One of the single most important tasks you must do in your life is managing your finances. Part of doing this process well means knowing what financial terms mean. Understanding the differences between a checking and savings account allows you to make the most of your salary and plans for investment.
The Checking Account
Checks are a common use form of payment. Many people choose to pay for things via the use of a check, such as groceries and their cellphone charges. A checking account is typically a bank account that you deposit funds in on a periodic basis. You can use this method to cash your paychecks. As those at SoFi point out, when you choose to, “Set up direct deposit. We’ll give you another $100 when your first paycheck hits your account.” That’s another example of why so many people choose this kind of account.
Benefits of a Checking Account
There are many benefits of this kind of payment method. When you open a bank account, you are using a method that has long been used for many purposes. A checking account allows you to put your paycheck in a single place and have it cashed a short time later. Once the funds are cleared, you are free to use them immediately.
The checking account is liquid, meaning the funds you have there can be used any time you need them for any purpose. You can also use debit cards and checking. That means you have a ready means of paying for things without the need to keep lots of cash on hand.
Another type of bank account is a savings account. A savings account is an account designed for a specific purpose. This is money you set aside in order to add to your savings over time. You can put the money you aren’t using right now in your savings account. Many people open up a savings account in order to save up for a purpose such as a down payment or paying for their child’s college education expenses. These accounts are commonly found in places such as credit unions and standard banks.
Benefits of Opening Up a Savings Account
A savings account has certain benefits and a few possible drawbacks. You can deposit money and seamlessly earn interest on it over time. Many accounts let you put in as much as you like. At the same time, there can be certain drawbacks to this kind of account. You might not be able to withdraw the funds you need in the event of a sudden emergency. That’s why you should be careful when you begin opening one.
Make sure you know which terms govern the use of your money. Speaking with several banks can help you decide which kind of savings account is right for your specific needs.
Checking and savings accounts serve many varied purposes. Knowing the differences between the two is vitally important.