If you’re like most people, you have a checking account and a savings account. But do you know the difference between them? The answer may surprise you: not much. There is a slight difference between a checking account vs savings account. But they both serve similar purposes, and they can work together to help you meet your financial goals.
In this article, They’ll explain how checking and savings accounts operate differently, how they’re similar, what types of people might benefit from one or both types of accounts—and which type of account might be right for you specifically!
Checking and savings accounts are similar
- Both checking and savings accounts are insured by the Federal Deposit Insurance Corporation (FDIC), which means that your money is guaranteed for up to $250,000 per account holder.
- You can write checks from both checking and savings accounts.
- The minimum deposit requirement for a checking or savings account is usually $100, but this number varies depending on the bank or credit union you choose as your financial institution.
- Checking accounts have higher interest rates than savings because they’re riskier investments for banks (you might withdraw your money at any time). However, consider setting up automatic monthly transfers from your checking account into a high-yield savings option like an online CD or money market fund. In that case, you can earn more while still having easy access to your funds when necessary.
A checking account is more liquid than a savings account
A checking account is much more liquid than a savings account. Liquidity refers to the ability to quickly convert an asset into cash, so it can be used for something else. When you have money in your checking account, you can quickly and easily withdraw it as cash whenever you need it. With a savings account, however, until the bank makes its money available through checks or debit card transactions (which usually takes several days), your money will just sit there until then.
Lantern by SoFi experts says, “Allow you to make any number of deposits and withdrawals every month.”
Savings accounts can help you meet short-term financial goals
A savings account might be your best bet if you’re saving for a car, vacation or house. Savings accounts are ideal for short-term financial goals like these because they don’t have many restrictions on how you can use the money. You can withdraw funds at any time without penalty and almost all banks offer ATM access to easily get cash at any hour of the day or night.
Many people who use a checking account also have a savings account
Many people who use a checking account also have a savings account. The difference between the two is that money in your checking account can be easily accessed and used, while money in your savings account is left alone until you’re ready for it.
Even though most of you earn interest on your checking accounts, it’s still better to keep some cash in a savings account as an emergency fund—money that won’t be spent but will be there if something unexpected happens.
As you can see, there are many things to consider when choosing the best account for your needs. Generally, it’s best to have a checking and savings account. That way, you can make sure not to put all your eggs into one basket and spread out all your funds so that if one gets compromised, it won’t be as devastating as it would be if everything were in just one place.