit requirements. Most banks will provide you with a chart comparing the different account types.