A necessary part of an introduction to our banking system is the knowledge of the types of bank accounts. In this article, I have outlined the difference between savings account and checking account, which are the two primary types, you could choose from.
Our banking system plays a very important role in the overall functioning of the economy. It is responsible for introducing liquidity into the system by providing credit lines to individuals and businesses. Another important function played by the banking system is that of offering interest on the savings deposited by customers and managing their financial transactions. This brings us to the concept of a banking account and its types.
Opening your first bank account is one of the first steps in taking control of your finances. If you are planning to open your first bank account, to deposit your earnings from your first job or need to switch over to a checking account due to the constraints you face with a savings account, the information provided in the following lines will be helpful.
Opening up a bank account is subscribing to the services of a bank. You deposit your money with them, in return of which they offer you an interest and provide assistance with financial transactions. Depending on the kind of services offered with the account, associated terms and conditions, bank accounts can be differentiated into various types. In the following lines, we differentiate between savings accounts and checking accounts.
Difference Between Savings Account and Checking Account
Let us begin the differentiation with a definition of both types of accounts, starting with the savings account. As its name itself signifies, this type of account is created for the customer who intends to focus on saving his money and earn a decent interest rate. Most banks make it mandatory that a minimum threshold balance be maintained in such an account.
Also, there tends to be a restriction on the number of withdrawals you can make from such an account, but of course there is no limit on the number of deposits you can make. Most savings accounts do not provide a check book facility, though they allow withdrawals through the use of debit cards, using ATMs (Automatic Teller Machines). There are many types of savings accounts which differ in the rate of interest offered on deposits, along with accompanying services.
With checking accounts, there is no limit on the number of times you may withdraw money in a month. Most importantly, they come with a checkbook facility and a debit card, which makes it easy to carry out multiple financial transactions quite easily. These accounts were created for customers who have no intention of maintaining savings in a bank, but primarily need the service of the institution for personal and business related financial transactions.
So how are these two accounts different? One prime distinction between the two can be made on the basis of interest rates offered by them. Checking accounts come with a substantially low interest rate, compared to savings accounts. The prime difference lies in the fact that checking accounts provide checkbook facility, while savings accounts do not. Also, a checking account may or may not have a restriction on the minimum balance that can be maintained, while savings accounts certainly come with a restriction.
To sum up, for those of you who are looking for a business account to carry out day-to-day financial transactions, a checking account is the right choice. On the other hand, if you are looking for a bank account which provides a decent interest on your deposits with easy liquidity, savings accounts are the natural choice. The former is ideal for business transactions while the latter is geared towards the purpose of saving money. Ideally, it would be good to have both types of accounts in your name as in combination; they serve both purposes.