Why you need both checking & savings accounts.
Key takeaways:
- Checking and savings accounts serve different purposes.
- Checking accounts support everyday spending and transactions, while savings accounts support short- and long-term goals and emergencies.
- Using both types of accounts together can improve budgeting and money habits.
With so many ways to manage money today, you might wonder whether traditional checking and savings accounts are still necessary. The truth is, they remain two of the safest and most straightforward tools for managing your finances. While they differ in purpose, most people benefit from using both of them together.
Here’s a quick look at the differences between these two types of accounts and how they work together to manage everyday money and reach long-term goals.
Checking vs. savings: At a glance
Here are the key differences between these types of accounts.
Savings accounts
- Used for funding emergencies
- Can be used to save for short- and long-term goals
- Designed to continuously add money so the balance can grow over time
Checking accounts
- Used for everyday spending
- Set up automatic bill payments
- Easy to access funds online, at an ATM, or in a bank branch
What is a checking account?
Checking accounts are used for everyday transactions. You deposit money that you can withdraw to pay bills or make purchases. The name originates from a time when consumers needed to write a check to use their account, but that has changed. These days, money in a checking account can be accessed online, by using a debit card, by setting up online bill pay, and even by connecting to peer-to-peer payment apps like Zelle®.
What is a savings account?
A savings account is designed to help you save a portion of your money. Saving can be for short- or long-term goals. If you make more deposits than withdrawals, the balance will grow over time.
There are a few types of accounts designed to help you save money. A standard savings account often comes with a low minimum deposit and additional benefits, including an interest rate. There are also certificate of deposit (CD) and money market accounts. These accounts require a higher minimum balance but also may offer higher interest rates, allowing your money to work for you.
Savings and money market accounts allow you to access your money if needed, while money in a CD cannot be withdrawn until the the full term agreed upon at opening is met.
Key differences between checking and savings accounts
There are a few key differences between these accounts:
- Checking accounts allow freedom to access funds for day-to-day expenses.
- Savings accounts are designed as a place to save your money so your balance can grow over time. These accounts are tied to an interest rate, so the more you save, the more you may earn in interest.
- It makes good financial sense to use both types of accounts together. For large purchases, money can be moved from your savings directly into your checking.
Why using both a checking and savings makes sense.
There are three key reasons why having both a checking and savings account is good for personal money management.
Separate spending from saving.
Using separate checking and savings accounts can help prevent accidental spending of money you meant to save. Keeping daily spending and savings in different places also makes it easier to see where your money is going and understand your overall financial picture at a glance.
Build better money habits.
Direct deposit puts money from your employer into your account quickly, so it’s ready when you need it. Automatic transfers between accounts can make saving feel effortless, while still allowing you to access your savings if an unexpected expense comes up.
Flexibility for everyday and future needs.
Checking accounts give you access to your money when you need it for everyday expenses. Savings accounts, on the other hand, make it easier to set money aside for future goals and longer term needs.
How checking and savings accounts work together.
Checking and savings accounts work together to help you manage your money. For example, when setting up direct deposit with your employer, you can usually set up a portion of your paycheck to be directly deposited opens in a new window into your savings account, making growing your savings account easier than ever. Transfers can also be made directly from your checking account into your savings account, allowing you manual control of your savings.
As you grow your savings, there will be times when you need more money than you have available in your checking account. Online banking makes it easy to transfer the money you need access to now from your savings to your checking, allowing you to use it for big purchases or an emergency.
Choosing the right checking account for everyday spending.
There are a variety of checking accounts available, often with attractive benefits.
Here’s what to look for when deciding where to open your checking account:
- Easy access to your money in-person through bank branches and ATMs
- Low or no monthly fees
- Digital banking tools, such as online access, a mobile app and online bill pay
Explore free checking options.
If you don’t have a checking or savings account yet, there’s no reason to wait. Opening an account online takes just a few minutes and can get you on the right foot for future financial success.
