Building strong personal finance habits starts with knowing the right tools for the job. Whether you’re a banking beginner or simply want to take more control of your finances, knowing how to use a checking account and savings account effectively is key.
Since each of these basic bank accounts has different features to serve distinct purposes, learning the unique roles and benefits of both checking vs. savings accounts is often the first step to better money management.
When to open a checking vs savings account
If you’re unsure when to open a checking or savings account, it may help to set clear intentions for your money.
Do you need to make purchases with a debit card, withdraw cash or deposit your paycheck? If so, a checking account is likely your best option. If you plan to set funds aside to create an emergency fund, a savings account could make more sense.
If, like most people, you want to achieve a mixture of financial goals, you’ll likely benefit from opening both a checking and a savings account.
Why it matters whether you use a checking vs savings account
Using a savings or checking account incorrectly could make banking more complicated than it needs to be.
Some savings accounts limit the number of withdrawals you can make per month – and charge a fee if you make too many. This could feel like a hassle if you try to use a savings account to pay bills or buy essential household items.
On the other hand, most checking accounts offer little to no interest on your deposited funds, making them less-than-ideal for long-term growth.
Checking account basics
A basic checking account is a bit like a Swiss army knife, allowing you to complete several common tasks from a central hub.
Depending on the features your bank offers, you may use your checking account to:
- Receive your paycheck via direct deposit
- Pay for online and in-person purchases with your debit card
- Make paying bills simpler with auto-draft
- Deposit paper checks
- Withdraw or deposit cash
- Set up digital wallet payments
- Access ATM
- Write paper checks
Many modern checking accounts offer mobile banking, which can include “extras” like built-in budgeting tools or integrations with peer-to-peer payment services. Some checking accounts also include overdraft protection to help cover occasional transactions that exceed your account balance.
Savings account basics
From that long-awaited vacation to a down payment on a future home, savings accounts act as a dedicated place to save for life’s major milestones. But savings accounts do more than keep your nest egg separate from money you plan to spend on living expenses.
The primary benefit of using a savings account is the potential to earn interest, which may be simple or compounding, depending on the account terms offered by your bank. In either case, earned interest helps your money grow so you can reach your savings goals more quickly.
Some banks offer features that make it easier to save, such as automatic transfers from your checking account to your savings account or round-up programs that transfer a few cents to your savings account each time you swipe your debit card.
Some savings accounts also come with built-in tools to set and track savings for individual categories, which can help motivate you to keep saving.
Building a well-rounded approach to personal finance
Understanding how savings and checking accounts work together to manage most basic financial tasks – from buying groceries to building a nest egg – can lead to a simpler, more enjoyable banking experience. Even better, those benefits tend to increase when you open your checking and savings accounts at the same bank.
By opening your checking and savings accounts at the same bank, you can access a quick overview of your finances with one convenient log-in to your mobile banking app. Transactions between the accounts may be faster and more straightforward, too. Some banks also offer lower banking fees and other perks when you link accounts together.
The bottom line? Checking and savings accounts go hand in hand. While knowing when to use a checking vs. savings account is important, there’s no need to choose between the two.
Disclaimer: Article content is intended for information only. It may not reflect the publisher nor employees’ views. Consult a financial professional before making financial decisions. Publishers or platforms may be compensated for access to third party websites.
