A checking account usually accrues less or no interest, and it can be used to pay bills via checks, debit card transactions, and ATM withdrawals. Also, the checking account typically has no limit on the number of transactions that can be done, so you can buy as much as you like in a store that accepts cards, as long as you have the budget to purchase the items. Debits cards are often partnered with checking accounts, allowing you to pay bills or buy groceries faster since you would have your debit card with you at all times. These debit cards also allow you to withdraw money at ATM machines.
A savings account accrues interest, although the amount you get is not much these days, and normally limits the kind and the number of transactions that can be done with it. You can use the savings account for shopping, but there is a limit to how much you can spend. This type of account is better used for saving money for long-term goals, like building a house, paying for college tuition fees, or buying a car, because the money you save gets bigger because of the bank’s interest rate.
So basically, a checking account is where the money for your day-to-day payments flows and exits through, while the savings account is where, as its name already suggests, you keep your savings. The interest that you get in a savings account depends on what the bank set for their interest rate. Although the amount one gets in the interest is small, it is better to keep the money you don’t intend to spend on your savings account rather than your checking account so that the total amount can go higher over time.
In the United States, when you put a specific amount of money into a checking account, the bank has to keep at least 10% in reserve, but a small bank would keep an amount smaller than the said percentage. The bank can lend out the rest to people seeking loans, as long as they meet other conditions that are specified by the bank. If you put money into a savings account, the bank can lend out all of the money without keeping any in reserve, but again, there are certain conditions that must be met by the owner of the card before being allowed to get all of his or her money.
Ultimately, the bank can lend out more out of the savings deposits than the checking deposits, which basically makes savings deposits worth more to the bank and to the card owner.
Because the regulations imposed on the banks create these differences between the two accounts, the regulators don’t want the banks they handle to create an account that can be considered as both a savings account and a checking account. In order to prevent the union between the savings and the checking accounts from happening, the regulators have implemented Regulation D, which forces banks to limit transactions in the savings account, like having only a “six transactions per month” policy.
What is an Account Fee?
There are certain account fees implemented by banks to charge card owners for their services. Most of the account fees are found in the checking account. The card owner needs to maintain a minimum balance in the account after numerous transactions. If the owner of the card is unable to maintain the balance, the banks will charge him or her for maintenance fees, and this is usually charged on a monthly basis.
In saving accounts, most banks don’t really impose a required minimum balance on them, although there are many that implement withdrawal limits. But there are also a few banks in the world that require card owners to keep a minimum balance in their account, so in a way, it acts like a checking account minus the limitless transactions and withdrawals.
To avoid paying for a maintenance fee, card owners should always save a little bit of money in their accounts and prevent themselves from spending all the cash on their cards. In addition, you should always keep in mind to save more rather than to spend more so that you will be prepared when there are emergency payments in the future.