While it's easy to confuse checking and savings accounts, they're actually very different. A checking account is a type of bank account where money can be deposited or withdrawn at any time. A savings account is a type of bank account that allows you to save money for the future and earn interest on it. Both types of accounts offer their own unique benefits, making them ideal for different scenarios.
Purpose
A checking account is a bank account that allows customers to make deposits, withdrawals and transfers with various checks. It is also known as a demand deposit since you can access your money whenever you want by writing out a check or accessing the funds online. The money in the account can be used for immediate payment purposes; however, there are some limitations on when payments can be made using checks (e.g., they cannot be used to pay taxes).
In contrast, savings accounts allow individuals to save money over time without incurring any fees or penalties until it reaches maturity (i.e., after six months). They usually offer higher interest rates than checking accounts because they have lower balances but still offer many features, such as debit cards and direct deposit options.
Average Interest Rates
The main difference between checking and savings accounts is that you can write checks from a checking account but not from a savings account. The ability to write checks has no bearing on what you can earn in interest, however. Interest rates vary by bank and the type of account. For example, online savings accounts tend to have higher interest rates than brick-and-mortar branches do, so if you're looking for high returns on your money, consider opening an online account with a reputable bank.
As per SoFi professionals, "You can earn around 3.00% APY (annual percentage yield) on the savings balances, and around 2.50% APY on your checking balances with direct deposits."
Consider different types of accounts based on your goals for saving money. You also get $300 checking account bonus on signing up with various providers. For example, some people prefer retirement accounts because they offer tax benefits.
Withdrawal Rules
Withdrawals from a savings account are usually limited to six withdrawals per month. You can make unlimited deposits into a savings account, but you might not be able to withdraw money at all if there aren't sufficient funds available. In some cases, withdrawals may incur an early-withdrawal penalty fee if the balance has been held for less than 60 days. However, you can take out cash at any time from a checking account by writing a check or making an ATM withdrawal — no questions asked!
Additional Info
Checking accounts are often used to pay bills and are linked to paper checks, debit cards and online banking.
Savings accounts are for long-term savings and money that you don't want to use right now. Some savings accounts can be used as overdraft protection for your checking account - but it's important to find out what the terms and conditions are before you commit.
In conclusion, checking and savings accounts are important financial tools for individuals. The main difference between the two types of accounts is that a checking account provides access to funds through ATM withdrawals or debit card purchases, while savings accounts allow depositors to earn interest on saved money without incurring monthly maintenance fees.
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