Selecting the right banking accounts can help you spend less and save more. Whether you've just entered middle school or are a recent college graduate working in corporate America, knowing how to use checking and savings accounts to your advantage can be challenging. Both checking and savings accounts offer advantages, such as interest and ease of access, and disadvantages, such as security risks and fees. If you're trying to decide which you should open, understanding the features of each type of account will help you make the decision that's best for your financial situation.
Learning Money Management
Savings and checking accounts can help you learn good strategies for managing your money at every stage of young adulthood. According to the Child Savings Account Coalition, using a savings account when you're young can increase your propensity to save while reducing your likelihood to take on debt. On the other hand, checking accounts help you keep better track of what you spend. Because you must carefully record debit card and check purchases, deducting them from your available balance, you're more conscious of where your money is going.
Securing Your Earnings
Bank security policies extend to both checking and savings accounts. If you bank at an institution insured by the Federal Deposit Insurance Corporation, the FDIC will insure your checking and savings account balances up to $250,000. Most banks also carry banker's blanket bond, a type of insurance that covers your cash against theft, fire, flood or other disasters. However, one disadvantage of checking accounts is that they may be less secure than savings accounts if you use a debit card or checks to make payments. Using these forms of payment may provide others with access to your account and card numbers, which they could use to charge purchases. You can minimize the risk of security breaches by reporting lost checks or debit cards and regularly monitoring statements for charges you didn't make.
Your bank might advertise free checking or savings accounts, but that doesn't mean you'll never have to pay the bank to hold your money. Fees may be assessed if you choose paper instead of emailed statements, lose your debit or ATM card, overdraw your account, deposit a bad check, don't update your address with the bank or use a teller instead of the ATM. If you won't be keeping much money in your account, a checking account may offer a cost advantage, as savings accounts often have high fees for not keeping minimum balances. According to Bankrate, if you have a balance of $500 or less in your savings account, annual fees combined with repeated penalties for not meeting the minimum balance requirements could reduce your savings by half in under a year. However, one key disadvantage of most checking accounts is that they don't accrue interest, though some banks do offer interest-yielding checking accounts.
Accessing Your Money
Most checking and savings accounts make it easy for you to access your money. With online banking, you can transfer funds and, in some cases, even deposit checks. However, there are some cases in which it might be difficult to get your money, such as if you're closing your account that's less than 90 days old, or you must use an ATM because your bank doesn't have a nearby branch. If getting your money quickly is a priority, a checking account may meet your needs better than a savings account. Some banks charge fees for withdrawing money from your savings account too often. Though fees and policies differ from bank to bank, if you withdraw more than two to four times per month, you could be hit with a fee of as much as $10 for every subsequent withdrawal.
- Bankrate: Creditors Can Garnish Your Bank Accounts
- US News & World Report: 10 Annoying Bank Fees -- And How to Avoid THem
- FDIC: Insured or Not Insured?
- The Week: Three Reasons You Need to Open a Savings Account For Your Kids
- NYC Department of Consumer Affairs: Save $ - Bank Accounts
- BankRate: 5 Tips for Opening a Teen Checking Account
- Bankrate: The Hidden Cost of Savings Accounts
- Wells Fargo: Fraud Prevention Tips
- CNBC: 4% Interest Without Fees - Too Good to Be Checking?
- Child Savings Account Coalition: Our Shared Vision
- Federal Deposit Insurance Corporation. "Weekly National Rates and Rate Caps - Weekly Update." Accessed May 6, 2020.
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- Bankrate. "Survey: Rising ATM and overdraft fees leave consumers paying much more than they did 20 years ago." Accessed May 8, 2020.
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- National Credit Union Administration. "Bank to Credit Union Conversions." Accessed May 8, 2020.
- National Credit Union Administration. "Share Insurance Fund Overview." Accessed May 8, 2020.
Miranda Morley is an educator, business consultant and owner of a copywriting/social-media management company. Her work has been featured in the "Boston Literary Magazine," "Subversify Magazine" and "American Builder's Quarterly." Morley has a B.A. in English, political science and international relations. She is completing her M.A. in rhetoric and composition from Purdue University Calumet.