On a YouTube video I made last week, opening your first bank account, I told a story of how I was screwed by a bank. This is because they open a checking account for me, where I was paying $25 monthly to maintain the account. I did not know better, since it was my first bank account ever in the US. I did not know the differences between checking and savings account.
As a result, I opted in for the bank account which the banker suggested. She did not even mention the maintenance fee for the account. I should have known better to trust a banker. Obviously, she did not look out for my interest.
Hence, why I recommend young working class adults always know the kind of bank account which suits their financial needs. Otherwise, they will end up getting an account which becomes a liability to them. Just like the unnecessary checking account which I got for $25 per month when I was twenty-one years old.
Kinda crazy, huh?
You have no idea how often mistakes like that happens. This is especially, when you are not financially aware. At least, that was how I got myself into the mess. To avoid falling victim like I did, here is what I want you to know about checking vs savings account.
Checking vs Savings Account
When we first walk into a bank to have an account opened for you, banks usually offer you two types of bank accounts. This is especially when we are young working class adults looking for bank to help us navigate daily expenses. We get offered a checking account and a savings account.
What is the difference between a checking account vs a savings account, good reader?
There is a key difference between a checking vs savings account. A savings account is designed specifically to encourage savings as the name implied, while checking account is used to tackle daily expenditures. This is since there are no withdrawal or money transfer restrictions on it.
Maximum Withdrawal From Savings Account
What this means, there is maximum withdrawal from savings account on savings accounts. This is to discourage frequent expenditures on this type of account. Prior to 2020, banks limit withdrawals or cash transfers from a savings account to just four.
After 2020, there is a federal regulation, Federal Regulation D, in place meant to remove this restriction. The regulation made it optional for banks to include withdrawal restrictions on their savings accounts. If banks decide to include a transfer or withdrawal limit, the maximum limit is capped to six.
Yes, I know. You would think banks would go with the option of totally eliminating restrictions on savings accounts. But, they make a lot of money from people who violate the terms of their savings account. So, that is not going away any time soon.
You are allocated limited withdrawals or money transfer on most savings account. By most savings account, I refer to the traditional savings accounts. I feel like I need to clarify this, since there are different kinds of savings accounts out there.
There are penalties for withdrawing more than the number of times allocated for some savings account. Not like the monthly fees I had to pay to maintain a checking account, but the penalties are to discourage you from withdrawing your savings.
You know what?
Sometimes, this withdrawal limit fee can be up to $18. In fact, I was charged $12 withdrawal limit fee last week for transferring money three times in a week from my savings account. I know it is bad, but I have had another bank charge me up to $18 bucks for violating the limit.
Hence, why I do not recommend savings account for every day expenses. It is where a checking account comes in. So, what exactly is a checking account?
I will be talking about it below.
What Is A Checking Account Used For?
Banks design this kind of account for every day expenses. I mean you use it for your regular expenditures. This is because it comes with options of having a debit card and checkbook.
Most banks will give you this account for free. I was going to say all banks, but I have had a bad experience where a credit union charged me $25 per month to maintain a checking account. Do you want to know the funny part of it?
It was not even a business checking account!
Reflecting about it now, it is a little sad because I was struggling to maintain the checking account. Sometimes, my checking account balance will go on the negative because of the monthly fees. I know $25 monthly is not much to me today, but then I was just a 21 year old young working class adult struggling to carry my fair share of bills and life.
This is why I want you to be absolutely selfish when it comes to choosing a bank. Some financial institutions are not ethical and tend to prey on young working class adults. Be sure not to get yourself into this kind of checking account. This is because you may end up paying a lot for it.
Here is what I mean by this, my dear reader.
The day you get charged a fee, if you do not have enough, the bank may pay for the deficit. This is especially banks with overdraft protection. You end up paying an overdraft fee for the protection. I am talking about up to $30 in overdraft protection!
Anyways, a checking account comes with the option of a debit card and a check book. If you plan on getting a credit card, it is going to linked to a checking account. These are the things which make a checking account suited for every day working class financial activities compared to a savings account.
My Summarized Differences Between Checking vs Savings Account
By now, I think you have gotten a grasp of the difference between checking and savings accounts. Like I previously mentioned, most banks will offer you the two types of account during bank account creation. I am going to reintegrate all I have talked to you so far, but in a condensed way so you can simply glance at the differences whenever you want rather than reading my entire article again.
| Savings Account | Checking Account |
|---|---|
| Average national interest rate of 0.46% | Most checking accounts do not offer interest rates due to how quickly money comes and goes. |
| Withdrawal limits | No withdrawal limits |
| No checkbook or debit card | Comes with a checkbook and a debit card. Also, getting a credit card is an option. |
| For money not being used right away. Examples include emergency funds, college funds or other such things. | Best suited for daily monetary transactions |
| Not really known for fees, unless we violate terms and conditions like exceeding withdrawal or money transfer limits | Usually has fees attached to it. This includes ATM withdrawal, overdraft or monthly maintenance fees. |
Honestly, the above is all I want you to bear in mind when going to open a bank account. Personally, I will be absolutely selfish when it comes to choosing a bank. This is to avoid getting a bank, which will cause you financial problems in the future. You know, like my checking account did twelve years ago.
Should You Use A Checking Account Or Savings Account?
Most brick and mortar banks will offer savings account with a checking account for you. However, I say to create bank accounts based on your financial needs. What do I mean, my good reader?
If your intentions for opening a bank account is purely to save, then go straight for a savings account. There are banks out there, which will just give you a savings account to help you meet your savings goal. Besides the traditional savings account which earns an interest rate of 0.46%, there are high yield interest savings accounts out there which pay more than 3.4% as interest.
On the other hand, go for a checking account when your banking goal is to have a debit or credit card to help you handle day to day expenses. When you decide to go for this type of bank account, just be sure to avoid getting one which charges you a fee to maintain. Do not be like me who ended up paying $25 per month just to maintain a checking account for months.
I kinda blame myself for that though. I did not know much about banking in my early twenties, since the banker was the one who recommended the bank account for me. If I knew the difference between a savings vs checking account, I would have chosen a bank account which would have served my best interest as a struggling working class adult.
Personally, I believe bank accounts are supposed to make life easy for young working class adults. Not burdened them with expenses which they struggle to pay monthly. Hence, why I advise on going for bank accounts with no fees attached to them.
A notable example would be these new online banks nowadays. This is especially SoFi or Chime. They are the new rage nowadays, since they cater to young working class adults like us. They do so well in providing services serving the interest of the struggling working class. I do not care how the older generations say about these online banks, but they are here to stay!
Episode 19 : Intro To Building Credit For the First Time