Do You Need A Checking Or Savings Accounts? - Paystubcreator

If you are about to open your first bank account you may be a little confused about the many options available to you. First you need to understand the difference between them and then think, do you need a checking or savings account? 

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Checking Accounts Explained

A checking account is the bank account you use for most of your daily activities. When you go to the grocery store and pay with your debit card that money will come out of your checking account. 

When you use an ATM to withdraw cash or do an online transfer those transactions will be from your checking account. The benefit of a checking account is that you have easy and instant access to your funds. 

There are typically no limits to the number of transactions you can make on your checking account each month, assuming there are always funds available. 

You have a lot of choice when it comes to choosing a checking account. There are many banks which operate purely online but also traditional banks which have physical branches as well as an online presence. 

A checking account allows you to deposit money and make withdrawals with no cap on transactions. They may or may not pay interest on any balance in the account. 
 

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Understanding Savings Accounts

Unlike a checking account which is meant to facilitate easy access to your funds, a savings account is designed to deter you from making frequent withdrawals. There will normally be limited access to the savings account to remove the temptation to use the funds too early. 

A savings account will usually offer a higher interest rate than checking accounts to encourage you to save regularly. 

Most people open a savings account in order to put money away for a long term goal such as getting married, a deposit for a house or paying for a vacation. It is possible to link your savings account to your checking account to facilitate transferring money between them.

There are many types of savings accounts, and it is worth doing some research on which one will best suit your needs before deciding. Banks will pay savers an annual percentage yield or APY to encourage them to leave their money in the savings account. 

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Checking Account Or Savings Account? 

The best way to decide which you need, a checking account or savings account is to ask yourself what you will be using it for. If you are going to use it for daily transactions such as paying bills or grocery shopping then you will need a checking account. 

With a checking account you will get a debit card and possibly a checkbook for making payments. You will also be able to deposit cash and checks into your checking account and use online banking. 

If you are looking to the future and planning a big ticket purchase then you will want a savings account. This is where you will deposit funds on a regular basis to build up the balance of your savings account. 

You may only be able to make limited withdrawals, but you will be earning interest on the money in the account. With online banking you may get even higher interest rates as these institutions have lower operating costs and overheads. 

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What Is A Good Amount To Have In A Checking Account?

If you have a checking account you may wonder what a good balance will be. This depends on your own individual circumstances and any minimum balance that your bank requires. If there is a minimum balance you need to make sure that you have at least that amount. 

Most checking accounts don’t pay interest, but that is not the purpose of a checking account. It is where you pay your expenses from, so a good amount of money to have in it would be at least two months worth of your expenses at any one time. 

This approach will ensure that your bills are covered, and you have enough money for essentials as well as a buffer in an emergency. 

How To Open A Savings Account Or Checking Account

For those who are opening a savings account or a checking account for the first time there are a few things you will need to take along with you. 

The bank will need to be able to verify your identity, so you need to take a piece of government issued identification with you such as a passport, birth certificate or driver’s license. 

You will also need proof of your address as well as your social security number or Individual Taxpayer Identification Number. Proof of address could be your mortgage or lease document, a utility bill, credit card or bank statement. 

Student savings accounts may need proof of study such as student ID or an acceptance letter. 

There may also be a deposit requirement so make sure you take some funds with you. 

Which Savings Accounts Earn The Most Interest?

Savings accounts interest rates are typically low in the current climate, but there are some good options for higher rates if you know where to look. Some tiered accounts will offer higher interest rates as you deposit more money. 

Another option, if you have the funds, is the high yield savings account. This account will pay more when you deposit a relatively high balance, typically more than $5,000. 

Finally, you could consider a money market account which combines the features of a checking account and a savings account. The money you deposit in this type of account is invested, but you can still access the money via debit card or check writing facilities. 

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Final Thoughts

There is no reason why you should decide between a checking account and a savings account, it is a good idea to open both. You then have the benefits of each, and you can usually link the two to allow transfers between them. 

No matter what type of account you’re dealing with it is also important that any pay stubs involved are of a high quality and can be produced with ease.

We hope this guide to checking and savings accounts has been helpful. 

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