Checking vs. Savings Accounts: Understanding the Differences and Benefits
What Is a Checking Account?
Checking accounts are set up to give account holders both a secure place to store their money and easy access to that money when they need it for purchases and daily transactions. Typically, checking account funds can be utilized by writing checks, using a debit card, or setting up ACH payments. The debit card attached to a checking account is usually tied to one of the major credit card companies, such as Visa or Mastercard. This allows you to use the debit card like you would a regular credit card when making purchases at a store or when shopping online. Debit cards can also be used to access your funds at ATMs, often for free if the ATM is within your credit union’s network.
Most checking accounts allow you to withdraw money as many times as you want throughout a month, as long as there are funds available. Keep in mind, however, that some accounts have a minimum balance requirement, so check your credit union’s policies.
In general, checking accounts tend to have no or low APYs. This makes them a less-than-ideal option if you’re hoping to earn a little extra interest off the money in your account or use your account as a nest egg for the future.
Not all checking accounts are built the same, however. High-yield checking accounts, such as the Capital CU Cha Ching account, come with all the benefits of a checking account, plus the ability to earn a little extra cash just by maintaining an account.
Benefits of a Checking Account
There are numerous benefits to storing your money in a checking account at a credit union, high yield or otherwise:
Your Funds Are Insured
Keeping your hard-earned cash safe by storing it in an account with a credit union insured by the National Credit Union Administration (NCUA) is a smart decision. If the credit union where you store your money goes out of business, your funds are guaranteed to be refunded to you up to the insurance limit of $250,000 per account type. This is a much more secure option than hiding money in your home can lead to major financial loss either through theft or tragedy in the event of a fire or natural disaster, leaving you with zero recourse to recoup your losses.
Easy Access to Your Money
Having access to your funds through the use of a debit card makes a checking account a great choice for those who prefer not to carry cash. The ability to pay with a checking account also provides convenience. You can pay for purchases and services without the need to stop at a branch location or ATM to get cash.
Access to Online Bill Pay
With a checking account, you can pay bills online through an online bill pay system. You can set up recurring payments to automatically make payments on time and easily avoid late fees with your creditors.
Access to Online Money Transfers
The ability to make digital money transfers from your checking account to other accounts is a useful feature available with many checking accounts. You can transfer money from your checking to your savings account or to friend or family member accounts all from your credit union’s website or online app.
What Is a Savings Account?
Savings accounts are exactly what they sound like: a savings vehicle. They are used to securely store and grow the account holder’s money and are not meant for daily transactions. Savings accounts typically have higher interest rates than checking accounts. To encourage patrons to leave their money in their accounts and let it grow, some savings accounts have limits on how many times the account holder can withdraw funds from their account within a month.
Savings accounts are great for when unexpected financial emergencies end up costing money that isn’t in the budget. Instead of reaching for your credit card to pay for unexpected costs, which can lead to high-interest debt, you can pull from your savings account. Over the next months, you can then replenish your savings as you are able.
Benefits of a Savings Account
Higher annual percentage yields mean that you will earn interest on the money stored in your savings account. This can make saving money easier over time, as the more you save, the more money you earn in interest each month. Interest is paid as a percent of your current balance stored in your savings account. The higher your balance grows, the more interest you earn.
Savings Accounts are Also Insured
Many credit union savings accounts are also insured by the NCUA, making them a low-risk option for safely storing your money.
Should I Open Both a Checking and Savings Account?
When deciding whether to open a checking vs. savings account, you may want to consider opening one of each. After all, they both offer benefits that can help you manage your finances and achieve your financial goals. Why not utilize the accessibility of a checking account and the higher earning potential of a savings account?
When you are ready to open a new checking or savings account, contact Capital Credit Union to discuss your options. With a variety of savings and checking accounts available, you’ll be able to choose the one that fits your needs best.