Budgeting Series: Savings & Checking Accounts
At some point, you will probably make a bank account. In this article, we will talk about the difference between two of the most common types of bank accounts: checking and savings accounts. This article will provide a basic overview of each type of account, and what financial goals they will help you accomplish.
Savings Account:
As the name suggests, a savings account is great for when you want to save money. It is a compound interest-accruing account in which your money will grow over time.
For example, if you put $1000 into a savings account and the interest rate is 1.0%, then you would gain $10 after a year. This money also compounds, meaning the next year, you would earn 1% interest on $1010, which brings your total investment up to $1020.1. This continues for as long as you leave the money to compound, and that means lots of investment growth. Additionally, the money saved in the account is federally insured up to about $250,000 in savings accounts, so even if the bank fails, you can regain the money up to $250,000.
However, the downside of a savings account is that a savings account will limit the amount of transactions in the account, meaning it is not accessible for a day-to-day basis.
Checking Account:
If you need an account that is for everyday spending, a checking account is a great option. A checking account is a transactional account intended for regular cash transfers in and out. It would work for purchases, online payments, ATM withdrawals and deposits, wire transfers, bill payments, and other similar transactions.
You shouldn’t keep any savings in this account because most don’t allow you to accrue interest. However, some checking accounts do come with other rewards such as earning cash back
For more information on budgeting, check out our other articles in the series!
