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Savings and Checking Accounts: Which One You Need and Why?

Back in the day (if you’re over 40 that is), opening a bank account was a rite of passage. Your parents would drive you to the bank where you’d carefully fill out a savings account application, wait for approval, and then hand over your lifesavings of coins and small bills...the spoils of birthdays, mowed lawns, and shoveled sidewalks. Congratulations—just like the other grown-ups in your life, you're now saving responsibly...while the bankers irresponsibly pick away at your fledgling nest egg with fees, fines, and penalties. Maybe that old piggy bank wasn’t such a bad idea after all? 

That’s right, the hard-earned dough that you’ve been putting in your traditional checking and savings accounts all of these years has slowly been dipped into by the bank itself. In the third quarter of 2021 alone, U.S. banks charged more than $69 billion in bank fees, compared with just $15 billion in all of 2019. Just read the fine print (they make it small so you won’t read it but you gotta’) and you’ll discover just how (and how much of) your money is gradually being siphoned out of your accounts. 

Since there aren’t many places where you can store your money safely (except for maybe a mason jar buried in the back yard), the vast majority of people continue to trust savings and checking accounts. But do you even need both, and what are the real differences between them? Read below for 4 pros and cons of both account types, courtesy of American Consumer Credit Counseling (ACCC):  

Checking Accounts

PROS: 

1 Simplicity – Paying bills has never been so easy--just link a checking account through online banking and most bills can be paid in minutes. 

2 Credit Score – The only way to get a loan or credit cards is to have a good credit score, and the best way to build your credit score is by having--and frequently using--a checking account. 

3 Direct Deposit – Gone are the days of getting a paper check from an employer and cashing it at the bank—today, your money winds up in your account digitally. 

4 Online Banking – You have instant access to everything on your phone or desktop, with many institutions posting immediate updates.  

CONS: 

1 Fees – Banks make their money by charging an array of fees. These can include monthly maintenance fees, ATM withdrawal fees, transaction fees, and penalties for overdrawing your account. 

2 No Interest – Besides charging fees, there’s virtually no interest being earned on the account.  

3 Minimum Balances – These are often enforced by charging fees if a certain balance isn’t maintained, causing some customers to go into the “red” (generating yet more fees). 

4 ATM Limitations – There are often withdrawal limits per day and fees for using out-of-network machines. 

Savings Accounts

PROS: 

1 Interest – You can earn interest just by having your money sitting there in the account.  

2 Time – Easy access to your money (especially with online banking) and the ability to move it into your checking account or to pay others.  

3 Minimum Upfront Investment – Most banking institutions only require a nominal amount to open an account, with little or no commitment to add more.   

4 Insurance – With your funds protected by the Federal Deposit Insurance Corporations (FDIC), there’s minimal risk of losing your money (usually up to $250k). 

CONS: 

1 Low Return – Due to low interest rates, the money earned is negligible. 

2 Taxes – There can be taxes owed if the account earns any sizable interest in a year (however unlikely that might be). 

3 Minimum Balance – Many savings accounts require a minimum balance, and a fee is triggered if the balance drops below the minimum. 

4 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. 

So, how can you know what will happen to your money before you entrust it to any banking option? Bank of America has compiled a helpful list of 10 questions to ask before you hand over your precious cash to anyone (especially them): 

1 ATMs — Is there an extensive network of free ATMS, are there fees for using other ATMs, and will I be reimbursed for those third-party fees? 

2 Overdraft — Does the bank offer overdraft protection, and if so, how much? If not, what are the penalties and how do you pay them? 

3 Fees — Ask for a list of all monthly fees and if they can be waived, for example, by signing up for direct deposit. 

4 Minimums — How much do you need to deposit to open an account, and what balance is needed to avoid any fees? 

5 Branches — Many services are available online or over the phone, but you should know how close your nearest branch office is should you need personal services. 

6 Online — Can you check your balance, transfer funds, find statements, and pay bills online? Also, ask what the guarantees are if your account is hacked. 

7 Apps — With phones replacing other technologies, ask about depositing checks by snapping a quick pic and what other services are available through the app. 

8 Transfer Limits — Is there a limit to how many times you can transfer funds from one account to another before you’re charged a fee?  

9 Allowances — Ask what the conditions are to replace a lost debit card or how many checks you’re allowed to write each month. 

10 Interest — What balances need to be maintained, or what other conditions need to be met, to earn the highest interest rate available? 

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