Before opening a bank account, there is a need to assess the various available types of accounts. However, most individuals do not know the difference between a checking and savings account. However, the checking vs. savings account is different in terms of its functionality, rates, terms, and benefits. According to the experts at SoFi, “Checking accounts are designed for frequent banking transactions such as monthly bills, while savings accounts are not usually accessed as often.”
Differences Based on Functionality
A checking account is used for direct deposit and withdrawals of cash. The account holder must make a minimum number of transactions every month. Otherwise, the bank may charge a fee or close the account. On the other hand, a savings account saves money and earns interest. There are no requirements for making transactions in this type of account.
Difference Based on Rate
A checking account may have a lower rate than a savings account because it has higher transaction requirements than a savings account. On the other hand, an interest rate for a savings account depends on its amount. However, the interest rates are generally higher than those applicable to checking accounts due to this type of investment and the risks involved.
Difference Based on Terms
A checking account has various fees attached, which vary with different banks and states. For example, some banks may charge monthly maintenance fees, while others may impose fees after several transactions have been made in one month. In addition, some banks charge an overdraft fee for the overdrawn amount. The bank does not charge any fee for the transactions in a savings account.
Difference Based on FDIC Insurance Coverage
A checking account is covered by the Federal Deposit Insurance Corporation (FDIC) for up to $250,000 per depositor. If a person deposits $250,000 in his checking account and is lost or stolen by someone else, this amount will be reimbursed. However, a savings account is not covered by FDIC insurance. This means that if a person deposits $250,000 in his savings account and it is lost or stolen by someone else, he will not be able to get his money back unless he has insurance coverage of at least $250,000 on all his accounts combined.
Which Account will Best Suit Who?
The best way to determine if a particular account is right for you is to ask yourself these questions:
How much money do you Spend on your Monthly Expenses?
A checking account may be better if this amount is less than $2,000 per month. However, if this amount exceeds $2,000 per month, a savings account may better suit you.
Do you have any Debts that you Need to Pay off Every Month?
If yes, the best way to help pay off your debt will be through a savings account. If no debts are taken care of through this method, it will be better for you to use a checking account. However, it will be best to keep your money in an FDIC-insured bank because of its protection against theft or loss of money.
Whether you select either the savings or checking account, make sure you have the right bank. The best way to find the right bank for your needs is to contact the bank and ask what they can do for you. If they cannot help, it will be best to look elsewhere. If this is too much for you, look no further than SoFI Invest (SoFi Bank).
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