The most basic financial tools that we as consumers use are checking and savings accounts. However, is one better than the other? What are some of the pros and cons of each type of account? With that said, let’s look at the pros and cons of checking vs savings accounts to figure out your best choice.
Checking vs Savings Accounts – Pros & Cons
It is up to consumers to maximize the benefits of any type of account. This takes a lot of research. However, in the long run it will help managing debt. The important thing is to be aware of the positives and negatives of both checking and savings accounts before choosing one.
These accounts also function differently overall. Checking accounts are typically for everyday financial transactions. They offer easy access to your liquid cash. Savings accounts tend to be used for specific savings goals. Money is earmarked for certain savings goals and aren’t withdrawn until the goal is reached.
Here is a list of pros and cons for each type of account.
- Access – the ability to link checking accounts through online banking for ease of fund transfer.
- Credit score – when managed responsibly, a checking account can help a consumer build a higher credit score.
- Direct deposit – many employees and employers find direct deposit useful and convenient.
- Online option – online checking accounts have quickly become a favorite and convenient way for account holders to manage their money. Account tools can be accessed through a phone or computer and make everyday banking easier.
- Insurance – the Federal Deposit Insurance Corporation, or FDIC, insures most checking accounts.
- Fees – many checking accounts come with additional costs such as maintenance fees, ATM withdrawal fees, and transaction fees.
- Overdraft fees – overdraft fees, when the balance goes below zero, are determined by each individual bank, making them difficult to understand and often very expensive.
- Minimum balances – some banks require minimum balances enforced by a fee if the requirement is not met.
- ATM limitations – depending on the amount a consumer wishes to withdraw at a time, an ATM may not be a large enough option to suit their needs.
- Interest – account holders can save money while making a small amount of interest on their investment.
- Time – consumers can withdraw money at any time from a savings account, unlike other investment options.
- Minimum investment – savings accounts only require a small amount to start, allowing a consumer to save for the future without making a significant commitment.
- Insurance – if consumers have their savings account with a member FDIC bank, their funds are insured up to the maximum limit allowed by law.
- Low return – although consumers can earn interest, they offer relatively lower rates.
- Taxes – there are no tax benefits for putting money into a savings account. In fact, if a consumer accumulates a big enough balance, they will pay taxes on the interest they earn each year.
- Minimum balance – most accounts have a minimum balance which, if the account falls below, causes the account holder to incur charges.
- Insurance limitations – While the FDIC does insure a certain amount of an account holder’s money, there is a maximum which can leave some funds unprotected.
If you are looking to speak with a counselor on help with credit, call ACCC on 800-769-3571 today!