Savings

A savings account is an account for emergency savings or saving towards a specific goal, such as an upcoming vacation.

A savings account is a basic type of financial product that allows you to deposit your money and typically earn a modest amount of interest, writes Bankrate.com. Savings accounts are typically found at banks and credit unions. You don’t need a large amount of money to open a savings account, and you also have easy access to your money.

A savings account is a good place to keep money for a later date, separate from everyday spending cash, because of their safety, reliability and liquidity. These accounts are a great place for your emergency fund or savings for shorter-term goals, like a vacation or home repair.

Once you’ve made a deposit, the money in your savings account will begin to earn interest. The amount you earn will depend on a few factors, including your savings account APY, the amount of money you deposit and how long you keep money in your account.

Your bank may choose to compound interest on a daily, monthly, quarterly or yearly basis. At the end of each compounding period, your accrued interest is deposited into your account. From there, your new account balance (deposits plus interest) will begin earning interest.

Beyond quick access to your cash when you need it, savings accounts often offer higher interest rates than checking accounts. You might even find some savings accounts with a higher APY than money market accounts.

These accounts are federally insured up to $250,000 per account owner and offer a safe place to put your money while earning interest.

Consumers are typically limited to six withdrawals or transfers a month from savings accounts due to Regulation D, a Federal Reserve requirement that distinguishes between transaction and nontransaction accounts. A savings account is considered a nontransaction account, and, therefore, the number of transactions is capped and any above the limit are subject to a fee.

Savings terms to know

• Compound interest: Method of calculating interest where interest earned over time is added to the principal. Compounding is usually done on a daily or monthly basis and more frequently it is done, the faster your savings can grow.
• Interest: Money that you earn for having your funds deposited with a bank.
• Interest rate: A number that doesn’t take into account the effects of compounding.
• Annual Percentage Yield (APY): A rate that takes into account the effects of compounding during the year. It’s best to compare yields rather than interest rates.
• Minimum balance requirement: The minimum amount needed in a savings account to avoid a monthly maintenance fee.
• Money market account: A type of savings account that may offer checks, and/or an ATM or debit card for teller machine withdrawals. Here’s more on the best money market accounts.

Checking

A checking account helps you manage your day-to-day finances, like paying your bills, buying groceries and gas and withdrawing cash from an ATM.

A checking account should be thought of as a transaction account. Checking accounts are easily accessible and are used frequently for everyday transactions, such as transferring money or writing checks. To make transactions convenient, checking accounts usually come with a debit card, checkbook and mobile app with payment features for sending money to other people, even if they bank elsewhere.

Banks typically don’t pay interest on money in checking accounts. As a result, money in checking accounts doesn’t grow. Checking accounts are not meant for building savings and, as such, do not typically provide supplements to saving like interest, though you may be able to find a checking account that pays interest, especially at credit unions.

Checking accounts have three key features to look for:

• No monthly maintenance fees (or easy ways to waive them).
• Free access to a large ATM network.
• No or low overdraft fees.

The best checking accounts usually don’t have a monthly service fee or they offer an easy way for you to avoid it. They also may reward you with interest, cash back or a sign-up bonus. Checking accounts are important for paying your bills and other expenses. They typically have no transaction limits to keep track of.

References:

1. https://www.bankrate.com/banking/savings/what-is-a-savings-account/
2. https://www.bankrate.com/banking/checking-vs-savings-accounts/