There are two bank accounts everyone should have – checking and savings accounts.
These are two crucial accounts to have an understanding of, because every person needs these accounts. Knowing the best way to utilize each account will ensure you are taking advantage of each of their benefits.
What is a Checking Account?
A checking account will be your most used account.
It is used for your day-to-day spending and any direct deposits. The interest on a checking account is minimal and this account should not be used to earn interest on savings.
A checking account is like the cash in your wallet that you would use for daily, weekly, and monthly purchases.
A checking account is needed for any direct deposits from a job. Your income will go right into this account and from there you can allocate your income to go towards spending or savings.
If you need cash, you can use this account to withdraw cash at the bank or ATM. This account also has a debit card associated with it which you can use for purchases. A checking account can write a check if needed as well.
Checking accounts do not have a limit on the number of withdrawals you can make. You can go to the bank or ATM as many times as you need.
How to Use a Checking Account
A checking account should be used as a wallet.
You want to keep the amount of cash you need for daily purchases or bills. You do not want to keep extra money in this account because you will not get the most interest back on your money.
This is a great account to pay your bills from, which you can automate. When you set up utilities, you will most likely have to provide the utility company with a checking account.
Local and large banks all have checking accounts. Inquire about any fees or minimum amount required to open up this account. It is best to get an account with the lowest fees and no minimum. Most banks have options for no fees and no minimums.
What is a Savings Account?
A savings account is used for your savings.
It should be seen as a piggy bank – something you are putting your money into but rarely taking out. Savings accounts have higher interest rates which makes them a good place to save money so you can earn interest on the money in the account.
While the interest rate is not the highest, it is still better than nothing.
Savings accounts deter you from using this account as a checking account. There there is a limit to how many withdrawals you can have a month before there is a fee. Most banks have a policy that you can withdraw up to 6 times in a month.
It is important to plan and know when you will need to use the money in this account.
There are no debit cards or checks with savings accounts. If you need either of these things, then a checking account is what you need.
How to Use a Savings Account
A savings account is a great place to save money for short-term goals or an emergency fund.
Since there is a higher interest rate on savings accounts, your money will grow slightly. You can link your checking account to your savings account and move the money from your direct deposit directly into this account within a few days.
Since there is a limit on how many withdrawals you can make on this account, one important strategy for how to use this account is to know when you may need to use this money.
If you are saving up for a car, make sure you know the amount you need to withdraw when you are ready to make this purchase. If you are using the account as an emergency fund and need to make a withdrawal for a month’s worth of bills, make sure you know that amount as well.
Local and national banks have savings accounts. Inquire about fees or minimums to open this account. Opt for the lowest or no-fee bank and no minimum is needed to open the account.
Checking vs Savings Accounts: Your Wallet & Piggy Bank
A wallet and piggy bank are staples to all financial goals.
Your wallet is needed to make purchases and store your money for a short amount of time. Your piggy bank is used to save larger amounts of money for certain things. Checking and savings accounts are like your wallet and piggy bank.
These are two accounts you need to have to be able to pay your bills, receive your paychecks, and save money for your financial goals.
